The X Factor, Part I: Are Local to Local Factories Our Salvation?
For the past 10 years, the idea of producing textiles and garments locally has been a topic of varying importance in conversations among apparel executives. Industry personnel and industry observers have been asking if local production can be done. The short answer is, Yes. A variety of well-known and lesser-known brands and manufacturers are producing textiles, apparel and trim in the United States today. Factories in Massachusetts, Pennsylvania, California, North Carolina, South Carolina, Georgia, New Jersey, New York, Oregon, Texas and elsewhere produce a variety of fabrics, laces, trims, clothing and accessories. Others are producing nearby in Mexico, Central America, and the Caribbean, reaping some, if not all, of the benefits of Local to Local (LtL).
Six years ago I researched whether reshoring garment production from China to the United States made wise financial sense. Interviews I held with a large number of leading industry executives pointed to four factors that must converge for local sourcing to work financially. If the four converge, a beautiful Local to Local story can begin. When style, fabrication, price point and volume aligned, reshoring worked. Contrary to widespread belief, garments in virtually every price point and category can be produced domestically; as long as all four factors align. In the years since I conducted my research, a few fabric mills and apparel factories have ceased domestic operations, but I have since found additional companies producing textiles and apparel in the United States. Local to Local simply expands the circle a bit, including factories outside the United States but close enough for quick, easy and inexpensive transport of goods.
When asking if we can produce such goods in (or near) the United States with our high wages, we have been posing the wrong question. We should not ask if we can do it, or how we can do it. We should ask why we should do it, or do more of it. We should ask what benefits Local to Local factories provide.
Today, there’s a lot of new chatter about Local to Local. Discussions about producing nearby have taken on a sense of urgency they have lacked heretofore. Five changes have piqued interest in LtL: 1) Politics; 2) Hanjin Shipping; 3) China plus; 4) Terrorist threats; and 5) Puerto Rico.
The new Administration in Washington has called into question our international agreements on trade. TPP was dismissed; long-established agreements such as NAFTA, and their duty-free benefits, are at risk.
Hanjin Shipping’s financial problems in August 2016 graphically reminded apparel importers, retailers, and brands of the risks associated with producing their garments overseas. By definition, producing offshore carries an unavoidable dependency on shipping lines.
3. China Plus.
Although numbers are still relatively low, production continued to move from China in 2016; emerging sourcing countries grew in importance as a result. Onboarding new countries and expanding their share of production always brings a learning curve — increasing the costs associated with late deliveries, higher defect rates, greater risk of noncompliance and overall miscommunication. Although not captured in the product cost sheet, brands pay a considerable price for chasing cheaper labor.
4. Terror and Instability.
New political unrest in Ethiopia in fall 2016 raised security and stability questions. Terror threats grew notably in Yemen and Kenya in 2016 and overall they grew significantly worldwide. Discovery of a fake U.S. Embassy (replete with visa fraud) in Ghana further raises international terror concerns. Anyone not factoring these into an Africa strategy is turning a blind eye. Together, they increase sourcing risk in emerging regions across Africa, a continent that has finally been enjoying serious, long-awaited textile and apparel industry investment and growth.
5. Puerto Rico.
Off the radar for executives focused on low wages in Asia and Africa, Puerto Rico may warrant a second look today. Not so long ago, Puerto Rico produced many garments for the North American market. In early 2016 the island’s economy went into sharp decline. Small businesses closed; unemployment rose. There may be some important sourcing opportunities to be had.
Together these five changes — Politics, Shipping, China Plus, Terror, and Puerto Rico — give good reason to take a much closer look at the opportunity to harness the benefits of LtL in 2017. Local to Local can (and should) be your new best friend.
Local to Local provides important savings in money and time. Domestic production eliminates duties and customs clearance time and costs. Local production reduces transport expense, and transport times are greatly compressed. Cost savings go straight to the bottom line, enhancing profitability. Savings in time allow managers to make later color and assortment decisions, responding better to last minute changes in fashion trends, weather patterns, competitors’ actions and market demand. Better assortment and color decisions reduce lost sales due to out-of-stocks; they reduce the need for markdowns because retailers have less off-trend stock that doesn’t sell.
Instead of exploiting Local to Local benefits, sourcing executives and staff have continued a relentless and misguided search for cheaper needle. While lamenting the current state of discounting at retail, brands and retailers have been slow to grasp the importance of the opportunity Local to Local provides. While many in the industry will argue wage differentials are what matters, reducing transport time and expense, eliminating customs costs, and reducing out-of-stock losses helps significantly to offset differences in labor rates. Add greater ability to respond to last minute market changes, and selling more product at full price, and those higher American wages no longer look so bad. Then add greater visibility into your supply chain and the reduction in compliance (and reputation) risk that low visibility brings, and you have icing on the cake.
If you’re now convinced Local to Local brings value, what must you do to build and execute an LtL strategy? Investigate, Educate and Act. First Investigate: Find out who currently is making what in the United States and nearby, especially with respect to the raw materials you need. Take inventory of the fabric and trim mills. The National Council of Textile Organizations (NCTO), the American Apparel and Footwear Association (AAFA), the U.S. Department of Commerce (USDoC) and others can give you a hand in identifying domestic production; The Americas’ Apparel Producers’ Network (AAPN) can assist for near-shore supply. Ask mill owners how you can partner with them to increase, or launch, production of those fabrics and trims you need.
Then Educate: Teach your sourcing personnel the cost of time in the total cost of a garment; teach them the cost of risk (to reputation as well as delivery) to your firm, and teach them the value of reducing those for growing the bottom line. Support job training programs that build the skills labor needs for a new, efficient, high-tech textile and apparel supply chain.
Then Act: Form sourcing partnerships and strategic alliances with domestic and near-shore materials suppliers to source and deliver the product you need in the right styles and assortments, at the right price, and the right time. Support your partners’ investment in technology to further enhance their capabilities. Change internal performance metrics, incentives, and bonus programs to reward sourcing personnel for looking at the total cost of a garment and harnessing Local to Local as an important part of an overall global sourcing plan rather than chasing cheap labor. Embrace Local to Local, and the benefits it brings. Make Local to Local your new best friend.
Margaret Bishop is a global consultant to the apparel and textile industry, and an Adjunct Associate Professor in the Department of Textile Development and Marketing at the Fashion Institute of Technology in New York City. She is also a member of the International Advisory Group at Worldwide Responsible Accredited Production (WRAP). She may be contacted at [email protected]