Reshoring has been a hot topic across multiple sectors as U.S. manufacturers push to reignite the once dwindling industry, and a new study revealed that the apparel industry is one of the top sectors bringing business back to America.
Global management consulting firm A.T. Kearney recently released a report titled, “The Truth About Reshoring: Not What It’s Cracked Up to Be,” and found that while reshoring doesn’t seem to be happening as much as hype would suggest, some sectors are seeing a resurgence.
A.T. Kearney analyzed close to 700 reshoring cases that have been announced in the last five years to show the change in ratio between U.S. manufacturing imports and gross output during that time period. The index is actually expected to show a slower year-over-year increase in reshoring cases, lower by 20 basis points from 2013, as offshoring to foreign manufacturing markets outpaces reshoring.
“Many of these cases in the A.T. Kearney Reshoring Database are still in the early stages of implementation and have yet to translate into real economic impact. So the benefits to the U.S. manufacturing sector have not been fully realized. But the fact that the number of reported reshoring cases appears to be no longer growing as fast as it did over the past three years is a first interesting observation that appears to contradict the hype,” the report noted.
The top three sectors where reshoring was most prevalent were: electrical equipment, appliance and component manufacturing with 15 percent of the cases, transportation equipment manufacturing with 15 percent of the cases and apparel manufacturing with 12 percent of the cases—an unexpected discovery as most believed low-wages abroad would keep apparel manufacturing from coming back to America.
According to the firm’s studies, apparel reshoring cases have been increasing for the past two years.
Between 2011 and 2012, the value of offshore apparel imports decreased by $845 million, while U.S. manufacturing gross output for apparel increased by $640 million. “Admittedly, these are not large numbers in the scope of the U.S. economy—or even the broad sweep of cut and sew offshoring—but they are a clear demonstration of the tangible results of reshoring in that industry,” the study noted.
Owed to the fast fashion frenzy, customers are now expecting shorter lead times and, as everyone is more concerned about supply chain disruptions, companies are rethinking their supply chains.
“Many of these apparel manufacturers rightly argue that smaller runs of high-quality garments that sell at full-price are far better than volume runs of garments that have to be sold at discount. The need to continuously shrink and optimize the supply chain will remain in the foreseeable future,” the report noted.
Pramod Gupta, A.T. Kearney principal and study co-author said, “The premium and brand/image driven segment of Apparel is driving the sudden resurgence [of reshoring] in the sector. The premium segment is able to better respond to changing “fast fashion” trends in a volatile consumer demand by having manufacturing closer to design centers. Leaner and shorter inventory pipeline has offset rising costs of retail discounting for many of the retailers. In addition, some consumers are becoming more inclined to buy products made in America for their quality and sustainability, even if they are higher-priced.”
But despite the uptick, American apparel manufacturing may not be a staying trend.
“Though more companies may return to domestic production in the next two to three years, we do not expect the trend to continue in the long term,” Gupta said. “One reason is that for apparel, manufacturing costs in the U.S. are relatively higher than the offshore production. While ‘made-in-America’ products do command a premium, how much premium consumers are willing to pay for those products is still an unknown factor.”
For brands that are not premium or driven by their image, reshoring may always be cost prohibitive with much lower-cost labor readily available overseas.
Gupta said, “For more staple brands, manufacturing cost differentials are still a significant portion of the total costs. Most clothiers for non-premium brands are expected to continue to rely on oversees manufacturing locations in order to compete in a very cost-sensitive US consumer market.”
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