The New Normal

Business Returns but with Complexity and Cost.

Some would call what has happened in the apparel business during the financial crisis a market correction. I would disagree. Apparel sales dropped off significantly during the previous two years and as a result companies throughout the entire supply chain were affected. All companies, from beginning to end of the chain, suffered and some didn’t make it though the tough times. Now that the market is starting to recover there’s a big squeeze. As a result we’re experience a scarcity of raw materials, higher prices and longer lead times. The specific issues vary by market and product but most levels of the industry are experiencing some correction problems. I’d say we’re no more “correct” than before the crisis.

Fiber companies have interesting stories to t
ell. Ria Stern,global marketing brand director, Hyosung’s North American spandex performance unit, reminds us of the global nature of fiber producers when she says, “Keep in mind that some countries like Brazil were not really impacted by the global financial crisis, our business has increased steadily and we anticipate it will continue. We are investing in a new plant in
Brazil due to be operational by next year that will move Hyosung into the global leadership position in spandex.” Even with the positive position in Brazil there were some “partial reductions in late 2008 and early 2009,” according to Stern.

Lenzing is also in growth mode. David Adkins, Lenzing Americas sales director, explains, “During the crisis in ’08 we saw an effect across the board which was short term for us. Since early to mid ’09 we have been in expansion mode. We are adding capacity to existing plants and have new plants in works.”

While Unifi also consolidated several plants and reduced capacity a few years ago, more recently the North Carolina company has not reduced capacity even though it faced difficult periods of time. “We knew demand would return,” says Roger Berrier, EVP commercial operations at Unifi.

Unifi continues to invest in the growth of Repreve. The company plans investment of approximately $8 million in the backward integration into the Repreve supply-chain, according to Berrier. They are also adding capacity with expansion into Central America.

From the Mill Perspective

Compared to fiber suppliers fabric mills tell quite another story. There are no projections or capital investments for increased capacity although a merger between Calamai and Becagli resulted in “capacity being much higher than in the past,” according to Bernardo Calamai, export manager for Calamai and Becagli B3.

Overall, mills are seeing a rise in orders which is a good thing. But orders are different from the past. “You don’t see huge orders but more frequent smaller orders,” says Tom Weinbender, president Schoeller USA.

Combine this with the difficulty of harder to get raw materials and according to Jerry Miller, president of United Knitting, “the significant increases on chemicals, dye, fiber and yarn and you have a recipe for higher prices.”

Weinbender adds that “the raw materials supply chain lost suppliers so you have to plan further out and commit early on specialty yarns.” This is especially critical since most western mills are now focusing on innovation and technology as their market edge.

“The basics fabrics have all gone to the Far East and that the orders are all specialty and green products,” says Calamai. “This adds complexity and in turn cost.”

Cotton Costs

When asked about raw material pricing, executives responded: “skyrocketing,” “significant,” “volatile,” and “increasing.”

For example, cotton costs are so volatile right now some companies are hesitant to even quote prices and when they do it’s for a very limited period of time. Jon Devine, economist at Cotton, Inc., explains that prices move in cycles and we’re in a high point while last year was a low point.

This huge swing is making things very difficult for most companies. “We are now looking at lower stock to use ratio. Ending stocks are lower than typical; this is the lowest we’ve seen it going back 15 years. Consumption levels are ramping up. It’s important to know that over the past several years consumption in general has gone up until ’07/08 when it moved down somewhat but not as much as production moved down,” said Devine.

“We are expecting an 11 percent increase in cotton acreage for the upcoming crop year which could help prices move down. However, cotton acreage could be under pressure if prices for crops like soy and corn remain high.”

David Sasso, VP-international sales t Buhler Quality Yarns explains, “The increasing demands out of Asia continue to put upward pressure on cotton and other fibers.”

Calamai agreed. “It seems that most of the raw materials are being used for the Chinese internal markets and the exported quantities are higher in price than the past.”

Unifi as a synthetic fiber producer deals with variables such as the global oil supply and demand. “We have seen an increase in our raw material prices over the last eight months. Raw materials may decrease or remain steady in the second half of the year, but we cannot guarantee any certainty,” says Berrier.

Miller was one of the few who even mentioned some relief, when he said, ‘Lower energy costs have helped off set chemical, dye, fiber and yarn increases.”

United Knitting’s lower energy costs are the results of environmental improvements. It is interesting that the companies we spoke to for this article credited more than the end of the recession for their survival or growth. It seems the environment and price pressure has had an influence.

Companies strong enough to have weathered the storm are working towards establishing the “new normal.” Fiber companies are investing in building facilities that will provide the textile market with products that will take us into a more environmentally friendly future. Fabric mills are finding the right combination of innovation and technologies with customers who value such things. Most of the companies in this article sell their products at a premium because of better technology, quality or environmental position and are finding success doing it. Let’s hope that our future includes a triple bottom line, one that builds a socially, environmentally and economically sustainable world. Now that would be a market correction.

Comments: