[Authoritative Report] What Is The Impact Of The Epidemic On US Clothing Procurement?

The vast majority of U.S. fashion companies said that the "economic and commercial impact of the new crown epidemic" was the main business challenge in 2020. The commercial dilemma caused by the new crown epidemic will not disappear soon. American fashion enterprises must be prepared to deal with the medium and long-term impact of the epidemic.

Supply chain disruption: The new crown epidemic led to severe supply chain disruption of American fashion enterprises. Disruptions come from a number of sources, including labor shortages, textile raw materials shortages, and significant increases in transportation and logistics costs.

Sales decline: The new crown epidemic has led to a general decline in sales and cancellation of orders by American fashion companies. Almost all fashion companies (96%) expect their sales revenue to decline in 2020.

Cancel order: As sales fell and business operations were severely disrupted, all companies said they had more or less delayed or cancelled purchase orders. Almost half of their orders will still be cancelled after the second quarter of 2020. Another 40% of retailers expect to cancel or postpone orders even by the fourth quarter of 2020 or beyond. Cancellations or delays have the biggest impact on suppliers in China, Bangladesh and India.

Countermeasures: Fashion companies say they are trying a variety of ways to minimize the financial impact of the new crown epidemic, including exploring alternative procurement options, using free trade agreements or preferential trade schemes, and using customs rules such as tariff returns and export first sales.

Affected by the new crown epidemic and the deterioration of the business environment, fashion enterprises have a more conservative forecast for the future five years, but there are still optimistic factors.

Half optimistic: Those who were optimistic or more optimistic about the next five years fell rapidly from 65.3% in 2019 to a new low of 57.9%. By comparison, one-third of fashion companies with a pessimistic view of the fashion industry since 2014 were launched.

Increase employment: During the pandemic, the job market seemed to be the only positive aspect of the US fashion industry. Nearly 90% of fashion companies still plan to increase recruitment in the next five years, similar to last year's results and well above about 80% in 2014-2017.

The new epidemic situation of China and the United States has a significant impact on the fashion purchasing behavior of the United States.

Cost increase: "Increased production and procurement costs" is listed as the fourth major business challenge for fashion companies in 2020. It is worth noting that for the second year in a row, fashion companies say "transportation and logistics" is their top concern in 2020. As many as 90% (63% last year) of fashion companies have made it clear that the US 301 action against China has increased their purchasing costs.

To China The new crown epidemic and trade war are pushing us fashion companies to further reduce their "China business". Although "China + Vietnam + multinational" is still the most popular purchasing mode among fashion companies, about 29% of fashion companies said that they would purchase more from Vietnam than from China in 2020, compared with 25% in 2019.

Order transfer: While American fashion companies are reducing their purchases from China, they are mainly shifting their orders to Chinese competitors in Asia. 100 per cent of fashion companies (77 per cent last year) said they "have moved some of their Chinese purchases to other Asian suppliers" this year. But there is no clear evidence that American fashion companies have increased their purchases from the Western Hemisphere.

Despite the financial and operational challenges they faced during the epidemic, American fashion companies did not ignore the sustainability of procurement.

Social responsibility: More than 70% (63% last year) of fashion companies said they planned to allocate more resources to the areas of sustainable development and social responsibility by 2022.

Supply chain map: The vast majority of companies have indicated that supply chain maps (recording supplier names, locations and functions) have been developed to meet sustainability and social responsibility procurement commitments.

Supply chain challenges: Fashion companies point out that "suppliers are not fully cooperative or unwilling to share information", "the particularity of the textile and clothing industry makes it difficult for them to track suppliers other than the first tier suppliers" and "it is difficult to draw supply chain map due to internal budget or staff shortage".

Supplier audit: All fashion companies said they would audit their suppliers. About 65% (50% last year) of fashion companies said they used both third-party certification programs and in-house compliance teams.

Circular economy: American fashion companies are actively exploring new ways to improve purchasing sustainability and social compliance, including contributing to the establishment of a circular economy.

In response to the changing business environment, American fashion companies will continue to adjust their purchasing base and purchasing methods.

Supplier integration: The pace of purchasing diversification is slowing down, and more and more American fashion companies are turning to consolidate their existing purchasing base. Nearly half of fashion companies said they planned to "source from the same number of countries but work with fewer suppliers," compared with 40% in last year's survey.

Change of purchase quantity: The company will continue to adjust its purchasing base, but the scale will be more moderate than in the past. For the first time since 2014, there has been no significant increase in the number of fashion purchases from any particular country or region since 2014. This result warns the seriousness of the current economic crisis faced by American fashion enterprises, and suggests that the economic recovery after the epidemic may be a long and slow process.

The future of China China is likely to remain an important sourcing source for us fashion companies. However, non economic factors (such as Xinjiang related issues) may complicate the company's procurement decisions.

The future of Vietnam and Bangladesh Vietnam and Bangladesh are expected to play a greater role as the major apparel suppliers in the US market, benefiting from the reduction of us fashion companies' purchases from China.

Made in USA: In view of supply chain disruption during the pandemic, US fashion companies are more actively exploring "made in America" procurement opportunities to improve agility and flexibility and reduce procurement risk. About 25% of fashion companies expect to increase their purchases from the United States within the next two years, the highest level since 2016.

Since this year, fashion companies have generally said that they have reduced the use of free trade agreements and trade preferential schemes due to changes in procurement patterns.

Low utilization rate: Compared with last year, only three free trade agreements and preferential trade schemes were used more frequently, including the African Growth and Opportunity Act (AGOA), Egypt's qualified industrial zones (QIZ) and the United States South Korea Free Trade Agreement (Korus).

Main reasons: A major factor contributing to this year's decline in the use of FTA and preferential programs has been the reduction in the amount of purchases by American fashion companies from these FTA and preferential program members. In the first five months of 2020, the share of clothing entering the United States through preferential trade arrangements fell to 15.1%, the lowest level since 2008.

Rules of origin: Even if the member countries can't enjoy the preferential treatment from the free trade agreement or the United States for various reasons, they can't enjoy the preferential treatment from the free trade agreement to the United States. Restrictive rules of origin are still the reason why American fashion companies cannot make full use of FTA.

Fashion companies have shown more willingness and interest in using usmca for clothing procurement.

Original buyer: For companies that have used NAFTA for procurement, the vast majority (77.8%) said they were "ready to receive any benefits from usmca immediately", an increase of more than 31% over 2019.

New buyers: Even for fashion companies that do not use NAFTA or purchase from the region, about half this year said they "may consider purchasing from North America in the future" and explore the benefits of usmca.

Rules of origin: Some fashion companies are worried about the rules of origin change. These concerns seem to be focused on denim products.

There are also opportunities for growth in the use of AGOA and fashion companies in sub Saharan Africa.

★ AGOA： Nearly 37% (27% last year) of fashion companies said they had purchased more textiles and clothing from the sub Saharan region since the renewal of the AGOA act in 2015.

The third country fabric terms: More than 40% of fashion companies said the AGOA act and its "third country fabric clause" were crucial for them to purchase from the sub Saharan region.

Investment intention: However, fashion companies are still not interested in investing directly in the sub Saharan region. About 27% of fashion companies said that the temporality and uncertainty of AGOA deterred them.

The prospect is expected: With the expiration date of AGOA approaching rapidly, discussions about the future of the agreement and the prospects for procurement from the sub Saharan region have become heated. Fashion companies suggest that "AGOA should be renewed for another 10 years without major changes to its existing provisions", or "replace AGOA with a permanent free trade agreement, reduce tariffs and continue to allow fabrics from third countries".