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With economic turbulence far from over, innerwear executives are bracing for how prices for raw materials, shipping and labor costs will be impacted in 2012.
For now, executives believe practicality will prevail.
The immediate concern of manufacturers and retailers is fundamental: getting consumers to spend in a tough economy that continues to be plagued by a fickle consumer, unemployment and home foreclosures. The response has been to tighten inventory, cut operating costs, create must-have items, and focus on value by offering discounts and promotions. In an effort to cut costs, companies are increasingly looking beyond China to regions such as India, Indonesia and Vietnam for production.
One key topic in the $7.2 billion innerwear industry is “deconstructionism,” or costing ingenuity — a growing practice among apparel firms to deflect rising costs through creative redesign efforts. The measures include reengineering bestselling styles with alternative fabrics such as next-generation polyester, synthetics like Tencel and generic spandex, and lower-grade cotton blends.
The good news is the demand for basic necessities isn’t expected to wane. Top bread-and-butter categories include underwear, socks, T-shirts and fleece separates for men, women and children by long-established brands such as Jockey, Fruit of the Loom and Hanes, as well as classic bras by Maidenform, Bali and Warner’s. And brands, especially tried-and-true heritage names, are expected to experience a renaissance as consumers turn to labels that represent trust and stability.
Here, innerwear executives discuss key issues for 2012.
• Maurice Reznik, chief executive officer of Maidenform Brands Inc.
“We have a pretty good feeling for the first half of 2012. We don’t foresee any major cost increases; beyond that, we don’t know what role inflation will play. At Maidenform, our focus is to continue to be innovative and the consumer will pay for that innovation.”
• Byron Norfleet, president of wholesale and licensing at Jockey International.
“In my mind, the biggest challenge the industry faces now is how to manage retail price increases. In the 1970s it was common practice and there were probably methods and processes that were well entrenched to handle that. Since then, we’ve had decades of deflation, driving prices down. Now we’re talking about dealing with retail price increases, which demands a new set of competencies from a generation of folks who have never had to do that. And doing it well really matters…I think 2012 will be another challenging year for brands. All signs point to a low- or no-growth economy, and pressure will continue to be on costs because of the lag time between regulating raw material pricing. At any point in time, you’re buying material for goods to be shipped months later. For the better part of 2012, most brands will be shipping products made with cotton, cotton that was bought at high prices. Having said that, in every environment there’s opportunity for those who create a more compelling offering. Jockey’s business was quite good in 2011. We believe that in a no-growth market, we gained market share. In difficult times, we believe that consumers turn to brands they trust.”
• Tim Regan, ceo of D2 Brands, a unit of Delta Galil Industries.
“The biggest challenge in 2011 was trying to manage the retail prices while still maintaining internal and retail margins. It was a balancing act that put an intense amount of pressure on both the manufacturer and retailer alike. That said, as with everything else, business will be tied to the economy and will depend on the consumer’s willingness to spend…We have a team [regarding cotton prices] who evaluate the crop levels and market fluctuations. What we’ve done in the past is balanced today with mitigation. We imagine most are doing the same.”
• Bob Vitale, executive vice president of sales and marketing at Wacoal America Inc. (president, effective March 31).
“Although there are indications that the economy is slowly improving, we are taking the viewpoint that 2012 will be almost as challenging as last year. The department store intimates business has been pretty flat so it is a market share game. We achieved modest market share gains in Wacoal bras last year and very significant gains in Wacoal Shapewear and b.tempt’d. We believe that design changes we have made in Wacoal and our momentum in b.tempt’d and shapewear will help us broaden our consumer audience and gain share despite economic conditions.”
• Guido Campello, vice president of sales, marketing and innovation at Cosabella.
“This will be a challenging year, as we are all still looking for the old reality. While a new reality of the market has set in, nobody is confident in whether the foundations really are solid at this point. I have heard from small customers and big customers and now even e-commerce customers the same concerns of the inconsistent shopper. Big traffic does not mean big sales. Small traffic does not mean small sales. Many of our retailers really are looking at consumers as quality versus quantity. So they are focusing their efforts at motivating the few that they know can buy, as opposed to finding new customers.
“Regarding raw material prices, we really took a step to curb as much price changing as possible. We negotiated with vendors for fixed pricing through longer periods. Our global growth is allowing us the leverage to keep pricing where we need it. While the U.S. market is a constant test, the global market affords much positive potential and this keeps our prices in check….We started deconstructing in 2009, right after the ‘08 punch in the gut. It was essential to make our bestsellers more affordable, while still providing us a better business return. Many discussions I have had involve the feeling that even though everyone is selling, nobody is really making a profit. What is revenue without matching profit stability? It is bad business, and everyone needs to rebuild their collections to ensure that they are doing good business, selling their product for its correct worth. Underselling from the top, will stress the supply chain all the way down as constant negotiation leads to reduced margins all the way through.
• Gregory Gimble, vice president of Va Bien International Inc.
“The biggest challenges of 2011 were the persistently soft consumer balance sheet and high unemployment rate, together with the Euro zone crisis. We expect the same for 2012…Regarding raw material costs, there is risk in being tied into a price and there are many factors that will influence commodity prices in 2012. There is some disagreement over what will take place. Some point to general economic malaise in the West and tail risks such as a major European country defaulting or a hard landing for China, which all would suppress demand and place downward pressure on prices. Others point to unfavorable La Nina weather conditions and geopolitical instability, which would suppress supply and place upward pressures on prices.”
• Steven Chernoff, ceo of Rago Foundations LLC.
“We are Made in U.S.A. and the domestic supply chain has been strained for all materials. The challenge is the lead time required for a reliable flow of raw material….I believe this will be a good year for our industry and business overall. Retailers have a positive view and the consumer has been increasing their expenditures….Our area of the world, shapewear, did OK in 2011. I believe the prospects are positive for 2012 if there is no major financial upheaval from Europe or Asia.”
• Lida Orzek, ceo of Hanky Panky.
“After seven years of holding price on our core products, we are responding to the reality of increased costs for raw materials and freight, and have announced modest price increases for 2012. We have done so with lots of advance notice to our customers so that the transition goes smoothly. We don’t expect price resistance from our loyal customers who will continue to associate our product with comfort and quality. At Hanky Panky, we are natural deconstructivists. Simple, straightforward and unfussy designs are inherent in our creative orientation. However, if possible, now we are even more attuned to the necessity to streamline our looks and carefully examine each part of the production process with razor-sharp pricing in mind…We had a successful 2011, exceeding our planned increase in business, and look forward to more of the same in 2012.”
• John Bowman, director of corporate development at Parisa USA.
“There are always challenges, but certainly 2012 looks brighter then the previous year. Prices have stabilized, market direction at retail seems to be defined and the consumer appears to be responding to quality and fashion in all segments of the market. We are also seeing the emergence of new growth areas of the innerwear market, such as shapewear.”