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Currently, clothing and footwear are not included in the list of Chinese products threatened with sanctions by the United States. But as my colleague David Fickling Navarro seeks to quell investors' concerns about his trade policy
Apparel accounts for about $ 35 billion in annual exports from China to the states United States and shoes. Dylan Chu, Consumer Discretionary Analyst, CLSA Ltd.
No Easy Substitute
China is the leader in clothing exports
Source: World Trade Organization via Bloomberg Intelligence
The manufacturing industry outside China has grown to over the past five to ten years, partly because of rising wage costs in the country.
Bangladesh took a share, partly thanks to the zero tariff access to Europe for its textiles, just like Vietnam. Other potential sources of supply include Cambodia, Indonesia, the Philippines, and India. Africa is also developing its manufacturing base, particularly in Ethiopia, Kenya and the northern hemisphere.
But China still accounted for 36.4% of global clothing exports in 2017, according to the World Trade Organization.
Potential US retailers who source directly from factories or suppliers who source on their behalf could transfer more manufacturing to centers outside of China. Indeed, many have already done so to offset the higher labor costs.
There is a limit to the effectiveness of this strategy. For starters, there may not be enough capacity elsewhere to meet all the extra demand.
There is another reason why relocating China is a headache: the speed
does in the nation – means that clothes can be returned faster. Moving further means longer delays.
Vietnam probably has the advantage here: the goods can be transported by truck from its northern neighbor. Despite this, Chu estimates that the waiting time for clothing will generally be 45 to 90 days in Vietnam, against only 10 to 20 days in China.
US retailers and their suppliers are therefore faced with a dilemma: trying to impact the rates by moving supplies to other countries, or carrying the extra cost and having the latest looks in stores faster.
The speed of placing on the market is imperative. The Spanish Inditex SA is the leader here. Its Zara chain is able to get the hottest trends for consumers in a matter of weeks. Indeed, the company manufactures nearly 60% of its products near its headquarters in Spain, Portugal and Morocco.
Rivals on both sides of the Atlantic are taking note and trying to improve the efficiency of their supply chains. ] In theory, consumers should be willing to pay more for the latest looks. What's more, having more success in fashion, and fewer failures, should mean fewer discounted products. Consumers have become accustomed to ever cheaper clothes, and with cheap European rivals like Primark from British Associated Plc, which has entered the United States, this is not necessarily the case.
Other options include trying to push the extra costs further into the supply chain, forcing manufacturers to share some of the pain. It will not be easy either. The price of cotton has risen over the last year, while rising oil prices mean that synthetic fabrics are more expensive.
No Comfort Elsewhere
The price of cotton has risen over the last year
Source: Bloomberg
Retailers are hoping that speed of marketing will prevail, and consumers will give priority to the most recent color or style on the basement of business. Otherwise, a delicate tariff situation will become even more precarious
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the author of this story:
Andrea Felsted at [email protected]
To contact the editor responsible for this story:
Matthew Brooker at mbrooker1 @ bloomberg.net
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