HOOKED! China’s Low-Cost Mainline

Apparel Insights

The Robin ReportWhen the chilly winter weather arrived last month, I headed to some of my favorite stores in search of some new clothes. As I looked through rack after rack of clothing, I was intrigued at the seemingly increased diversity. Sweats from Pakistan, dresses from India, outerwear from Eastern Europe, jeans from Guatemala and tops from Vietnam were just a sampling of what I found.

But then there was China. Once the source of primarily low-end, basic product, China was represented by at least half the apparel I saw, at all levels of the market, from discounter to upscale specialty store to the big luxury retailers.

Are we hooked on the spreading “drug” of China’s low cost production across all of apparel? If so, what will China do to keep us hooked so we don’t pursue other sources? Chinese factories currently own a 39% (up from 13% in 2004), share of all apparel imported into the U.S. (see graphs on next page.) What happens when they own most, if not all of it? At the risk of overdoing the metaphor, if they reach that level of control over our sourcing “habit,” will they begin cutting quality to increase profits in the face of other rising costs?

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The U.S. Department of Commerce Office of Textiles and Apparel, or OTEXA, recently released detailed apparel import data for the first nine months of 2010, the second year of dramatically relaxed China quotas. A glimpse into the detail of these figures underscores just how big a part of our apparel market China has become, and should provide some “handwriting on the wall.”
In the past year, the value of China’s apparel shipments to the US increased 20%, almost twice the rate of increase of total US apparel imports (see graph, below right.) That’s an increase of $3.3 billion dollars, or a retail value of up to $15 billion.

Five of the biggest apparel categories shipped by Chinese factories to the US were women’s cotton pants ($1.2 billion), women’s cotton knit tops ($1.8 billion), men’s cotton pants ($860 million), women’s man-made fiber knit tops ($770 million) and men’s knit shirts ($720 million.) In each of these, dollar growth was between 25% and 38% over the same period in 2009, while unit growth was between 17% and 52% (see graph, below left.)

China’s share of US imported apparel has grown from 36% in the first nine months of 2009 to almost 39% in the same period this year, a 3 percentage point share gain, far overshadowing the infinitesimally small inroads made by Vietnam, Indonesia, Honduras and El Salvador.

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Imports of cotton apparel, the largest fiber category, rose 9%, even though fiber prices increased 65% during that same period, while imports of man-made fiber apparel increased 24%.

The average unit value of imports from China fell slightly in the period, as did overall unit values of US imported apparel. However, China’s unit values declined precipitously in those top apparel categories, in all cases at least double the average declines for the values of all imported goods in those categories. In other words, factories in China cut costs in important product categories in order to gain share of our markets.

China’s share of US apparel imports has increased steadily every year since the advent of more relaxed quota restrictions. Continuing on this growth trajectory, by the end of this decade the vast majority of all imported apparel will be from China.
All of this raises some important questions. Once China supplies everything, and that day is not very far off, will the major players in our industry really have any control over its destiny? At the risk of mixing metaphors, when there’s a fox in the henhouse, it’s pretty hard to get any eggs, let alone golden ones. Without the threat of competition, what incentive do Chinese makers have to provide continuous improvement, adherence to quality standards and aggressive pricing?

There should be another nagging question on the minds of designers and merchandisers these days, however: how can we in our industry be creative and innovative now that over a third of our apparel comes from a place whose primary role is to be the low-cost producer? Even if you’re not a protectionist in the traditional sense of the word, the process of creating beautiful, high-quality apparel needs protection if our industry is to begin growing again.

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The consumer isn’t finding anything compelling enough to get her to open up her wallet for anything but too-good-to-pass-up deals. In fact, I came home from my two-hour shopping trip empty-handed. It’s a given that without creativity, apparel becomes a commodity, a mere shelter from the elements. The pressure for cheaper goods has already put many a small specialty fabric mill and medium-sized designer out of business. It has made it virtually impossible for entrepreneurs to launch viable new concepts because production minimums are now way too high. With such obstacles, the next generation of design talent will never get started.

As consumers become resigned to ton-and-gun fabric, boring styles, uninspired detail and basic workmanship, there will be no turning back. Future generations will never know what it was like to have a new dress of gorgeous fabric in an interesting color that fits perfectly, drapes beautifully, and looks brand-new for years. Will high-end clothes, like so many other things, become items to be enjoyed by only a select few? We cannot let that happen if our apparel industry is to survive, let alone flourish.

Judith Russell is Editor and Chief Operating Officer of The Robin Report and Executive Editor of The Apparel Strategist, a monthly newsletter that reports, analyzes and predicts key business and statistical trends in the apparel industry.

Judith Russell About Judith Russell

Judith Russell is a marketing and strategic planning consultant specializing in the retail apparel industry, and writes for several apparel and retail trade publications.