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Brand market report: Turning tide

As manufacturing costs rise in China, brands reveal their reasons for moving their production bases elsewhere.

Labour costs are increasing every year in the traditional manufacturing powerhouse of China, so UK fashion brands are tackling their inflated supply chain costs by looking to switch to  cheaper factories in other Far East countries such as Cambodia, Vietnam and Bangladesh, or by bringing production further west to countries such as Portugal, Morocco, Turkey and Romania.

This was the trend among the brands surveyed by Drapers. We found that while 53.1% of a brand’s products are manufactured in China, only 7.7% of them plan to increase manufacturing there. In contrast, Vietnam, Portugal and India were each targeted as new places for manufacturing by 15.4% of brands.

Honor Westnedge, senior retail analyst at market research firm Verdict Research, says increased labour costs are a big issue for brands, which often operate on a smaller production scale than large retailers, putting a squeeze on their already strained margins: “Obviously rising costs in China have a huge impact on their margin, and China will continue to get more expensive. They’re coming into the one-child policy generation now and there are far fewer people in the workforce, and those that do want to work want to do more highly skilled jobs. That’s why prices are going up in China.”

Increased labour costs was one of the top answers when we asked what is driving brands to change their supplier base, with 49% citing it as the main reason. Andy Tompsett, head of UK at young fashion brand Merc, agrees there is a shift happening. “It has changed an awful lot,” he says. “Factories are folding and going bust. It’s a changing world.

“We’ve brought a lot of our manufacturing closer to home, and we’re now working probably less than 50% in China. We’re doing a lot in Europe, and there is a programme for next season to say we’ve been able to make something even in these [British] isles. It’ll be a diff erent price point but we’re looking at that.”

Despite this, increased labour costs aren’t the main challenge. It is the speed to market that Europe and nearby places such as Morocco offer that is the main factor driving these changes – 68.2% cite this as the reason.

However, with a well-documented skills gap in the UK and many parts of Europe, comparatively China off ers an unrivalled skillset and is likely to remain a manufacturing hub for higher price-point product for the foreseeable future. Westnedge says she expects to see more brands exit China and begin manufacturing elsewhere, but that it is a risk: “At the moment many retailers and brands trust the Chinese manufacturers, they are good at what they do and they are skilled. If they bring their manufacturing back to Europe or to new markets like Bangladesh, they might find that the workforce and factories do not have the same skillset or the same standards as the Chinese manufacturers they were using.” The UK has also benefi ted as a result of manufacturing migrating west to Europe, the UK and North Africa, with the likes of Debenhams, Arcadia and George at Asda all boosting their production here last year.

Menswear brand Lyle & Scott manufactures its products in the UK and the Far East. Creative director Richard Martin says consumers are willing to pay a higher price for premium and heritage pieces made on these shores, citing the example of French luxury brand Chanel buying knitwear factories in the Scottish Borders, and labels such as Prada, Thom Browne and Tom Ford all now making product in the UK. “The manufacturing sector is small, but I think if there are enough British companies that are prepared to commit to it there is no reason why that sector can’t grow, other than a shortage of people that want to do those jobs. But, certainly with apprenticeships becoming more common,that will allow it to grow,” he says.

Westnedge does not expect to see UK manufacturing grow significantly during the next fi ve years, due to a lack of skills – though she believes that for short-order brands that require products in three to six weeks there are opportunities. Instead, she expects to see greater volumes of production return to Europe.

“Europe is becoming far more attractive. Not because it’s necessarily cheaper to make the product here than in China, but it’s that much nearer, so freight and logistics are cheaper as well as import duties.”

More from the Brand Market report

Industry View

‘There is a clear trend for restricting production growth in China’

Miles Gray

Miles Gray

India seems to be the favoured source for increased production, not only in the lowercost sector but for many aspirational and luxury brands. Within the EU, Portugal is a clear winner in terms of production growth and this has been mirrored in my own experience. Portugal’s combination of competitive labour costs, modern manufacturing infrastructure and speed to market is very compelling.

Feedback from survey respondents, the media and a range of industry sources suggests a potential resurgence in UK manufacturing. My view is that this will be limited. There are great examples of successful brands, such as Nigel Cabourn, who do a fantastic job sourcing in the UK with great results. There are superb woollen mills supplying the luxury market worldwide, and we can all point to companies such as Douglas Cordeaux’s Fox Brothers & Co in Somerset. Who’s going to knock the efforts and success of companies such as the East End Manufacturing Co, together with many others throughout the country?

The cost of labour, together with the lack of investment in manufacturing technology and training, makes it currently very dif.icult indeed for UK manufacturers at the mass-market end of the spectrum to compete with lowcost countries. This doesn’t mean we should give up on the idea in the longer term.

However, to expect such increases in UK production as quickly as indicated in the survey is laudable but sadly unrealistic, I fear.

  • Miles Gray, Owner of Miles Gray Associates and former chief executive of Ben Sherman

 

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