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New Research Says Covid Catalyzed Nearshoring Boom

By Sourcing Journal

This article was published by Sourcing Journal January 27, 2021. We are specifically sharing the Sourcing Journal version of the story because it provides additional analysis of how U.S. “Buy American” policies could increase the trend. The original press release from Blue Yonder is available here.

The coronavirus pandemic sent many retailers a clear message—they must gain more oversight over their supply chains in the event of another ‘black swan’ event. As retailers mull options over what they should do to mitigate supply chain bottlenecks and shipping snafus, 65 percent have decided the answer to this is by establishing or expanding their local and domestic manufacturing sources, according to a survey from Blue Yonder and Coresight Research.

Of the retail respondents that established or expanded domestic sources for manufacturing driven by Covid-19, 41 percent expanded these operations, while 24 percent established these operations for the first time.

Nearly one-fifth (17 percent) of respondents made no changes to their strategy around manufacturing and sourcing.

In building out a nearshoring-driven manufacturing strategy, retailers have a few goals, namely better quality control (34 percent), shorter lead times (23 percent), better inventory management (22 percent) and matching product to local demand (14 percent).

While public sentiment may share the idea that “American Made” is the true shopping preference in the wake of the pandemic, in this case, perception is not reality.

Although 68 percent of retailers feel their customers value apparel and footwear made in the U.S., only 19 percent of shoppers sought to buy apparel and footwear made in the U.S. during the pandemic, even as many hold a negative opinion of China, which produces the lion’s share of clothing and shoes imported into the U.S.

“America’s overreliance on offshore manufacturing has most recently raised concerns as we witnessed China’s overwhelming influence on our access to essential pharmaceuticals and health care goods. While the pandemic has accelerated the need for more onshoring strategies to address future crises, businesses have been trending in this direction for years,” said JoAnn Martin, vice president, industry strategy and market development, Blue Yonder.

“Even before the pandemic, our customers were balancing their desire to deliver speed to market versus cost when establishing a presence in the U.S. This has largely been driven by e-commerce giants like Amazon, the advent of online shopping and the need for readily available choices, product assortment and inventory.”

In fact, 47.8 percent of respondents to the June Coresight survey said they either agree or strongly agree that U.S. retailers should source fewer products from China. Consumers take umbrage with China’s handling of the coronavirus, the ongoing trade war and the forced labor of Uyghur, Kazakh and other Muslim ethnic minorities in the Xinjiang province.

Biden Administration Could Swing Pendulum in U.S. Manufacturing’s Favor

Concerns about how the “Made in the USA” ecosystem turns out may be impacted by how the federal government approaches the issue. The Biden Administration sought to support U.S. manufacturers, businesses and workers in issuing Monday’s executive order, which states that federal law requires government agencies to give preference to American firms when spending taxpayer dollars.

The president’s order establishes the goals and standards necessary to use federal purchasing, and other forms of federal assistance with domestic preference requirements, to proactively invest in American industry “so it can continue to lead in the global marketplace,” the order said.

The order directs the agencies to close current loopholes in how domestic content is measured and increase domestic content requirements. Existing “Buy American” rules establish a domestic content threshold—the amount of a product that must be made in the U.S. for a purchase to qualify under “Buy American” law. This order directs an increase in the threshold and the price preferences for domestic goods—the difference in price over which the government can buy a product from a non-U.S. supplier.

The new, as of yet unnamed, director of Made-in-America at the Office of Management and Budget (OMB) will oversee the implementation of the executive order.

Shoppers Desire Sustainability and Social Impact, but Aren’t Seeking it Out

Aside from the manufacturing concerns analyzed in the survey, Blue Yonder and Coresight also looked into the considerations around where shoppers decide to purchase apparel and footwear. The survey indicated that 66 percent of respondents cited a retailer’s or brand’s environmental sustainability as a driver to buy, while 60 percent said their social impact mattered.

Yet at the same time, shoppers don’t really seem to be seeking these characteristics out, at least during a pandemic. Only 17 percent of consumers sought out environmentally friendly or sustainable clothing and footwear during Covid-19, while 32 percent still looked for the lowest price and 22 percent prioritized the quickest online delivery.

“As we emerge from the pandemic, a critical differentiator for companies will be building environmental sustainability and social purpose into their products,” said Deborah Weinswig, founder and CEO, Coresight Research. “This trend will accelerate as we see consumers increasingly vote on the broader issues of the day, with their spending pose.”

Stores Still Preferred by Clothing and Footwear Shoppers

Despite lockdowns and the indefinite store closures taking place over the past 10 months, 45 percent of consumers still prefer to shop in-store for clothing and footwear. This total dwarfs the 18 percent who prefer online shopping and 37 percent who favor a mix of in-store and online.

To accommodate the mix, retailers plan to invest heavily in technology across the board as they aim to improve the experience across channels. Retail respondents said their primary IT spending buckets for 2021 include technology for assortment, inventory, logistics, and warehousing (62 percent), customer data analytics and loyalty programs (47 percent) and in-store tech for inventory and customer tracking (41 percent).

As e-commerce grows as a percentage of their business, retailers are also adding warehouse space (26 percent), investing in automation technology or autonomous vehicles (29 percent), and building out flexible last-mile options like BOPIS, curbside pickup and contactless delivery (26 percent).

Blue Yonder and Coresight Research collected responses via two separate surveys from 281 senior executives, 25-years and older, in manufacturing, retail and apparel firms and 451 U.S.-based consumers, 18 years and older, via a third-party provider to determine findings of its 2021 Retail Localization & Agility Survey. Both surveys were conducted between Jan. 8-14, 2021.

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