| While China is rapidly gaining
a dominant position in shoes, apparel and linens manufacturing,
U.S. makers of these items have suffered a long period of
decline. For example, over 98% of the shoes sold in America
each year are imports, and the vast majority of these imports
come from China. To consumers, this growing reliance on China
as a low-cost producer has meant very low retail prices for
goods of reasonable quality. In fact, some categories of clothing
have actually gone down in retail price in recent years.
Hundreds of thousands of U.S. manufacturing jobs have been
lost in this industry. During 2003 alone, 50,000 U.S. jobs
disappeared in American textile mills. Textile mill bankruptcies
are commonplace.
Meanwhile, the manufacture of basic synthetic textiles,
such as polyester fabrics, is facing a global manufacturing
glut, combined with rising prices of basic materials due to
the high cost of petroleum. Synthetic textile manufacturing
has been dominated by the largest global chemical firms, but
many of them are exiting the business by spinning off or selling
their holdings.
Trade agreements among the U.S. and its trading partners
attempt to foster employment in certain parts of the world
(such as poverty-stricken areas in the Caribbean) and allow
U.S. consumers fair access to reasonably priced goods while
providing some sort of relief to U.S. business interests.
Because trade agreements will never satisfy all parties concerned,
they tend to lead to controversy and much critical discussion.
On the retail end, consumers are enjoying wide selections
and moderate prices in the U.S., Europe and elsewhere in the
world. Apparel retailing has always been a tough, highly competitive
business, and many chains rise dramatically and then fail.
Retail fashion merchandising is a vast challenge (witness
the recent ups and downs of The Gap). Just-in-time inventory
driven by highly computerized supply chain management systems
is now an immense assist to major retailers. Nonetheless,
price pressure from major discounters like Wal-Mart and Kohl’s
can keep profit margins thin at stores that sell moderately
priced apparel. Some of the most successful retail chains
are those that focus on niche markets with special tastes
and needs, such as Chico’s FAS, which caters to 35-
to 60-year-old women who want flattering fashions that suit
their figures. Speaking of figures, the well-documented growing
girth of Americans is placing new challenges upon fashion
merchandisers as overweight people of all ages, tastes and
income brackets require clothes in larger sizes. Designers
and merchandisers face the task of developing and presenting
larger clothes in a flattering light.
Department stores have changed their business models drastically.
While they were originally sellers of virtually every type
of product, set in well-defined spaces within giant buildings
(thus the use of the word “department” to describe
them), today most department stores are primarily apparel
and accessories stores. When consumers shop at stores like
Nordstrom, Neiman Marcus or Marshall Field's, they find floor
after floor of shoes, clothing, accessories and cosmetics.
This change has created problems within the department store
industry, as managers developed the habit of continuously
discounting clothing in sale events, consequently pressuring
profitability. Nonetheless, department stores remain major
forces in apparel retailing today.
Another sweeping change in apparel retailing is the rising
success of e-commerce. National apparel chains are employing
bricks and clicks successfully. That is, they create synergies
between very active web sites and their retail stores. Other
firms, such as Bluefly.com, sell apparel through the Internet
only, often at everyday discount prices. Catalog retailers
continue to do reasonably well, particularly if they operate
well-designed web sites to supplement their printed catalogs.
Meanwhile, a growing number of fashion companies are enjoying
success selling women’s fashions in the home via independent
reps—somewhat like the success of similar companies
that sell cosmetics.
1.Globalization: China Dominates
Apparel & Textiles
The apparel and textiles industry has long been ruled by
complex import and export agreements that limit the amounts
of particular garments (such as t-shirts, pants and sweaters)
and textiles (such as yarns and fabrics) that may be produced
and exported to specific markets around the world. In an effort
to safeguard domestic production, the United States, Canada
and several additional countries now part of the European
Union established the Multifiber Agreement (MFA) in 1973.
Under the provisions of the agreement, a quota system was
put in place that established the maximum numbers of products
produced in developing countries that could be legally exported
to MFA member countries. These amounts differed from country
to country and were based on historic purchasing patterns.
By the mid 90s, many factors, including global demand for
cheaper goods and political pressures for free trade, brought
about the World Trade Organization's (WTO) Agreement on Textile
and Clothing. This agreement defined a 10-year phase-out of
the MFA quotas, finalizing on January 1, 2005, when all WTO
member countries will have virtually unrestricted access to
U.S., Canadian and European markets. The abolition of these
quotas is having a marked effect, particularly in apparel
and textiles exported from China. According to the United
States International Trade Commission, China's export of bras
jumped 232% since that quota's end, and the export of baby
clothes soared 826%..
China, which joined the WTO in 2001, has the most to gain
since it boasts a highly diversified apparel and textile industry,
operates in a low-cost environment, is active in all phases
of production and has developed markets in countries around
the world. In a World Bank estimate, China will control close
to 50% of the world's clothing market by 2010, significantly
up from its 17% share in 2003. Countries such as Haiti, Jamaica,
Honduras, El Salvador, Bangladesh, Kenya and Nicaragua will
be at risk once the quota system is abandoned, since they
must seek raw materials such as cotton, silk and other textiles
from sources beyond their borders. China pays its apparel
workers approximately $73 per month on average, while pay
is higher elsewhere: $75 per month in Indonesia, $102 per
month in the Dominican Republic and $300 in Honduras. The
rich U.S., Canadian and European markets guaranteed to these
and other developing countries in the quota system will be
dominated by the volume of goods and low prices that China
can and is providing. In fact, the apparel industry in The
Philippines has already been hurt by the removal of the quota
on baby clothes. Its share of the U.S. market has declined,
according to industry sources. Analysts of the global apparel
and textiles industry project the loss of up to 30 million
jobs in developing countries around the world.
The impact on the apparel and textiles industry in the U.S.
has been devastating. Especially hard hit are the southern
states of North and South Carolina, Georgia, Virginia and
Alabama, where apparel and textiles have long been a major
economic mainstay. According to the Department of Labor, 248,000
textile workers have been laid off since 1990 in the Carolinas
alone. A total of 318,000 jobs have been cut in the U.S. since
January 2001. Many of the largest textile mills have declared
bankruptcy, including Burlington Industries, Malden Mills
Industries and Guilford Mills. Some have been forced completely
out of business, such as Pillowtex Corporation, maker of Fieldcrest,
Cannon and Charisma bed linens and Royal Velvet towels.
In a surprising move, President George W. Bush, normally
a proponent of free trade, restricted imports of Chinese textiles
(specifically bathrobes, bras and knitted fabrics) in November
2003. The restrictions followed a multitude of complaints
and pleas made by textile and apparel industry groups and
letters signed by 165 members of Congress calling for aid.
(An additional plea to the President in June 2004 by 130 members
of Congress to put pressure on the WTO to delay its January
2005 deadline was denied.) New restrictions are intended as
temporary measures; however, the U.S. and other WTO member
countries do have the option to impose further temporary protections
through 2008 under the Agreement on Textiles and Clothing.
The agreement allows restrictions when there is "a significant
cause of material injury, or threat of material injury to
the domestic industry."
While import restrictions and quotas may preserve domestic
jobs in the short term, free trade proponents argue that they
will drive prices up and therefore hurt consumers. Prices
for apparel drop 30% on average in each category when a particular
quota has been abolished. Watch for further Chinese dominance
of the market, especially after January 2005. Watch also for
other WTO members to once again place trade restrictions on
certain apparel and textiles, claiming material injury to
domestic industry.
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