WASHINGTON — An uncertain political climate and quota safeguards are on the minds of innerwear retailers and importers, which are keeping their collective eye on steadily filling quotas on imports of bras, robes, dressing gowns and knit fabrics from China.
The Bush administration rattled the supply chain last November when it imposed one-year quotas on surging imports of these categories from China. The clincher was a 7.5 percent growth cap, which will remain on the four categories until Dec. 23. The time frame concerns a number of manufacturers and merchants that question whether the growth cap will be extended. If so, it could undermine the growth of knit fabric categories such as underwear, said executives.
To date, there has not been a massive shift of production out of China, and the quotas on bras and other boudoir-related items are not filling at an alarming rate. However, makers of intimate apparel are grappling with a variety of sourcing issues in other countries, where a majority of cautious manufacturers and retailers that contract private label have shifted a percentage of production or are cutting deals to do so next year. The angst is further compounded by the possibility of more safeguard quotas in the future.
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Rich Murray, president of bra and shapewear maker Wacoal America, the U.S. subsidiary of Wacoal Japan, said the company’s Donna Karan Intimates business, which is sourced in China, has been affected by the safeguard quotas, although the company has not had to “resource” any production to date.
Murray said Wacoal has also been indirectly affected in other countries where it sources. “As sourcing gets tighter, production is moving on a rush basis to other countries like Thailand, where we also have production, and that creates confusion in the factories,” said Murray.
Wacoal produces the “vast majority” of its innerwear in its own plants in the Dominican Republic and Thailand. “I don’t know how long the safeguards are going to last,” he said. “If they expire at the end of the year, people will definitely survive it, but if they get extended out, it could become a more serious problem.”
Richard Leeds, chief executive officer of Richard Leeds International, a maker of novelty daywear, sleepwear and robes, said his company is not heavily dependent on Chinese production, although it does purchase the bulk of its fabrics from China and assembles the products in other Asian or Central American countries.
Nonetheless, Leeds said he had to postpone a venture in China with another Asian company because of the safeguards. “We both had to put our plans on hold because of the quota restrictions.”
Regarding safeguard issues for sleepwear, Peter Gabbe, chief operating officer of Carole Hochman Designs Inc. and a member of the board of the American Apparel & Footwear Association, said: “It’s a wild card. China will become the biggest player for everyone. Do we have concerns over the safeguards issue? Yes. Are we concerned over what’s developing between the Chinese and American governments? Yes. But none of us has a crystal ball.”
Gabbe added, “I think the frustration is that manufacturers have to plan six months out, and it’s very difficult to plan without predictability. Once you know, you can strategize. There will be other apparel categories that will face the same unpredictable situation we are now facing.”
While Gabbe said the Hochman firm has expanded its sourcing base in Turkey and throughout the Far East over the past several years, he emphasized, “We do consider China to be a very important part of our sourcing mix.”
Charles Komar, president and ceo of The Komar Co., maker of lingerie, sleepwear and robes under such labels as Eileen West and Lucky Brand, noted, “We have a great relationship with a number of different factories in many countries in the Far East. We won’t be affected to a great degree. It’s quota-free in Cambodia, and that’s taken a great deal of pressure off sleepwear manufacturers.”
Todd Demakos, ceo of St. Eve International, a maker of women’s and girls’ underwear, daywear and sleepwear, noted, “We’ve opened an office in Hong Kong and we source in China. But in case the safeguards will still be implemented, we also source in Vietnam, Cambodia and Bangladesh, as well as Macedonia, Romania, Jordan and Turkey.”
Demakos added, “If a 7.5 percent growth cap is continued yearly, I don’t see much growth in the underwear category. Hong Kong has a 7.2 million dozens quota while China is in the two million dozens range.”
The U.S. textile industry, which filed the petitions for safeguard quotas on bras and two other categories, is expected to file a flurry of petitions for quotas on a variety of Chinese imports when global quotas are eliminated on textiles and apparel on Jan.1, 2005.
A large domestic textile coalition claimed the influx of Chinese imports has decimated the U.S. industry, which lost 339,100 jobs since President Bush took office in January 2001.
However, the overall picture presents a Catch-22 scenario: China agreed to allow World Trade Organization member countries to utilize the safeguard mechanisms when it joined the WTO. The textile-specific mechanism is in place through 2008, but a safeguard petition on any given product expires in one year. The domestic industry can reapply for a certain safeguard once it expires, but the government must approve it again.
That doesn’t bode well for importers, vendors or retailers that are trying to maintain long-term sourcing partnerships in China and manage the supply chain.
China accounted for 35.3 percent of all U.S. imports of man-made fiber bras and intimate apparel garments for the year ended Feb. 29, according to the U.S. Commerce Department. Imports in the category totaled 12.9 million dozen in that period while imports from Indonesia, the second-largest supplier, fell 4.4 percent and represented only a 10.6 percent share.
Despite the Bush administration’s imposed one-year quota on select innerwear imports — which riled a number of industry executives in the U.S. — there reportedly has not been a big disruption in the flow of goods since the quotas were imposed. However, many have had to recalibrate their sourcing strategies and monitor the situation.
Peter McGrath, president of J.C. Penney Purchasing Co., said: “Most everyone found alternate sourcing when the safeguards were put in place and moved some [bra] production back to the original locations from where it migrated.”
Countries such as Thailand, Sri Lanka, Indonesia and the Philippines, which at one time had lucrative bra production contracts, are again beneficiaries of the shift in bra production, he said.
McGrath said he is not as concerned about the current fill rates in the quota category as he is about a nonexistent visa system in China.
“The Chinese are not counting [the dozens of bras they ship to the U.S.] and the only reliable number is what U.S. Customs is reporting,” said McGrath. “This leaves importers at the start of the fourth quarter with potential embargoes if the volume of shipments to the U.S. picks up.”
Erik Autor, vice president of international trade at the National Retail Federation, said retailers are concerned about the absence of a visa system and quota count on the part of the Chinese.
“It’s worrisome they don’t have reliable figures to help them calculate assuredly when quotas might close,” said Autor.