Sourcing is a hot topic in the industry these days, and for good reason. But it is important to remember that what affects where and how a product is sourced can also be significantly impacted by sectors and situations that have nothing to do with uniforms.
Take, for example, the current worldwide cotton shortage and unprecedented rise in prices. A number of factors conspired to create the shortfall, including the economic crisis that swept the globe starting in the summer of 2008. Consumers lost their jobs and began to scale back discretionary spending, which included purchases on apparel. In response, cotton producing countries, including the United States, reduced their inventories and devoted less acreage to the crop, while major foreign-producing nations such as China and Pakistan, suffered crop damage due to flooding.
The worldwide recession wreaked havoc on many global economies, with one glaring exception: China. In fact, China’s growth continues to tick upward, a phenomenon hastened by the collapse of apparel quotas in 2005. According to Bloomberg.com, China’s economy grew by 11.9 percent in the first quarter of 2010, this at a time when most economies were flat at best.
China’s economic growth spawned an emerging Chinese middle class, bringing with it an appetite for textile consumption even as cotton inventories shrank. China, a major producer of cotton, is also the world’s largest importer of U.S. raw cotton.
The cotton shortage was further exacerbated by bad whether last year in cotton producing countries. China experienced a drought, while Pakistan was hit by devastating floods. In response, India – the world’s second largest cotton exporter, stopped exports to protect its own domestic supply.
The tight supply has resulted in a simple case of supply and demand: cotton prices nearly doubled last year, hitting a 15-year high. Actual mill delivered price started at $.73/lb and ended the year at $1.42/lb. And there’s no relief in site: prices are expected to climb throughout this year and well into 2012.
As prices have risen with the increasing demand, American producers boosted plantings in 2010, the first increase in cotton acreage in the U.S. in three years. While seemingly good news, world cotton production is unlikely to catch up with consumption for at least two years, say industry experts.
Cotton and the Uniform Industry
Since cotton is not the primary fiber used in the uniform industry, some may be wondering why a shortage is cause for concern.
There are, however, several implications for manufacturers in the uniform market segment. Even before the current cotton shortfall, prices for the fiber were always higher in the uniform industry than the consumer segment, primarily because of usage. Large denim and underwear operations, and/or cotton yarn mills supplying them, for example, buy a lot of cotton, and make significant volume purchase commitments before the cotton is even harvested, thus securing a better price. With much smaller needs, mills supplying uniform manufacturers have less room to negotiate, particularly for knit products.
They’re also at a disadvantage when it comes to sourcing. Unlike the consumer market, the uniform segment is more manufacturing and quality oriented. Uniform manufacturers typically don’t have large souring staffs either, and travelling the world is not economically feasible.
Ultimately, the rise in cotton prices may translate into a still greater reliance on synthetic fabrics like polyester and blends. But prices for raw materials are on the rise here too, and may negate any advantage from a switch.
All this, as the country slowly rebounds from recession. “These are unprecedented cost increases at a time when companies are struggling to win back business,” says Mary O’Rourke, president, O’Rourke Group Partners, a management consulting firm specializing in the textile and apparel industry.
In the consumer market, apparel prices are on the rise, as retailers pass the higher costs on to customers, who, recession weary, have slowly begun to spend again. But increasing prices in the uniform industry is much more challenging, particularly for those companies servicing rental customers or others with long term contracts in place.
“The situation isn’t going to change through 2012,” notes O’Rourke. “Uniform manufacturers are going to have to reevaluate their sourcing options and cost competitiveness, given the extraordinary raw material price increases, as well as increasing wage rates in countries such as China and Bangladesh. The Western Hemisphere apparel sourcing platforms, from jeans to activewear, are already seeing some production shifts from Asia that will likely constrain existing capacities near term.”
Sourcing Sessions at NAUMD Convention
Sourcing is so critical to the economic life of the uniform industry that the topic will take center stage at the NAUMD’s upcoming convention. “The information will be useful to those sourcing globally already to those who source entirely in the U.S.,” says O’Rourke, who also serves as vice-chair of the association’s Innovation/Sourcing Committee.
Mike Todaro will head a breakfast panel discussion highlighting sourcing solutions in the 21st century. Todaro is the managing director of the American Apparel Producers’ Network, a business group of over 600 company owners and senior executives from nearly 200 organizations across the supply chain. O’Rourke will join the breakfast panel, providing comparative global cost analysis for select uniform products and hourly labor cost trends
Sourcing segments are also scheduled during the image apparel and public safety education tracks later that day and the next. “Where you source depends on what part of the uniform industry you’re in,” O’Rourke points out. “Each market segment has different requirements, and each country and region offers various competitive advantages. These sessions will provide attendees with a better understanding of sourcing dynamics and global competitiveness in today’s environment.”
The 2011 annual convention will be held in Orlando, April 29-May 2. Only those registered for the full convention may attend the sourcing events. For more information or to register, visit www.naumd.com
