How Does the Global Economic Crisis Affect Textile, Apparel Sourcing?

As the world's biggest textile and apparel market, the United States generates a great deal of interest amongst global textiles and apparel suppliers, many of whom say that they catch a cold when the U.S. sneezes. Not surprising, suppliers around the globe, still not fully recovered from the downturn in the U.S. following the 2008 recession, are closely watching the state of the American economy.

Many suppliers at Frankfurt's Heimtextil show earlier this year were encouraged by the "good start" in the year for U.S. apparel and textile retailers, many of whom reported better-than-expected sales in January, buoyed by the bullish stock market mood and a continuing decline in unemployment.

"U.S. retailers such as Macy's, Columbia Sportswear, American Apparel, Nordstrom, Gap, Ralph Lauren, Ann Inc. [and others] performed better and reported stronger sales in the third quarter of 2012," a representative of Mumbai-based Star Trading Co. Private Ltd. said at the Heimtextil show, adding that several apparel retailers, including Ann Inc., Zumiez and Ross Stores, had raised their outlook for the current year after their January sales.

Indeed, many foreign suppliers interpreted as a "positive sign" Wal-Mart's recent announcement about its willingness to invest $50 billion over 10 years in the nation's textile manufacturing industry.

India's apparel industry in particular has been "very excited" about the positive developments in the U.S.

A. Sakthivel, the chairman of the Apparel Export Promotion Council of India, underscored the significance of the U.S. market for India's garment exports, which account for some 8 percent of the total U.S. garment imports. "Apparel products account for 6 percent of India's total exports," Sakthivel added. India's apparel exports to the U.S. amounted to $3.3 billion, according to the AEPC.

Sudhir Sekhri, owner of Delhi-based Trend Setters International and head of AEPC's export promotion committee, admitted that India's overall garment exports had declined by 1 percent in dollar terms. "However, things are looking better now despite the recession [in the traditional Western markets]. We expect business to remain stable in the current year, and are also looking at Africa and South America as potential markets. Japan is another market where we expect double-digit growth," he said.

Egyptian exports hit twice by global downturn and labor strikes
Another major supplier, Egypt, which has gone through political upheavals in the course of the Arab Spring, has been closely following the U.S.'s economic recovery process.

Dalia Rady, the executive director of the Egyptian Textile Export Council in Cairo, acknowledged in an interview at the Heimtextil 2013 show in Frankfurt that Egypt's 2012 exports of (synthetic) fiber yarn had declined by 8 percent in value over 2011. Egypt, she said, had faced labor unrest in Egypt even before the revolution had started.

"We had a heavy flow of foreign direct investments (FDI) mainly from Turkish, Chinese, Italian and other investors who set up factories in the past five years. Yes, we are currently facing challenges, but I am optimistic … people have invested a lot in the past and they cannot just abandon their investments. Even the current conservative government is interested in promoting business," she said.

The U.S. is Egypt's primary apparel market, although Egyptian exporters are now aggressively trying to enter European markets. For the home-textile products, the major markets were the United States and Europe, but Egypt's yarn and fabric fiber now are shipped primarily to Turkey, Portugal and Italy.

Rady called for reforming Egypt's policy governing cotton. "We need to have a hedge fund for farmers when international prices are low," she said. "We await the Egyptian government's decision to our plea."

Amit Dayal, the assistant vice president of marketing for the Aditya Birla Group, which has factories in Egypt and Thailand, said that the company's Thai facility manufactured white fiber while the Egyptian plant produced dyed fiber.

Dayal said that the market was not growing and price variations had been volatile. "The seasonality factor is changing, with lead times becoming shorter," he said.

"We anticipate the first quarter of 2013 to be challenging but there will be some stabilization in the second quarter followed by a rebound in the third and fourth quarters. Although the U.S. and Europe will still have economic uncertainties, China and India could help mitigate the decline as the earnings of people in the emerging markets rise," he said.

Bangladesh exhibitors worried by raw materials and energy price hikes
The Dacca Dyeing & Manufacturing Co. Ltd., in Dhaka, Bangladesh, which supplies fabrics, bed linen, cotton tablecloth, towels, and other goods primarily to European and Australian buyers, is also making efforts to penetrate the American market and received business enquiries from Brazil, Dhiraj Chakma, the general manager of marketing told Apparel Magazine.

The company, whose exports range between $15 million and $18 million, supplies some 30 percent of its production to the domestic market. Although Chakma was "more optimistic" about his company's traditional markets despite the economic uncertainties, his company was "worried" over the energy problems in his country coupled with rising prices of raw materials.

Energy shortages continue to plague Pakistan's textile industry
For years Pakistan's textile industry has faced chronic energy shortages, attributed to the government's lackadaisical approach to the issue of energy supply, which is badly needed to sustain the textile industry's development.

Many of the 219 Pakistani exhibitors at Heimtextil 2013 complained that this year started on a dismal note for Pakistan's textile industry, with some indicating that export orders received at the show were much lower than in 2012.

In the past, Pakistani exporters claimed, they had received orders worth $25 million each year but this year the collective value of orders received was around $3 million: some big buyers were reluctant to place orders with Pakistani suppliers fearing they would not be able to make timely deliveries of the goods because of production breakdowns caused by energy shortages. Similar sentiments were also echoed by the Pakistan Textile Exporters' Association (PTEA) in Karachi.

Some Pakistani suppliers maintained that the low orders received at the fair were also partly because some competitors from China, India, Vietnam and Bangladesh had directly approached large department stores such as Wal-Mart and J.C. Penney, telling them that Pakistani exporters would not be able to meet their timely export commitments even next year because of the country's energy shortages.

But the competitors denied this. "It's a free market and you can order from whomsoever you like, if you find the price, quality, delivery schedule are right. One does not need to tell U.S. and European buyers about Pakistani suppliers because many of the buyers are very well informed about conditions in Pakistan, particularly about the energy shortages that plague Pakistan's textile manufacturers," one Chinese exhibitor, speaking on condition of anonymity, said.

Showcasing a wide range of fabric products, made-ups, home furnishing products and more, Asif Ahmed, export manager of Fateh Textile Mills Ltd., of Hyderabad, Pakistan, said that his company faced energy problems like the rest of Pakistan's textile industry. Ahmed urged the Pakistani government to address the energy crisis as a "national priority." "Energy shortages have been hurting Pakistan's textile and garment industry since years," he said, blaming many Pakistani companies for illegally tapping energy by installing unauthorized connections. "If these illegal connections are removed, half of the country's energy needs would be resolved," he added.

Gohar Textile Mills in Faisalabad, which manufactures a wide range of textile products, including curtains, cushions, beddings and quilts, was equally concerned about Pakistan's energy supply situation, the company's director Aftab Gauhar said.

"Gas and coal are our sources of energy; however, coal mines are located in Baluchistan, a political flashpoint. We also import coal from South Africa to supplement our supplies," Gauhar said. The Pakistani textile industry's capacity has declined because of energy shortages.

Consequently, textile companies are finding it difficult to complete their textile export orders on time, prompting buyers to turn to other countries.

According to some Pakistani textile and garment exporters, more than 15 percent to 20 percent of orders meant for Pakistan's textile exporters were diverted to Bangladesh, India and Sri Lanka last year, but the situation could further worsen in the current year if the gas and electricity power supply situation does not improve.

According to Pakistani textile industry sources, the country's textile industry had recorded a huge loss of the equivalent of more than $2 billion annually during the past four years because of power and gas shortages.

The outlook for 2013
Olaf Schmidt, the vice president for textiles and textile technologies at Messe Frankfurt GmbH, the organizer of a number of textile trade fairs, including the flagship Heimtextil show, said that he remained optimistic about 2013.

Schmidt, an expert on the global textile trade and industry, observed that it may not exactly be an "idyllic business climate right now," but there are unmistakable signs that things are improving this year.

"Take Europe, whose textile industry has completed its consolidation process. Germany's economy is strong and this is also showing itself in the textile trade and industry. Some textile and apparel suppliers in China are quietly moving at least a part of their production to some of the low-cost labor and production countries in Southern Europe which also, incidentally, enjoys duty-free access to the European Union," Schmidt said.

While China may have become "inward looking," implying that more and more Chinese textile companies will discover a lucrative domestic market as prosperity and consumer earnings grow, Chinese companies want to set up manufacturing operations in low-cost sites not only in Europe but also particularly in Vietnam, Laos, Cambodia and Bangladesh. India will also play a crucial role not only as a textile supplier but also as a buyer of high-end quality textiles and, particularly, textile machinery.

Schmidt believes that a future trend will be "de-cycling" or the further processing of materials into different base or full products, contrary to recycling where used products are completely rehashed to produce the same or a different product.

"However, energy conservation, be it in textiles or apparel production, will be crucial for the industry," Schmidt said.

U.S. textile and apparel market "right on track"
European textile experts have also been saying that the U.S. textile and apparel market is "right on track" as demand rises, aided by several factors, including subsidized cotton and favorable production costs as well as more expensive imports in the market. The "Made-in-USA" campaign indeed has had some influence on demand though pricing has been the most important issue. The upswing is also related to modernization and upgrading of existing mills.

A spokesman of the Textile Machinery Division of the Frankfurt-based association of German Association of Machinery and Industrial Plants confirmed that its members had discerned a positive trend in the United States' textile sector which besides China, India and Turkey is a big market for German textile machinery.

As manufacturing costs in places such as China rise, the Made-in-USA label is, again, gradually gaining popularity. What's more, U.S. textile and apparel companies find it much easier to maintain their strict quality control at home than in distant China.

If at one time the mantra was to outsource almost everything from sheets, blankets, pillows, comforters to apparel and other knitwear American-made products are now becoming increasingly visible on the shelves of big retailers such as Wal-Mart and Target.

According to industry sources, U.S. textile mills are expected to produce about $55 billion in goods in 2013, the fourth consecutive year that these figures have remained stable or even inched up. The combined total value of both textiles and apparel shipments should reach an impressive $71 billion.

The increased clothing consciousness amongst men men's outerwear grew by nearly 6 percent in 2012 and posted a higher growth than women's wear is also likely to benefit overall apparel purchases in the U.S.

The creation of a gigantic Trans-Atlantic market through the finalization of the much-touted free-trade agreement (FTA) between the U.S. and the European Union (EU) is expected to have a profound impact on the apparel and textiles trade. The European Textile and Clothing Industry Association (Euratex) has welcomed the start of FTA talks between the U.S. and EU, which will remove import duties that would make European textiles and apparel more competitive.
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