KTA TOLD COSTS STILL RISING

Byline: Michael McNamara

NEW YORK--Increases in raw materials prices, which have dogged knitters for the past year, could continue for at least the next 1 1/2 years.
That was the message from Jack Pickler, equity analyst at Prudential Securities, to about 90 knit executives last week at an economic forecast breakfast meeting at Butler's Restaurant here. The panel discussion was sponsored by the Knitted Textile Association. Steve Kernkraut, managing director and senior retail analyst at Bear Stearns, also participated.
Pickler, speaking for the first time at a KTA seminar, said rising chemical prices and global cotton shortages, coupled with increasing transportation and packaging costs, "will continue to press margins."
Although Pickler acknowledged that most mills are operating at 90 to 95 percent capacity and that demand is "better than most people think," he said pressure on margins probably would not improve any time soon.
"Women's wear sales at retail were up 8 percent in units in 1994, but retail prices have gone down, and it is a phenomenon that is accelerating all over," Picker told the knitters. "Retailers will not pay more for apparel, even though you guys are paying more for your fibers."
Commenting on the trend to casual dressing, Pickler said many fabrics that go into casual apparel are basics, made from polyester or cotton, which are "tough to make margins on."
Pickler said raw materials prices would drop in the next 18 months only "if we saw a considerable drop in textile and apparel demand, which would lead to a drop-off in operating rates. A 10 percent drop in demand could lower prices." That prospect elicited groans from the audience.
He said the textiles and apparel industries have embraced Quick Response and Just-in-Time deliveries, but noted, "They're really designed to push back inventory on suppliers. QR and JIT are just euphemisms for 'manage my inventory program.' "
Pickler told the group "triangular relationships"--alliances among mills, apparel manufacturers and retailers--could prove beneficial.
On the retail front, Kernkraut of Bear Stearns said bluntly, "There's not, like, very much good news right now."
Kernkraut told the knitters some of the "Top 10" theories he has heard of why apparel sales have been soft:
The weather was too cold or too hot.
Easter was late in the year.
With so many dual-income families, no one has time to shop anymore.
Baby boomers are saving for their kids' college educations.
Everyone's watching the O.J. Simpson trial.
"While, in part, some of the reasons may be true, no one reason is responsible for the problem," Kernkraut said. "America is overstored, and it's a fundamental problem that's not going away. And while some retailers are going out of business, the real estate does not disappear. Rather, it gets recycled into other fashion formats."
Kernkraut said the practice often leads to more competitive pricing and substandard retail profits.
Turning to the consumer, Kernkraut said, "With a lack of different fashion among department stores in the past few years, consumers are playing a waiting game. Consumers are also resistant to price increases and wait out retailers for the low sale price."

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