Rag Trade Tearing Away From China

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This year is shaping up to be an expensive one at Windsor Inc.


The Vernon-based apparel company, which sells a line of trendy women’s clothing in 13 states, used to manufacture half of its wares in China to keep costs down.


But in order to avoid embargos that are expected to shut off apparel imports from China later this year, the company moved all of its manufacturing onshore to Los Angeles and New York despite the much higher production costs.


“You get more bang for your buck in China,” rued Windsor Vice President Ike Zekaria. “It is absolutely more expensive to manufacture domestically.”


Windsor isn’t the only L.A.-area apparel company scrambling to change production facilities. Others are moving their production to such places as Vietnam, Sri Lanka and the Philippines, as well as closer locations in Central America and the Caribbean.


In all, some 3,000 companies in L.A.’s apparel industry could be affected by the so-called “safeguard quotas.”


The quotas went into effect in 2006 on 34 categories of apparel imported only from China. In 2005, there were no quotas. The quotas were imposed as a result of pressure from U.S. textile manufacturers who were alarmed at the rising imports from China.


As a quota, or numerical limit, is hit, imports in that category are shut off. For example, the limit of 271 million cotton pants and 261 million pairs of underwear from China are expected to be reached as early as October. Thereafter, no more imports will be allowed on those items until next year.


Last year, some of the quotas were filled including those on socks and certain children’s wear, but it was at the very end of the year after manufacturers had made all their annual shipments, said Bruce Burton, director of international business consulting for apparel accounting firm Stonefield Josephson Inc.


Already this year, quotas on certain items have filled to nearly 70 percent and the busy winter shipping season is just underway.


Ilse Metchek, executive director of the California Fashion Association, said it makes sense for local apparel firms to move manufacturing before the quotas fill up.


“The embargo date isn’t given in advance. By the time you find out, you can’t get any more products,” Metchek said.



Labor costs

The price difference between manufacturing in the U.S. and a low-cost country such as China is huge. A Chinese vendor will charge about $6.50 or $7.50 for a basic five-pocket jean, Burton said.


Even with U.S. duties of $1 to $2 per unit, it still costs far more to manufacture the same pants in the United States between $15 and $25. “There is only about a 15 percent savings on raw material in China, but the savings on labor if you do it in China is as high as 70 or 80 percent,” he said.


Second Generation Inc., a Los Angeles company that manufactures clothing for several teen labels, used to manufacture almost exclusively in China. But this year it moved about 25 percent of production onshore, while sending some of its other production to other Asian countries.


President Michael Weisberg said that to offset the price of American production it is making products with fewer embellishments here. “We aren’t scaling back at all. But if the item is more labor intensive, it is going to be made in (an Asian country),” he said.


Los Angeles-based 6 Degrees which sells its branded clothing mostly to department stores such as Macy’s and Dillard’s, has found it too expensive to move any additional manufacturing onshore.


The company currently does about 30 percent of its manufacturing in Los Angeles, and most of the remainder in China. It is now moving some of that Chinese production to Vietnam and Sri Lanka, said President Lowell Sharron.


Despite conducting most of its manufacturing in China, the company has maintained relationships with factories in Vietnam and Sri Lanka in anticipation of having to diversify its source of production.


“There is always a pretty significant learning curve with any new factory. We are trying to establish relationships even if they aren’t that meaningful just to get the learning curve taken care of in advance and we can start production right away,” he said.


Still, the process of moving production is complicated. It takes about three weeks for fabric to move between China and Sri Lanka, so the company has had to plan in advance to ensure that its winter clothing is produced in time to sell domestically.


Burton said it’s not surprising that a company would encounter logistical problems transferring business to factories in new countries. First, a new plant has to be visited, employees need to be trained on the garment in production and labor compliance issues need to be worked through.


Usually the largest companies have diversified facilities in separate countries and can transition manufacturing back and forth with ease, but smaller companies are sometimes left with nowhere to go.


“Unless you have been there before, you can miss a whole season just trying to set up another manufacturing location in another country,” Burton said. “It isn’t easy.”


Meanwhile, not every local apparel company is taking steps to ensure their products won’t be held up this year if there are embargos. Burton said some are simply hoping that they will be able to get their clothing shipped to the U.S. before any embargo hits.


In any case, it’s unlikely consumers will notice much should the embargo go into effect given the vast array of clothing companies that supply product to U.S. retailers. “It might not be in their plans or at the price point they want, but they will get it,” Burton said.

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