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By Just Style
This article was published in Just Style June 7, 2021. It analyzes annual reports from the 30 largest U.S. apparel companies to determine how sourcing trends have changed as a result of Covid-19.
It was written by Emma Davis, a research assistant in the Department of Fashion and Apparel Studies at the University of Delaware, and Dr. Sheng Lu, an associate professor in Fashion and Apparel Studies at the University of Delaware. Dr. Lu spoke on supply chain and sourcing patterns during the last SPESA Executive Conference. His presentation is available on the SPESA website.
Covid-19 has forced US apparel companies to overhaul many aspects of their business practices. Maintaining a reliable sourcing base and developing an efficient supply chain will be crucial to their post-pandemic success say Emma Davis and Dr. Sheng Lu from the University of Delaware.
To better understand the latest sourcing trends – and the driving forces behind them – we analysed the 2017-2020 annual reports from the 30 largest US-based apparel companies.
The findings provide new insights into their sourcing and supply chain strategies in response to the shifting business environment, and shed new light on the medium to the long-term impact of Covid-19 on the apparel sector.
#1: Consolidation
More US apparel companies have prioritised consolidating their existing sourcing base than diversification. As shown in Table 1, nearly half of the top 30 US apparel companies explicitly say they either sourced from fewer countries or worked with fewer vendors in 2020 than 2017-2019 before the pandemic.
For example, Gap Inc reported sourcing from 30 countries in 2020 compared to 40 in 2018 and nearly 50 in 2017. Likewise, VF Corporation substantially shrank its sourcing base from 60 countries in 2019 to around 30 in 2020. Additionally, L Brands cut its total vendors to 320 in 2020, down from 350 in 2017 and 340 in 2019.
In comparison, only about one-third said they were sourcing from more countries in 2020. For example, Kate Spade said it would commit to “diversify the brand’s supply chain globally” in 2020 and beyond. The Cato Corporation used around 540 suppliers in 2020, more than 439 back in 2017.
#2: Closer Relationships
The desire to form closer relationships with key vendors and ensure social and environmental compliance are the two key factors behind consolidation. At a time of uncertainty, apparel companies are leaning more heavily on suppliers that have proven reliable, capable and flexible. Working closely with them and building an efficient and trust-based supply chain also plays a central role in Covid-mitigation strategies.
For example, as Guess wrote in its annual report: “We source products through numerous suppliers, many of whom have established long-term relationships with us…We believe that our balanced global supply chain, with deep vendor partnerships, provides us with a competitive advantage…”
Nike also explains why strengthening the relationship with its key vendors matters: “Even if we are able to expand existing or find new manufacturing or sources of materials, we may encounter delays in production and added costs as a result of the time it takes to train suppliers and manufacturers in our methods, products, quality control standards and labor, health and safety standards.”
Meanwhile, with social and environmental compliance becoming increasingly crucial in apparel sourcing, companies are cutting ties with vendors that do not adhere to government mandates and proprietary codes of conduct. For example, Gap Inc has made sustainability a more significant priority by parting ways with suppliers that are not up to standard. It believes that “risks associated with importing merchandise from foreign countries, including failure of our vendors to adhere to our Code of Vendor Conduct, could harm business.”
Notably, higher expectations for sustainability and social, environmental compliance may have resulted in a smaller pool of qualified suppliers. For example, Hanesbrands is scaling down its supply chain for compliance reasons. In its 2020 annual report, the company newly requires that all vendors must demonstrate “conformity with local laws (including wage and hour laws)” in addition to Hanesbrands’ standards for hours of work, age of workers, health, and safety conditions, and freedom of association.
Similarly, Levi Strauss & Co noted in its 2020 annual report that all vendors must now “contribute to our sustainability goals and follow all established policies and guidelines.”
Thus, garment factories must continue to invest in themselves, with the help of fashion brands and retailers, to keep up with the new sourcing demands in the post-Covid business environment.
#3: Sourcing Diversification
Sourcing diversification is driven by concerns to steer away from China and reduce sourcing risks. On the one hand, even though China remains the top apparel supplier for the US market, US fashion brands and retailers are continuing to reduce their China exposure amid concerns ranging from forced labour allegations to Section 301 punitive tariffs.
For example, Christopher & Banks Corp, a women’s apparel and accessories brand, stated in its 2020 annual report that: “In response to the recent tariffs imposed by the current US administration, the Company has reduced the amount of goods being produced in China.”
Likewise, G-III Apparel Group also mentions in its 2020 annual report: “We continue to diversify our product portfolio and mix and we have proactively reduced the percentage of our inventory that is sourced from China. Inventory sourced by us from China represented 32.8% of inventory purchased in fiscal 2021 compared to 49.5% in fiscal 2020 and 61.5% in fiscal 2019.”
Consistent with several recent studies, US apparel companies mostly moved their China orders to China’s competitors in Asia instead of expanding “near-sourcing.” As G-III Apparel Group noted: “We have reduced our reliance on China by moving product to other countries, including Vietnam and Indonesia. We will continue to explore alternative production partners to further diversify our sourcing network and to reduce our reliance on any one particular country.”
On the other hand, it is not uncommon for US apparel companies to keep a relatively diverse sourcing base to control various sourcing risks. These risks range from political instability, weather conditions, government regulations to unexpected supply chain disruptions during the pandemic.
For example, according to Kate Spade: “Geographic diversity helps to reduce the company’s exposure to risks in any one country.” Similarly, Superior Uniform Group explains: “(We) do not have a concentration of suppliers of finished goods in any single country or region of the world…the Company’s suppliers generally source or manufacture finished goods in parts of the world that may be affected by economic uncertainty, political unrest, labor disputes, health emergencies, or the imposition of duties, tariffs or other import regulations by the United States.”
#4: Sourcing Strategies
The content analysis also reveals that some US fashion brands and retailers have committed to sourcing and supply chain innovation in response to Covid-19 and the new business environment. Specific sourcing strategies to note:
Work with “super vendors” – vertically integrated suppliers that can execute multiple steps in the supply chain or those with production facilities in numerous countries. According to Under Armour, “where appropriate, we strive to qualify multiple manufacturers for particular product types and fabrications. We also seek out vendors that can perform multiple manufacturing stages, such as procuring raw materials and providing finished products, which helps us to control our cost of goods sold.”
Optimise supply chain processes to improve speed to market. For example, Carter’s, a leading children’s brand, recently established a central sourcing office in Hong Kong to ensure “quality control, compliance with [its] manufacturing specifications and social responsibility standards, as well as timely delivery of finished garments to distribution facilities.” Carter’s approach highlights Asia’s sustained market share in textile and apparel sourcing and reminds us that achieving “speed to market” is far more than just about near-sourcing.
Adjust fabric and textile raw material sourcing base, although the specific strategies vary from company to company. For example, Under Armour intends to diversify its sourcing base for fabric and other textile raw material. Around 42% of the company’s fabric came from its top five vendors in 2019, compared to 49% in 2018 and 53% in 2017. In comparison, Lululemon Athletica has chosen to consolidate its fabric sourcing – in 2020, 65% of its fabrics were produced by the top five fabric suppliers, up from 56% in 2019. Regardless, the supply chain disruption caused by the pandemic has reminded US apparel companies about the importance of fabric and raw material sourcing. The forced labour concerns related to Xinjiang cotton are also pushing apparel companies to know more about their vendors upward in the supply chain.