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China's high costs push clothing maker Adastria to Southeast Asia

Manager of Global Work and Lowrys Farm stores wants 30% production in the region

A worker sews a garment at a factory in Myanmar. Adastria plans to shift more of its manufacturing and procurement to Southeast Asia.

TOKYO -- With fewer young Chinese available to work in factories and environmental regulations in the country becoming tougher, some manufacturers, like Japanese casual clothing retailer Adastria, are shifting their focus to Southeast Asia, where production costs are significantly lower.

Adastria, which manages stores for brands such as Global Work and Lowrys Farm located mainly in shopping centers, says rising labor costs in China are squeezing profits. By working closely with partner plants in Southeast Asia, the company expects to trim costs by increasing purchases of materials locally while maintaining product quality. 

In partnership with others, including a Chinese fabric manufacturer, Adastria has established an integrated production system in Southeast Asia that handles everything from procurement of materials to sewing. Earlier this year it started procuring yarn in Vietnam, Thailand and Indonesia. It plans to sell the first batch of garments produced under the integrated system as soon as the coming autumn and winter season.

The company currently depends on China for about 80% of its production, but aims to double the ratio of Southeast Asia to 30% in two or three years.

Most materials used in the company's Southeast Asia production are now procured from China, with Southeast Asia accounting for only 10%. The company wants to increase this to as much as 20% within two or three years, reducing the time and costs needed for transport.

The company, which ran 1,275 stores across Japan as of the end of February, expects group operating profit of 5 billion yen ($47 million) for the current year through February 2018, down 66% from the previous year. It blames the weak performance on slow sales to young women and rising costs of procurement related to shorter delivery times.

Among other Japanese apparel firms, Matsuoka Corp., which supplies products to Fast Retailing's Uniqlo chain of casual clothing stores, is expanding production capacity in Myanmar. Uniqlo's sister brand, GU, produces clothes primarily in Cambodia, where labor costs are significantly lower than in China.

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