MILLS TOLD GLOBAL’S NOT JUST EXPORTS
NEW YORK — With retail sales of apparel leveling off, textile producers should be prepared for a raft of new retail strategies that will drive global change up and down the apparel production pipeline.
“U.S. consumption of key textile end products, particularly apparel, has leveled off, with future gains limited principally to population growth,” said Mary T. O’Rourke, a consultant with Werner International. “No significant per capita gains are envisioned, so retailers and manufacturers are going to have to look to foreign markets for their future growth.”
O’Rourke’s comments came during a luncheon meeting of the New York Textile Group Thursday at the Union League Club here.
O’Rourke said the changing dynamics of the apparel market present a number of opportunities for U.S. textile suppliers to establish a beachhead in the global market.
She said direct exports still represent an “unacceptably low portion” of U.S. mills’ overall business.
“The textile industry must look beyond its borders for growth in the future,” said O’Rourke. “Rather than thinking in terms of export potential, mills should first think of international potential. Capturing opportunities in some of the most lucrative markets often means manufacturing a portion of the product within the intended market region, not to gain a cost advantage, but rather to meet market requirements. Quick Response is no longer an American phenomenon; it is expected in Europe and Asia. At the very least, regional distribution centers should be explored.”
Mills have an advantage where retailers are concerned, O’Rourke said.
“Retail cost-reduction programs will focus primarily on store operations; only a handful have the technical ability to reduce costs through improved garment sourcing. Most are unable to cost private label garment components correctly, anyway, so the true costs of imports are hidden. Suppliers can make this work for them because of their proximity to manufacturing in the Western Hemisphere.
“Retailers in this country will pressure suppliers to increase quality; deliver faster, broader assortments, provide smaller minimums without price increases,” O’Rourke said. “All this will be passed back through the pipeline to textile mills.”
The most powerful retailers are driving apparel sewing operations from Asia to Latin and Central America.
“Apparel manufacturers and South Korean financiers have been the main players in Asia,” O’Rourke said, “but the local Latin and Central American apparel makers do not have the fabric sourcing knowledge or financing to provide garment manufacturing packages. There is an opportunity there.”
To capture this sourcing business, O’Rourke recommended U.S. mills become more vertical through joint ventures with Asian and U.S. fabric cutters.
Apparel imports from Latin America accounted for 36 percent of all imports into the U.S. in 1996, up from 25 percent in 1994. Supply in that region increased by 547 million square meter equivalents in 1996, while the rest of the world’s supply declined for the first time by 170 SME.
“Men’s bottomweights have spearheaded the needle migration,” O’Rourke said. “Women’s wear lags behind, but improved markedly in 1996. The challenge to effect substantial Asian sourcing migration into the region remains in the women’s categories.”
O’Rourke pointed out that Latin American sourcing still suffers from retailers’ calculations of sourcing costs. “Most retailers look at FOB costs when making sourcing decisions, which will always show Asian supply as more cost-competitive,” she said. “Only by adding actual import costs to the FOB on a pre-product basis can the retailer see that Latin and Central American sourcing is more competitive. This type of analysis needs to be ‘marketed’ to the retail community.”
From an apparel standpoint, O’Rourke sees developed Asia as the most lucrative market for American companies.
“Japan, Hong Kong, Singapore, Taiwan and South Korea represent 172 million active consumers,” she said, noting Werner defines an active consumer as one who is able to purchase products of quality and price equal to or better than U.S. mass market levels. “Hong Kong and Singapore have additional tourist consumers equal to twice their populations.”
These countries also represent “extraordinary” textile buying power, beyond reported import levels, representing a huge, hidden market. “They are the sourcing hub headquarters of the world, specifying piece goods for product being made up in factories in China and Southeast Asia,” said O’Rourke. “The top 25 apparel trading houses in these countries are also now active in Central America; however, they are not necessarily using U.S. piece goods. Many still do not know the major U.S. mills and converters.”
By itself, China is the second largest market with some 120 million core active consumers. O’Rourke said demand for Western apparel and home textiles is strong, although products must be customized for the Chinese market. “For example, duvets are closed with ties, and sheet sizes are different,” she said. “Apparel body sizing is different as well. There are more opportunities in China through local manufacturing on the textile side, rather than direct export, which appears to be limited to very high qualities and specialty industrial fabrics.”
Developing Asia, including Thailand, the Philippines, Malaysia and Indonesia, represents 88 million target consumers.
“There are direct export opportunities as well as substantial joint venture opportunities with local mills who need technical assistance to improve quality and productivity to compete with Taiwan, South Korea and Japan,” she said.
Another large but so far problematic destination for U.S. goods is India, whose 66 million active consumers live in what O’Rourke described as “the single most difficult market to penetrate on a direct-export basis, and it will remain so. Nontariff barriers are substantial. Despite heightened joint-venture activity, relationships are extremely difficult, with contracts and agreements often not honored and/or frequently changed, even after signing.”
Denim, home furnishing fabrics and specialty industrial fabrics have been the most successful direct exports to India, according to O’Rourke.