John Cheh, vice chairman and chief executive officer of Esquel Group, opened his presentation by explaining the difficulty of the task presented to him: how a company like Esquel combats the rising costs of energy and raw materials.
"I tried to convince the organizers to let me use a different topic called 'Passing on Cost Increases,'" joked Cheh. "Somehow they wouldn't let me."
The strains facing suppliers like Esquel have become an increasing subject of discussion among sourcing executives, and most in the industry have been bracing themselves to pay more for their goods this year. As one of the world's largest producers of cotton shirts, with facilities in China, Malaysia, Vietnam, Mauritius and Sri Lanka, Esquel has a large exposure to economic pressures. But Cheh isn't sounding the alarms about price increases quite as loudly as perhaps some of his smaller competitors might.
The gradual inflation of China's currency, the...yuan, is one aspect that Cheh believes is a certainty.
"The [yuan] is a one-way bet," said Cheh. "It will only go up. The only question is by how much and how fast."
Cheh pointed out that currency valuations of other Asian countries have risen more than the yuan, however. In the case of Vietnam, the government strictly controls currency valuations in order to maintain the country's appeal as a low-cost manufacturing destination. Further complicating the matter has been the decline in the value of the dollar.
The increased cost of labor is another issue that has garnered significant attention. A new labor contract that raised minimum wages in China was implemented at the beginning of the year and average wages are expected to expand 15 percent or more each year in the near future. Despite this, Cheh believes the focus on the issue of wages may have been overblown.
"In my view, the new labor contract law is not an issue," he said. "It's only an issue for companies or factories that weren't complying."The Chinese government has also raised rates for social insurance payment. Cheh said in his discussion with local Chinese officials he mentioned how those costs could significantly impact the business. The response from government officials, said Cheh, was to question why the company would honestly report the number of workers it employed.
The policy changes by the Chinese government are being made with the thought of moving the country's manufacturing sector into production of higher-end products.
"When you move upscale, there is at least more room to absorb some of these pressures because the margins tend to be better," he said.
Foreign investors will likely also face higher taxes as the government moves to implement a unified corporate tax rate. These are necessary steps, said Cheh, as China looks to continue fueling growth while quickly evolving. The situation is not favorable for most Chinese companies, with one out of six companies in the country losing money. This is in large part due to excess capacity. Cheh said only the top 9 percent of companies are returning a 5 percent profit margin.
"It's a tough environment, and it's going to get tougher still," he said. "What that means is really a period of consolidation, but that matches what sourcing directors and brands and retailers are already doing."
Solutions for suppliers will center on ways to improve productivity and gain efficiency. Esquel spent $500,000 on new energy-efficient lightbulbs for its factories, a cost it expects to recoup within 15 months. The company is also constantly looking at ways to reduce waste, standardize materials and start moving toward higher-end products.
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews