VF’s Sourcing Gets Even More Global

The company is banking on deeper diversification into other Asian countries and the Western Hemisphere.

BALTIMORE — VF Corp., navigating the turbulent waters of global sourcing, is banking on deeper diversification into other Asian countries and the Western Hemisphere this year to offset rising costs in China.

This story first appeared in the May 7, 2013 issue of WWD.  Subscribe Today.

Tom Glaser, vice president of VF and president of supply chain, outlined the company’s sourcing outlook in a keynote address at the American Apparel & Footwear Association’s “International Sourcing, Customs & Logistics Integration Conference” here April 24, including the need for global diversification of manufacturing.

Apparel sourcing executives attending the first day of the conference were examining their supply chains after learning that morning of the tragic building collapse at Rana Plaza in Bangladesh that killed as many as 650 garment workers.

China, which controls a 42.1 percent share of the U.S. apparel import market, will remain a key part of sourcing strategies, executives said. But countries such as Bangladesh, Vietnam and Indonesia will continue to take market share.

“In years past, we talked about…China going away and we were all trying to figure out where we were going to be next,” said Bryan Wolfe, vice president of international trade at Ann Inc. “But the reality is that is not going to happen. It is always going to be a part of our sourcing base, and it’s going to be that way for decades to come. So there are a few emerging markets out there that have been challenging China’s market share. Unfortunately, Bangladesh, being one of those, is in the news more for bad news than they have been for good news. It emphasizes the need of our companies and brands to protect ourselves and the workers around the world making goods for us.”

Glaser said Bangladesh will remain one of VF’s areas of growth this year.

“Bangladesh, regardless of the complications in that country, will still be a significant sourcing hub,” said Glaser, noting that companies need to continue to work to improve fire and building safety issues in that country.

VF Corp. sources about 70 percent of its production from contractors around the world and produces 30 percent in its 32 company-owned manufacturing plants located in the U.S., Mexico, Honduras, the Dominican Republic, Egypt, Turkey and Argentina.

“We are seeing cost pressures in China, and they are real,” Glaser said. “It has made us shift our supply chains more rapidly than we thought we needed to. Wages are now significantly higher than what we pay for now in our factories in Central America and Mexico, so that is a really, big profound shift that I don’t think we fully anticipated.”

He said China will remain a significant supplier for VF products, despite shifts in sourcing. VF currently sources about 24 percent of its business in China, followed by 21 percent in Mexico, 12 percent each in Bangladesh and Vietnam, 7 percent in Honduras, 4 percent in Nicaragua, 3 percent in Indonesia, 2 percent in Egypt, 1 percent in Turkey and 12 percent in other nations combined.

Growth areas in sourcing for VF, in addition to Bangladesh, will be Indonesia, Honduras, Mexico and the Central American counties participating in the Central American Free Trade Agreement.

“We see Vietnam growing for us very substantially,” he said. “It will be our third-largest sourcing country after Mexico and China.”

Glaser said the Americas is a key part of VF’s sourcing strategy going forward.

“One of the big talks in the industry in the last couple of years was that China was going to lose and the Americas were going to win,” he said. “Well, China is not losing, and the Americas are not winning. It’s not in the numbers yet. They have been very flat. But for us, [the Americas] represents 39 percent of our business.”

Mexico and Central America offer big opportunities, he noted. He said VF is starting to make North Face products in its own facilities in the Western Hemisphere as well.

“We have a very large footprint there, and we are very committed to…expanding that,” he said.

Glaser noted that Mexico “has been collapsing for a number of years, but again, for VF it is a substantial hub.”

“We are bringing other products [in addition to denim] into Mexico,” he said. “There is a bit of an overall manufacturing resurgence going on — not in the apparel industry — but we feel pretty good about Mexico.”

Glaser said there is some concern in the overall environment for textile and apparel manufacturing in this hemisphere, however.

“It has been pretty damaged,” he said. “There are not a lot of fabrics. I would say that if we could get a lot more global fabrics in this hemisphere [duty free], we could make a lot more in this hemisphere.”

He noted that VF is the largest buyer of U.S. fabric in the industry, not including trimming, and purchases more than $250 million in raw materials from U.S. textile companies.