Jeans may be an American classic, but they are more and more taking on an Asian flavor.
This story first appeared in the May 18, 2011 issue of WWD. Subscribe Today.
Andrew Olah, chief executive officer of textile and apparel development and marketing firm Olah Inc., is so convinced that the economic emergence of India and China will have widespread implications for denim that he moved to Hong Kong last year to be at the center of the action. It isn’t the first time that Olah has globe-trotted chasing the rise of denim manufacturing — and he’s been prescient in his country hopping. Olah initially went to Japan in 1979 and last year, he divulged, he had one of the best years ever shipping fabric out of Japan.
“The jeans industry has always been a little bit peculiar about the way they’ve been blending cultures. Jeans were once an American utilitarian product, but Europeans and Japanese blended our culture, blended our product and blended our jean into new and various formulations, and our industry has grown and prospered by this multicultural interpretation of what jeans were, what they are and what they could be,” he said. “Now, it is Asia’s time.”
Olah illustrated the importance of China and India to denim players by rattling off key statistics about their middle classes. In China, he said, it would grow from an estimated 80 million in 2007 to 700 million by 2020, exceeding the combined population of Europe, Japan and the United States. In India, he said, the middle class will skyrocket from 5 percent of the population to 41 percent —for a total of 450 million people — by 2025.
“By 2020, India’s luxury market will exceed Japan’s,” said Olah, who emphasized that China’s luxury market is already the second largest in the world, behind the U.S.
The increasing wealth of these Asian nations will shift the denim manufacturing landscape. In China, he offered an estimate that workers’ wages have climbed from a range of $65 to $100 a month to $300 a month. To cope with the wage hike, factories are looking elsewhere in search of cheaper labor. Olah singled out one Chinese company handling 15 percent of the stretch yarn in the country that is building its newest factory in Vietnam.
“Our industry is on rolling racks and the real truth is that if any country is producing large amounts of textiles or apparel, their economy is a mess or trying to come out of a mess,” he said. “The only way economies improve is to raise the value and the price of its nation’s citizens. That means getting out of textiles.”
According to estimates Olah provided, Bangladesh, India and Pakistan will produce 1.5 billion yards of denim during this calendar year and are projected to produce 2 billion by 2013. China outpaced the three countries, he said, with 2.4 billion yards in 2010 out of some 500 denim mills, although the Chinese textile sector will contract by 10 percent this year.
“Cotton spinners in China no longer can compete in price against the subcontinent,” he said, pointing out that Bangladesh doubled its labor costs this year, and they are still the lowest in Asia.
Labor costs aren’t the only things impacting the denim market. Cotton prices are also extremely significant. Four weeks ago in Asia, Olah said cotton reached $2.50 a pound, up 300 percent from 18 months ago, and “that 300 percent affects 70 percent of the cost of a yard of denim.”
“Jeans [prices] will be decided in the future by the cotton prices, of course, partly, and also by what the customer thinks jeans are worth,” said Olah.
The consumer response to jeans prices depends on their nationality. In Japan, he said a normal pair of jeans that went for 8,900 yen around 30 years ago is today selling for 2,900 yen, just under $36 at current exchange. The prominence of retailer Uniqlo — Olah said it sold 20 percent of the jeans in Japan last year — has been influential in dampening the price of jeans. In contrast, Olah said China’s prices have increased from $12 to $45, and India’s from $30 to $40. And, in Europe and the U.S., he said, “The prices are being inched up all the time, especially with the cotton situation.” More generally, he continued, “Consumers, regardless of whether they accept the prices or they don’t, are going to raise their perception of what jeans are worth.”
To deal with the lofty cotton prices, Olah said cotton users have been supplementing cotton with other fibers, leading to flat global consumption of cotton this year. Even if the current trend toward blending persists, Olah doesn’t foresee cotton prices coming down substantially in the long term. Although the U.S. is due to increase its cotton production 14 percent this year, he suggested the supply of farming acreage in India, China and Pakistan that can be dedicated to cotton is too limited to keep cotton pricing level with demand.
“The real issue is that the global farming community cannot balance what’s grown and what’s consumed,” he said, before adding, “The cotton shortage we saw is going to come back — maybe sooner than we think.”