NEW YORK — Many intimate apparel companies have invested heavily in joint sourcing and manufacturing partnerships in China over the past decade.
As opposed to the business model of the past that focused on short-term alliances and hefty investments in freestanding factories that left U.S. firms with little flexibility, the sought-after deal today is long-term partnerships in which most executives say the three most important factors are quality, timeliness and cost.
For American and European lingerie companies, the Chinese connection is especially important when producing undergarments, particularly bras, a highly labor-intensive line of business because of the importance of sizing, fit, aesthetics and comfort. Over the past decade, a number of innerwear firms initially looked to China to lower cost efficiencies and bolster profitability, as scores of domestic facilities were shuttered. But now, vendors observed, Chinese firms are expanding their technological skills and are providing world-class services in the development of innovative fabrics, prints, needlework, trims and embroideries, as well as enhanced distribution capabilities.
While mainland China, as well as Hong Kong, Taiwan and Macao, have cultivated a worldwide following of clients in the intimate apparel world, including major U.S. companies such as VF Corp., Sara Lee Corp. and The Warnaco Group, as well as independents such as The Natori Co., The Carole Hochman Design Group, The Komar Co. and Richard Leeds International, there lies tremendous potential in China’s own backyard.
The consumer market in China for lingerie represents 200 million urban customers, excluding provincial areas, according to Etude Eucimat, a French consumer marketing firm. About $1 billion in lingerie retail sales alone was generated in Shanghai last year, 50 percent of which was luxury goods, said Marie-Laure Bellon Homps, associate general director of Eurovet, organizer of the Shanghai Mode Lingerie trade show.
The average annual percentage growth of lingerie sales in China is more than 20 percent, and in some cases, 50 percent in high-end department stores, she said. The second SML fair will be staged Oct. 23-24 and the number of textile and lingerie exhibitors is expected to double to 160, she said.
As for Western lingerie brands being sold in China, a number of vendors said they are developing strategies to sell their brands to Chinese consumers. An exception has been Calvin Klein Underwear, which has taken an aggressive position in Asian markets, and has several Calvin Klein Underwear stores in urban areas, including Shanghai and Hong Kong, that are owned by parent company Warnaco.
Homps said young Chinese consumers in particular are “extremely fashion savvy and brand conscious,” especially in Shanghai and Hong Kong, and they have an insatiable appetite for top ready-to-wear names such as Armani, Gucci and Chanel.
However, the problem of counterfeit goods is filtering down from the accessories and jeanswear fields to underwear, sleepwear and daywear, one reason Western lingerie brands have not yet been widely distributed in China, except in upscale designer shops and department stores, according to Richard Leeds, chairman of Richard Leeds International.
“It’s a problem,” said Leeds. “A real pair of Levi’s jeans is worth diamonds to younger, hip Chinese consumers. Imagine designer underwear?”
Deborah Abraham, director of investor relations at Warnaco, summed up the allure of the Calvin Klein mantra in China, saying: “You have to have brand recognition and Calvin Klein Underwear has powerful recognition. That’s why Calvin Klein Underwear has been so successful and there remains tremendous growth opportunity for Calvin Klein Underwear, as well as Calvin Klein Jeans, in Asia and partly in China.”
Meanwhile, Leeds sized up the intimate connection with China this way: “Intimate apparel is a very commodity-driven, fashion-driven, high-profile and high-cash flow business. Because of that, manufacturers go to China to get high-quality fabric, excellent prints and needlework, which is very important for intimate apparel, and they want to make it in a place that has a fast turn.
“China, as well as India, is investing very heavily in the textile industry, which includes lingerie fabrics, one of its prime industries. And China is bringing in a lot of innovative technological resources. They are sending people to the U.S., the U.K. and Germany to get doctoral degrees in textile sciences to bring the info back to China and upgrade technology. They also have a lot of dollars going in to build their infrastructure, because after 2008, all safeguards will be dropped.”
Leeds was referring to the U.S.-China accord that has set quota limits on 34 kinds of apparel and textiles through 2008, which actually alleviated U.S.-enforced safeguard quotas that were imposed last year and caused havoc in the industry. All World Trade Organization countries dropped quotas on Jan. 1, 2005, but China’s WTO entry agreement allowed for safeguard action if its exports surged and threatened domestic industries. The U.S., European Union and other countries wound up imposing safeguards on a range of products.
Josie Natori, chief executive officer of the Natori Co., said, “China is a very important part of our sourcing, particularly for the Josie and Cruz [sleepwear and daywear] brands, where price is a factor. We basically have partnerships with companies who have their own factories in China.”
Both the Josie and Cruz labels are better priced for better department stores.
“We diversified our sourcing about six years ago, which had mainly been conducted in the Philippines and Turkey at the time,” Natori said. “Today, 50 percent is still in the Philippines where the higher-priced brands are produced, while the remainder is 30 percent in China and 20 percent in Turkey.”
Regarding opportunities for a U.S. manufacturer, Natori said: “It is virtually impossible today to be competitive without having a stake in China. There are many incentives regarding production in China. China has become very fast in duplicating the trends in fabrics and laces, and there is also more flexibility [faster turns] today.”
A key example of fabric innovation from China is what Natori calls a “marshmallow” group, which is a supersoft fluffy microfleece used in Josie sleepwear, robes, at-homewear, children’s sleepwear and home accessories.
Deborah Long, president of the Biflex Intimates Group, said the company does not have joint ventures in China, but maintains a “tight matrix” of key suppliers.
“Biflex has been doing business in the Guangdong Province of China since the early Nineties and today China represents a major portion of our Asia-based sourcing,” Long said. “Initially, the greatest advantage of doing business in China was the low cost and good needle. Today, it is the close proximity to highly efficient fabric mills, excellent local sourcing of trims and highly developed [bra] molding capabilities.
“As a result, we enjoy a closer working relationship that aids product development and decreases turnaround time as well as transportation costs. Even some of our European lace suppliers have set up joint ventures in China, which gives us great design and great price.”
Stuart Greenberg, president and ceo of Chelsea Design Group, said the Chinese work ethic is a big factor in a successful partnership.
“You need people who know what they are doing and if you are a company dedicated to quality and fit, that’s very important,” said Greenberg, whose company produces bras bearing the licensed Liz Claiborne Intimates and Eileen West names. “They understand what it means living up to an agreement when working on deadlines and timing is very much on their minds. They are very good at communicating back to us.”
Seth Morris, president of The Carole Hochman Design Group, said, “The initial benefit was the ability to produce high-quality products more cost effectively. These opportunities still exist, given the diversity of our product mix across our multiple brand profile. It is just part of a broad sourcing strategy that has become extremely dynamic with the changing trade environment.”
However, Morris said, “China will face competition from other trading partners, certainly until all quota limitations disappear. However, don’t lose sight of what occurred with the shoe industry when all barriers were lifted and 85 percent of the world shoe production is now done in China.”
China is experiencing a squeeze from other trading partners, particularly India, according to Norman Katz, ceo of NIS Group LLC, a consulting firm in Milford, Conn.
“A lot of manufacturers won’t say it publicly, but they are concerned about China because prices are starting to rise,” said Katz, a 45-year veteran of the innerwear industry. “And there’s lots of concern about the quota situation right now in China with bras, underwear and other goods. In the past 30 days, I’ve received numerous calls from manufacturers who are sourcing in China, but want to start sourcing in other countries.”
According to the U.S. Customs and Border Protection Textile Status Report, utilization of import quotas of bras and underwear are conservative early this year. So far, the utilization of China quota limits as of March 13 for bras is 4.7 percent, or 1,064,993 dozen of the total 22,785,906 limit; underwear accounts for 4.6 percent, or 878,775 dozen of 18,948,937.
But, as one executive who did not want to be identified put it: “They have over 10 months to go. A category 352 [underwear] maker in China should make certain their goods are shipped out and entered into the U.S. no later than July or August of this year just to be absolutely safe. At the same time, I would be spreading the balance of my production to other nonquota countries in Asia who also produce quality 352 products.”