Offshoring and the declining American apparel manufacturing industry

Apparel Industry in USA

The apparel industry in the United States is not nearly what it was given the amount of offshoring that has been done over the years and the jobs that could have been here but never were. However, there is certainly a niche when it comes to clothing manufacturers in the United States and apparel sales in general in the United States is huge, regardless of where the clothes are made. The items that will be covered within the analysis of the American apparel industry include their NAICS code, the country-level information that exists, the state-level statistics that exist, the same with city, how Porter\'s Five Forces fits into all of this and beyond. The Porter dimension in particular will bear a bulk of the weight in this report. While there are special considerations and issues when it comes to cost and such in the United States, there is certainly a presence of American apparel makers and many of them do quite well.

Industry Summary

NAICS Coding

The NAICS coding for the American apparel industry is rather simple. There is a high-level code common to all aspects of said industry and three sub-codes that exist within the same. All NAICS codes related to apparel start with 315. Apparel knitting mills are 3151, cut/sew apparent manufacturing is 3152 and apparel accessories and \"other) are all contained within 3159. These are the current and actual codes as described by the United States Bureau of Labor Statistics, or BLS for short (BLS, 2016).

Federal, State & Local Statistics

The overall size of the apparel market in the United States is about $225 billion. Women\'s apparel makes up about half of that and men\'s apparel the other half. Overall clothing store sales in the United States are about $183 billion a year. The average price for a piece of clothing is $19. It should be noted that the value of clothes imported into the United States is roughly $29 billion a year. The amount of wholesale purchases of clothing within the United States is about $94 billion. The overall gross margin that exists when it comes to apparel in the United States is about $52.49 billion. The average clothing consumer in the United States spends about $978 a year. The level of revenue for apparel and accessories in the United States is about $63.5 billion (Statista, 2016). Of course, every state and city sells clothing but the question becomes where it is made. When it comes to where the hotspots are in the United States, the best examples are the Los Angeles/California area and the New York/New York area. There are others, but those two are by far the biggest. That does make some sense given that the two cities mentioned among those are the biggest in the United States, numbering in the ten million range each. In New York alone, the \"Garment District\" has about 7,100 workers and pumps about $2 billion into the NYC economy every year. Other areas that are busy in the United States include North Carolina (Raleigh is an example) and Indiana (Fort Wayne) (Wee, 2013).

Porter\'s Five Forces

Anyone that has studied or worked within business long enough has probably heard of Porter\'s Five Forces. There are most certainly other theories and belief structures out there when it comes to business, competition and so forth. However, the Porter model is one of the more prolific and commonly used ones. Those five forces are Rivalry Among Existing Competitors, Bargaining Power of Buyers, Threat of Substitute Products or Services, Bargaining Power of Suppliers and Threat of New Entrants. These five items can be thought of being arranged in the form of a cross. Competitive rivalry is in the middle and the other four are above, below, to the left and to the right. All of these forces are significant and they form the framework and paradigm of competition when it comes to businesses and how they influence and play off one another. Of course, every industry is different and has its own attributes, traits and normal doing of business and outcomes. With the apparel industry in the United States, this would obviously include that sales of clothes and fashion articles in the United States is a very big business but that much of the clothes sold in the United States are made in Asia and a few other parts of the world (e.g. Mexico) and are then imported and sold in the United States.

Rivalry among Existing Competitors

Given that this Porter force is the epicenter of the wider model, it shall be covered first. Like most industries, the clothing and apparel industry is by no means some monolithic and singular entity with one set of competitors. Competition exists and thrives based on traits and differences such as men\'s clothes versus those for women, age groups, lifestyle, sports and beyond. Even people of the same general age and location might dress completely differently based on what they do for a living, their brand preferences, their income and so forth. As such, the clothing industry is very much segmented and competition is mostly (but not entirely) based on the firms in each segment, what they make, how it is priced and the market that exists for the products in question. One very interesting aspect of the clothing industry is that there are many items that are collectible and otherwise in very high demand. An obvious example of this would be Michael Jordan athletic shoes. So many people actually buy those so as to display them and collect them rather than simply wear them. This alone creates resale markets all over the place (e.g. eBay) and it also tends to drive up the price.

Threat of New Entrants

When it comes to threat of new entrants, it is not a mystery that just about anyone can buy a sewing machine, learn how to make clothes and enter the market. There are many people that either start local shops and/or start selling their wares online. When it comes to clothing and competition, it has to be realized that scale is a factor. Competition absolutely exists, as noted before, but it exists in two major ways. First, there are the big clothing sellers and then there are a lot of little ones. Sure, many small ones grow to become big ones and big ones can face into obsolescence. The other dimension is resale and forum. In the past, this has meant getting shelf space at clothing stores or stores that have clothing departments. Examples would include Kohl\'s, Ross, Walmart and Target. Getting the space alone, let alone getting sales, is costly because there is, of course, a finite amount of space. When that was the normal paradigm, threat of new entrants was rather low since getting shelf space and being able to mass manufacture on a massive scale was not the easiest thing to pull off. Beyond that, those behemoth stores would always tend to choke out local shops. This is one of the mean reasons that people tend to loathe Walmart and their impact on the \"mom and pop\" type stores.

However, things have changed quite a bit in the last generation or so. The cost of technology, business infrastructure and so forth is all coming down and the ability to do business is not constrained to a regular storefront. Indeed, Amazon has made a mint off of online sales and they are just now starting to wade into brick and mortar stores. Due to the lack of an existence of the Internet as it started to emerge in the 1990\'s, this was largely by necessity. However, even giant retailers like Walmart and Target are getting hit extremely hard by online retailers like Amazon and Wayfair, just to name a few. The other facet of that paradigm shift is that the smaller retailers can absolutely get a presence online with a fairly nominal amount of investment. Whether it be putting together a nice website for a fairly low cost or whether it be using the sale/resale markets on Amazon, it is now entirely possible for even small-time clothing sellers to enter the market. Whether they go anywhere obviously depends on a lot of things. The point is that threat of new entrants is a huge thing in the clothing industry in the United States. This holds true for larger and smaller sellers and it holds true for both clothing that is made in the United States and clothing that is imported instead. It remains the case that people that do not import are going to typically face a higher cost of goods sold than an importer and this will almost always mean a higher price point, all else equal. As noted before, people actually seeking to \"buy American\" can cancel out at least some of that but it remains a barrier and challenge nonetheless.

Threat of Substitute

This is another major force that the clothing sellers and manufacturers in the United States have to consider. Nike is out there but so is ADIDAS, Under Armour and New Balance. Coach makes nice purses that are populoar but so do Jimmy Choo, Burberry and Dooney and Burke. Even store brands are in this equation as some people are focused on utility and price alone and thus they will have to decide between the offerings of stores like K-Mart, Walmart and Target. The point is that what is chosen and why when it comes to clothing comes down to price, preference and style as there is no shortage of options when it comes to any sort of apparel. Whether it be men\'s shoes, women\'s blouses or belts for anyone, there are many different brands, stores and ways to buy. As such, threat of substitution is a normal and common occurrence for clothing shoppers. If the prior-mentioned CSR layer is involved, then factors like the CSR performance of the firm, where the clothes are made, who they are made by, what they are paid and so forth could all be considerations. Of course, not everyone is this concerned about such things but those people certainly exist and they are growing in number.

Bargaining Power of Buyers

As partially noted above, buyers have a lot of leverage. Sure, there are some buyers that just focus on what is convenient and cheapest. However, there are other considerations including the store (or website) that is bought from, what brand is bought and so forth. The clothing manufacturers know all of this and try to react accordingly. The sellers have to market based on the segment and niche they are filling and they also have to differentiate themselves from the other inhabitants in that niche. For example, Nike has to prove that its price point and fashion sense is better than Reebok or ADIDAS. If they fail to do that with a given buyer, that buyer will buy another brand. That is power for the buyer and the clothing sellers have to recognize that.

Bargaining Power for Suppliers

The raw materials and pieces that go into clothing typically come from suppliers and those suppliers have their own sort of power. They can choose who they do business with, why they choose that firm and so forth. Obviously, big firms have power but the suppliers have to get what they are looking for as well. If they find something missing or falling short, they are likely to explore other people to do business with as there needs to be sufficient benefit for both sides of the business deal. Put another way, there needs to be a symbiotic relationship between the manufacturer and the clothing manufacturer. Some companies will try to leverage and bully their way into a deal that they want. However, suppliers are not powerless and the clothing industry is certainly an example.

Ethics & CSR

Even if some people that look at the clothing industry are fixated on price, revenue and the bottom line, there are other things that could and should be taken seriously. To come back to what was touched upon earlier, many to most of the clothes sold in the United States are not made there. The simple reason for this, from a corporate and business standpoint, is money. To set the stage, it has to be admitted and mentioned that so many people, whether it be from frugality or simply necessity/lack of funds, look at price primarily (or only) when it comes to what they buy. Further, the cost of labor and benefits in the United States is much higher than it is in countries like Mexico, Bangladesh and China. For this reason alone, it is commonplace for clothing manufacturers to have factories in those countries and they will then import the clothes to be sold in the United States. The reason is that is cheaper (if not much cheaper) to do that even with the supply-chain costs of doing said importation. One might ask why other clothing manufacturers would make clothes in the United States given the higher cost of goods sold from the labor alone. The simple answer to this usually has something to do with the \"Buy American\" and corporate social responsibility (CSR) factors involved. Indeed, the main reason it is cheaper to make goods overseas is because the prevailing/mandatory wages are much lower and the cost of employee benefits is a fraction of what the United States would cost for the same thing given that the laws in those other countries are much less strict, if they exist at all. The ethical dimension of where clothes are made, why and how will be covered in the next and final section of this report.

There is absolutely a benefit to the countries that are in receipt of the outsourcing mentioned throughout this report. However, there are some firms that operate or sell in the United States that are actively exploiting the people that work in these non-American companies. This would include being stingy with wages, not paying the prevailing wage level for an area, not giving benefits that are ethical and moral even when it can be afforded, suing third party/contracting arrangements to avoid liability and so forth. An example of the last one mentioned was a factory in China that manufactured items for Apple. While Apple themselves did not own the factory, the stories and details that came from said factory were quite horrific to many and many people reacted by saying that Apple should have known about this and stopped it and/or made sure that it did not happen in the first place. Up to a point, they did neither and the results were quite tragic (Cooper, 2013). The story just mentioned was not a clothing manufacturer situation but the next one to be mentioned absolutely is. There was a factory in Bangladesh that was actively making clothes for rather high end clothing marques around the world. However, this all came to a violent and bloody end when the factory, the building itself, collapsed due to poor engineering and upkeep. Once again, the clothing companies that were making use of that factory did not own or operate the same. However, the optics of such an unsafe factory that had workers with paltry wages and benefits that are making clothes for the affluent and well-to-do are pretty bad (Yardley, 2013).

When it comes to fashion, there are a number of ethical and CSR-related dimensions that should be considered and the factory/wage situations above are just one of them. Indeed, many of them have to do with societal and cultural issues such as body image and the materials that are used to make the clothes. In total, the issues that exist include, but are not limited to, body image, fur, culture concerns, excess consumption, environment, advertising, forgeries, sweatshop labor, inequality and blood diamonds. Some of those are fairly straightforward and easy to understand but some deserve their own mention within this report. Blood diamonds are along the same line as what was mentioned with China and Bangladesh, but is a little different. Indeed, some clothes and accessory items have diamonds within the fabric. The sourcing of those diamonds is important because there are some diamonds that fund and support dictators and violent thugs. In short, buying diamonds with that as their genesis is tantamount to supporting murderous and criminal enterprises or governments (Xaxx, 2016)..

Body image is another important consideration. Most clothing companies make clothes and accessories that do not affect body image in any way. They come in reasonable sizes and are meant to fit people that are at healthy weights or above. However, there is more than one company out there that prolifically make clothes that are, perhaps, a bit too petite. Indeed, the vast majority of women, for example, would never be able to fit into an \"extra small\" (XS) unless they are startlingly underweight. However, some companies do that and more and often do not even market their wares to people that are above a certain height or weight. To wit, there are firms that do not even make XL or 2XL as part of their sizing structure. They cut out the people that are heavier in weight or simply just above average as a matter of normal behavior. For certain clothes like skimpy swimsuits and such, this might be justifiable on some level. However, actively and intentionally excluding an entire swath of potential consumers with body image and size being the main impetus behind it is generally deemed to be wrong and probably should be. While such behavior does not create anorexic and bulimic patients, it certainly makes those patients worse a lot of the time. Advertising, as mentioned before, can create body image issues and considerations as well (Xaxx, 2016).