Despite technology’s stronghold over our lives in both the personal and the professional, it is incredible how labor-based the garment industry still is. All apparel has touched human hands; there is beauty in that sentiment, but also a downside due to increasing minimum wages. These wages for those involved in the product development process make up a large portion of companies’ gross margins according to the USDA. Cost of labor along with the new on-demand retail structure is making apparel brands rethink their strategies.
The price of paying employees’ salaries are always a determining factor in the garment industry’s production and sourcing strategy. During the industrial revolution, factories were housed in the Southwest states due to lower wages. With the skyrocketing American GDP in the 20th century, coupled with a new standard of living, companies have moved their factories overseas to Asia. Increased globalization made the transition even more seamless.
Now with new labor cost increases hitting China and other various Asian companies, U.S-based companies are looking for alternatives. While NAFTA and CAFTA are still intact, apparel companies are seeking to take advantage of low to nonexistent taxation on exports and imports. Central America could become burgeoning new meccas for US apparel production. Companies can pay workers a fair living wage, yet still increase profits at home.
Even so, it is predicted that even Central American wages could increase up to 13%. If that is the case, then is it even worth it to produce in the region? The answer could still be yes. Half of the industrial workforce in the Central American country works in the textile sector and they are continuing to invest in technology to make their own yarns. These yarns, they hope, can rival cheaper Asian fabrics. In addition, fast fashion has created an apparel cycle in which the customer expects a constant influx of new items in stores each week. This is when geography is an asset as shorter lead times get product in stores faster than ever to satisfy the fickle tastes of consumers.
Asia has been the production hub for the apparel sector for decades due to its relatively cheap labor costs. Increase in the minimum wage is making companies rethink their strategies. In turn, U.S-based companies are looking to Central and Southern America due to increased profit margins, investment in industrial infrastructure and most of all- geographical proximity.