Appeared In
Special Issue
WWD/DNR CEO Summit issue 11/17/2009

The future of the apparel industry may resemble its past in some ways, said Bruce Rockowitz, president of Li & Fung (Trading) Ltd.

This story first appeared in the November 17, 2009 issue of WWD. Subscribe Today.

Rockowitz said the environmental movement would spawn a new regimen of quotas, and that consumer demand in developing regions around the world might reverse apparel’s deflationary spiral.

 

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The first outsider to run the $14 billion Fung family business in more than 100 years, Rockowitz said in his keynote speech that carbon credits intended to help slow global warming have a potential production impact that would mirror the World Trade Organization’s global quotas. The WTO system was dismantled in 2005, though some restrictions lingered until 2008 in the case of China.

“Basically, we’re going to go right back to where we started 40 years ago,” Rockowitz said. “Countries will be allocated a limit on carbon emissions that will then be broken down by item and given to factories or however they will administer it.”

He described such allocations as a possible new form of protectionism that would limit exports to the Western world.

“This is something that’s going to happen,” Rockowitz said. “It’s not something that is far fetched. It is something we should all be concerned about. It’s going to drive change. It may drive some production back to the United States.”

But Rockowitz said the increased transparency in the supply chain, with its new emphasis on labor conditions, safety issues and the impact on the environment were all ultimately good for the business.

“Truth, going forward, is king from both an advertising point of view as well as from the way you do business,” he said. “It’s got to be honest.”

And even though some brands are looking beyond China as they search for new factories, Rockowitz said China’s interior would become the next big source of production. Most of the country’s manufacturing capacity is currently along the coast, but many expect the quickly growing economy to move the industrial boom inland.

The development of China and the rise of new consumers around the world could tip the balance of supply and demand, which has pushed prices down for more than a decade.

“We’ve had a party the last 15 years where prices have come down,” Rockowitz said. “China’s really exported deflation and basically I think we’re coming to the end of that cycle.”

After roughly flat prices next year, Rockowitz said prices would increase for the following five years as the number of consumers outpaces production capacity.

“Right now, there’s about a billion consumers in the world,” he said. “In 10 years, maybe a little longer, there’s going to be double that, two billion consumers, not here in the United States, not in Europe, but in China, Russia, Brazil — places like that.”

With these transformative changes ahead, Rockowitz noted that the supply chain had just recently regained some of the flexibility it had when the factory was just a short drive from the store and retail was a regional business.

“What’s happening today is that everybody’s going back to where it was,” he said. “National chains are regionalized. We’ve gone full circle.”

Even though the supply chain now gives importers much more flexibility than it used to, allowing for quicker replenishment, speed-to-market is still a vexing issue across the industry.

People talk about speed of production, that’s not the problem,” Rockowitz said. “It’s the speed of development. It’s the speed of making decisions. There’s a lot of inefficiency. It’s actually on this side of the water that you have to change your mentality and really revamp how you do the supply chain.”

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