A combination of supply chain chaos, higher costs and concerns about working conditions are forcing some western fashion brands to rethink their decades-long reliance on factories in China.
Dieter Holzer, the former chief executive and board member of Marc O’Polo, said that the Swedish-German fashion brand will start replacing some of its suppliers in the country in favor of factories in Turkey and Portugal in 2021.
The decision is meant to “balance and take risk out of your supply chain and make it more sustainable”, he said. “I think a lot of companies in the industry are reviewing their exposure [to China].”
The shift away from mass textile production in the country, although still in its early stages, marks a reversal of years of outsourcing to areas that have dominated the textile supply chain.
Big names such as Mango and Dr Martens have recently cut back or signaled their intention to move manufacturing out of China or Southeast Asia.
“The big message is to reduce our dependence on China,” Dr Martens chief executive Kenny Wilson said in November. “You don’t want all your eggs in one basket.”
The bootmaker has moved 55 percent of its total production out of the country since taking over in 2018. Only 12 percent of the production for the Autumn / Winter 2022 collection was produced in China compared to 27 percent in 2020 and approx. this will drop to 5 percent this year.
“We are being deafened by the voice of the clothing manufacturers [moving] away from Asia,” says Rosey Hurst, director of ethical business consultancy Impactt.
The move was also prompted by stricter laws introduced in the US and Europe against labor abuses, he added, following the alleged use of forced labor in China’s cotton-rich Xinjiang region.
Mango’s chief executive, Toni Ruiz, said in December it was considering buying less from China “but we will be very careful about what happens”.
“What we’re seeing is that all these global resources, which have been developed over the years, can become more local,” he said.
The shift has been accelerated by ongoing supply chain disruptions since the start of the Covid-19 pandemic, which has led to rising shipping costs, as well as significant shipping delays as factory workers in manufacturing centers across Asia fall ill or are forced to leave.
One of the industry consultants said that one of the retail client’s ski clothing, from the previous season, arrived in the summer of 2022.
“For many, the days are just manufacturing in China and shipping everywhere,” said Todd Simms, vice president at supply chain intelligence platform FourKites.
“Disruption has increased the cost of delivering finished goods, making it easier to justify operations in new countries in exchange for more resilience,” he said.
The financial incentive to stay in the region is shrinking as wages rise after years of cheap labor — a major draw for many household names to outsource manufacturing to faraway places.
According to statistics from China’s National Bureau of Statistics, average factory wages doubled between 2013 and 2021, from Rmb46,000 ($6,689) per year to Rmb92,000.
Jose Calamonte, chief executive of the online fashion retailer Asos, told investors in the presentation of the company’s full year results last year that products produced in China were not as competitive as they seemed relative to Europe, after shipping and transportation costs were taken into account.
“We are trying to think about the final [profit] margin if we have made the last sale,” he said.
The efforts of European fashion retailers to reduce delivery times, as fashion trends and consumer needs change rapidly, is another reason for their decision to choose suppliers closer to home.
“We have taken control of our manufacturing,” said a spokesman for the British luxury brand, adding that the industry has been consolidating in Europe for years. “This has become a trend for reasons that need to be done with speed and efficiency.”
Plans to move production away from Asian garment hubs have not progressed due to complexity. Countries such as China and Vietnam represent the largest share of textile exports, according to 2020 data from CEPII.
For example, more than half of the suppliers to Inditex, the world’s largest fashion retailer, will be based in Asia in 2021, only a small decrease in 2018.
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Turkey has positioned itself as the winner of the western brand moving its production, not least because it is part of the EU customs union, allowing frictionless trade between member states.
“It’s a popular destination and has been used by the likes of Hugo Boss, Adidas, Nike, Zara,” said Simon Geale, executive vice president of procurement at supply chain consultancy Proxima.
A more important consideration for retailers is traceability in the supply chain after years of reported labor abuses.
“[Because of US laws against cotton from Xinjiang]brands need to have better traceability,” says Impactt’s Hurst.
“Then we got European legislation [on forced labour] come up This puts pressure on the industry to catch up,” he said.
But he warned: “There is never enough money [international supply chains] to do the things that need to be done. [Given the current economic crisis]that will only get worse.”
Maximilian Albrecht, an analyst at AlixPartners, said that many fast fashion labels are also leaving China to differentiate themselves from Shein, the Chinese fast fashion giant.
“European brands cannot match Shein in terms of production costs, production networks, relationships,” Albrecht said.
“I think you’ll see some brands say ‘well, we can’t match it, so we’ll go to Europe’. You can still sell the story that they have a superior product. Whether it’s true is something else.