Already a shadow of its former self, American apparel making has seen another round of company ... [+]
It has been a long, difficult past year and a half for American garment making. In the past 17 months, 23 American garment brands shut down, most of them small producers like cycling apparel maker Kitsbow and Nutmeg Needleworks, according to David Billstrom, former CEO of cycling apparel maker Kitsbow and owner of business advisory practice Flashing Red Light. What’s going on?
The current proximate cause is the de minimis provision of 1930s Smoot-Hawley Tariff, or more specifically its exploitation by companies like Temu and Shein. That provision exempts packages worth less than $800 from customs scrutiny, and direct-to-consumer offshore retailers like the two mentioned are therefore able to avoid duties and undercut the competitiveness of domestic producers.
The situation has caught the attention of Congress, with a study by the Select Committee on the Chinese Communist Party finding that Temu and Shein are potentially responsible for more than 30% of all packages shipped to the U.S. daily under the de minimis provision, with almost half of all such shipments originating in China. Meanwhile, the number of de minimis imports more than tripled from 2016 to 2021. That gives the companies a tremendous leg up, with their imports costing them nothing in tariffs while companies like Gap and H&M are paying hundreds of millions of dollars per year.
The hollowing out of American garment manufacturing, however, is nothing new. Dean Wegner, founder and CEO of Authentically American, a made-in-America producer of casual business apparel, frequently pointed out even before the latest round of closures that just 3% of garments worn in the U.S. are produced here.
Industry insiders blame two things for the tremendous decline in domestic apparel production since the 1990s: the enactment of the North American Free Trade Agreement in 1994 and the normalization of trade relations with China in 2000. The data back them up; domestic industrial production of apparel and leather goods began declining in the late 1990s, with an accelerated decline in the early 2000s.
Chart of U.S. apparel and leather goods production, January 1972 to March 2024
What’s left largely unsaid in the discussion (although the National Association of Manufacturers has lately been taking up the topic) is the blizzard of regulations that also took a major toll on American producers, beginning back in the early 1970s and picking up steam from there. The Biden Administration has enormously accelerated such rulemaking, certainly adding to the financial pressures on low-volume and low-margin U.S. apparel makers.
The result of the longtime decline of the industry coupled with the recent wave of additional closures has many industry leaders calling for protectionist measures. Of the current discussions about changes to the de minimis provision on Capitol Hill, Eric Henry, president at TS Designs, a North Carolina B Corp maker of sustainable T-shirts and beanies, said, “It’s tough to get bipartisan support on anything, but I’m hoping we can on this.” About the broader subject of trade barriers, he added, “I’m a definite believer in the capitalist system, but we need the government to put in guardrails. We need rules to the road, just like we have for driving. We cannot take five years to figure this out.”
Others, however, point to the need for U.S. producers to play a different game than their high-volume and low-quality Chinese competitors. “Quality is a sustainability issue,” said Billstrom. We always talk about the massive improvements we can make in sustainability with high quality. The consumers have been trained on cheap clothes. But you don’t get the size variations that make clothes comfortable, and the producer is guessing on what to make, so 30% of it goes to the landfill unsold.”
High-quality, niche, boutique apparel is a clear fit with this approach. Joe Van Deman, CEO at USA Brands, a strategic partnership between Vermont Flannel Company and All American Clothing Company, pointed to brand expansion opportunities. “At USA Brands, we took a brand like Vermont Flannel and looked at how we could get it out of Vermont and go nationwide,” he said. “As a result, just for Vermont Flannel, we’ve had over 20% growth in the past year.”
“The regulations give competitive advantage to companies overseas,” said Cindy DiPietrantonio, CEO and president of Boathouse Sports, the Philadelphia-based maker of sports apparel and premium outerwear. “What we stand for at Boathouse is quality. People who wore Boathouse in the best years of their life want to wear it again. So we have a great response in retail.”
But Van Deman also sees opportunities in commodity clothing. “I think we can focus on commodity products,” he added. “We can make blue jeans that sell for $65–they’re not going to compete with the lowest-cost products, but our higher quality makes them competitive. We have a t-shirt that sells for $13, which is not competitive with Walmart, but still attracts buyers.”
In the end, it’s those buyers who are key. “It’s simple: we need POs,” said Billstrom. “I’m kind of bullish. We’ve proved we can do it, but there need to be more buyers.”
The recent spate of closures and the lack of quick and easy solutions for bringing apparel making back to America doesn’t make everybody hopeless, though. “I think there are a lot of reasons for optimism,” said DiPietrantonio. “I think if Covid taught us anything, it was the need for flexibility. Without U.S. manufacturing, we don’t have that flexibility.”
