This year has tested the innerwear industry, and it won’t get any easier in 2011.
Concerns about the economy and the holiday selling season — especially whether price-incentive programs and value-priced items will lead to profits — are causing manufacturers to hedge their bets in making plans for 2011.
The persistent issues shadowing the first-half forecast include the rising costs of raw materials and labor, capacity problems at factories, shaky consumer confidence, the continuing credit crunch and retailer reliance on vendor support. All of these factors are creating stiff headwinds for many vendors and merchants whose strategic focus will stay on stringent controls of inventory and costs.
Over the decades, intimate apparel has been a Teflon-like business during recessions because it offers affordable basics and fashion items such as lace undies and bras. Since the recession began in 2008, the lingerie business has fared better than other categories—however, the overall business remains flat. From October 2009 to September 2010, total intimate apparel retail sales were off 0.5 percent, totaling $10.78 billion, compared with a modest 2.4 percent increase, totaling $10.83 billion, in the same 2008-2009 period, according to The NPD Group.
Josie Natori, chief executive officer of Natori Co., a sleepwear specialist, said, “We are challenged to continue to wow customers to buy new product…Not for a minute can we assume that business is fully back in full steam. Hence, seducing the customer with innovation, differentiated product, value and compelling marketing is a must.”
Regarding rising costs, Natori said, “Everyone in the company is conscious of cost-saving measures during our whole product-development process….There is a sense of cautiousness, frugality where appropriate and being efficient. The most important thing is being smart where we cut down. Yes, soaring prices will continue to challenge us both in fabrics and manufacturing, and we are having discussions with our key [retail] customers and key manufacturers to come to a solution that is good for all. I do believe reasonable increases are to be expected.
“As for China, it is not the Nirvana it once was….We thankfully own our own factories in the Philippines, which is a valuable asset to us, especially at these times,” said Natori.
Guido Campello, vice president of marketing, sales and innovation at Cosabella, a daywear, underwear and shapewear maker, said the “biggest challenge will be the continuous pricing changes for natural and synthetic fibers, like the carteling of cotton that ultimately erodes margins….It seems the pricing changes will continue as long as the market allows.
“We have invested in securing our production and fabric early, but it seems everyone has a big question mark hanging over their head,” he said. “The key for us was developing our own fabrics, controlling development, production and dye costs. This also allows us to control the exclusivity of the fabric and the price point on the market.”
As a result, Campello said, “Speculation is a roller coaster on raw goods and on currency. We have already scheduled our long-overdue price increases for 2011. We will also have to face constant instability with the U.S. dollar versus the euro and a lack of direction from the Fed as to how strong or weak the dollar should really be…I have projected spring 2011 will be flat but have set our goals high. We keep projections tight to maintain a lean and mean budget, and keep the organization’s expectations as conservative as possible.”
Campello said the company will employ the same cost-cutting measures it has used since 2008 to keep “expenses as efficient as possible and pay close attention to the return on investment for each cost. We are building for the future and are beginning to reinvest in programs that were put on hold but that are necessary for Cosabella. In 2009, we began building our direct to consumer strategy, with our Ocean Drive flagship in Miami Beach. Then we launched our first branded e-commerce site in both the U.S. and Europe. In 2011, we will be opening our first New York flagship and will be expanding our e-commerce reach to Asia. Multiple flagship locations are also in the works over the next few years.”
Addressing the cotton crisis, Gregory Gimble, vice president of Va Bien, a shapewear and bra specialist, said the price of cotton will depend on supply levels.
“A big reason for the hike in cotton prices this year was the flooding in Pakistan, combined with adverse growing conditions in other countries,” he said. “Growers in unaffected countries are profiting. In Egypt, cotton export commitments have risen significantly and, in following, the price of their cotton has increased. If global inventories increase next year, prices might calm down. However, another variable in commodity prices is the strength of the U.S. dollar. If QE2 [the Federal Reserve’s plan to pump money into the economy by purchasing $600 billion in long-term Treasury debt] creates levels of inflation that some say it will, this will place an upward pressure on commodity prices.”
Bob Vitale, executive vice president at Wacoal America, a maker of bras and shapewear by Wacoal and b.tempt’d, said he “foresees a continued weak economy, high unemployment and their negative effects on retail sales. Additionally, rising material and labor costs are putting the squeeze on gross margins.”
“Throughout the recession we have kept a strong emphasis on not reducing sales-driving costs such as marketing, merchandising, design and service,” he said. “We have and will continue to keep tight controls on all other internal costs until retail conditions improve. We are planning further ahead to avoid air freight whenever possible to keep transportation costs down, and are seeking out as many manufacturing efficiencies as possible, as well as working very closely with our suppliers and contractors to develop strong partnerships.”
Vitale added that he believes that rising costs of both materials and labor will continue.
“While cotton is major problem, it is not a very large part of our sales…unfortunately, price increases are prevalent in all petroleum-based products, as well,” Vitale said. “It is our contention that this is not the right time to pass these along in the form of price increases.”
Richard Leeds, chairman of Richard Leeds International, a maker of licensed character cotton sleepwear, agreed with Vitale that cotton and labor prices will likely keep mounting.
“Demand for raw materials, including essential basic commodities, is rising,” he said. “Perhaps consumer demand in the U.S. might weaken due to price resistance, but China, with 1.3 billion people, and India, with close to 1 billion people, create a growing consumer base. China is the largest producer of cotton in the world, and is also the largest importer of raw cotton. India is second as a producer, and has begun restricting some exports.
“The U.S. is the third-largest producer of cotton, with most of it for export and no meaningful garment manufacturing to supply the U.S. population,” Leeds said. “So as China uses more of its cotton to supply its growing domestic retail market, and India slowly does the same, how does this affect demand? It drives it way up. What about supply? Well, if year-ending stocks are at a 15-year low, as Bob Dylan wrote, ‘You don’t need a weatherman to know which way the wind blows.’ ”