Mexico has experienced a tremendous boom and bust cycle in its textile and apparel industry over the last two decades.

The country developed into one of the leading textile producers in the world in the 1990s after it entered the North America Free Trade Agreement (NAFTA) with the US and Canada in 1994.

Under this preferential trade deal, Mexico increased its market share in the US significantly and jobs in the Mexican textile and apparel industry surged.

However, everything changed after China entered the World Trade Organization in 2001, and quickly began to dominate the global textile and apparel market.

In addition, the US formed a trade agreement with Central America and the Dominican Republic (CAFTA-DR) in 2004, making these lower cost countries appealing places for US companies to source from instead of Mexico.

Mexico had built its industry on the assumption that it could offer the best deal to US companies wanting to source goods, but in the last decade, Asian and Central American countries have not only become cheaper to operate from than Mexico, they have challenged it on quality.

China replaced Mexico as the top supplier of textiles and apparel to the US, and continues to grow while Mexico's market share falls.

In 2007, China's clothing and textile exports to the US grew by 36%, while Mexico's fell by 7%, according to Canaintex (Cámara Nacional de la Industria Textil).

By 2008 China's share of the US import market for textiles and clothing was at 35.1% in value terms, while Mexico had dropped to the fourth largest supplier.

Mexico has also been badly affected by the economic crisis. In a press conference in the end of 2008, the president of Canaintex, David Garcia said: "The textile industry is one of the sectors most hard-hit by the crisis. It's gone badly for us. A lot of companies have closed and a lot of employment has ended. We must act quickly in order to save our sector."

According to OTEXA (The US office of textiles and apparel), all apparel, yarn and textile-related goods exported to the US from Mexico were valued at US$5.625bn (EUR4.12bn) in 2008, but dropped to a value of US$4.142bn (EUR3bn) by 2009.

Redefining itself
Mexico is currently attempting to redefine itself as a country that is not only an affordable place to produce, but offers benefits that are unavailable in Asia "based on the satisfaction of the clients' needs and the internal renovation of the industries," according to Canaintex.

The industry hopes to be able to offer shorter delivery times, less language barriers and cultural differences, and more diversified products.

Mexican textile and apparel workers are in the process of learning new skills, and companies are trying to change their focus from the production of yarn and fabric to finished clothing. In the last five years the textile industry has invested $2bn in textile machinery and equipment according to ProMéxico, the Mexican government institution in charge of strengthening Mexico's participation in the international economy.

Despite these difficulties, Mexico's main textile and apparel market is the US, followed by Canada, Colombia, and China, according to ProMéxico. The textile industry currently employs around 130,000 people, and the apparel industry generates approximately 400,000 direct jobs.

Domestic demand
As for domestic demand, the Mexican economy, heavily reliant on earnings from exports to the US and remittances sent from the US, is deeply bound to the American economy, and so suffers when it suffers (as it did last year).

On the Nielsen consumer confidence index, consumer confidence in Mexico was at 77 at the end of 2009, below the global average of 86. The retail market declined right along with consumers' residual income and purchasing power.

But Mexico, with the second-largest economy and the second-largest population in Latin America, still ranks among the top global apparel markets, offering many attractive opportunities for retailers.

According to Euromonitor, Mexico's share of imported products in the retail market has been growing significantly, although it still maintains a positive trade balance.

Wal-Mart opened 174 new stores in Mexico in 2009. The Cherokee Group, Gap Inc and Inditex, among others, have also expanded in Mexico in the last year.

The market is highly fractured however: the top 11 companies made up 36.8% of the formal market in 2008, including Suburbia (8.9% of the market share), Liverpool/Fabricas (7.5%), Bodega Aurrera (3.5%), Coppel (3.5%), Walmart de Mexico (3.4%) and Zara (2.4%), according to research company Trendex Mexico.

Fashion conscious
Mexicans have also become more fashion conscious and more interested in trends than in the past.

According to Euromonitor, fashion clothing accessories were the most successful sub-sector between 2007 and 2008, and are expected to reach US$560m by 2013. Underwear and nightwear sales are also expected to grow according to the market analyst in its annual country analysis of the industry - released in November 2009.

Sportswear has also become an important niche market over the last decade, especially among the higher income population segment, due to the rising popularity of fitness centres, and more attention being paid to having a healthy appearance.

Euromonitor notes that dress codes have also relaxed in Mexico, and casual wear sales have increased against declines in demand for formal wear.

The total market for clothing in 2008 according to Trendex Mexico was US$21bn (US$9.3bn for men's clothing, US$8.3bn for women's, US$3bn for children, and US$400m for infants).

The average spending on clothing per capita is around US$195.20 per year (EUR142 per year). About 25% of the market for clothing is in department stores, 16% in supermarkets, 21% in boutiques, and 33% in street markets (and the last 6% in other locations).

The largest challenge for retailers is combating the informal market, which mostly originates from China and accounts for 56% of all apparel sales, according to the Mexican ministry of the economy. 

By Pacifica Goddard.

The rest of this month's management briefing can be found here.