4 key US apparel import trends to watch in 2021
US fashion companies have been tweaking their sourcing strategies in response to the turbulent business environment
The Covid-19 pandemic, coupled with a damaging trade war with China, made 2020 an unprecedented year for US apparel trade and sourcing. How have fashion companies adjusted their sourcing strategies in response to the turbulent business environment? And how will US apparel sourcing patterns evolve in 2021? Here Dr Sheng Lu, associate professor in Fashion and Apparel Studies at the University of Delaware, digs into the trade data to shed some light on the latest trends in US apparel imports and critical issues to watch in the year ahead.
#1: US apparel imports will continue to rebound in 2021 – but uncertainty remains Since Covid-19 broke out in the United States in March 2020, it has had a more significant negative impact on US apparel imports than the 2008 global financial crisis.
As Table 1 shows, measured by value, US apparel imports suffered a 23.5% decline last year compared with a 12% drop in 2008. The drop in US apparel imports from China (down nearly 40%), members of the US-Mexico-Canada Trade Agreement (USMCA) – down 30% – and members of the Central America Free Trade Agreement (CAFTA-DR) – down 28% – was substantial.
Table 1: Growth rate of US apparel imports (by value) Source of imports2009 vs 2008 (global financial crisis)2020 vs 2019 (Covid-19)World-
Source: Calculated based on OTEXA (2021) data
Nevertheless, thanks to consumers' continuous spending on clothing, US apparel imports began to rebound quickly in May 2020. As Table 2 shows, the post-Covid recovery of US apparel imports has been more robust than during the 2008 global financial crisis, even though it started from a much lower level. This also supports the view that there is no severe structural issue in the US economy right now, which is very different from the situation back in 2008. Table 2: Recovery process comparison
While it is hoped that US apparel imports will continue to recover in 2021, it remains too early to tell when trade volume will return to its pre-pandemic level. As Covid-19 is the primary cause of the economic recession, conventional monetary or fiscal policy tools are less useful to boost the economy unless the pandemic is under control. Notably, affected by the surge of Covid cases and related new lockdown measures, the value of US apparel imports alarmingly altered the V-shape recovery trajectory and fell by 15.7% year-over-year in December 2020 – the worst performance since September 2020. This rollback also implies that US fashion companies and their suppliers may have to be flexible with their sourcing and production plans in 2021, including dealing with new order cancellations and postponed deliveries.
#2: Asia will remain the dominant sourcing base for US fashion companies
Table 3: Competitiveness as apparel sourcing bases – Average scores (5=best)
Source: 2020 USFIA Fashion Industry Benchmarking Study
Measured by value, more than 70% of US apparel imports still came from Asian countries in 2020 – a pattern that has stayed stable for over a decade. Except for China, other leading Asian apparel suppliers all gained market shares in 2020 from a year earlier. This includes Vietnam (19.6% in 2020 vs 16.2% in 2019), ASEAN members (32.3% in 2020 vs 27.4% in 2019), Bangladesh (8.2% in 2020 vs 7.1% in 2019), and Cambodia (4.4% in 2020 vs 3.2% in 2019). According to the 2020 US Fashion Industry Benchmarking Study released by the US Fashion Industry Association (USFIA), Asian suppliers overall enjoy two competitive advantages as apparel sourcing bases: sourcing cost, and flexibility and agility. These two factors are also the most relevant during the pandemic. For example, as both US consumers and fashion companies continue to struggle financially, controlling the sourcing cost will be more of a priority in companies' sourcing decision-making than other factors like speed to market. Likewise, during the pandemic, apparel sourcing is easily disrupted by factors ranging from labour shortages, lack of textile raw materials to port closures. With their highly integrated regional supply chains and vast production capacity, Asian vendors can in general offer more flexibility and agility than apparel suppliers in other regions of the world. Asian countries are also likely to maintain these two critical competitive advantages in 2021.
#3: US fashion companies are NOT giving up China – although they continue to reduce their "China exposure" China's prospects as a sourcing base for US fashion companies seems to become ever more "mysterious" due to the competing information we receive. For example, measured by value, China only accounted for 23.7% of US apparel imports in 2020, a new record low for the past ten years. However, according to the media, some sourcing orders returned to China in October 2020 as factories in many other Asian countries struggled with Covid-related lockdown measures. A detailed review of trade statistics suggest three critical trends to watch in 2021 regarding apparel sourcing from China.
First, it still makes economic sense to source apparel from China. "Made in China" enjoys two unique competitive advantages over other clothing supplying countries in the short term. The first is its unparalleled production capacity, allowing US fashion companies to place orders for any products in any quantity. For example, industry sources indicate that from March 2020 to January 2021, US fashion retailers brought to market around 11,500 different "Made in China" apparel products (measured by Stock Keeping Unit, SKUs), compared with only 5,000 SKUs sourced from Vietnam or India. Over the same period, the variety of apparel items made by Bangladesh, Cambodia, Indonesia and Sri Lanka was even more limited – around 1,000 SKUs for each country.
China's other advantage is its local textile production capacity, meaning US fashion companies seldom worry about textile supply when sourcing garments from China. In comparison, many other Asia-based apparel producing countries still rely heavily on imported yarns and fabrics, many of which are supplied by China. In other words, the relatively complete local textile and apparel supply chain in China may help US fashion companies mitigate the risk of disruptions during the pandemic. Table 4: Diversity of US apparel sourcing bases
Source: Calculated based on OTEXA (2021) data Note: CR3 index means the total market shares of the top 3 suppliers; CR5 index means the total market shares of the top 5 suppliers; In 2020, CR5 index (exclude China) includes Vietnam, Bangladesh, Indonesia, India, and Cambodia.
Second, US fashion companies continue to reduce their "China exposure" overall, and there is no sign of a reverse on this strategy. Table 4 shows that both the Herfindahl-Hirschman Index (HHI) and market concentration ratios (CR3 and CR5) suggest apparel sourcing orders are gradually moving from China to other Asian countries. Notably, the percentage of US apparel imports from China's key competitors in Asia – including Vietnam, Bangladesh, Indonesia, India and Cambodia – rose to a new high of 42.4% in 2020, from only 35.3% in 2018.
However, the US-China trade war rather than Covid-19 could be the primary driver of this diversification. For example, measured by value, China lost MORE market share between December 2018 and December 2019 (down from 31.9% to 23.7%, or 8.2 percentage points) than December 2019 to December 2020 (down from 23.7% to 22.5%, or 1.2 percentage points). Meanwhile, there is as yet no sign the new Biden administration plans to lift the punitive Section 301 tariffs on imports from China anytime soon.
Third, it's important not to underestimate the impact of non-economic factors on China's prospects as an apparel sourcing destination in 2021. Notably, the reported forced labour issue related to Xinjiang, China, and a series of actions taken by the US government (such as the US Customs' withhold release orders or WROs) have significantly affected US cotton apparel imports from China. Measured by value, only 15.4% of US cotton apparel came from China in 2020, compared with 22% in 2019 and 28% back in 2017. While China's total textile and apparel exports to the US dropped by 30.7% in 2020, its exports of cotton textiles and cotton apparel fell more sharply at nearly 40%. The new Biden administration has expressed its commitment to improving human rights and labour standards in international trade. It is not unlikely that more draconian trade-restrictive measures or even economic sanctions will further change US fashion companies' calculations about the costs and benefits of sourcing apparel from China in 2021 and beyond.
#4: Near-sourcing from the Western Hemisphere will remain a popular concept, but is not likely to happen on a large scale in 2021 Table 5: Percentage of US apparel imports from CAFTA-DR and USMCA (NAFTA) – By quantity
Source: Calculated based on OTEXA (2021) data Table 5: Percentage of US apparel imports from CAFTA-DR and USMCA (NAFTA) – By value
Source: Calculated based on OTEXA (2021) data Despite the reported growth in popularity of near-sourcing or near-shoring among US fashion companies during the pandemic, data suggests otherwise. Only 16.1% of US apparel imports came from the Western Hemisphere measured by value, down from 17.1% in 2019. As Table 5 shows, both the value and the quantity of US apparel imports from USMCA and CAFTA-DR members continued to lose market shares in 2020. Even more concerning, only 38% of US apparel imports from Mexico and Canada claimed the duty-free benefits under USMCA in 2020, a sharp decline from 89% in 2019. Studies show two factors may have discouraged US fashion companies from sourcing more apparel from their Western Hemisphere partners.
One is the price disadvantage. According to the 2020 US fashion industry benchmarking survey, US fashion companies say sourcing from USMCA and CAFTA-DR members typically incurs higher costs than similar products made in Asia. As noted earlier, both fashion companies and US consumers can be more price-sensitive during the pandemic.
The other disadvantage is the limited product offer. According to industry sources, almost 86% of "Made in Mexico" apparel items sold in the US retail market from January 2020 to October 2020 were in the category of tops. Likewise, over the same period, more than 80% of CAFTA-DR produced apparel items sold in the US were also either tops or bottoms. Under the so-called Western Hemisphere supply chain, USMCA and CAFTA-DR members often rely on textile supply from the US – which substantially limits the types of apparel items they can produce. As most US fashion companies do not have the financial resources to invest in building Western Hemisphere supply chains during the pandemic, a sizeable return of near-sourcing does not seem too likely in 2021.