By Just Style
This article was published in Just Style February 14, 2022. It features insight from Dr. Sheng Lu, one of the most prominent data analysts in the industry, and a friend of SPESA's.
An exclusive analysis of the 2021 full-year US import data from the Office of Textiles and Apparel (OTEXA) has revealed US apparel imports grew by 27.4%, which is the fastest growth of the past decade, explains Dr Sheng Lu.
2021 marked the second year since the Covid-19 pandemic. Thanks to vaccination and consumers’ robust demand, US apparel imports enjoyed a remarkable recovery from a year ago. Meanwhile, fashion companies still face daunting challenges, ranging from Covid-related supply chain disruptions and rising cost pressures to market uncertainties caused by geopolitical tensions.
So, how have fashion companies adjusted their sourcing strategies in response to the shifting business environment? How might US apparel sourcing patterns in 2022 evolve from a year ago as the pandemic and trade policies’ impacts continue? By leveraging the latest trade data published by the Office of Textiles and Apparel (OTEXA), associate professor of fashion and apparel studies at the University of Delaware, Dr Sheng Lu, aims to provide a comprehensive statistical review of US apparel imports in 2021 and shed some light on critical issues to watch in the year ahead.
Trend 1: US Apparel Imports Will Continue to Rebound but Slower
Thanks to a booming US economy and consumers’ robust demand, the value of US apparel imports enjoyed a remarkable 27.4% growth in 2021 from a year ago. This has been the fastest growth over the past decade and a more significant rebound than during the 2008 global financial crisis (only 13% growth the year after).
Nevertheless, the value of US apparel imports in 2021 remained 2.5% lower than in 2019 before the pandemic. Except for Bangladesh, most leading apparel suppliers for the US market also see their export value in 2021 short of or only increased marginally compared with the pre-Covid level, including China (down 21.3%), Association of Southeast Asian Nations (ASEAN) members (up 3.8%), India (up 3.4%), Indonesia (down 5.7%), US-Mexico-Canada Trade Agreement (USMCA) members (down 11.0%), and Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) members (up 0.6%). Overall, the result suggests that it could be too early to say we are “out of the woods.”
An even more concerning factor is the continuation of shipping delays and supply chain disruptions, which may not ease anytime soon in 2022 due to various factors. As Table 2 shows, the widespread shipping delays and supply chain disruptions had resulted in unusual seasonal patterns of US apparel imports in 2021. For example, US fashion companies’ imports typically peaked from June to September to meet the fourth quarter’s holiday sales needs. However, in 2021, more US apparel imports occurred from October to December, implying many products arrived almost one to two months late.
Similarly, due to Covid-related supply chain disruptions and lockdown measures, US apparel imports also became much more fluctuating in 2021 than in the past. For example, import volumes’ year-over-year (YoY) growth rate ranged from 131% in May to -18.7% at the beginning of 2021. Although the YoY growth rate of US apparel imports in December 2021 exceeded 50%, the phenomenon was far from abnormal and unlikely to sustain.
Additionally, several international organisations predict the US economy in 2022 could grow 3.5% or half the pace in 2021. Thus, US apparel imports will likely expand in 2022 but more modestly.
Trend 2: While U.S. Fashion Companies Continue to Diversify Their Sourcing, Asia as a Whole Will Remain Dominant
Measured by value, more than 70% of US apparel imports came from Asian countries in 2021, a pattern that has stayed stable for over a decade. However, Asian countries’ market shares dropped from 74.2% in 2020 to 72.8% in 2021, the lowest in the past five years (Table 3). Notably, affected by Covid-related lockdown measures, together with other factors, several leading Asian apparel suppliers suffered a decline in their market shares in 2021, led by Vietnam (down 2.01 percentage points), Cambodia (down 0.25 percentage point), and Indonesia (down a 0.41 percentage point).
Echoing the trend, Table 4 shows that US fashion companies continue to diversify their sourcing base in 2021 beyond the top suppliers in response to the shifting business environment. For example, the Herfindahl–Hirschman Index (HHI) suggests US apparel imports came from highly diversified sources in 2021. Furthermore, the CR5 index (i.e., the total market shares of the top five suppliers) dropped to 60.6%, the lowest since 2018. Even the CR5 index (excluding China) fell from 42.4% in 2020 to 40.7%, suggesting that US fashion companies somewhat reduced their “Asia exposure” in 2021.
Nevertheless, Asian countries’ market shares likely would stay stable in 2022. According to the 2021 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. Both factors remain highly relevant in 2022. For example, as the US economy struggles with its worst inflation in 40 years and consumers’ purchasing power declines, controlling sourcing costs could become an ever more critical priority for US fashion companies’ vendor selections. Likewise, as the market environment remains highly volatile and unpredictable, fashion companies increasingly need to rely on vendors that offer sourcing flexibility and agility. Thus, by leveraging these two critical competitive advantages, we can anticipate Asia as a whole to continue to serve as a dominant sourcing base for US fashion companies in 2022.
Trend 3: Near-sourcing From the Western Hemisphere Gains New Popularity
Near-sourcing from the Western hemisphere is growing in popularity, however, the lack of textile raw material supply is a significant bottleneck preventing more US apparel sourcing from the region.
As US fashion companies diversify their sourcing from Asia, near-sourcing from the Western Hemisphere, particularly members of USMCA and CAFTA-DR, benefit. According to Table 5, US apparel companies placed relatively more sourcing orders with suppliers in the Western Hemisphere in 2021. For example, CAFTA-DR members’ market shares increased by a 0.31 percentage point in quantity and nearly one percentage point in value compared with a year ago.
On the other hand, however, it is concerning to see the utilisation rate of CAFTA-DR for apparel sourcing fall to a new record low of only 73.7% in 2021. This means that as much as 26.3% of US apparel imports from CAFTA-DR members did NOT claim the duty-free benefits.
As Table 6 shows, the lower free trade agreement (FTA) utilisation rate became a problem, particularly among CAFTA-DR members with fast export growth to the US market in 2021. For example, whereas US apparel imports from Honduras enjoyed an impressive 45.6% growth in 2021, only 72.6% of these imports claimed the CAFTA-DR duty benefits, down from 82.3% a year ago. We can observe a similar pattern in El Salvador, Nicaragua, and the Dominican Republic.
The phenomenon is far from surprising, however. For years, US fashion companies have complained about the limited textile supply within CAFTA-DR, especially fabrics and textile accessories. The lack of textile supply plus the restrictive “yarn-forward” rules of origin in the agreement often creates a dilemma for US fashion companies either to source from Asia entirely or source from CAFTA-DR but forgo the duty-saving benefits. Understandably, it will be unlikely to substantially expand US apparel sourcing from CAFTA-DR members without solving the textile supply shortage problem facing the region.
Trend 4: U.S. Fashion Companies Could Find Balancing Economic and Non-economic Factors for Their China Sourcing Strategy Increasingly Challenging in 2022
As Table 7 shows, 2021 was NOT a bad year for Chinese textile and apparel exporters targeting the US market. Except for cotton textiles, “Made in China” accounted for 15.4% of US cotton apparel imports in 2021 and nearly one-third for non-cotton apparel items.
Both industry sources and the export product diversification index (Table 8) also consistently show that China supplied the most variety of products to the US market with no near competitors. In comparison, US apparel imports from Bangladesh, Mexico, and CAFTA-DR members concentrate more on specific product categories. This explains why most US fashion companies continue to treat China as one of their essential sourcing bases despite their paralleled strategy to reduce “China exposure.”
However, the newly enacted Uyghur Forced Labor Prevention Act could be a game-changer in 2022. US fashion companies may find it not operationally viable to source many apparel products from China, depending on the new law’s detailed enforcement strategy to be released by the US Customs and Border Protection (CBP). Further, due to the escalating political tensions between the two countries, US fashion brands and retailers could take another look at their China sourcing strategy to avoid potential high-impact disruptions. Although a total decoupling seems not too feasible in the short term, it is a legitimate question for fashion companies: What an unstable China means for their sourcing from the Asia-Pacific region and what the contingency plan will be.