CBI Special Topic:

Supply Chain Trends in

the Apparel Sector
Practical Market Insights
This paper examines a key trend in apparel supply chains: the
changing map of apparel sourcing. China is Europes largest
apparel supplier. However, wage inflation in China and other
low-cost sourcing nations is a posing significant challenge for
apparel companies; social risk is also a growing concern.
Seeking to optimize the cost/risk ratio, apparel companies are
exploring new sourcing locations and sourcing strategies are
becoming more complex. While companies are evaluating
potential new frontiers, they are also exploring source
countries closer to home. Proximity sourcing is favoured for
the fast fashion segments and some national government
initiatives are encouraging reshoring. Low-cost sourcing is
favoured by companies offering products that are less fashionforward. Turkey is a key competitor for all countries in todays
European sourcing landscape; DC exporters need to focus on
speed to market, just-in-time deliveries and preproduction
services in order to best compete in the changing sourcing
landscape.
China is Europes largest apparel supplier
China is the largest apparel supplier to Europe, due to the maturity of its supply
chain, the skill of its labour force, growth in its domestic consumption and
strong fabric base.
Figure 1: Top Developing Country Apparel Importers 2013
Morocco
2%
Cambodia
4%

Pakistan
2%
Sri Lanka
2%

Tunisia
2%

Others
4%

Portugal
4%

China
39%

India
6%
Bangladesh
17%

Turkey
18%

Source: Eurostat 2014

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CBI Special Topic Supply Chain Trends in the Apparel Sector

China imported 11.3 billion of apparel into Europe in 2013. This accounted for
27% of total apparel imports into the EU and 39% of apparel imports from
developing countries. Overall, apparel imports from China only grew at a 2.2%
CAGR over 2009-2013. The highest growth over the same period among the
developing countries was seen in imports from Cambodia (26.5%), Bangladesh
(13.8), and Pakistan (13.4%).
CONSIDERATIONS FOR ACTION: Although China is currently the largest
importer of apparel, Turkey is the next largest competitor, and due to its
beneficial location, should be monitored by all countries within the European
sourcing landscape.

Wage inflation is the primary supply chain challenge

Labour costs are a significant component of FOB and they are a growing issue in
China and other low-cost manufacturing regions.
Figure 2: Labour Costs make up 40% of FOB

Source: Cowen and Company, 2014

Over the past several years, Chinas labour rates have been on the rise, and
many companies have moved their manufacturing to emerging markets to help
keep costs down. China is no longer the low-cost leader; although wages for
Chinese factory workers are still lower than Japan, South Korea and Singapore,
they are now significantly higher than for workers in Bangladesh, Vietnam and
Cambodia. Rates are still lowest in Bangladesh, although recent surveys have
found that many factories are failing to pay minimum wage to garment workers.
Figure 3: Monthly minimum wages in the garment industry in 2013, in EUR*
700

598

600
500

402

400
300
185

200
100

51

53

55

58

59

60

63

64

94

230

103

Source: ILO Regional Office for Asia and the Pacific

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CBI Special Topic Supply Chain Trends in the Apparel Sector

* for countries with different rates by region, enterprise size or grade, the lowest possible
rate was used

But wages are also rising in the lower-cost manufacturing regions in Southeast
Asia. In 2013, factory workers in several developing countries revolted, seeking
better wages in relation to the cost of living. Recently, workers in Bangladesh
and Cambodia went on strike in lobbying for fair wage increases. Many
manufacturing regions will see significant wage increases in 2014:
Figure 4: 2014 Wage increases by Country
90%

77.0%

80%
70%
60%
50%
40%

25.0%

30%
20%
10%

1.2%

2.3%

3.9%

9.0%

10.0%

11.0%

15.0%

0%

Source: Credit Suisse, 2014

Bangladesh announced the most dramatic increase to minimum wage for 2014,
up 77% Y/Y. Cambodia agreed to a 25% Y/Y increase from 60 per month to
75, but this was significantly lower than the 120 per month that the workers
were asking for. Wages in China are expected to increase 10%-plus in 2014:
Shenzhen, a major apparel and footwear manufacturing province, has
announced a 13% Y/Y increase for 2014; Yangzhou will increase wages 15.6%,
Jiangsu 15.6%, Xi'an 11.3%, and Changsha 9.1%.
It is important to note that although wages in China and other low-cost
manufacturing regions continue to increase, overall levels have decelerated
from recent years. However, labor uncertainty in lowest-cost regions is
disrupting production and causing uncertainty with respect to costing. Wage
inflation in lowest-cost manufacturing regions is placing pressure on supply
chains. Price inflation for value offerings is expected to increase up to 5-6% Y/Y
towards the end of 2014.
CONSIDERATIONS FOR ACTION: Sourcing managers are getting more
concerned with sourcing from nations in which actual wage is moving towards a
living wage. DC Exporters are encouraged to not only pay fair wages, but to also
communicate wage policies to reassure buyers that you are complying with
policies.
The challenge of increasing wages could squeeze margins for retailers and
brands with significant low-end product exposure in the value marketplace.
However, at the higher end of the apparel value chain, pricing pressures are
likely to be more moderate. Companies that can pass pricing increases on to
customers are best positioned in this sourcing environment:
Brands with strong pricing power
Making high-quality products and targeting the mid-to-high range
Categories less exposed to selling price pressure (e.g. sportswear,
accessories, jewellery, footwear)

Compliance is another growing area of concern

Assessing social risks is becoming increasingly important for apparel companies.
Sourcing in low-cost countries exposes retailers and brands to reputational risks
from low wages and inadequate safety standards at suppliers. Although the

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CBI Special Topic Supply Chain Trends in the Apparel Sector

Rana Plaza collapse in Bangladesh raised unprecedented awareness on garment

worker safety and stimulated important initiatives, the overall working
conditions for workers in the garment industry in many Asian countries still pose
significant challenges. Supplier incidents and subsequent labour unrest is rising
in countries such as Bangladesh and Cambodia.
As companies seek to lower production costs and consider moving production to
countries with lower wages, they are also looking at social risks and the types of
social issues that are most likely get widespread media attention and pose
operational and reputational risks. NGOs are the most active and outspoken
stakeholder group, and their campaigns stemming from supplier controversies
have strong reputational impact on consumers, often placing the blame on
retailers and pushing companies to take action. Other stakeholders are also
contributing to pressure on apparel brands and retailers to minimize social risks;
increasingly, US and European Union representative bodies and politician are
also speaking out.
Figure 5: Top social issues with Suppliers 2010-2013

Freedom of
association
4%

Child and/or
forced labour
3%

Low wages
21%

Other
3%

General work
conditions and
labour rights
44%

Safety
25%

Source: Societe Generale Cross Asset Research, 2014

Companies are actively exploring social risks in their supply chains. Social risks
can stem from a wide range of issues, including industrialisation levels, internal
migrations, social inequalities and overall economic situations. Companies can
assess their sourcing locations by examining:

Minimum wage vs. Living wage

Corruption index

Freedom of Association

Social unrest risk

Child labour risk

CONSIDERATIONS FOR ACTION: Companies with low exposure to supply
chain country risk and low exposure to stakeholder scrutiny have lower social
supply chain risk.
Monitor how key stakeholder groups are influencing larger brands and retailers
present in your country. Be aware of the NGOs most active in recent apparel
industry controversies:
o
o
o
o
o
o
o

The Clean Clothes Campaign (CCC)

War on Want
Labour behind the Label (LBL)
SOMO (Center for Research on Multinational Corporations) & ICN (Indian
Committee of the Netherlands)
IGLHR (The Institute for Global Labour and Human Rights)
International Labour Rights Forum
Fair Wear

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CBI Special Topic Supply Chain Trends in the Apparel Sector

Seeking to optimize the cost/risk ratio, apparel companies are

exploring new sourcing locations
Apparel companies are employing various strategies to minimize costs. Supply
chain efficiency is increasingly an area focus for retailers for savings. Mainly,
efficiencies are achieved through higher volumes; these savings can be
reinvested into prices, services, websites, technology, online services, store
environment and/or advertising. Technology investment also helps the larger
retailers. For example, through the aggregation and analysis of sales data, they
can find sales patterns and generate demand projection estimates, thereby
reducing mark-downs and wastage.
Many companies are considering their sourcing location as a key area for
savings. Wages are a primary consideration for manufacturers, but they are not
the sole sourcing decision driver; the decision-making process takes into
account many other factors:

Raw materials costs, especially local cotton prices

Energy costs
Currency appreciation
Infrastructure quality
Political risk

Government support of the textile industry

The changing map of apparel sourcing

CBI conducted an informal survey of European apparel experts to determine
which countries are perceived to have the highest potential as new sourcing
nations for the European apparel industry.
Figure 6: New Sourcing Countries of Interest to European buyers

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CBI Special Topic Supply Chain Trends in the Apparel Sector

Figure 7: New Supply Nations Perceived Capabilities

Nation

Capabilities

Pros

Cons

Ethiopia

CM

Jersey, work wear, uniforms

mass, nonwoven, light shirts

Good work ethic , productivity;

existing infrastructure

Have to import everything

fabric, components etc.

CMT

Woven, jackets, shirts

Labour is cheap, well-known

producers, nearby, good
transport and infrastructure

Fabric has to be imported,

Danish presence already

Serbia

CMT

Jersey, lingierie, woven

Special techniques, good

industry knowledge, cheap
labour

Myanmar

CMP

Sportswear, jackets, woven

items

Has capacity

Vietnam

CMPT

Ukraine

Good workmanship, nice cotton. More expensive

Good potential when FTA is in
place

Thailand

Sustainable program in fabric

and production

North Korea

CMT

Jackets

Madagascar

FOB

Knitwear, heavy sweaters,

cashmere

Zero duty easy entry into EU

Pakistan

FOB

Leather, jeans, motorcycle

suits, sweatshirts

GSP in effect

Mongolia

FOB

Lemmy coats, cashmere

More complete textile chain

Croatia
Romania

Korean/Japanese have
invested heavily; productivity
needs improvement; no BSCI
yet

Chinese connection needed,

no direct business
Dominated by French

Small industry

Good quality comparable to

Macedonia but better
Fully-tailored products

Industry knowledge

Sourcing strategies are becoming more complex

Some retailers are placing caps on the percentage they are willing to source
through very high risk countries and developing more complex supply chains.
Many companies are developing supply chains that source according to their
segment positioning and business model.

Proximity sourcing is favoured for the fast fashion segments

Fast fashion is about how quickly a design can move from catwalk to store in
response to current fashion trends; it demands short supplier lead times and
increased consumer choice through continuous product replenishment. Growing
consumer demand for fast fashion has vastly increased the number of fashion
retailers in the market and the emergence of online and multichannel shopping
has increased customers' options. These factors have forced many retailers to
adapt their supply chain in order to lower lead times and increase speed to
market. Although China remains the dominant sourcing location for most
retailers, European retailers that are more fashion-focused are shifting towards
proximity sourcing locations like Turkey. Sourcing in lower-cost countries

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CBI Special Topic Supply Chain Trends in the Apparel Sector

exposes retailers to reputational risks from wage and safety issues, but it also
reduces their visibility on rapidly changing consumer preferences. This can
potentially result in a mismatch in offer and demand that leads to larger markdowns. With a more local approach, apparel companies can deliver shorter lead
times and more effectively adapt to volatile consumer demand; in fast fashion,
adapting to consumer demand and the latest fashions efficiently and quickly has
become a crucial aspect in supply chain management. There has also been an
increase in the proportion of Open to Buy buying plans; these allow retailers to
have the right amount of inventory and react quickly to fast-selling items and
replenish supply levels within a season.
Proximity sourcing may involve a cost trade-off, in that sourcing more locally
increases speed and efficiency, but often means higher wage costs. However,
working with a local supplier means a small business is not tied to ordering from
China in large volumes or waiting six weeks for a delivery. In addition, orders
from smaller European suppliers may lose out as China increasingly prioritizes
production for domestic consumption.

Government initiatives encouraging reshoring

Reshoring is also a growing movement within certain countries. In the US,
there has been marked growth in the number of companies bringing
manufacturing back to the US; the EU has also seen modest growth. The
reshoring trend in Europe has been noted in Spain, Portugal, and Greece. In
2014, the UK launched a reshoring initiative to stimulate the economy by
encouraging companies to provide jobs in the UK rather than the Far East. The
skills shortage has is also being addressed; for example, online retailer ASOS
launched a Stitching Academy in the UK for stitching and production methods
training.
Figure 8: Reshoring considerations for European companies
Benefits

Lower transportation costs

Easier production management
Better flexibility (e.g. minimum
quantities) and just-in-time
properties
Better preproduction services and
sampling speed
Better creative contributions
(eg. proposals, problem-solving,
decision-making, intuition)
Less CSR risk, environmental
issues
Marketing opportunities in patriotic
purchasing (e.g. Made in Britain
equated with quality)
Possibilities for re-export

Challenges

Lack of expertise and fabric

intelligence retraining needed
People prefer to work in retail over
manufacturing
It is unknown how wages will
develop in the EEC
Still need to source components
and fabric from Asia
Producing in EU23 is more
expensive

CONSIDERATIONS FOR ACTION: In order to better understand the changing

map of apparel sourcing, DC exporters are encouraged to investigate companies
that could see benefit from moving sourcing closer to home. Inditex (Zara,
Massimo Duty) and ASOS are two large European apparel manufacturers/brands
known to be using proximity sourcing to meet consumer demand for fast
fashion. Other prominent European fast fashion retailers include: Top Shop,
Mango, and Next.
Better quality products also being increasingly sourced closer to home as they

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CBI Special Topic Supply Chain Trends in the Apparel Sector

can withstand the pricing pressures of increased wages. Jaeger, Fat Face, River
Island and M&S are mid-to high level UK brands that have all brought back
some manufacturing to the UK. Other mid-range European brands include:
Esprit, COS, and Benetton.
Turkey is emerging as the key source nation competitor and it is targeting
strong growth in exports of textiles and clothing to Europe to capitalise on a
growing number of brands and retailers seeking to diversify their supply chains
away from Asia. Turkey has mastry of all apparel product groups and has been
a strong supplier in fast fashion to Europe, and it took over a lot of business
from North Africa during the Arab Spring. Garment manufacturing in Eastern
Europe is similar, has similar remuneration; in addition to Turkey, Eastern
European countries such as Romania, Macedonia, Bulgaria, Slovenia and
Lithuania are increasingly competitive for garment production and should be
monitored as well.
DC exporters need to focus on speed to market, and just in time deliveries in
order to remain competitive. Those that excel in preproduction services, speed
in sampling, and collection proposals will have an advantage. Survivors in the
market are the ones that can offer services related to stockkeeping units and
warehousing. Vertical integration is another option; manufacturers that expand
into brands and retailers are also doing well. Offering buyers flexibility towards
their Open to buy strategies is also advisable; having good control of inventory
is important to retailers as chronically inadequate stock levels can significantly
affect their bottom line.

Low-cost sourcing favoured by companies offering products

that are less fashion-forward
Retailers with a higher proportion of basic/less fashion forward products are
shifting more towards lower-cost countries such as Bangladesh. With low pricing
power, discount retailers at the mid-low end are most likely to source from
emerging markets in Africa and Southeast Asia. High-risk countries have more
difficulty investing in suppliers social risk monitoring; however, multi-national
manufacturers that transfer their infrastructure and expertise, especially in
factory engineering and automation are benefitting from this low-cost sourcing
strategy. Favourable trade policies are also helping to drive this trend. In
addition, infrastructure improvements may help offset rising wage costs. Supply
chain and transportation infrastructures have improved dramatically across
emerging markets and this is increasing manufacturing mobility. For example,
deep water shipping capacity is being added across Southeast Asia and
transport infrastructure within second-tier manufacturing regions has improved
considerably; these improvements allow manufacturers to shift capacity to
outlying regions where there is less significant pressure from wage increases.
This will ultimately benefit buyers by helping to offset some of the pressures of
wage inflation in many first-tier manufacturing cities. Companies are also trying
to offset rising labor costs with innovation in manufacturing processes to
increase productivity and keep costs down.
CONSIDERATIONS FOR ACTION: Many companies are prioritizing lower cost
sourcing over speed to market, including H&M, Tesco, and New Look. Keeping
costs low will be a priority for buyers sourcing from lowest-cost countries.
Specialization is becoming more important. Some companies will switch
suppliers if it specialises in particular product categories; for instance, some
suppliers in the former Soviet Union focus on making quality, technical
products, such as sportswear.
Key risks for buyers that affect sourcing decisions include lost efficiencies
through production problems and delays and supplier uncertainty. Clear
communication between companies and suppliers is vital for an effective supply
chain. For example, incorrectly assuming what is common practice can disrupt a
production schedule. Software that puts suppliers and buyers on the same
platform, sharing real-time information on costs and performance is becoming

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CBI Special Topic Supply Chain Trends in the Apparel Sector

increasingly common. DC exporters can also reassure the buyer that your
policies and practices are compliant with local regulations and the policies and
practices of the company. You can also offer to do a trial order. Ultimately,
manufacturers and buyers should work together on forging a much closer and
more integrated supply chain, and invest in long-term partnerships in order to
gain the most from process efficiencies and collaboration.

Useful sources

Just Style
Drapers
Social Risk in the Apparel Supply Chain, Societe Generale Cross Asset
Equity Research, 2014
European Food and General Retail Report, Barclays Equity Research, 2014
Sourcing Survey Vol. 2: Thoughts On 2014 Apparel Unit Costs And
Bangladesh, Cowan and Company, 2014
2014 Sourcing Outlook, Credit Suisse, 2014

Tradeshows and events

Ethical Fashion Forums Source Summit (London)
Fashion SVP (London)
Fatex (Paris)

More information
CBI market information: Promising EU export markets.
EU Expanding Exports Helpdesk - http://exporthelp.europa.eu - go to trade statistics.
Eurostat - http://epp.eurostat.ec.europa.eu/newxtweb - statistical database of the EU.
Several queries are possible. For trade, choose EU27 Trade Since 1995 By CN8. Use the
guide Understanding Eurostat: Quick guide to easy comext
(http://epp.eurostat.ec.europa.eu/newxtweb/assets/User_guide_Easy_Comext_2009051
3.pdf) for instructions.
International Trade Statistics - http://www.trademap.org you have to register

This survey was compiled for CBI by Global Intelligence Alliance

in collaboration with CBI sector expert Dhyana van der Pols
Disclaimer CBI market information tools: http://www.cbi.eu/disclaimer

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