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Sourcing Horizons: Production Dynamic Taking New Turns

Ethical sourcing, Made in America and the search for low-cost production alternatives to China remain the top priorities for fashion companies.

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WASHINGTON — Ethical sourcing, Made in America and the search for low-cost production alternatives to China remain the top priorities for fashion companies.

This story first appeared in the March 26, 2013 issue of WWD.  Subscribe Today.

They were also the central themes addressed by executives at the three-day American Apparel & Footwear Association’s annual summit.

Apparel executives gathered here for the conclave put a premium on efforts to improve factory fire-safety conditions in places such as Bangladesh and Pakistan following tragic garment-factory fires that have killed hundreds of workers in the past several months and forced the industry to rethink corporate social responsibility.

 

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“The one area where I see a big change is the industry is…really engaging…and trying to address not just social issues but now also safety issues,” said Rick Darling, vice chairman of LF USA and LF Europe, divisions of Li & Fung Ltd. “While safety has always been a top priority, sometimes it takes an event to get people to rethink what we can do as an industry to start to make places like Bangladesh more viable and safer for its own workers. It’s a challenge but we’re still heavily committed to improving conditions in Bangladesh and all developing countries.”

Li & Fung had some production in Tazreen Fashions in Dhaka and has committed to compensating the families of victims in the deadly fire there, which killed 111 people.

Darling said Wal-Mart’s new “zero tolerance” policy to subcontracting and any violation of its global sourcing standards, which took effect March 1, is a step in the right direction. Wal-Mart has also said that mandatory stationing of an employee in countries where suppliers subcontract would go into effect to ensure a higher level of compliance. Wal-Mart has also included a special package of measures for Bangladesh sourcing, such as strengthening of processes and protocol for fire safety. (Separately, as WWD has reported, Wal-Mart is said to be urging vendors, at least in innerwear, to look for alternative sources to Bangladesh.)

“We have been engaged in monitoring our subcontractors every year,” Darling said. “Wal-Mart has raised that issue to a very different level in requiring their suppliers to understand and monitor and be responsible for all subcontractors in their supply chain, whether it is trim or boxes, fabrics or bar codes. They are raising it to a new degree and I think that is healthy. There is no excuse to say I didn’t know it [subcontracting] was happening.”

Kevin Burke, president and chief executive officer of the AAFA, said his organization conducts educational programs on fire safety and recently had 450 attendees at a conference in Dhaka.

“No U.S. brand wants to see their products being made where people get killed as a result of poor working conditions in factories,” Burke said. “So the industry is putting a lot of pressure on those who manufacture their products to make certain they have fire-safety codes that work.”

Burke said he planned to discuss the issue in China this past week.

“It is an enormously important issue for us,” he said. “We are disturbed by the number of fires that have happened.”

Rick Helfenbein, president of Luen Thai USA, said the industry is beyond the tipping point.

“Everybody is scared and asking what is the future, is it the right place to manufacture,” he said. “I think Bangladesh will have to fix the problem. If not, the suppliers, brands and retailers will have to fix it for them. If that doesn’t work, people should go elsewhere because there is a lot of credibility at stake for everybody. If you look at the number of people who have perished, statistically, it is a dangerous place to manufacture and frightening.”

Another key issue for executives is Made in America and whether there will be a continued push to make more in the U.S. and sell more of those branded products. Jeff Gennette, chief merchandising officer of Macy’s, Inc., said in an interview there are some Made in America brands that are important to Macy’s customers.

“We have more products now that are made in America and a lot of it is because the supply chain is tightening,” Gennette said. “We have the opportunity to do a lot of stuff in the L.A. Basin with denim and some T-shirts and knitwear in ways and at more levels than we used to do. The overall level of products that are Made in America is growing in our store.”

He stressed that while the assortment with U.S.-made products might be growing, consumers have still not “shown a high tolerance for paying higher prices because it is made in America.”

“I think it is about what the customer is asking from us and are they asking for it,” Gennette said. “If this is a value to the customer, we will know about it.”

Wal-Mart’s recent announcement that it will invest $50 billion in products — not just apparel — that are made in the U.S. over the next 10 years caught the attention of apparel executives and has raised the question of whether there is enough capacity and workers to meet the demand.

Philip Williamson, chairman, president and cheif executive officer of Williamson-Dickie Co., and the new chairman of AAFA, said Wal-Mart’s initiative is “good” if the industry “can find the workers” to make more Made in America products.

“I don’t think we are there now. I think it will take some work,” Williamson said. “I think the industry has shifted [offshore] over so many years that the skill level is not so easily found here again. But that doesn’t mean it is impossible.”

Helfenbein said there is still opportunity for companies that want to make more apparel here, but it will have to be a high volume of production or become more automated.

“There are still many textile mills in the U.S., so that is a good thing,” he said. “You have a source of supply and you have a relatively low cost of energy.”

Many executives expressed disappointment about the gridlock in Washington on trade and other issues. The U.S. is negotiating the Trans-Pacific Partnership agreement with 10 countries, including Vietnam, the second-largest apparel supplier to the U.S.

Burke said his group will continue to fight for a more liberal rule of origin and oppose the yarn-forward rule the U.S. has proposed, which requires all yarn and fabrics contained in apparel made in the TPP region to come from the signatory countries in order to receive duty-free benefits. AAFA and other groups are pressing for a more open rule that would ideally allow yarns and fabrics from anywhere in the world, notably from China.

As costs continue to rise in China, apparel-sourcing executives are looking for new sourcing opportunities in the Western Hemisphere and in Asia. Vietnam, Indonesia and Bangladesh continue to be the top sourcing alternatives, but a few countries are gaining ground.

Darling said China is still the “most critical part of the supply chain” for apparel and footwear.

“I think Bangladesh, like Pakistan, is a developing country that is an incredibly important part of both the European and U.S. supply chains,” he said. “But it is challenged in terms of the things we have seen over the last four or five months.”

One country that companies are seriously considering for apparel production is Myanmar, or Burma, where the U.S. recently lifted its import ban.

“Burma is beginning to come on board,” Darling said. “At some point in time when people start to get more comfortable with that, that is an opportunity and I think you will have really serious players investing there.”

Darling said Li & Fung has been producing apparel in Burma for the European market for some time and expects more U.S. companies to invest once they study labor, worker rights and human rights.

“The government is attempting to address those issues relatively quickly and I think it will be one of the next markets that could emerge as a sourcing of supply,” he added.

Helfenbein, whose focus is on production in China and the Philippines, said Cambodia is an emerging market for production.

“It is an up-and-coming place,” he said. “They are encouraging businesses to move there and people are not afraid to move there. I think you will see the biggest spurt anywhere, besides Vietnam, will be Cambodia.”

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