European apparel brands increasingly shifting production out of China

European buyers are now joining US apparel companies in searching for sources that are cheaper and closer than China. This growing shift reflects the changes to global supply chains the US-China trade war is creating and accelerating. A Qima survey indicates that 67% of EU-based businesses have already started sourcing from other countries this year or plan to do it in the near future.

Many apparel companies are already moving or considering moving parts of their production out of China, as the trade war between the US and China creates and accelerates changes to the global apparel supply chains. Since the start of the trade war, the average retail price of clothing manufactured in China and exported to the US has almost tripled, going from $25.7 per unit in 2018 to $69.5 per unit in 2019. This is in addition to rising labour costs in China over the past several years. The movement to pull out of China is mostly led by US companies, but European buyers are also increasingly looking for cheaper or geographically closer sources. A Qima survey estimates that 67% of EU-based businesses have already started sourcing from new countries this year or have plans to do so in the near future.

As the trade war reduces price competitiveness of the Chinese production, it opens opportunities for other countries and regions to step in, particularly those in South Asia. German sportswear manufacturer Puma, which makes a third of its products in China, announced last year that it will likely shift production to Bangladesh, Cambodia and Vietnam as a result of the US-China tariff war. Nearshoring is also growing increasingly important for European apparel and textile companies. In this context, Turkey, Romania, Portugal and North African countries have been recording strong order and production growth. Some designer clothing brands have been even moving some of their production home to increase control over supply chains. Britain’s Burberry and Germany’s Hugo Boss, for example, are trying to capitalise on the Made in England and Made in Germany labels to drive luxury sales.

Sourcing problem higher-value apparel

Sourcing high-value apparel, however, presents a particular difficulty. While basic apparel production can be relatively easy to move to lower-cost locations, higher-value clothing requires higher specialisation and quality assurance. China became strongly specialised in manufacturing high-value items such as outerwear and accessories over the years. Other countries which are not as advanced in the value chain cannot currently compete with China in quality and quantity, often creating risks for buyers in relation to product quality and factory safety. In the high-value segment, China still offers a good balance of cost, reliability, speed to market and low risk of non-compliance. As the trade war with the US continues to shift conditions in China and elsewhere, expect brands to employ creative strategies to balance their sourcing requirements.

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This news article has been written for CBI by M-Brain.