US: Survey points to rise in apparel sourcing costs
Apparel sourcing costs in the US are set to rise at a low single-digit rate in 2014, thanks to rising labour, compliance and energy costs, says a new survey.
Cowen and Company’s “Sourcing Survey Volume 2: Thoughts On 2014 Apparel Unit Costs and Bangladesh” surveyed 15 executives and agents sourcing apparel for retailers and vendors in the US.
The results show 67% of respondents predicting a rise in apparel sourcing costs into 2014, with 20% expecting a high single-digit increase and 47% forecasting a low single-digit rise.
The key concerns for factories, the survey suggests, are rising labour costs (56%), increased compliance (33%) and increasing energy costs (11%).
However, higher raw materials costs are viewed as less of an issue at the moment, despite a 16% year-on-year increase in cotton costs over the past two months.
In Bangladesh – which supplies the US with US$25bn in apparel exports a year – higher compliance costs and reduced low-cost or illegal subcontracting are viewed as the biggest risks.
The report notes that the spread between the Apparel Producer Price Index and the Apparel Consumer Price Index is now at its highest level since 2011.
In turn, this suggests that mass apparel brands lack pricing strength, exacerbated by the continued expansion of “fast fashion” concepts, and that cost increases for apparel producers are continuing to rise.
The survey pinpoints compounding labour costs as potentially raising apparel unit costs by 2% a year in the longer term, with Chinese labour costs set to move up by 15-20% CAGR – while moves to lower cost factories are likely to be restricted by higher compliance costs.
All of the companies in the Cowen and Company list are predicted to expand their gross margin in 2014, but it warns that businesses without improvements to their product cycle, channel dynamics or supply chain efficiency will be hard pressed to hit their targets.
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