The next designer handbag you purchase is less more likely to have a “made in China” label, Bloomberg reports.
Fashion corporations, trying to diversify their supply chains, were already expanding into manufacturing in Southeast Asia as an alternative choice to China. Then the trade war broke out.
Now, with tariffs set to rise on products like Chinese handbags, countries like Cambodia and Vietnam seem more attractive than ever to consumer goods makers like Steven Madden Ltd. and Tapestry Inc.-owned Coach.
Although the Trump administration has imposed tariffs on goods from a lot of its largest trading partners this 12 months, some Cambodian products have still been allowed duty-free access to the U.S. market.
“The change is underway,” said Steve Lamar, executive vp of the American Apparel & Footwear Association. The tariff talks have caused “a lot of anxiety,” and firms are evaluating how quickly they’ll make more changes to their sources, he said.
A study released in July by the US Fashion Industry Association found that while all corporations surveyed sourced goods from China, 67 percent expected to see a discount in the worth or volume of production within the country over the subsequent two years. US trade protectionism was cited because the primary challenge for the industry.
Moving output
Steven Madden CEO Edward Rosenfeld said in the course of the company’s latest earnings conference call that it has moved production of its handbags from China to Cambodia. The shoe and accessories maker expects 15 percent of its handbags this 12 months to come back from Cambodia, a percentage that can double in 2019.
“That gives us honestly about a three-year head start on most of our peers because a lot of people are just now trying to make that move,” Rosenfeld said during a July 31 conference call. “Our head of handbag sourcing is there right now working on a plan to scale that up.”
Tapestry, the posh company behind Coach and Kate Spade handbags, has adopted an identical strategy, increasing Vietnamese production and keeping lower than 5 percent of its supplies from China. Vera Bradley, meanwhile, hinted last December that it was considering moving manufacturing operations to Cambodia and Vietnam from China.
Investment incentives
“Cambodia offers some pretty good investment incentives, like a tax holiday,” said Matt van Roosmalen, Cambodia country director at Emerging Markets Consulting, an investment advisory firm focused on Southeast Asia. “As long as the tariff exemptions are in place, companies will be more motivated to invest in manufacturing capacity in Cambodia.”
The moves to relocate production have had an impact on China: Shares of Hong Kong-based Stella International Holdings Ltd. — which designs and manufactures footwear for brands including Prada SpA and Guess? Inc. — fell to their lowest level since 2009 as China and the U.S. stepped up trade rhetoric.
Cambodia’s footwear exports rose 25 percent in 2017, while apparel exports rose 8 percent in the course of the same period, in response to the National Bank of Cambodia’s annual report, which attributed the rise partly to increased demand from the U.S.
Vietnam, meanwhile, has enjoyed a foreign-led economic boom for years, attracting billions in investment from corporations resembling Samsung Electronics Co. and Intel Corp. It is transforming itself from an exporter of mostly agricultural goods resembling rice and low into a producing hub for Southeast Asia.
“The country enjoys relatively low inflation, a stable currency and political stability — all of which help attract foreign investment,” said Adam Sitkoff, executive director of the American Chamber of Commerce in Hanoi. “The opportunities are clear — Vietnam is a country of 95 million people traveling fairly quickly from bicycles to motorcycles to BMWs.”
Even before China and the U.S. escalated trade tensions, Cambodia enjoyed duty-free advantages on products resembling handbags, suitcases and wallets under a U.S. program aimed toward helping low-income countries develop, a designation that the Trump administration has maintained until now.
Beyond the tariff threat, wages in China have risen steadily, while Cambodia stays one among the lowest-cost countries on the planet. According to estimates by Oxford Economics, Cambodia’s labor costs are 1 / 4 of those in China.
‘Not easy’
However, Lamar of the American Apparel & Footwear Association advises caution.
“Unfortunately, the reality is that leaving China is not easy,” he said.
Another reason is that Cambodia’s infrastructure lags far behind China’s. The country’s infrastructure ranked 106th out of 137, behind neighbors Vietnam and Laos, within the World Economic Forum’s Global Competitiveness Report.
Lamar said this might cause difficulties in getting goods in another country.
