Garry Hurvitz, president and CEO of Ash City Usa, released the July 2011 edition of his “Eye on Asia” newsletter. Below is a reprinting of the letter in full.
If ever a quote summarized a trip, this would be the one I would share to describe my latest trip overseas this past June. As you know from reading these updates in the past, I have traditionally put my thoughts to paper while on the plane as it gives me hours of uninterrupted time to reflect on everything that I have seen or learned. This trip however, was different… not just a little different, a lot different!
I left for Asia prepared to tackle the traditional issues that I have been writing about over the past year, only to discover an interesting mix of new “trends” developing at an extremely rapid pace. I have been encouraged over the past 60 to 90 days to see that there might be a light at the end of this long and distant tunnel. Many of these new trends will benefit our recovering industry, but the burning question is how long it will take them come into play. Here are a few of the more recent trends:
The Textile Production Cycle & Price Time Lines: Understanding the concept of this model will be key to your success as we move through the “old” issues and transition into the new ones. Many of your customers will be asking you why cotton apparel is not coming down in price when the markets are now beginning to show decreases in the cost of raw cotton. To answer this question effectively you should take the time to understand the textile production cycle and the relationship it has to pricing.
Example: Cotton prices continue to fall on the Futures Market for the December 2011 and March 2012 bookings, which leads me to believe that raw material costs on Cotton could come down as much as 35 percent over the next year. The issue is when that price comes into effect, as these lower priced crops of cotton won’t be available for delivery to the mills until December 2011, after which production would only commence in May 2012. From the factories, the finished garments must then be shipped to North America for distribution in September 2012. That means your stock inventory manufactured with the lower priced cotton could take up to nine months before it even hits a supplier’s shelves.
Continued pressures of labor and currency: Currently, cotton prices on finished garments have come down 1 or 2 percent, however the ongoing issue of increased labor wages and the strengthening of foreign currencies against the US Dollar continue to offset any gains made in keeping production costs down. Our industry has chosen to focus on the price increases of Raw Materials such as Cotton as it was an easy way to explain to End Users why pricing was going up. The truth of the matter is that Labor has become the single most important variable affecting cost increases today. With the dramatic shift from export dependency to the strategic development of internal market infrastructures, the governments overseas continue to focus their attention on increasing the standard of living.
Rules of Supply & Demand: While the main focus of our industry has been on the skyrocketing cost of Cotton, we now have a new trend developing in relation to the increasing cost of Polyester. With the frenzy in trying to find alternate options to cotton, a demand was quickly built up which has gradually increased the cost on Polyester over the past twelve months. Now coupled with increased labor wages and the weaker U.S. dollar mentioned above, I estimate we will see additional increases as high as 8-to-15 percent. While this might seem like an obvious trend, many suppliers were not able to take advantage of polyester pricing prior to the increases, which will impact their ability to offer stable pricing.
What does this all mean, you ask? It means you will be challenged with understanding the Pricing Time Lines related to the production cycles of the products you are selling. You will want to be able to explain why the lower price of cotton that is being grown today, doesn’t translate into immediate savings for the end user. You can also continue educating them on the labor situation and the supply and demand issues as they relate to the escalating costs on anything made overseas today. Contrary to popular belief, it is becoming more and more difficult to identify and react to the trends as they are changing so quickly. The only way to stay on top of these issues is to be on the ground overseas as long as it takes.
It has become increasingly clear over the past six months which suppliers and distributors have planned and prepared for the upcoming Fall season. Most suppliers have been proactive in communicating the pricing increases for August, which gives you the distributor a chance to communicate & educate your customers on the increases that have become a reality today. Where things seem to be unravelling for some Suppliers is the quality and consistency of the communications that are being shared with the industry – many of them are confused and unsure of the issues and how they have impacted their business. Not understanding the trends overseas will result in confusion and inconsistency in regards to pricing as they look to offset miscalculations made by not travelling to the source.
I am very proud of the consistency that Ash City will be able to provide during these volatile times, and can say with great confidence that we are in the best position we have ever been in as far as inventory and pricing. We are looking forward to a mutually successful year and as always, I would like to thank you personally for your continued support and for being a valued Ash City customer.
With Respect,
Garry Hurvitz
President & C.E.O.
Ash City USA
For more information on Ash City USA, visit www.ashcity.com.
