SOARING FIBER PRICES THREATEN TO UPSET THE QUEST FOR VALUE
NEW YORK — The big squeeze is on.
Since the beginning of last year, wool prices have skyrocketed 35 percent, cotton prices have climbed 25 percent, polyester has jumped 23 percent and nylon has risen 19 percent.
Collectively, these represent the most dramatic price increases in fibers in 50 years and they couldn’t come at a worse time: Consumers are buying based on value, and apparel manufacturers say they can’t afford to pass along substantial price hikes.
The near-term losers appear to be textile mills and converters, who are being forced to absorb much of the increased costs (see related story, page XXX).
Consumers are holding out for the best deal, a shopping pattern that caused women’s apparel prices to plummet 4.4 percent last year, the first such decrease since 1952.
Apparel firms fear they may lose out in the long term. Ironically, many major companies, such as Jones Apparel Group, JH Collectibles and Guess, have had aggressive campaigns to lower prices over the last two years.
But if fiber prices stay high, apparel companies say they won’t be able to stave off increases for long.
With two forces colliding — the consumer quest for value and rapidly escalating fiber prices — manufacturers are adopting various tactics to keep costs in line. These include:
* Expanding sourcing networks; the Pacific Rim is the chief beneficiary.
* Taking a tougher stance with fabric suppliers and forging long-term partnerships wherever possible.
* Buying fabrics further in advance and in greater bulk as a hedge against future price increases.
* Using more blends.
Here, a look at the price situation in various markets.
MASS, MODERATE AND BETTER
Escalating fiber costs is a big concern for mass, moderate and better firms, given the extreme price sensitivity in their markets. The majority of those interviewed said they’ve been able to maintain prices for fall.
Their key strategy is to take a tougher stance with mills. Manufacturers may be squeezing margin from the mills, but the mills stand to gain somewhat through bigger orders and earlier commitments.
So far, manufacturers acknowledge they’re paying the same as last year or not much more for many fabrics. Still, when they try newer looks, these firms are confronted with higher price tags than they expected.
“We have to fight to maintain prices; we just can’t raise them substantially,” said Norty Sperling, president of Norton McNaughton Inc., which was forced to raise wholesale prices 3 percent for certain wool pieces for fall selling.
The 3 percent hike, which is Norton McNaughton’s first price increase in five years, will have a negligible impact at retail, but Sperling pointed out that if the scenario continues, he might have to raise prices further, though he would try not to.
He said he is worried about prices for his company’s cotton and cotton-blend knitwear line, to be launched in stores for spring ’96. “We are working closely with our mills and contractors offshore to maintain prices,” he said. Currently, about 30 percent of the firm’s production is sourced overseas, and there are no plans to expand.
JH Collectibles cut prices 15 percent for fall ’95 from a year ago, continuing a strategy begun for fall ’94.
“We are certainly not pleased with the fact that the price of raw fiber is escalating, but we are doing a lot of different things to address the situation,” said Normand Neal, president of the firm, which got burned last year when it decided to hike prices 20 percent for spring ’94 and fall ’94. “It is certainly a challenging situation.”
His strategies include working more closely with mills, working further out with contractors and expanding the company’s sourcing network.
Starting in June ’94, JH Collectibles moved up the timetable for ordering material from the mills by one month.
“We placed orders with mills in the beginning of September for fall ’95 delivery,” he said. “We were able to buy several hundred thousands of yards, and we can get good incentives.”
The firm, which does about 51 percent sourcing offshore, is also expanding its sourcing network in the Pacific Rim.
Neal added that he is most affected by the escalating price of wool, which makes up the bulk of merchandise for the third quarter.
Jalate Ltd., a mass dress label, will maintain its price points at least through July, according to Ted Cooper, chief operating officer.
Jalate might increase wholesale prices for holiday, but the company is working actively to develop long-term agreements with its basic fabric resources, he said.
The 60-piece fall collection wholesales from $20 for a short-sleeve cotton dress to $40 for a rayon acetate long-sleeve dress, Cooper said. Jalate plans to increase its private label business, which now accounts for 25 percent of volume, he said.
“All the stores are doing more private label,” Cooper said. “Value pricing and private label is the wave.”
Jones Apparel Group is negotiating with its fabric suppliers. After cutting prices a year ago, Jones is holding prices for fall.
“We are also absorbing some costs, especially in the wool area,” said Richard Korman, vice president of merchandising.
Denim manufacturers say they hope the cost increase is temporary, and will hold off their own hikes as long as possible. They’ll make up for immediate increases by lowering labor costs, adding other fibers and spreading out their sourcing.
“The effect of the increased price of cotton futures has yet to have an impact on us,” said a spokesman for Levi’s at the company’s San Francisco headquarters. “We’re taking a wait-and-see posture. But if this is an enduring situation, we’ll have to examine our prices — and so will everyone else.”
He said Levi’s plans its fabric buys at least a season in advance.
Maurice Marciano, chairman of Guess Inc. in Los Angeles, said his company would keep prices level for this season and would institute strategies to hold them.
“What I’m trying to do is look at it as a temporary issue, and I don’t want it to dictate my market,” said Marciano. “I’m absorbing most of it.”
Marciano said he would try to trim labor costs to dilute the increase, and might try out some man-made fibers such as rayon for categories that currently are all cotton.
“I think this situation is not going to stay like this for a long time,” he said, “but we might have to turn to other fabrics. We’re trying to go around it by using different sourcing, and when you have a big increase in raw materials like this, you try to get a better price on the labor.”
Junior firms are working hard to keep prices the same as last fall and are finding it a challenge in this price-sensitive market. They are most hurt by cotton and rayon price hikes.
By taking a lower margin and sourcing creatively, companies are keeping prices stable in most categories. At least one firm has even managed to lower prices 20 percent to keep competitive.
Manufacturers do not think stores will increase their private label business to combat price increases in the juniors area.
“The junior customer is really into labels or something they recognize,” said Daniel Dougherty, vice president and director of sales for Ultra Pink, based here. “They study fashion magazines like Seventeen, which credits the merchandise, and that’s what they want,”
Gregg Fiene, owner of XOXO, agrees: “I don’t think stores will increase their private label business in juniors. The only private label they do that is successful are basics; when they try to do fashion, they usually fail.”
“We are working on a shorter margin to keep prices in line,” said Fiene. “Customers really haven’t been going to stores right now, and when they do, they don’t need to see prices 5 to 10 percent higher.
“As far as sourcing, we are scouring more than ever to find the best prices, but you have to be careful not to affect the garment. Some blends just don’t work.”
“We are really comparative shopping and trying new factories,” said John Dransfield, design director of Jou Jou. “We are a better junior firm, and our prices have always been at the high end of the spectrum.”
“In response to our customers’ demands, we have actually lowered our prices around 20 percent beginning this spring and going forward. A key price point for us is $25 to $30 retail on basic bodies.”
At Necessary Objects, owner Ady Gluck-Frankel said she has been sourcing differently, but there isn’t much room to maneuver.
“Unfortunately, I’m finding myself buying more and more fabrics overseas and in Canada. Three years ago, about 98 percent of my fabrics was domestic, last year 30 percent and now I import 45 to 50 percent.”
Contemporary firms are responding to fabric price hikes in various ways, including different sourcing, lower margins, special fabric treatments and blends.
Several firms will increase prices 5 to 10 percent for fall. Wool price hikes are definitely this market’s biggest headache. Adding to the fabric price concerns is the weakness of the dollar compared to the yen and European currencies.
“Now that people want to pay less for clothes, the fabric market is not cooperating. Prices have gone up across the board,” said Brian Hogan, vice president of Vivienne Tam.
“We are totally taking smaller margins because we are locked into a certain price point that retailers expect. You can’t scrimp too much on fabrics — the customer wants that interest and excitement — but we are definitely becoming more creative, such as taking an inexpensive fabric like netting and having it embroidered so it looks expensive.” The firm is most affected by wool price hikes, especially the Italian yarns. “The wool prices are just ridiculous. They have gone through the roof,” said Hogan.
He said his firm is trying to keep price increases between 5 and 10 percent.
“I can’t raise prices,” said Ken Zimmerman, chief executive officer of Kenar Enterprises. “I’m eating the increase. This market is very sensitive to price.
“There are certain price points we try to maintain, such as $200 retail for jackets. The customer has a psychological aversion to prices over a certain amount.”
Zimmerman said he is scouring the world to keep prices in line or to lower them. “I’m not using a lot of different blends because they can really change the drape and hand of the fabric and then the character of the garment suffers. We try to keep labor prices in line when fabrics go up.”
“Price is a sensitive issue to certain customers in our market. Jackets have to retail between $200 to $270, pants at $80 to $125 and skirts for $60 to $125,” said Michael Axelrod, president of French Connection.
“Some yarns we bought early, but the hikes came in after most of our initial sourcing had been done, so we will have to swallow a bite of the increases. Wool is our number one concern, then cotton is second.
“We are trying here and there to put other fibers in, but it’s too late for fall,” said Axelrod.
Designer and bridge firms have tried to offset fiber price hikes through improved sourcing, but some have resorted to increasing prices for fall selling.
Steven Stolman, design director and president for the ready-to-wear company that bears his name, said 20 percent of his fall line will be priced about $10 to $17 higher than last fall.
With renewed interest in traditional dressmaking, long hemlines and bias cut, which adds more costs to the garment, Stolman asks, “Does it really need it?”
“Piece goods have gone up. Business isn’t great at retail for anyone and the customer is more savvy,” he said. “Unfortunately, this happened all at once. Now we’re making a quality garment that doesn’t look bulletproof.”
To maintain wholesale prices for most of his line, Stolman said the company would not have a fall runway show, and thereby save $50,000.
“We are absorbing most of the differences ourselves but raising prices about 5 percent on novelty pieces, such as a high-twist Italian wool georgette,” said Tom Murry, president of Tahari. “We are most affected by wool, especially the Italian yarns.
“We aren’t really changing our sourcing or manufacturing. We don’t want to tamper too much with what we do because it’s been working.”
Ornella Marrow, executive vice president at Adrienne Vittadini, said some prices of yarns from Italy and the Far East had increased. She said prices would be level with last year, except for certain special items like Italian intarsia.
“We are trying to change our sourcing to cut corners where possible, and have moved production to countries where there are either no quotas or no special duties, such as Israel, Turkey and Portugal.”
“We’ve tried to maintain prices, and we’ve established new entry-level, value-driven price points in key categories,” said Joseph Greco, president of Gruppo Americano.
“We specialize in viscose and acetate fabrics, and those prices have been an ongoing saga for the last two years. We have been working with suppliers to develop fabrics with different yarns of this type so we can maintain the look of the fabric.”
Greco said the company has sourced somewhat differently this season because it is using more worsted wool, “which lends itself to a price point that is even more palatable than viscose acetate.”
The firm is using worsted wool for Giuseppe’s opening price points and a satin back viscose acetate crepe for Gruppo Americano Studio’s.
With these fabrics, opening prices points are jackets retailing for less than $300, skirts for less than $100 and pants for around $150, said Greco.
“Our main goal in the past two seasons has been to encourage customers to purchase at full price so we keep our opening prices as reasonable as possible.”