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| Issue date:22/02/2010 |
| ATA Journal for Asia on Textile & Apparel - Feb 2010 Issue |
| Source:Journal for Asia on Textile & Apparel |
| by Manik Mehta, New York |
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| The year 2010 could potentially herald an economic recovery and buoy demand in the textile and apparel industries in the United States and the Europe Union, but the proverbial light at the end of the tunnel still remains elusive |
External trade data of the European Union (27 members) in 2008 and first-half of 2009 released by the Eurostat in January 2010 |
As the year 2009 drew to a close, some pundits in the textile and apparel sector predicted an economic recovery could take place in 2010 in the United States and Europe, the world's two largest markets for such products.
Nevertheless, the global textile and apparel industry did provide some pointers on the future outlook in a year that offers hope but is still riddled with uncertainties. Garment manufacturers and garment companies in developed countries will still continue to look for cheap sourcing of garment production, even though there were complaints about the quality and hazardous materials used in manufacturing at certain external locations.
Global garment exports exceed the value of US$310 billion a year, of which the world's top 15 clothing exporters account for more than 80% of the exports. China was able to keep developing its textile and apparel exports despite the re-imposition of quotas by the USA, Europe and other countries until December 2008 as a temporary safeguard measure on exports from China. The gain is attributed to China's change of strategy in diverting its clothing wholesale destinations from the US and the EU to other Asian countries in recent years.
Developing countries in Asia have continued expanding their textile and apparel industry due to their very-low-cost production. In addition to China, other gainers of the post-quota period have been India, Bangladesh, Cambodia and Vietnam.
More pressure to offer creative products
The general trend has been for textile companies in the industry to modernize quickly in order to survive in a fiercely competitive environment. The key to survival has been developing new products and services such as creative clothing out of recycled materials or incorporating other materials into their products. Merging with other companies is another way to fight competition. Many companies were quite successful in asserting their positions in niche markets.
US textile and apparel imports by country (major Asian suppliers only) between January and October 2009
(Source: US Office of Textiles and Apparel, compiled by ATA Journal) |
The current economic downturn has led to a fall in demand, making many consumers tighten their belts and become extremely price-conscious. A cutback in spending has created a "treasure-hunt" mentality amongst US shoppers, and this in turn is putting a squeeze on department stores. It is predicted that manufacturers, the so-called cheap-chic stores, such as Target and Kohl's in the US will see sales and profits rise. Other higher-end manufacturing companies may begin creating low-priced lines or looking for outsourcing opportunities to cut production costs. In the tight consumer spending environment, the players in the textile and apparel industry will need to innovate business ideas to stay in fashion.
Kohl's is a value-oriented department store in the US offering quality merchandise and branded products. It reported improved December 2009 sales compared to a year earlier. The total sales for the five-week month ended January 2, 2010 increased 8.8% compared to the same period 12 months ago.
It strategically improved the inventory management through a conservative inventory planning that resulted in less clearance and improved gross margin. Regional assortments were placed to meet consumers' individual needs based on climate and lifestyle. In warmer areas, season-appropriate clothing, e.g. shorts, swim tops and bottoms, were put onto the shelf earlier than colder areas.
In the US, the slowdown in household consumption has had a significant impact on the clothing sector with the sales of specialised chains already in decline.
Sourcing decisions by brands and retailers have considerably influenced global patterns of production.
Gregg Nebel, head of social and environmental affairs at the Adidas group (Americas), and responsible for the group's operations in footwear, apparel and accessory supply chain, says that the historic migration of the garment industry was driven by the need to move closer to fabric and raw-material supplies, as illustrated by the growth of vertically integrated operations that strategically and commercially ally textile manufacturing and garment cutting, sewing, embellishment, and packaging.
Migration of factories goes on
Mr Nebel contends that once they have migrated, factories do not return to the countries of origin. He cites examples of the industry's migration from Europe to the US, the US to Asia, and more recently, within Asia itself — such as from Taiwan and Japan to China and Thailand, from China to Vietnam and Cambodia, and most recently to Bangladesh and India. This shows that the critical mass of the garment manufacturing component has migrated and does not return to the country of origin.
While there has been a lot of speculation over the future of US-China textile and apparel trade, it is an established fact that the two countries have seldom been able to avoid the heavy intervention of trade policy. Despite fierce opposition by the US textile industry, particularly by the National Committee of Textile Organizations (NCTO), many industry experts envisage fewer trade restrictions in 2010.
Although protectionism still finds many followers in the US textile industry, President Obama's administration will find it extremely difficult to use the so-called "transitional textile safeguard" that was provided to restrict Chinese products, because such a step would require a "legitimacy basis" which was possible until 2008 under Article 242 under the working party report of China's WTO accession, when the Article expired.
Also, it would not be easy for the US to resort to other traditional trade remedies such as anti-dumping and countervailing duties for protection. For invoking this remedy, the US needs to prove first that the US domestic industry producing the directly competing "like product" has suffered injury caused by the Chinese imports. Currently, it is the US textile industry that is more interested in trade restrictions on Chinese apparel imports while the apparel industry of the country favours lower trade barriers because a large part of its business activities rely on sourcing from China. Thus, unless the US textile industry can justify why it is hurt by imports that do not directly compete with it, the chances of US textile industry winning the case are slim.
As the global textile and apparel demand dropped in 2009, there presented a golden opportunity for the textile and apparel industry both in the US and China to reform and change. New York-based analysts believed that the US textile industry needs to figure out some new business models and explore more overseas markets to meet the challenges of lessening domestic demand. China, on the other hand, will have to look for ways to prop up domestic consumption instead of its asymmetrical reliance on overseas markets. Tensions in textile and apparel trade are not expected to disappear, and will likely surface in or after 2010 leading possibly to trade restrictions in other forms.
Demand weak in European Union
The European Union, hit by the economic downturn, experienced a weak demand for textiles and apparel. The 2008 negative trend continued into 2009 but some pundits hope to sight soon the light at the end of the dark tunnel.
Eurostat figures for the first quarter of 2009 showed a dismal picture: textile production had declined by 23% and clothing by 14% over the year-earlier period.
Retail sales in the textile and clothing sector deteriorated for the first time since the 1990s (in annual terms). Indeed, the retail turnover in the 27-member EU showed a slight decline both in value and volume (-0.4% and -0.1% respectively).
However, the 12 new member states of the EU recorded strong growths while out of the old 15 member constellation of the EU, only Belgium, Finland, France and Germany posted growths between 0.4 and 4%.
Germany's textile industry better than expected
"It was a sensationally normal year!" said an elated Steffen Jost, president of the Federal Association of German Textile Retail Trade (BTE) recently in Cologne, Germany. Despite the economic crisis, many segments of the textile trade did pretty well. The German fashion trade, for example, closed the year 2009 with a turnover of some 56 billion euros, roughly the same as in the previous year.
"There was no hysterical restraint on buying because of fear of the crisis," said Mr Jost.
According to Mr Jost, the small and medium-sized fashion industry of all the textile segments emerged as the clear winner. Those manufacturers who had "courted the old customers", benefited a great deal. The old customers are considered to be well-placed, tradition-oriented and quality-conscious. On an overall basis, he added, the trend was toward buying less amount of clothing pieces but paying higher costs of the individual pieces.
But the upper-end luxury segment did not benefit from this trend. Mr Jost does not believe that this top segment will stage a recovery in 2010. This was also reflected in the estimates of the consultancy firm Bain & Company, which maintained that the global sales of luxury items in 2009 had probably declined by some eight percent down to 153 billion euros.
The consultancy firm does not expect the industry to fully recover before 2011. "The world of luxury goods will pass through enormous changes in the coming decade," Rudolf Pritzli, a partner at Bain, recently said. The luxury fashion goods supplier Escada provides a glaring example of this trend. Escada declared bankruptcy and received a reprieve only through the timely takeover by the family of the Indian steel tycoon Mittal.
According to Mr Jost, the online textile trade was inherent with impressive growth rates. The 14% growth, which the German clothing industry had achieved in its mail-house business, is generated today by the Internet, particularly during the recent Christmas season.
External trade data of the European Union (27 members) in 2008 and first-half of 2009 released by the Eurostat in January 2010
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Italy's luxury article makers pin hopes on 2010
Italy's upper-end textile producers have not abandoned hope. Textile production has started to surge. Indeed, business enquiries for the just-concluded Christmas shopping season constitute a good basis for cautious optimism. Nevertheless, there was still talk about an upturn in business amongst Italian manufacturers.
Italy's textile industry has had tough times behind it. Although the crisis hit Italy's luxury apparel industry much later than other industries, the industry reeled under the severe impact of the crisis. Following consumers in the United States, the Europeans also lost their interest in shopping. The Russian high fashion selling also turned quieter after growing quite strongly in previous times. Then came the crisis in Dubai as 2009 came to an end. That left many Italian fashion and garment manufacturers in bad shape.
Textile pundits now derive hope from the latest production figures of the Italian textile industry. According to the country's statistics office Istat, Italy's textile industry produced 3.3% more in October 2009 than in the previous month. Cecilia Gilodi of the research division of Italy's textile association, Sistema Moda Italia (SMI), attributed the growth to the fact that the warehouses are, finally, empty and the trade is once again placing orders.
Over and above, expectations for the Christmas business were good. This was also reflected in the production figures.
As Altagamma Armando, president of the luxury articles association, put it aptly, whenever there is a decline in the luxury textile sector, it tends to be drastic; also, whenever there is a surge, it tends to be a steep one.
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| Copyright © Adsale Publishing Limited. Any party needs to reprint any part of the content should get the written approval from Adsale Publishing Ltd and quote the source "ATA Journal for Asia on Textile & Apparel", Adsale Textile English Website - www.AdsaleATA.com. We reserve the right to take legal action against any party who reprints any part of this article without acknowledgement. For enquiry, please contact Editorial Department. |
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