By Sourcing Journal
This article was originally published in Sourcing Journal December 1, 2020. We are sharing because it shares valuable insights on how trade and economics may impact recovery of the U.S. apparel and footwear industries.
A global pandemic, ongoing trade tensions, economic instability and a heated presidential election threw a wrench into the plans of apparel and footwear companies this year. With a holiday season that is by no means a sure thing for many retailers, there are just as many, if not more, questions ahead for the industry looking into 2021.
During a Sourcing Journal webinar on Nov. 18, experts across apparel, footwear, international trade and freight gathered to discuss what the landscape may hold over the next 12 months.
While a recent survey from The NPD Group indicated that footwear sales will be down “mid-single digits” throughout the holiday season and apparel sales will decline approximately 10 percent, early signs show the sectors are struggling to even achieve those sales numbers.
Beth Goldstein, executive director and industry analyst of accessories and footwear at The NPD Group, said that while both of these numbers are better than prior quarters, more recent data suggests that a turnaround is going to be going slower than expected.
“As of October, and now from the early data that I’m getting by week in November, we’re tracking behind that,” Goldstein said. “We’re going to need to make up some ground in November and December to reach those numbers. We didn’t get the boost that other industries did with the Prime Day kickoff. It was really not very focused on fashion, apparel and footwear.”
Goldstein believes some of the ground can be made up in the year’s most successful categories, including loungewear, activewear, sleepwear, slippers and winter boots.
Expect a stimulus bill in the second quarter of 2021
One thing that could spark spending would be the passage of another stimulus bill. However, Ron Sorini, principal at international trade firm Sorini, Samet & Associates LLC, said he puts it at “zero chance” a bill would pass before Dec. 11, which is the date through which the current budget under the Trump administration is funded.
Sorini believes the stimulus package would likely be passed by the second quarter of 2021 since the transition and coronavirus will take priority. Additionally, Republicans in Congress are hesitant to pass a bill ahead of two hotly anticipated January special elections in Georgia, which will determine the makeup of the Senate.
If a second-quarter stimulus package is in the cards and aligns with the distribution of a potential vaccine, that could jumpstart many of the fashion categories that have done poorly during the pandemic, Goldstein said.
U.S. to still ‘get tough’ on China
A lot of the factors around issues affecting supply chains like international tariffs and the U.S.’s relationship with China have been an ongoing source of uncertainty leading up to the election. And as it turns out, under President-elect Joe Biden the outlook may be quite similar to the current administration.
“The Biden administration is going to have a get tough on China policy, even if it’s different than a Trump administration get tough on China policy,” said Vincent Iacopella, executive vice president of growth and strategy at freight forwarder and customs broker Alba Wheels Up. “Democrats and Republicans alike have an issue with intellectual property, valuation, currency and trade barriers, so I think that doesn’t go away.”
Iacopella said during the webinar that it would likely take at least a year for the Biden administration to dismantle any Section 301 tariffs placed on Chinese goods. Since there would need to be a new plan in place to replace them, companies are still more than likely going to have to adjust to them as a factor on trade in the short term.
Sorini noted that tensions based on these tariffs are likely to ease up, pointing out that President Trump’s positioning on trade and tariffs is closer to traditional Democratic views in Congress than Republican views.
“If you talk to the Democratic leadership in Congress, it’s like talking to [director of the Office of Trade and Manufacturing Policy] Peter Navarro and the Trump administration on China,” Sorini said. “They want people out of China, pure and simple, and their policies will be related to that.”
Under Biden admin, Vietnam may be a bigger focus
In talking with his own customers, Iacopella said that many U.S. importers and global manufacturers are looking to be stakeholders in Trans-Pacific trade, and thus need a long-term strategy out of a Biden administration, so that they can determine whether they should leave China entirely, invest in countries like Bangladesh and Vietnam, operate under a hybrid model or even set up shop in the Western Hemisphere.
In the case of Vietnam, despite the Trump administration’s issuing two Section 301 investigations into the country, Sorini says it is unlikely that Trump will slap 301 tariffs on Vietnamese goods before he leaves office. If anything, this is great news for businesses going forward under Biden, particularly if they may be looking to move more production out of China into its Asian neighbor.
“The current administration’s actually been very pleasantly surprised how Vietnam’s reacted to the initiation of these investigations,” Sorini said. “They sense that Vietnam wants to play ball with the U.S. and find an accommodation, unlike China. I actually think that the negotiations that may ensue from those 301 investigations may lead to a bilateral trade agreement with Vietnam over the next year or two.”
China 301 goods could be ruled ineligible for de minimis threshold
Additionally, retailers could soon be dealing with changes to the de minimis threshold, which grants some U.S. imports valued at $800 or less an exemption from tariffs. The Trump administration submitted a proposal to the Office of Management and Budget that would make articles subject to the China 301 tariffs ineligible for the de minimis exemption.
“Why is that important? So much retail has moved to direct-to-consumer and e-commerce, and the growth on e-commerce is exploding,” Iacopella said. “A possible change in this regulation going forward could have a tremendous impact on how companies manage direct-to-consumer, and we have to watch that very closely.”
Sorini said he thinks “the odds are pretty good” the de minimis proposal will go through, but noted that those in Congress who have a positive view of de minimis overall is shrinking.
“One insanity of the law and the way it is implemented today is that the only way any brand can ship directly to a U.S. consumer is that it originates in a warehouse offshore,” Sorini said. “If you have a Chinese T-shirt and you want to send it to a U.S. warehouse of a U.S. brand, you then lose the right to ship to the U.S. consumer duty free once it gets to that warehouse. What that’s doing is putting a lot of pressure on U.S. companies to move their warehouses to Canada or Mexico and that’s getting a lot of attention.”
Watch the webinar, sponsored by Alba Wheels Up and Sorini, Samet & Associates LLC, to learn:
Factors impacting consumer holiday spending, and where 2021 growth in fashion takes place
The projected inventory and sales levels for Q1 and Q2
How supply-chain disruptions could leave some money on the table in “hot” categories like loungewear, activewear, winter boots, and slippers
How logistics networks will handle the potential distribution caused by vaccine distribution
Why perceived ocean freight congestion is resulting in demurrage and detention charges
Click here to watch the webinar now.