The global credit crisis isn't creating huge collapses in retail sales, says Mike Flanagan, despite numerous reports to the contrary. He believes retailers' profits are under pressure because sales aren't growing as fast as most business plans required. More significantly, though, emerging markets are transforming their manufacturing industries in response.

There's a universal mismatch between 'The Great Financial Meltdown' we're currently reading about in Europe and the US, and what's actually being bought and sold.

"Worst week since I joined the company" might be the sunniest answer to the standard "How's biz?" question - but the problem is, though, that's not quite how official statistics see it.

The EU's official statistics agency Eurostat shows retail sales in euro-zone clothing stores were 3.2% higher in January this year than last.

The US Department of Commerce shows US clothing store sales were 2.3% higher this February than last - and the UK's Office for National Statistics shows its clothing sales an extraordinary 4.9% higher in February than last year too.

Do these public servants count differently from the retailers? Well, slightly, but whatever's going on in major clothing retailers, it's certainly not melt-down.

In fact the closest thing to a melt-down I've seen recently has been the crowds maxing their credit cards at London's newly-opened (and hardly bargain-basement) Banana Republic and Abercrombie & Fitch branches.

Slower growth
Actually, clothing sales overall in Europe and the US are reasonably healthy.

But growing competition, the switch to the internet and an expansion in branch numbers mean that sales per outlet aren't growing as fast as the annual budget requires - or as fast as operating costs.

And not everyone's sharing that growth: a very large proportion of the growth in the UK market is coming from value retailer Primark, whose share zoomed up to 10.1% in February from last year's 8.1%.

There's no widespread collapse in sales (yet); they just aren't growing as fast as most business plans required, and they're not growing everywhere.

With operating costs rising, and some chains losing market share, retailers' profits are under pressure. But, overall, the credit crisis isn't creating huge sales collapses.

Supplier scaremongering
Meanwhile, on the other side of the world, emerging-market suppliers have been overwhelmed for the past few months by local "experts" telling them how badly sales to Western customers were being hit by America's credit crisis.

Whether it's been the Chinese government, the Cambodian Garment Manufacturing Association or the smallest factory, "falling sales in the West" has been everyone's excuse.

But that's not what's been happening. The real cause of pressure on emerging-market manufacturers right now isn't a recession in the West.

True, some countries' sales to the US - above all China's - have started falling.

But in December 2007, while the US bought 15% fewer clothes from China than in the previous year, its imports from everywhere else grew 2.2%.

That fall in China's sales is the result of China's boom, and Chinese reactions to it, rather than a non-existent American bust.

Consumer caution
In the West, the belief that there is a bust is certainly making consumers and retail decision-takers change how they go about things.

First, there's not much evidence consumers are buying that much less. But they're buying differently. Whether its novelty (Banana Republic and Abercrombie & Fitch) or better value (Primark), shoppers can still be tempted to buy - but they need a story to justify it.

Second, we're seeing a change in attitude among many - especially American - retailers:  more concerned, as growth slows, with avoiding unsellable high stocks than with going for faster sales growth.

It's a switch from chasing sales to ducking risk. Partly because retail sales are slowing, partly because retailers expect things to get worse, and partly because financial institutions' attitudes right now are risk averse. Borrowing money is tough.

Third, we're seeing some crucial changes in how retailers and importers decide where to source their clothes.

China's share of US clothing imports has been consistently falling since August 2007, and its share of European clothing imports began to fall in the fourth quarter of 2007.

By definition, one country's falling share means somewhere else is gaining at its expense. And who might this be? Not necessarily the people you'd think of first.

Vietnam's picked up strongly as a source for both destinations, as have a number of other South East Asian countries.

But so have a number of sources close to home: places like Serbia and Macedonia (and even in some categories Turkey) for Europe, and Central America for the US.

If you want to avoid risk, for many buyers it makes sense to place orders nearby: that way they can tweak their products till late in the day, and increase their chances of getting it right.

Fundamental changes
But these changing priorities among buyers aren't the only things that matter. More fundamental changes are going on in manufacturing countries - and they're almost all caused by boom, not the bust (or fear of it) that motivates buyers.

Close to a decade of almost uninterrupted growth in many poor countries' economies - often led by the apparel and textile industries - has produced a raft of headaches.

[By the way, if you haven't read 'Fugitive Denim,' Rachel Louise Snyder's account of just how complex, and so often benign, an effect our industry has had on the life prospects of the world's poor, go and buy it right this minute.]

Rising production has often created immense environmental problems - leading, as in China, to new anti-pollution laws that are threatening to have an inflationary and disruptive effect on businesses. 

Rising exports have often pushed local currencies up - leading, as in Thailand, to falling competitiveness.

Rising poor-country prosperity, coupled with the boom in eco-fuels, have pushed world fuel prices up, leading to inflation rates in many poorer countries doubling or trebling in a few months. 

These pressures are forcing extraordinary changes on countries such as:
• Scare stories throughout China of widespread clothing company bankruptcies;
• Serious threats of strikes in Cambodia;
• Chaos in Vietnam's financial system;
• The possibility that India might finally take the idea of flexible labour contracts seriously.

Currency changes, local inflation, dependence on imported raw materials and the vagaries of governments' responses to external influences vary massively by country.

In India, for example, businesses are convinced their problem is the appreciating rupee. And in Vietnam, even the boss of state-owned Vinatex has expressed his exasperation at the government's apparent determination to pass all the problems of inflation-busting onto the country's garment exporters.

Add all the changes hitting the industry together right now, and countries that once looked good value are getting jolly pricey - and places that looked a bit expensive are getting surprisingly affordable.

Manufacturers also deal with all these changes varies very differently.

China's clothing exports - not just to the US, but to the whole world - fell in February (for the first time in living memory as far as I can see).

But while China's overseas sales were going down, domestic sales carried on growing around 30% - meaning factories overall were still selling more than a year ago.

Some Indian manufacturers who once took pride in making only for export now have to turn to the domestic market.

And with that comes the need to acquire different skills.

Immense factories designed to create economies of scale in production for the huge runs US chains ordered for each item were once an advantage. That advantage is less obvious with the smaller runs needed for other markets.

Indian and Chinese companies are having to acquire new skills that might not keep mega factories going, but create higher, more sustainable profits than chasing after high-volume low-margin business in Europe or the US.

Does it matter whether all this is the result of Western bust or emerging-market boom? Absolutely.

Slow growth in the West will sort itself out sooner or later, and the pressures it creates will be overtaken by something else.

But the extraordinary range of different ways emerging markets are reacting to their boom is transforming their manufacturing industries - and possibly forever.

Mike Flanagan is chief executive of Clothesource Sourcing Intelligence, a UK-based consultancy that provides the western apparel buying community with objective information on apparel production, trade, price competitiveness, and apparel producers in over 100 countries.