As retailers converge in Las Vegas this week to write orders with vendors at WWDMAGIC, both sides will be forced to think a little further down the supply chain than they did last year.
Since January, when the World Trade Organization dismantled a 30-year-old protectionist system and ushered in the quota-free era, the apparel industry has been plagued by new challenges and confusion.
The source of many of these problems? The implementation of U.S.-imposed quotas on seven apparel categories to safeguard domestic industries from an overflow of Chinese imports, which skyrocketed by more than 46 percent in the first half of the year, according to the U.S. Commerce Department. Due to the new restrictions, many companies have been unable to ship supplies or finished goods from China.
Alex DeHaan, chief operating officer of Christine Alexander Inc., based in Federal Way, Wash., considers his company lucky. When a shipment of pants and wool-blend sweaters with a retail value estimated at a half-million dollars got stuck in China a few weeks ago because of the new U.S. quotas, his firm had sufficient storage facilities there to harbor the merchandise until next year.
“We didn’t have to pay to warehouse it,” said DeHaan. “But it is inconvenient and ties up cash.” Rather than try to have the goods remade elsewhere, the company is going to swallow the financial loss for the season.
“Fortunately, we are large enough that we can absorb that. For a smaller company, that would have been catastrophic,” said DeHaan. The company will try to recoup what it can on the outdated merchandise next year.
To provide more predictability to the supply chain, the U.S. and China have been working out a comprehensive trade agreement that is expected to be revealed by the end of this month.
Mike Flanagan, an executive with Clothesource, a London-based consulting firm, suggested that, despite the quota problems, low prices have made China more appealing than ever. According to Clothesource PriceTrak, a monthly survey of import prices into the U.S. and the European Union, by June costs of Chinese apparel and textile imports had fallen by 33 percent over the previous year. Flanagan was quick to note, however, that there are several countries, such as Bangladesh and Cambodia, offering lower prices than China.
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Until the U.S. and Chinese governments can ink a deal, American companies have been making decisions on where and with whom to do business by using the information at hand, knowing the rules for China are likely to change once again.
Gary Naidicch, general manager of New York-based Collective Works of Berek, a maker of women’s fashions with an emphasis on highly detailed and patterned sweaters, is anxious to hear what the future holds for the jean jacket category, a growth segment for his company. A retailer has placed a large order for December, and Naidicch doesn’t know yet where to have the items produced to assure delivery.
Berek, too, was recently snagged in the quota net. A shipment of finished sweaters from China missed making the U.S. quota that was imposed for that particular category. Not wanting to disappoint his customer, Naidicch had the sweaters remade in Hong Kong. (Although under Chinese rule, Hong Kong is treated as a distinct market when it comes to quota issues.) The original shipment will be liquidated when it clears and makes its way into the U.S. next year, said Naidicch.
To try to avoid future quota conflicts, Naidicch has started to research materials that are less likely to be affected, such as a silk blend used to knit sweaters. His is not the only company eyeing a new range of options, whether for sourcing or production, or both.
Harlan Newman, president of Black Mountain Apparel of Pinellas Park, Fla., a maker of fleece outerwear, said he currently buys 90 percent of his material in the U.S. and 10 percent overseas. But he is reevaluating his business model. “At this point, there have been no decisions made, but easily 30 to 40 percent of our business could be sourced from China in the future.” He estimated the company could save 20 percent with the switch.
With business flocking to China, there is a greater demand on factories and space on freight carriers is harder to come by, which several U.S. vendors said has pushed up rates.
Papillon Eastern Imports Inc. of Los Angeles, which markets women’s apparel collections under the Papillon, Kroshetta and Hibis labels, had a dress order coming from China, but couldn’t get it shipped in time, even after the customer, the May Co., granted a 15-day extension. “Before, shipping would take two to three days, now it takes two to three weeks,” said Shivi Sindhu, the company’s national sales director. Despite the grace period, the deal was lost. “Now we have to find another buyer.”
Delays have caused unanticipated disruptions in sourcing of materials, as well.
Jan Grimes, vice president of Alexia Admore, a New York-based maker of better dresses and skirts, said she had to stop production of some items several weeks ago because there was no brown thread available “anywhere on the East Coast.” Basic threads and zippers are primarily brought in from Southeast Asia, she said.
Grimes, who has been in the garment business for 25 years, said she has never seen the level of frustration and confusion that abounds at the moment. “No one really seems to have a very clear picture from month to month what is being affected and how it is affecting their specific categories,” she said.
J Shadow Apparel, based in Phoenix, had until recently sourced primarily in China, but is now looking elsewhere after an order was sidelined 30 days due to a shipping problem. “We had to halt production,” said Jody Shadowens, president of J Shadow, which makes women’s apparel with an emphasis on chenille and fleece fabrics.
Now Shadowens is investigating doing more business with Vietnam and India. By doing so, she hopes to circumvent the potential backlogs in China and help balance the losses other countries might suffer due to quota eliminations. “Actually, some of these other markets are cheaper than China,” she remarked.
Due to price fluctuations and the forthcoming deal with China, it’s early yet to predict how the industry will shake out. Flanagan of Clothesource projected it would take “at least three to four years for things to settle down.” Despite its reputation of being the dominant player, China still represents only about 22 percent of U.S. apparel and textile imports, Flanagan stressed.
China, after all, is not the answer for everyone.
Sonu Batra, president of Chorus Girl, a New York-based ladies’ sportswear company, said he spreads his business throughout China, Cambodia, Vietnam and India, where he does the bulk of his work. To avoid some of the recent U.S. import restraints, he has been buying materials in China and Taiwan and “moving them around the world for production.”
Bella Brazil Swimwear, whose sexy suits appeared in the Sports Illustrated swimwear issue this year, has not been directly impacted by the new import quota rules.
“We may see some price pressure from stuff from other countries, but our materials are made in Brazil and are artistic,” said Andrew Hall, president of the Key Biscayne, Fla.-based company. “We are competing more on quality, not price.”
In fact, said Hall, “we anticipate that it will be a selling advantage for us as others consider sourcing in other countries not as known for their styling and production. We have lots of hand-sewn embroidery and tie-dye.”
Pricing, however, is a major concern for other vendors.
Cynthia Hoey, co-founder of Cyn & Luca Productions, a maker of swimwear and cover-ups, fears that larger competitors will enjoy significant cost savings that can be invested in developing new ideas.
“We still have to compete with the big people on style, quality and price,” said Hoey. “The worst part of it is, from a financial standpoint, it is harder for us because we have to keep our pricing level.”
Hoey and her partners are closely watching currency values and basing business decisions accordingly. “For one thing, we are trying not to do manufacturing in Europe until the euro changes,” she said. “We try to go where the dollar is stronger to compensate.” For now, Cyn & Luca will concentrate production in Argentina.
Then there’s Girlmaxx Sports Inc. of West Sacramento, Calif., a maker of athleticwear for girls and women. It hasn’t changed its business approach at all. At present, it deals exclusively with U.S. manufacturers, currently with firms in California and Washington.
Said Kathy Abbott, vice president of sales and marketing: “Our customers like to know that the products are made in the U.S. and they are willing to pay extra for it.”