By  on March 14, 2005

NEW YORK — Among factors, companies that take on responsibility for a firm’s receivables for a fee, the elimination of quotas on Chinese apparel has not fully affected the industry. But it will, they said.

What is unclear is how price points at the consumer level play out. Some say retailers and suppliers will reap the benefits of lower-priced goods, and not pass it on to the consumer.

David Milberg, president of Milberg Factors Inc., said uncertainty and conservative planning on the part of manufacturers late last year likely prevented the lifting of quotas from having a larger impact.

“Manufacturers were not altogether clear as to how this was all going to play out,” said Milberg, president of Milberg Factors Inc. “Heading into 2005, some clients were taking a wait-and-see approach.”

As a result, Milberg believes it is still too early to determine the impact the absence of quotas is having on the market. “My general sense is that not a lot has happened,” he said, adding that orders for most goods currently being sold were placed last year. Still, Milberg does not expect dramatic price-point deflation to kick in anytime in the near term.

Stanley Officina, president of Sterling Factors, believes the end of quotas will ultimately benefit just a few individual companies. In terms of its effect on the broader industry, Officina characterizes the end of quotas as a nonevent. “We have not seen any significant adjustments or changes,” said Officina. “My clients are not realizing any significant change in price.”

Officina also doesn’t believe cost benefits will ever reach the consumer level. “It’s not going to work its way down the food chain. Because you eliminate the cost of quota, everyone along that chain is going to take a little bit of the piece,” Officina said.

Milberg said his clients still have concerns about having all their production coming from one country. “Clients are leery of being too dependent on any one resource or country, they want to keep some diversity to protect themselves,” said Milberg.

“People also have to realize that there are production constraints,” Milberg added. “Despite how quickly it’s growing, China only has so much capacity. I get the sense that people are feeling their way through this right now.”There are also concerns that China may be more interested in devoting resources to apparel manufacturing, which garners higher profits than textiles. However, factors say this trend is only anecdotal at this point.

Michael Stanley, executive vice president with Rosenthal & Rosenthal, believes department stores have the greatest opportunity to benefit from the elimination of quotas. “I think there’s been an immediate surge of profitability for the importers,” said Stanley. “I think initially there’s going to be a windfall for the importers.”

That windfall should be short-lived. “It won’t take long for stores to start demanding some concessions on pricing, particularly the department stores,” Stanley added.

While Stanley believes consumers will see some price-point deflation, the biggest benefit will be from offering garments made from higher-quality materials. “Consumers are acclimated to pay certain prices for certain garments,” said Stanley. “That doesn’t need to change, but they’ll realize they can buy a better quality good for the same price. Stores will really be able to exploit the better quality.”

Meanwhile, recent government data shows that when quotas were in place, China was able to maintain its growth momentum in 2004.

In a Commerce Department report released Feb. 10, total apparel and textile imports to the U.S. rose to $82.8 billion from $77.43 billion in 2003. China’s apparel and textile exports to the U.S. increased 25 percent to $14.5 billion from $11.6 billion in 2003. China’s share of U.S. textile imports rose to 32.2 percent during the year, while its shares of all U.S. apparel imports rose to 15.1 percent.

“If you are willing to subsidize your industry at the rate China is willing to subsidize its industry, you can take enormous chunks of market share away from other players,” said a spokesman for the American Manufacturing Trade Action Coalition.

The commerce report also drew attention to the strides other countries made over the course of 2004. Imports from Pakistan increased 10.3 percent, or 276 square meters equivalent, while imports from India rose 14.9 percent, or 248 million SME. South Korea, Mexico, Indonesia and Cambodia were among the other countries that posted positive apparel and textile gains for 2004.

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