2020 OCTOBERFASHION BUSINESS
UNDER THE
NEW COLD WAR
Written by : Andrew Sia
Prior to the U.S. presidential election, which is less than 60 day away, China and the U.S. have their hands on one another’s throat. We have seen the conflict has becoming more acute. With issues over trade and technology, we have not to ignore that there are more political differences that have dwarfed the problems. On the table we have Hong Kong’s security law; South China Sea’s territorial rights; Taiwan’s future; Xinjiang’s human right. With the meddling of foreign policies from both sides—the hawkish stance of the Trump administration, and the “wolf warrior diplomacy” from China, both sides have lost the skill of soft diplomacy that makes the situation at its worst.
We have to realize that none of us have seen anything so difficult as what we have encountered during our time. Not to mention that we are amidst of the pandemic that none of us have experienced in our lifetime.
First of all, the trade war, with the threat of adding the import tariffs on the clothing and footwear, would be challenging enough for the industry. The Covid-19 which turned into the global pandemic has grounded the business because it has ceased for months since March 2020. This led to the cancellation of orders; work-in-progress; order shipments; and even payments. The manufacturers have been caught in between their commitments with the workers, and on the other hand, the customers who refused to take up any responsibility and liabilities. This has already drove a lot of manufacturers out of business immediately.
On the other hand, the demand for the future business is asking for moving the production out of China as part of the decoupling. The question is where to as the supply chain can’t be uprooted and move to elsewhere without building up the new supply chain first. The garment part would probably be the easier part, but the textile part will take the hefty investment; the skillful staff and workers; the consideration of environment and sustainability; the source of water; the supply of chemicals; the source of energy—renewable and cost effective; the time to find the suitable location; the dealing with the government of the hosting country; build up the production plant; all these will take a longer time.
It is already said that even if there is the change of the president, from Trump to Biden, the underlying rivalry between China and the U.S. is not going to die down. Xi’s ambition is to become the ruler of the world and this is something that the U.S. cannot tolerate.
Here is the rundown of the fashion companies for their doing with China:
Nike earned $6.68 billion from China in the last fiscal year. China accounts for 20% of their global revenue and they are producing 25% of their products from China.
VF Corp., and Timberland have approximately 15% of their sales from China and both gets 20% of their products from China.
For the brands if they want to sell into the hands of the Chinese consumers they have to use the Chinese tech giants who have the proven e-commerce and social platforms. To stop using WeChat for transaction for the U.S, companies is very unwise. There is no e-commerce or social platform for the U.S. companies to use to penetrate the Chinese market, as China has never opened its market to Facebook, Amazon, and the others and it will remain that way.
TikTok, owned by ByteDance, is under the pressure of selling off this part of the U.S. business to the American bidders. Lately it has been blocked by China’s Ministry of Commerce for forbidding the restricted technology export. If TikTok has been shut down in the U.S., this would cease the fashion marketers to use this platform to reach the 100 million-strong Gen-Z users in the U.S. There will be another blow for the cut off from WeChat. Actually, through WeChat’s eco-system, it processes at least 30% of its transaction in Mainland China. Already retailers like Walmart whose 9% of its global business is coming from China, and it is using WeChat.
Under the “phase one” trade deal signed in January, although it has not eliminated many of the increased tariffs on apparel and footwear, it has not slowing down the U.S. operation in China because the big advantage is the fast and without excessive inventory control in China and they can ship to customers faster and better.
The industry not only have to sit through the Covid-19, but also have to avoid being caught in the political fight between the U.S. and China has begun to put the question to the manufacturers if there can be the willingness, the incentive and the strength to go through these challenges.
Chinese consumers would have boycott brands from the U.S. for their patriotic reasons. We already witnessed in last year’s Singles’ Day festival of which a survey found around 80% of Chinese shoppers cited patriotism and boycotted American brands. So that we know on that day on Alibaba’s platform American brands Nike and Estée Lauder each topped ¥100 million (US$14.64 million).
China can revenge by stopping the U.S. from doing business through the platforms of Alibaba, Tencent, and JD.com and this means the cutting off the access to China’s 1.4 billion consumers.
The fashion business is in a very difficult position to plan their future, even if many things would not have made sense under the normal circumstance, unfortunately the reality is at its worse at the current situation.