Appeared In
Special Issue
WWD Denim In Depth issue 05/21/2009

WASHINGTON — The hunt for lower-cost sourcing options pushed the U.S. denim industry to produce more in Asia last year, although some preferred the proximity of the Western Hemisphere.

This story first appeared in the May 21, 2009 issue of WWD. Subscribe Today.

China’s share of the women’s denim import market increased to 26.2 percent for the 12 months through Feb. 28, claiming almost double the market share of the next largest supplier, Mexico, which supplied 13.2 percent of the denim. No other North or Central American country cracked the list of top 10 denim suppliers.

Supply chain costs continued to be the major factor determining where denim companies manufacture, executives said. Those cost concerns have fueled a further flight of production to Asia. Southeast Asian countries like Vietnam and Bangladesh have emerged as big players as a result.

Women’s denim shipments from China increased 54.5 percent to 4.8 million dozen pairs in 2008. Last year, China was the top supplier of jeans, but maintained almost the same market share that Mexico did.

Vietnam posted the largest increase of any country, with shipments to the U.S. increasing 83.7 percent to 926,234 million pairs. Despite the large volume expansion, shipments from Vietnam still only account for 5 percent of the U.S. denim market.

Denim shipments from Cambodia to the U.S. increased 44.1 percent to 1.1  million dozen pairs, which represented 6 percent of all imported denim jeans last year.

The biggest losses among the top 10 suppliers came from Mexico, Hong Kong and Macau. Mexico’s denim shipments continued to decline, falling 21.7 percent to 2.4 million dozen for the 12-month period. However, Mexico maintained a 13.2 percent share of the total market. Hong Kong also lost a significant share of the denim market, with imports falling 34 percent to 1.2 million dozen pairs, which accounts for 7.2 percent of the total market. Shipments from Macau tumbled 15 percent to 749,159 dozen pairs. Macau shipped 4.1 percent of the U.S. denim market. Pakistan fell off the top-10 jeans supplier list as well. Hong Kong and Macau are special administrative districts of China.

“We are seeing redistribution [of sourcing] in Asia,” said Mark Messura, executive vice president of global product supply chain for Cotton Incorporated. “The story over the last several years was the migration of jeans from Mexico to China. Now you’re really seeing that shift toward low-cost Asia.”

Countries like Bangladesh, which basically tripled its share of denim imports to the U.S. in 2008, and Vietnam produce jeans at a lower cost per unit than China, Messura said. For the year ended Feb. 28, the average dollar per unit cost for jeans from China was $7.88 compared with $6.32 for jeans from Vietnam and $5.09 for jeans from Bangladesh, Messura said. The cost per unit for jeans from Mexico averaged $7.68.

“When you compare those dollars per unit costs, you can really see why we are seeing the sourcing shift,” he said.

For men’s jeans, the shift in production towards Asia was less pronounced in 2008 than it was for women’s, but the region still showed strong growth trends. Three of the top 10 suppliers of men’s jeans are still in the Western Hemisphere — Mexico, Honduras and Colombia. Mexico was the top U.S. supplier of men’s jeans in 2008, producing 38.4 percent of pairs. But Mexico’s shipments fell 2.3 percent for the 12 months to 7 million dozen pairs. The largest decline in pairs of jeans shipped was from Honduras, which declined 13 percent to 965,304 dozen pairs of jeans. Honduras manufactured 5.3 percent of men’s jeans sent to the U.S. Colombia increased its shipments of men’s jeans 14.8 percent to 503,825 dozen pairs and captured 2.8 percent of the market in 2008.

Both China and Bangladesh have dramatically increased their share of the men’s denim market, increasing 67.2 percent and 62.5 percent, respectively. China shipped 8.5 percent of men’s jeans to the U.S., or 1.5 million dozen pairs. Bangladesh shipped 9 percent of men’s jeans, or 1.6 million dozen pair. Cambodia’s shipments of jeans spiked 99 percent to 438,804 dozen pairs of jeans during the same period, but it is only responsible for 2.4 percent of the market.

Denim manufacturers are clearly balancing cost versus speed to market. Messura said Honduras and Nicaragua, where the costs are somewhat competitive, have benefitted from being geographically close to the U.S. consumer market.

Jimmy Lambert, director of wovens sourcing for the Western Hemisphere at VF Corp., said he sources denim from Mexico, Colombia, Nicaragua and Honduras. More fashion-oriented products primarily come from Mexico, Colombia, Haiti and the Dominican Republic, he said.

Production in the Western Hemisphere is down, Lambert said, driven by the economic downturn and by a shift of some major factories out of the region to Southeast Asia.

“Pricing continues to be the major driver on basic denim products,” he said. “It is difficult to compete on pricing with Egypt, Vietnam, Bangladesh and other Asian countries. As far as fashion, as the Eastern Hemisphere factories continue to improve in this area, the fashion part of the business will also see more competition.”

Production in Central America is still viable for some producers. Jeff Rosenstock, vice president of General Sportswear, which manufactures private label jeans, said Nicaragua still offers the cheapest manufacturing location that is geographically situated where they want to be.

“I’m asked all the time, ‘why aren’t you in China or Bangladesh?’” Rosenstock said. “For our type of business, we still prefer to be close. We want to be in Central America where we can turn on sizes and change washes to react to sales at the store level.”

VF’s Lambert said the Western hemisphere continues to be a strong production option for some items because of its proximity to market.

“We place quite a few programs in our region simply because the lead times from Asia are just too long to react to programs where stores need product in a short lead time,” Lambert said.