Oil Prices Cause Slippery Slope for Vendors

Legwear sales are trending up, but the market is feeling the economic pinch from rising energy and materials costs.

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Legwear sales are trending up, but the market is feeling the economic pinch from rising energy and materials costs, particularly because of the dominance of synthetic fabrics in the product.

This story first appeared in the July 28, 2008 issue of WWD.  Subscribe Today.

Manufacturers are focusing on innovative ways to absorb the higher expenses without passing them on to customers. In some cases, companies are looking to bring production that moved overseas back to the U.S. to trim costs.

Ed Miccinati, design director for StockinGirl, a hosiery firm based in Stamford, Conn., said the price of nylon has soared in the last year.

“Nylon yarn is made from petroleum and the price of nylon yarn used for making sheer and opaque tights has more than doubled,” Miccinati said. “And we’re not talking about something that was very expensive to begin with. A 15-denier nylon stocking prior to the oil crisis cost about $2.53 to make. Now it’s over $1.25 more.”

Mark Hierbaum, chief executive officer of DML Marketing Group, which produces hosiery for Legale, Laura Ashley and Kensie, has seen increases in material costs over the last two years of 15 to 20 percent.

“Raw materials have definitely become more costly,” Hierbaum said. “Microfiber nylon, in particular, has gone up more so than cotton, as it’s synthetic. Fibers with lots of chemicals are prone to heavy increases. Our margins have gone down, but we want to make products the way they should be made. We’re not going to reconstruct it using lesser materials than we think the product requires. We’re just watching costs closely.”

Sally Kay, president and chief executive officer of The Hosiery Association, said firms are experimenting with fiber alternatives, such as polylactic acid, which is made from corn and other natural plant sources. But even if companies bring down their costs on materials, daily expenditures are still challenged by oil prices.

“It’s not so much the input themselves, but also logistics,” Kay said. “Are they shipping by air, cargo ship? Companies need to incorporate these variances into their cost structure. They need to start leveraging technology, streamlining their manufacturing process and incorporating sustainable practices to reduce energy costs and carbon footprints.”

Susan Reese, vice president at Soxland, said the company has grown more conservative and is working to save money in its day-to-day practices.

“Our costs have increased because everything is made on machines and to run a machine, you need oil,” Reese said. “You need to transport all these different bits and pieces to make a sock and, again, we need oil. So our cost of manufacturing has increased and we’ve tried to hold prices, but it’s been tough. We run a very tight ship and it’s just gotten a bit tighter. We’re scrutinizing every decision being made. We’re changing hands and finding new deals and shipping modes and methods. Everywhere we can save, we’re trying to.”

Wayne Lederman, president of Leg Resource Inc., which manufactures legwear for Betsey Johnson and Anne Klein, is cutting his shipping costs by bringing the majority of his production back to the U.S. Sixty percent of Leg Resource product is made at the firm’s North Carolina plant. A year ago, only 20 percent was produced domestically.

“The cost of producing goods overseas is not much less than it is in the U.S.,” Lederman said. “You’ll see less and less people doing it now because the advantage is not as great as it once was. The problem is, if you don’t have a facility in the U.S., you don’t have the availability to do that. In our U.S. facility, we’ve purchased new state-of-the-art product equipment and we have also implemented a new state-of-the-art inventory management computer system to more efficiently handle an increase of domestic product. It’s giving us the ability to provide customers with very little price increases.”

Lederman said producing legwear domestically also helped him give customers better turnaround and reordering times.

Hannah Byun, designer of Hansel from Basel, a small legwear firm in Los Angeles, is trying to bring production closer to home.

“I’m researching other places outside of Asia because of freight and gas and materials that are all so high right now,” Byun said. “I am thinking of doing it domestically or maybe in Mexico, an alternative option that is within trucking areas versus ocean freight.”

John Flynn, vice president of sales for the U.S. sector of Levante, the Italy-based legwear brand, said the firm has had a 15 to 20 percent increase in costs because of the weakness of the dollar against the euro. He said U.S. prices should be more inflated, but the company is committed to the market and is holding tight on increases.

“It’s had an effect in Italy,” Flynn said. “They can’t charge the prices they’d like to charge to turn a normal profit, so they have to settle for less margin. Will there be a breaking point? I think we’re a little bit away from that, but if things keep going down and they’re not raising prices, eventually that will catch up. It’s a balancing act. It’s maintaining profitability without pricing themselves out of the U.S. market.”

In an effort to cut costs, Flynn works out of a temporary showroom only during seasonal markets or meets with buyers at hotels.

“You have to say, ‘OK, we have a problem, prices are going up and we need to control expenses,’” Flynn said. “So you look at everything you spend and find creative, inventive ways to do it. You have to monitor your assortment and see what’s working and what isn’t. It’s making people work smarter and look at things totally out of the box.”

Miccinati said he cut back daily office costs, such as free lunch for his employees. Lederman is planning to install more efficient lighting in his North Carolina facility and is researching whether to turn the building into a geothermal space that includes solar panels on the roof.

“It’s just one more way to control other costs and therefore absorb the increase in raw materials that are unavoidable right now,” Lederman said.

But Kay isn’t worried. She noted that the need for hosiery as both a commodity and fashion accessory will keep consumers buying even during difficult economic times.

“Hosiery is a very cost-effective way to transform an outfit versus buying a new one,” Kay said. “And there’s never been so many fashionable products at such a variety of retail channels of distribution. Last year, we saw a 36 percent increase in tight sales and socks have shown tremendous growth. There is now a sock for every type of sport out there. I always say, ‘There are six billion people who live on this earth, so there are six billion [pairs of] feet and legs.’”�

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