Apparel Sourcing Intelligence - Worldwide

Is UK apparel onshoring finally gaining momentum?

Despite years of widely denied decline, British garment-making showed serious signs of a revival in the second half of 2015.

There’s a touching annual ritual in our trade, which goes something like this: A multinational consultancy announces apparel manufacturing in developing countries has run its course. “Everyone,” we get told, “will inevitably start bringing production back home.” At Clothesource, we point out onshoring simply isn’t happening – and get lots of calls from apparel buyers congratulating us on telling the truth, because they’re sick of having to pretend they’re buying local.

But suddenly – and almost where you’d least expect it – there’s hard evidence of that apparel onshoring really is happening.

In most places: reshoring still looks like a delusion

However you look at it: in the US, the volume of apparel imports has risen every year since 2011. Year after year since 1986 – with a temporary rebound in 2010 – the US Federal Reserve estimate of domestic apparel production has fallen. While it’s true that production of other textiles (like spinning) stopped falling in 2013 and now moves up slightly some years, jobs in both apparel and textile manufacture continue to decline.

It’s not surprising. We keep on hearing about rising Asian wages, but raw materials, interest, freight and energy prices are falling faster – so the cost of imported clothes continues to drop in the US, while the cost of domestic production is going up.
At first sight, the same thing also seems true in Europe. With the euro devaluing 18% against the Chinese yuan in 2015, imported apparel prices rose and the EU overall imported fewer garments. Apparel production fell in the relatively rich Eurozone countries too – as it has every year since they started keeping records.

And until the third quarter of 2015 (the latest period we have data for the whole Eurozone), so did the number of people working in apparel manufacture.

But there’s more to Europe than the Eurozone

In Britain, of course, we rarely go along with the European herd. Indeed, partly because Britain’s not in the Eurozone, its unemployment is far lower than elsewhere in Europe.

That’s why I’ve been especially sceptical about reshoring in Britain: UK apparel factories have struggled to recruit staff. With UK unemployment still falling – among 16-24s it’s now at its lowest rate in over 30 years – you’d have thought factories would now find it even tougher.

Never predict.

Though data on jobs in apparel factories isn’t available everywhere in Europe for the last quarter of 2015, it is available for the UK. And in the last quarter of 2015, Britain’s Labour Force Survey (LFS) showed over twice as many people working in apparel factories as a year earlier.
The 65,000 people the Q4 2015 survey found working in British garment factories was higher than any other quarter this century. The survey investigates numbers employed, not hours worked, so the very strong growth might be the result of more people working fewer hours.

At the same time, the EU’s survey of production showed that the number of garments made in the UK during 2015 grew 7.9% year on year. Apart from Italy, the UK was the only Western European country with growing apparel production – and its growth was five times that of Italy.

A flash in the pan? You have to look at the context

By a strange coincidence, though, Britain’s apparel imports – measured in square metres of fabric – grew at almost exactly the same rate in 2015 (7.4%), while in the Eurozone they fell 4%. The EU’s statistics agency, Eurostat, estimates that sales in UK clothing specialists, adjusted for price changes, grew 3.7% in 2015 over 2014 – faster than anywhere else in the Eurozone. And Britain’s apparel exports grew too.

All the evidence seems to agree that British garment-making showed serious signs of revival in the second half of 2015 – though the apparent jobs spurt may be overstated.

Why the change?

There are two questions here:

1: Why the apparent switch to onshore?
The surge in the number of clothes sold in Britain certainly hasn’t created a profit bonanza for British retailers. Indeed, it has coincided with falling retail prices, so many retailers and brands are looking at falling revenue.

But those falling prices have persuaded many retailers to look at their businesses differently. Typically, retailers’ apparel purchasing costs make up only about 40% of their sales, while their real costs come from running their stores, head offices and logistics systems.

One solution to slow sales is to sell more, at lower margins – which often means buying faster. Shorter lead times can mean better buying decisions.

2: But why now?
The argument about better buying decisions has been around for years – and UK production hasn’t grown. Most comment has been about buyers’ reluctance to commit to local factories – but factories have also found recruiting and keeping staff difficult.

Now, according to the UK’s Office for National Statistics, “nearly half of the growth in employment over the [year to September 2015] was accounted for by foreign nationals,” – mostly from the poorer countries of the EU.

In Britain, low-paid workers, from anywhere in the EU, qualify for significant public benefits under Britain’s Working Tax Credit system (broadly equivalent to American Workfare programmes) as well as cash payments for children and subsidies on housing. While these benefits don’t keep anyone in luxury, they can sometimes more than double what workers on minimum wage take home.

Since late 2014, EU migrants have been entitled to most benefits only once they’ve got a job – and the benefits’ value starts falling if they work over 16 hours a week.

Is the surge sustainable?

Whatever’s triggered the apparent job surge, it’s perfectly possible the growth in British garment-making jobs marks a real turning point. With a critical mass of UK production, buyers may start cultivating UK suppliers in greater confidence they’ll still be around in a year’s time. But there are three threats to British reshoring sustainability:

  • Rising wages. The national legal minimum wage for the over-25s increased on 1 April to GBP7.20 (US$10.10), 11% up on its September 2015 level. UK Government pressure on retailers to pay a higher, so-called Living Wage, is intensifying – as is activist scrutiny of retailers’ suppliers.
  • Abuse allegations. In early 2015, surveys claimed most UK garment workers were being paid less than the legal minimum. No-one in the trade has convincingly disproved these allegations.
  • EU exit. The large proportion of migrants from the poorer EU countries filling British low-paid jobs form the strongest argument why many UK voters may vote in June to leave the EU. If anti-EU voters prevail, Britain’s apparel factories will lose their access to a huge, tax-subsidised, pool of keen workers.
    There is nothing the trade can do about the risk of leaving the EU. But if one quarter’s data is to turn into a sustainable UK manufacturing industry, the trade must deal with the constant stream of publicity about illegally low wages.

Those stories will go away only if prevailing practices do too. And that means an industry-wide culture of real compliance.