Blog: China, costs, compliance and consolidation
Leonie Barrie | 3 April 2008
I was collared over lunch yesterday and accused (in the nicest possible way of course) of leaving you all in the lurch. Has the Prime Source Forum lived up to the high expectations set by last year’s event, and are there any new issues grabbing the apparel industry’s attention.
Well, yes and yes. Having had time to reflect, I can definitely say I’ve had my eyes opened to new concerns and opportunities, existing trends have morphed into new directions, and some of the topics that seemed uppermost last year are way down the agenda today.
Above all, I’ve networked and made new contacts – which ultimately is what an event like this is all about. And it’s been hugely rewarding to meet so many just-style readers on this side of the globe – so a huge thank you to everyone who took the time to say hello.
As two long and fruitful days have finally drawn to a close, what has everyone been talking about? Here goes…
Costs are going up. There used to be a time when costs and prices moved in step; but this doesn’t happen any more. Costs are moving up, and prices are moving down. This is of concern to suppliers, whereas buyers are also facing inflationary pressures.
But the one sector where price and costs have gone in a different direction is luxury – presenting an interesting dichotomy in the industry. Here, prices have increased, whereas costs have dropped as companies have started sourcing from lower cost countries.
As far as sourcing is concerned, in the next three years the only alternative to China is…China. It has created the production capacity and supply chain to meet the apparel industry’s needs, and there is no real alternative to shift production now. But China has it’s share of problems too – including labour shortages in the industrial regions and a lack of raw materials which are leading to higher costs.
While nowhere else comes close to China as a supply base, buyers can also create opportunities elsewhere. Quick response, for instance, favours sourcing countries (like Turkey) located close to consuming markets (such as the EU).
The fashion industry is all about change, but is it prepared? Speed to market and two-week turnarounds are what customers require, but these benchmarks are still only benchmarks. In reality, the industry’s timeframes still run to months rather than weeks.
As for the debate on free trade versus fair trade, it is clear that trade barriers will continue to exist. Even though quotas and import tariffs are coming down, other barriers will fill their place. Access to the US market, for example, is now affected by outside issues like human rights and health and safety. There are also big concerns about the way the trade agenda is panning out in the current US election campaigns.
Corporate social responsibility (CSR) and compliance are seen as a necessary evil. Suppliers/vendors regard them as oppressive, while retailers generally feel under pressure to comply. But most acknowledge that compliance needs to happen. One of the challenges is to get common standards in place. But to do this requires everyone to agree and share their information – which is likely to be difficult. So while it’s a nice vision, it’s also likely to be a long way off.
Consolidation is happening in retail as well as across suppliers, and is causing disruption across markets. In particular it’s prompted the trend for suppliers to try to get closer to the consumer by moving into brands and retail. The flipside to this is that vertical control may well be a Holy Grail. This is because a lot of businesses are victims of their own success, and their models are locked into what has been successful in the past.
And finally, the speed and distance at which retailers and their suppliers have migrated to opposite ends of the globe, with developed countries in general sourcing from developing economies, has led to a depletion in skills and responsibilities, which urgently needs to be addressed.
But all this is just scratching the surface. I’ll write a longer assessment when I get back to my desk.
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