Thus far, we have posted deep-dives on the first nine of our 2017 Predictions for Industry and Global Supply Chains. The one prediction remaining is our final Prediction Ten, which for each year, dives into what we foresee as unique industry-specific supply chain challenges or environments for the coming year.
As Editor, I have also decided for the purposes of brevity and reader interest, to present each industry in a separate Supply Chain Matters blog posting. We will be also posting these industry-specific predictions in a faster cadence.
In prior industry-specific predictions posting, we dived into Automotive Supply Chain Residing Across North America .
We then dived into Commercial Aerospace Manufacturing Supply Chains.
Next came B2C, B2B-to-C and Traditional Retail Focused Supply Chains.
Apparel and Footwear Producers and Respective Supply Chains
Somewhat like the automotive industry, there is no industry as globally supply chain linked as that of apparel. Apparel supply chains are global in nature with many interlinked flows and sometimes, hidden flows. Because of the high content of direct labor involved in the production of apparel and footwear, the cost of direct labor is a prime determinant as is the overall cost of transportation to move goods to designated geographic markets.
U.S. consumers have become very accustomed to expect cheaper apparel prices. More affluent consumers demand higher and latest fashion and have been willing to pay a premium price for availability. The Trump Administration policies to initiate business tax reform and protect U.S. jobs will likewise have a significant impact to apparel and footwear supply chain sourcing and pricing strategies.
The geopolitical forces of increased trade protectionism is expected to hit U.S. apparel producers and retailers rather significantly in 2017. High volume, lower-margin apparel and footwear producers must continue to rely on global lower-direct cost manufacturing sources such as China, Bangladesh, Indonesia and other lower-cost regions for production of goods. Similarly, U.S. based apparel brand owners can source fabrics and yarns in the United States while Mexican or Central America based apparel firms perform cutting and sewing operations. Under the existing NAFTA agreement, the goods flow freely and duty-free across borders in North America.
Any threat of a trade war among the U.S. and China, or a border adjusted tax on goods imported from other countries, will have a dramatic impact on apparel and footwear financial margins.
At the same time, traditional retailers are under enormous profitability pressures in 2017. Retailers with volume buying clout may well force suppliers to shoulder the burden of increased footwear and apparel costs. They likewise can continue to turn a blind eye to the ongoing and elusive practices of hidden sub-contracting of production among low-cost region apparel producers. Similarly, industry efforts directed at better and fairer enforcement of social responsibility practices related to sub-standard factory working conditions and excessive daily labor hours’ burdens of apparel workers in low-cost global manufacturing regions could be re-railed by a new round of industry cost burdens.
Smaller, more specialty retailers may have little choice but to pass along cost increases in higher prices. More popular branded or in-demand producers may be able to pass along price increases as-well, but that can be risky.
Industry disruptors focused on “fast fashion” business strategies have been leveraging supply chain near-shoring strategies to provide far more agile responses to the latest and most prominent fashion trends. Their appeal to higher margin, in-demand fast fashion supports higher pricing and thus flexibilities to support near-shoring of fast production. The key to fast fashion has proven to be more agile supply chain sourcing strategies and that will expand in 2017. That may prove to be a significant strategic advantage and opportunity in 2017, but here again, if the existing NAFTA agreement is changed or eliminated in 2017, such strategies will need to be revisited or altered.
This concludes our 2017 prediction related specifically to apparel and footwear industry supply chains. Next up in the industry-specific category will be pharmaceutical and drug supply chains.
A final reminder, all ten of our 2017 predictions will be available in a full research report which we expect to be available for downloading in our Research Center by February 10th.
© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.