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“Apparel Slumpflation” ; a confusing phenomenon

The biggest problem the world apparel industry faces at the  start of 2012 is the ongoing combination of rising product costs and falling  sales.  Mike Flanagan, who is the CEO of  Clothesource Limited which provides apparel buyers and sellers throughout the  world with the hard data they need to understand their competitiveness, terms  this phenomenon as the “Apparel Slumpflation”. Clothesource with the world’s  largest intelligence on clothing price comparisons aims at improved sourcing  and selling skills. This analytic document is produced on the basis of  Clothesource Limited to perceive this phenomenon.

The apparel sumpflation of winter 2011/2012 is confusing everyone, everywhere. It’s a situation where the sellers are trying to set the prices of their cloths to satisfy their buyers and also to justify the increased prices of the raw materials and resources accordingly to cut a reasonable profit margin. It is not that, only apparel industry in Bangladesh is concerned, but all the apparel producers and the sellers All around the world all are feeling the irritation to balance between their cost and profit.

The growth in worldwide demand for clothing is slowing very abruptly indeed – and doing so just about everywhere. But the fluctuation in cost of making clothes, and the way those fluctuation differs between countries make the slow down difficult to summarize. Therefore, the businesses just cannot pass those costs on to buyers. For example, in the United States the dollar value of sales at specialist clothing retailers in November 2011 was 3.7% up year-on-year. But apparel inflation was 4.8%, implying that the average clothing specialist sold 1.1% fewer clothes than the year before. In Europe, the latest data refers to October, when turnover at clothing stores was 1.4% down on 2010, but apparel inflation was only 2.5% – so around 3.9% fewer clothes were sold.

In January 2011, Clothesource Tradetrak shows US buyers imported 11% more garments, measured in square meters, than in January 2010. In October 2011, those buyers imported 7.7% less – that is, Asian and Central American garment makers sold the US 7.7% fewer garments. At the beginning of 2011, garment imports into the US cost 4.5% more per square meter than in 2010; but at the beginning of the 2011-2012 fiscal year they cost 17.7% more, meaning US clothing retailers’ product costs were growing almost four times as fast as the prices they were able to charge their customers.

According to China General Chamber of Commerce, the volume of clothing sales during October in 100 key department stores across the country was 5.8% down from a year earlier.  Indian retailers are also claiming the increase in the value of annual apparel sales is lower than apparel inflation – and the latest data on retail sales in Brazil shows the same problem.

In the United States prices for apparel ticked up a whopping 4.8% in January 2012, outpacing overall inflation for the sixth month in a row. Over the last few months, apparel has sustained the biggest monthly price increases in the past decade as soaring Asian labor costs and record high cotton converged with a double whammy on Fall and Winter goods. Although cotton prices have come back down to earth, labor costs remain an issue. However, Raw materials account for 25 percent to 50 percent of the cost of producing a garment. Labor ranges from 20 percent to 40 percent, depending on how complicated it is to make. Many companies are shifting their production to cheaper countries and Asia or bringing it back home to the Americas.

Source: Apparel strategies website

Women’s apparel prices increased 4.9%, the smallest increase. Menswear rose 5.1%, while the infant’s and children’s apparel price index soared 7.5%. The graph shows that the price of clothing has been increasing considerably more than other goods in the United States market.

Even the world’s largest retailer is feeling the pressure. “As cotton prices are up, we’re automatically going to pass that on to consumers,” said Mike Duke, Wal-Mart’s CEO and president.

Clothing prices are expected to rise about 10 percent in coming months. Brooks Brothers‘wrinkle-free men’s dress shirts now cost $88, up from $79.50. Levi Strauss & Co., Wrangler jeans maker VF Corp., J.C. Penney Co., Nike and designer shoe seller Steve Madden also plan increases. Wal-Mart Stores Inc.’s fiscal fourth-quarter earnings dropped 15% on higher costs, although in the U.S. it pulled in shoppers during the crucial holiday season.  While executives expressed confidence in the company’s future, Wal-Mart did exhibit caution in its outlook, saying that customers are still reluctant to spend the way they used to, causing Wal-Mart to continue “investing in price,” or providing lower priced merchandise. Hence, as recovery strategy they are adopting various methods even like “trying to turn Facebook ‘likes’ into targeted sales”.
Any one of Walmart’s 9.5+ million Facebook fans can get local information from their store by clicking on the “My Local Walmart” tab on the retailer’s main Facebook page. “Liking” the stores nearest to them will enable shoppers to see specific offers and new merchandise geared to their area.

There’s also a place for Walmart to promote local events such as food samplings and special promotions. Add to that the re-introduction of 8,500 products that Walmart removed to make way for swankier fixtures and streamlined assortments and the stage is set for some sort of forward momentum. Walmart’s tried on other retailer’s successful strategies (think designer collabs) and threw in a few of its own (back to basics! t-shirts and sweatpants in all sizes and colors!). Sadly, still they are not happy with the outcome.

JC Penny results are not much better as well. For 2011, comparable store sales increased 0.2 percent but total sales decreased 2.8 percent for the year. E-commerce on jcp.com remained essentially flat at $1.5 billion and gross margin decreased $742 million from last year. JCP looks poised to turn a troubled ship around because –at least on paper– management is making serious moves to put a fresh face on the 110-year old discount department store chain. The company recently revealed extensive plans for boosting profits which include expense cuts to the tune of $900 million to be completed over the first two years. This would lower JCP’s expenses below 30 percent of sales.

The “fast fashion” trend where T-shirts sell for £2 and jeans are priced at less than a fiver in supermarkets, is being battered by big increases in the cost of cotton, labour and transport. Fashion retailers including Next and Debenhams warned that prices would rise this year by up to 10% and Lord Wolfson, the chief executive of Next, predicted that women would stop bulk-buying clothes.  A study at Cambridge University recently found that an average British woman buys half her body weight – 28kg (62lb) – in clothing every year. But the increase in price can considerably hit their buying habit.  Sarah Peters, a retail analyst at Verdict Research, said rising prices and falling disposable income are forcing shoppers to rethink shopping patterns. “There is a trend towards people buying one special item because they can’t afford to buy lots at cheap prices,” she said.

Primark, one of the pioneers of the “pile it high and sell it cheap” approach, admitted that its sales are under pressure. This in turn means a lower demand of low price basic clothing mainly exported from the South East Asia including Bangladesh.

According to Clothesource Ltd the 2012 Slumpflation might worry buyers more than producers. But In developing countries, there’s no shortage of unsolicited advice being offered togovernments about how to avoid slumpflation in the textile and garment industry. Just about all, though, require the one thing practically no developing government has: the ability to spend money on new technology and infrastructure, or on tax “incentives” to garment or textile makers, which will help the industry to be sustainable.

The sumpflation actually shows the inflation in the apparel market in USA and the EU. Low-end producers like Bangladesh therefore should try to shift their main business zone to countries like China, Russia and India as they are going to be economically more stable in the coming years.  China can be more of a potential market than a competitor as the Chinese currency getting stronger. India too is a big market of a staggering 1.3 billion people with the recently signed FTA with them.  Russia also can be a potential market with its inclusion in the World Trade Organization (WTO).  An analysis of the global apparel market strongly suggests to diversify the exporting zone as well as to diversify the product range to make your deal lucrative to the buyers although they are in a situation of apparel slumpflation.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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