Now is the time for manufacturers in a raft of countries to dust off their best sales pitches.
That’s because as President Trump’s administration defiantly plows ahead with plans to impose tariffs on almost every Chinese import meant for the U.S. that has yet to be targeted despite pleas from retailers, many apparel and footwear companies are looking at how they can reduce their China footprint.
While this is not a new trend, as companies have been working to diversify their supply chains for the past decade — mainly due to rising costs in China — the looming threat of tariffs has led some to escalate these plans, according to Stephen Lamar, executive vice president of the American Apparel & Footwear Association.
“People have been looking to diversify away from China for a number of years and it certainly predates the Trump administration, but in the last year or so we’ve heard a lot of people say as a result of the uncertainty we now need to do what we’ve been talking about for the last five years or 10 years,” he said.
It’s not an easy task, though, and is certainly something that cannot be done overnight, sometimes taking years as retailers can’t just slide into a new factory in a new country, added Julia Hughes, president of the U.S. Fashion Industry Association.
“There’s a lot of due diligence that goes into it,” she said, citing social and environmental aspects as well as the quality of the products the factory produces.
For some products, there are also limited or no alternatives for mass production outside of China, according to Hughes.
But for those that are able to move some of their production out of China, there’s a long list of countries fighting for their attention, although their attractiveness is changing day by day.
Mexico and India, for example, both suffered significant setbacks last week. Trump revealed plans to place tariffs on every single Mexican import, starting June 10, in a bid to curb illegal immigration at the southern border. He also declared that India would lose its duty-free access to the U.S. for travel goods.
Here, WWD looks at five other countries — some established, while others are fairly new to the game — that are, for now, not in Trump’s tariff firing line and could stand to benefit from increased Chinese levies.
According to most experts, top of retailers’ lists will be Vietnam, currently second place to China for apparel imports.
“If you’re Nike and you’re making 22 percent of your stuff in China and you’ve already got a big factory in Vietnam, what are you going to do? You’re going to move to Vietnam as fast as you can on everything that’s being shipped to the States and you’re only going to be making stuff in China that’s shipped to China and other places that are not the U.S.,” Jan Kniffen, chief executive officer of retail consulting firm J. Rogers Kniffen Worldwide, told WWD.
“I think more retailers would probably want to move to Vietnam than another place. Vietnam is a place to be because it’s been so easy to do business there. The factories are modern and the workforce works pretty well.”
G-III Apparel Group Ltd., which has the license for many Calvin Klein products and also owns DKNY, previously told WWD that it has already moved some production to Vietnam.
But the AAFA’s Lamar cautioned that while Vietnam may be the easy answer because of its proximity to China and its infrastructure, it may not be so simple if that’s most companies’ solution for avoiding higher tariffs.
“If everyone else is there, too, there will be capacity limitations and constraints,” he added. “It’s the quick answer but it may not be the easiest.”
With apparel imports totaling $5.4 billion last year, Bangladesh is already third in line after China and Vietnam and stands to gain even further if the U.S. government pulls the trigger on the 25 percent levies. Zara, H&M, Gap Inc. and Levi Strauss & Co. are among the many global companies that produce there. Its popularity comes despite concerns over safety of workers.
Following the Rana Plaza factory tragedy, which killed 1,134 garments workers, the Accord on Fire and Building Safety in Bangladesh was set up in 2013 by more than 200 Western fashion companies to ensure independent inspections of factories. Meanwhile, European firms set up the Alliance for Bangladesh Worker Safety.
Both groups lasted five years. The alliance ceased operation, while brands and retailers that made up the accord agreed last year they would continue in the form of the new 2018 Transition Accord. The Bangladesh government fought it and this month got a court to approve that a group led by the country’s top garment manufacturers’ association will take over the inspections – a move that some warn could jeopardize worker safety.
Another issue is that, like Vietnam, Bangladesh too could reach capacity.
For those not wanting to venture too far away from China but not wanting to fight for space in Vietnam, Indonesia is an increasingly popular option.
Isaac Dabah, ceo of Delta Galil Industries Ltd., which owns Seven For All Mankind, recently told WWD that if the Trump tariffs are implemented, the company would work to reduce the amount of U.S. goods it produces in China and that Indonesia is one of the Asian countries on his list.
“Indonesia is a country that a lot of folks are looking at,” added the AAFA’s Lamar. “It’s got infrastructure in the form of apparel, footwear and travel goods. It’s ranked up in the top 10 for all of those products in the U.S.”
One potential setback is that Indonesia’s duty-free access for travel goods could be under threat as it’s currently under review.
“We hope they won’t lose it like India did,” he said.
This is another option in Asia, according to David French, senior vice president of government relations at the National Retail Federation, although he stressed that the challenge for companies is that there is no country that can be the new China. That’s because it’s impossible to match China’s huge skilled workforce, manufacturing capacity, logistics and transportation network and access to deep water ports.
But Myanmar has been working to restore its former garment manufacturing status following the easing of U.S. sanctions during its military rule, and its pros include low costs compared to some of its competitors.
The country has over the past few years landed some big names, including Gap and Adidas AG, and last year the U.S.’s apparel imports from Myanmar jumped 28 percent to $169 million.
Political instability, however, is its main con, said French. It’s also been heavily criticized for its human rights record, especially against the Rohingya Muslim minority, which could result in the return of sanctions. Most recently, investigators from the United Nations have urged countries to cut financial ties with Myanmar.
More off the beaten path that is apparel production is Haiti. After the devastating 2010 earthquake, the Caribbean nation has worked hard to rebuild its economy through its textile workers.
While it is still small-scale compared to some of its competitors, Haiti has also attracted some major brands over the past few years, in part thanks to its proximity to the U.S. and Canada.
At an industry conference earlier this year, Ted Dagnese, chief supply chain officer at Lululemon Athletica Inc., revealed that the activewear company last year teamed up with one of its partners to open a new factory in Haiti.
“We’re seeing great results from that factory and we do see it as a way to de-risk some of our spend and get it in a solidly free trade country, benefit economic development on the island, and we’re pleased that another one of our key partners is opening a factory there as well,” he said.
Haiti’s growing popularity is down to a trade agreement that gives its clothing manufacturers duty-free access to the U.S. While this is due to come to an end in September 2020, the hope is that Congress will renew it. Many companies, however, will no doubt want to wait to see if this happens before making any commitments.