Are apparel prices really rising?

Just about every apparel industry commentator on the planet is constantly going on about rising cost prices. But do any of them look at what buyers are paying?

In the year to 31 December 2015, the price per square metre of apparel imported into the US was 2.5% lower than it was in 2014 – and lower than in any year since 2011.

That can’t be said of apparel imported into Europe, Japan or Canada, since their currencies have devalued lately. But there’s not a single sign of rising apparel prices in most manufacturing countries: just of those prices looking higher if you’ve got to pay in euros, kronor, yen, pounds or Canadian dollars.

For Americans, prices are falling

In fact for buyers in the US – by far the world’s biggest single country market – prices are falling from practically everywhere.

Among America’s top ten suppliers for 2015 as a whole, year on year, Americans paid 2.9% less for clothes from China, 3.8% less from Bangladesh, 2.8% less from Cambodia, 2.7% less from Mexico, and 2.5% less from Pakistan. From Vietnam, prices were unchanged and they fell just 0.6% from El Salvador: they did grow – on average by 0.6% – from India, Indonesia and Honduras.

In virtually all the top ten apparel exporters to the US, there’s a broadly common story: real growth during 2015 in the volume of apparel exported to the US, while prices generally fell. Export growth accelerated during 2015 in Bangladesh, while the decline in prices grew faster too – and the trend during the year was the opposite in China and Vietnam.

So at first sight, it’s hard to see why so many people keep saying prices are rising. As so often, though, it depends where you’re looking at this picture from.

Suppliers

It’s certainly true that many apparel and textile suppliers in developing countries claim their costs are rising. Wages grew in many developing countries during 2015 – and commentators with a superficial grasp of this industry might think that would instantly translate into higher costs. But with oil and ocean freight costs collapsing in 2015, cotton prices at their lowest for years, man-made fibre (MMF) prices falling even faster and many specifiers switching from cotton to MMF as a result, it’s unlikely manufacturers’ overall costs were up in 2015.

But in most of these key developing countries, interest rates rarely rose and the currencies didn’t devalue against the dollar. Every supplier has a different cost structure, and a few in every country will have had to deal with their overall costs rising – so increased exports will merely have meant lower profits.

Exceptional suppliers

Some suppliers always claim they’ve got exceptional problems – and at first sight, claims by Bangladeshi trade associations that they’re being victimised by western buyers looks as if it might have some foundation. By Q4, their prices were falling faster than prices in China, Vietnam, Indonesia, India, Honduras, Mexico or Cambodia.

But unlike these other major exporters to the US, Bangladeshi workers didn’t get a pay rise in 2015 (or in 2014 either). Many buyers I’ve spoken to say that Bangladeshi factory owners are simply bad negotiators, startlingly different from their Chinese, Vietnamese or Indian competitors in their apparent desperation to get orders even if it means accepting a buyer’s first offer.

In fairness, the Bangladeshi taka didn’t devalue in 2015, and some factories were spending significant sums improving their factories’ safety – though only because for years they’d been enjoying the unfair commercial advantage over other countries of cheap, if illegally built and potentially lethal, buildings.

But there certainly will be suppliers – including others outside Bangladesh – for whom growing exports to the US in 2015 have simply taken them closer to bankruptcy.

Some buyers

Not all US buyers are going to sell all the apparel they buy in the US, and it’s still the case that a substantial proportion of apparel imported into the US just gets re-exported: almost in every case during 2015 to markets (from Canada to Western Europe to Russia) whose currency has devalued against the US dollar.

For these buyers the problem isn’t, strictly speaking, rising costs. It’s receipts from international expansion not being worth as much as they originally expected: a problem that hurts especially hard if – as is true for many US retailers right now – they incurred the start-up costs when the dollar was worth a great deal less than it is today, and the venture’s sales have taken far longer than expected to match original forecasts.

Non-American buyers

So far, we don’t know what happened across the whole of 2015 to apparel imports, and their prices, in Europe, Japan or the other major apparel importers – though we do know that at $6.6bn, China’s apparel imports are just one-fourteenth of the US’s.

For most, though, it looks as if it cost more to import garments in 2014 than in 2015. Not because the developing-country factory supplying them was asking for higher prices, but because the currencies used by non-American buyers devalued against the currencies of most garment-exporting nations.

This all matters, of course, because if a falling euro means French buyers are paying more, the solution isn’t to find a cheaper source since the euro’s devaluing against almost everything. The solution has to be to find better efficiencies without wasting management time looking for a non-existent Shangri La happy to devalue its currency against the euro.

Are there such efficiencies? I’ll be tackling that one soon