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Apparel companies rethinking sourcing in China due to trade war

Apparel and footwear producers are rethinking and in some cases pulling production out of China due to the uncertainty surrounding the ongoing trade war, several industry executives said at a conference on March 14.

Speaking at the American Apparel & Footwear Association's Executive Summit near Washington, Rob Sinclair, the president of global supply chain for Global Brands Group Holding Ltd., said the Hong Kong-based apparel and footwear company is about 37%-38% exposed to China from a U.S. perspective.

As a result of ongoing trade tensions, Global Brands is eyeing a 10% reduction in its sourcing from China over the next 12 months, he said. Still, Sinclair cautioned against companies making rash sourcing decisions relating to China, even in the face of economic uncertainty with the Asian nation.

"Tariff or no tariff, no one should be knee-jerking to significantly change sourcing strategies unless you know all the facts," Sinclair said. "We simply don't know all the facts as we sit here."

"However, we didn't sit on our hands and wait for the storm clouds to pass by," he added. "We have been looking to mitigate some of our exposure. In the event tariffs kick in, our margins are going to be significantly impacted."

Geographic shift

Ted Dagnese, chief supply chain officer for Lululemon Athletica Inc., said the Vancouver, Canada-based athletic apparel retailer has been largely shielded from the impacts of the trade war on sourcing from China primarily due to the fact that it has sourced partially out of Vietnam.

Dagnese said Lululemon's recently opened factory in Haiti has also provided "great results" for the company, primarily as a way to "de-risk" spending via a free trade zone.

However, the company has been "extremely thoughtful" when it has made adjustments in regards to China, especially when working with nylon, polyester and spandex yarns in cut-and-sew factories or fabric mills.

"We have been fortunate, and maybe some of that is dumb luck," Dagnese said. "We've found ourselves in a somewhat isolated position, in a good way, from the escalating trade talks."

Bloomberg reported March 14 that the U.S. and China were planning to push back a meeting between President Donald Trump and Chinese President Xi Jinping to April at the earliest, citing sources. The meeting had previously been floated for some time in March.

Trump has cited a meeting with Xi as a prerequisite to any trade deal with the Asian economic powerhouse.

Whatever the outcome of any such deal, Sinclair called for certainty to avoid any potential further escalation.

"Whatever they decide, just lock it in, and let us get on with it so we can plan properly," Sinclair said.

"You're a deer in the headlights when there's uncertainty," he added. "And that's not good for business."

Concerns mounting

Companies from a broad swath of industries have warned that the ongoing trade spat with China has disrupted supply chains, caused job losses, and led to higher production and consumer costs.

Though apparel and footwear have been largely spared from the trade spat that has already led to U.S. tariffs on $250 billion of Chinese goods, concern remains that the clothing staples will be included in a threatened batch of tariffs on $267 billion of additional imports from China.

According to the American Apparel & Footwear Association, or AAFA, about 41% of apparel sold in the U.S. is sourced from China.

Pilar Toro, brand protection manager for Red Wing Shoe Co. Inc., said the company's manufacturing footprint in China is already minimal, adding that it will only decrease further as the Minnesota-based shoe producer moves its children's footwear production out of the Asian nation.

"We're very conscious that the political spectrum is a dynamic one and is constantly moving," Toro said. "We're aware of that and have been very lucky to make changes ahead of time."

A separate panel at the annual AAFA conference also focused on intellectual property rights, a focus of the Trump administration's Section 301 investigation into what it said were market-distorting practices on the part of Beijing, which sparked the trade war and widespread tariff impositions.

Traci Escamilla, intellectual property paralegal for Patagonia Inc., noted that the clothing producer is always looking to partner with competing apparel producers to combat counterfeit products from China.

"It would be great for us to partner and go after the bad guys," Escamilla said.