Will Tariffs Force an Industry Reckoning on Apparel's True Cost?
By J. Kirby Best
The topic of increased tariffs for Chinese-imported goods is clearly top-of-mind based on recent actions taken by the U.S. government. On the surface it could seem to be a positive initiative that would assist U.S.-based manufacturers. I am a bit more cautious about giving a ringing endorsement for a number of reasons. It is a complex issue that has ripple effects and must be gauged over a period of time.
One of the considerations for U.S. manufacturing is that the duties and tariff increases effect much of the equipment and fabric that we use. Our cost of goods sold could go up and in order to maintain our gross margins, already slim in the apparel manufacturing world, we would need to pass those cost increases on to our customers. In order to calculate the short- and long-term impact, we would need to analyze the costs over various periods of time. As we know, the consumer ultimately bears the burden of tariffs. The question becomes, will the benefits we gain by pressuring the brands to manufacture in the U.S. be offset by the increase in costs of material and equipment?
Perhaps the most significant factor of these tariff increases is the positive effect they could have when looking at sustainability and the environment. The apparel industry is a major contributor to pollution with the dyes and chemicals that are used and the massive waste that is disposed of daily. If more of the manufacturing happens in the U.S. as a result of a more even playing field, then we can exercise fair hiring and labor practices, on-demand technology to reduce waste, and environmental regulations to protect our planet.
Our goal is to educate U.S. brands to the advantages of U.S.-based manufacturing so that they decide on those merits to bring their manufacturing on-shore rather than being pressured into it. This education would extend to consumers as well so that Americans understand the big picture and think especially about sustainability and the environment.
That education begins with an explanation of pricing and accounting for the true costs and values. Brands often tell us that our prices must match offshore prices. What they fail to account for are the costs and risks associated with shipping, documentation, travel, potential labor strikes, currency exchange, language barriers, time zones, errors, and the impact on the environment. Those costs must be weighed against the value that an on-demand personalization system brings to their offering. And accounting for those costs - putting them in the correct "bucket" - is as important as understanding the risks and benefits.
And how do we stay competitive? We employ what America has always stood for: ingenuity, hard work and a drive to improve. That means automating processes with better software, smarter interconnected systems and collaboration. That means challenging the status quo and figuring out a more efficient process that ultimately brings higher quality without sacrificing speed and price. It is my hope that the Trump administration carefully choose its priorities. We need to negotiate and monitor tariffs and duties, and thankfully we have individuals like Ambassador Robert E. Lighthizer and Bill Jackson, assistant U.S. trade representative for textiles, who understand the complexities of this highly sensitive "game." Hopefully they will have the support they need to speak on behalf of U.S. manufacturers and get it right. It's too important to pull triggers without the proper analysis.
I would conclude my thoughts with yet another analogy from a past world: book manufacturing. The arrival of the on-demand manufacturing model came at a critical time in
that industry's struggle for survival. It took publishers decades to arrive at the conclusion that they could mix and match the on-demand and offset methods and achieve better profits, less waste, equal quality and a broader range of offerings. They finally started looking at all of the costs, not just the price per unit. And today on- demand manufacturing plays a dominant role in the books that we purchase.
That is what we want for the apparel industry. We, of course, would like the on-demand model to become a dominant force. And we want it to rise to the top because it's a better model and not because it was "pushed" to the top. We, like the book industry, understand that both methods of manufacturing should coexist so that brands and designers can choose what's most effective for any given garment.
As for this round of tariffs, it's too early to tell.
J. Kirby Best is the CEO of award-winning OnPoint Manufacturing, and the President & CEO of PAAT, Inc. Kirby's passion is on-demand Computer Directed Manufacturing (CDM), using software to automate every possible portion of the supply chain -- from the creator to the consumer. His focus is on creating value to the customer through fully customizable products all produced on-demand, and developing PAAT as a SaaS, a behind-the-scenes software company that allows information to ow freely from any platform by leveraging existing software and creating the payment and banking systems needed to support further development. OnPoint maintains a manufacturing facility in Florence, Ala., with headquarters in Nashville, Tenn.