Blog: Leonie BarrieGap caught out by cotton costs

Leonie Barrie | 24 May 2011

The soaring price of cotton has been well-documented over the past year or so - as any reader of just-style knows all too well - but it seems one company has been caught out by rapidity of this rise: Gap Inc.

The largest US specialty clothing retailer last week slashed its profit outlook for the year after failing to get its forecasts right on the cotton front. Not only is cotton likely to push its costs up by about 20% over the rest of the year, but the company has admitted margins are so tight that it won't be able pass all these higher costs on to the consumer.

The impact is likely to hit hardest in its Old Navy and Outlet value channels, after the retailer found itself negotiating for its holiday product at the peak of the cotton price hike. And although prices have now started to ease, Gap admits much of the damage has already been done.

For sporting goods company Puma the impact of cotton production is hurting in a very different way. The firm's first set of green accounts suggests environmental costs appear to be heaviest  in everything from cotton production through to garment manufacture - where Puma has no ownership and limited impact. It is now appealing for true transparency along the entire supply chain.

As the world's fourth largest garment exporter, Bangladesh has already had a stellar rise up the ranks. And a new EUR4m programme, funded mainly by the European Union and implemented by the United Nations Industrial Development Organisation (UNIDO), aims to forge an even stronger and more diverse industry.

The goals of the Better Work in Textiles and Garments (BWTG) initiative is to improve product quality and productivity, add value to the product mix, and provide better employment prospects for Bangladeshi workers.

The country also features heavily in two reports released last week on apparel shipments into the EU and US. China, Turkey and Bangladesh all registered major hikes in exports to the European Union in 2010 according to new industry data. While Bangladesh and Cambodia are set to be the fastest growing suppliers to the US clothing market in 2011, another report suggests, with El Salvador and Honduras also likely to post strong growth.

On a different note, Hong Kong-based global sourcing giant Li & Fung Limited has named Bruce Rockowitz group president and chief executive as part of a management reshuffle aimed at positioning the firm for future growth. The company also said group managing director Dr William Fung is to become executive deputy chairman - and that he will take on the role of group chairman by the next annual general meeting in 2012.


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