To avoid China's tariff risk, you can find more sources from India and Bangladesh

 

To avoid China's tariff risk, you can find more sources from India and Bangladesh

Dive brief:

  • Guess sourced 27% of its apparel, jewelry and accessories from China in fiscal year 2021, according to its latest sustainability report, a sharp drop from 42% in fiscal year 2020 as the company continues reducing its reliance on China to avoid tariff risk.
  • In fiscal year 2021, a greater percentage of apparel company's purchase came from suppliers from India and Bangladesh, with approximately 23.5% and 18.5%, respectively. Both were less than 15% in fiscal year 2020.
  • Guess stated in the report that the changes were made to diversify its sources and "as the result of changing economic circumstances and purchasing strategies." It also noted that it has decreased volume from countries other than its top sourcing regions in order to strengthen its supply chain.

Dive Insight

As tensions continue between the U.S. & China, and as tariffs persist among fashion products, Guess is relying more heavily on suppliers from India and Bangladesh.

Nearly 90% of respondents to the 2021 Fashion Industry Benchmarking Survey said U.S.-China tariffs "directly increased their company's sourcing cost this year." According to the survey, duty rates on apparel imports from China reached 23.4% in 2020. This is higher than 2017, which was 16.5%. In December, President Joe Biden said he wouldn't make any immediate moves on tariffs, but his administration could grant exclusions to more products.

In its annual 10-K, Guess said it's making "continued progress on reducing our dependency on sourcing from China and mitigating potential tariff risk without compromising the quality of our products."

The fashion industry is not the only one that uses Guess's sourcing diversification. In 2019, 83% of U.S. respondents said they would reduce their sourcing from China. Fashion Industry Association report said they planned to reduce their sourcing from China (only 6.7% said they would "reduce sourcing significantly"). The majority of the sourcing share is held by Vietnam and Bangladesh.

According to the Fashion Industry Benchmarking Survey, "China plus at least two additional Asian countries" is the most popular sourcing method for textile raw materials.

Guess is expanding its supplier base and said that it will also expand its grievance management program for workers to India and Vietnam factories. According to the sustainability report, the program that allows workers to anonymously report concerns exists in "few key suppliers factories" in China.


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The report stated that factory managers have come to recognize the value of the grievance program as they have grown in trust over the years.

COVID-19, as well as other Guess practices regarding responsible sourcing, delayed the expansion of the grievance program. In 2020, supplier factory trainings were delayed and Guess "applied special extensions to its audit schedule and flexibility" in order to comply with pandemic restrictions.

The Verisk Maplecroft Modern Slavery Index said in 2020 the pandemic has complicated the auditing process, making it harder for companies to ensure their supply chains have ethical working practices.

According to its sustainability report, 94% of Guess's assessments of directly sourced suppliers found issues in fiscal 2021. This is a slight decrease from the 96% recorded in fiscal 2020.

The report stated that the three most common issues identified in supplier assessments were: safety and health, wages and benefits, hours work, with wages and hours being closely related. The majority of the issues identified were related to paperwork and procedures, not issues that could pose a threat to worker safety, compensation or wellbeing.

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