Mounting pressure puts sector in squeeze

Men's T-shirt
Shenzhen Global Weiye is offering a men's T-shirt that features gold foil printing.
Relief is not yet in sight as the exports slump intensifies amid the global downturn.

The global economic slowdown and various challenges at home are affecting China’s T-shirts and polo shirts industry negatively. After posting a 42 percent increase in 2006, export growth slowed to only 14 percent in 2007.

The downward trend continued in 2008, when shipments in the first 10 months of the year dropped 6 percent in value terms. Volume exports fell even lower in the same span, dropping more than 8 percent.

The credit crunch that drove the US economy into a recession in December 2007 resulted in decreased imports of T-shirts and polo shirts from China. Full-year customs statistics data for 2008 were not yet available at the time of this writing, but suppliers estimate a 10 to 15 percent drop in exports to the US.

Data from the US' Office of Textiles and Apparel supports this assessment. January to August imports of cotton knit shirts fell 7 percent by value and 14 percent by volume, compared with the previous corresponding period.

In the early months of the financial crisis, China suppliers were able to divert their focus to the EU. At that time, the yuan’s value against the euro was more stable. This encouraged a number of makers to strengthen their presence in the EU.

As an additional step toward minimizing foreign exchange losses, some companies asked their EU buyers to settle orders in euros. Although not a common practice, a few clients were willing to oblige.

But the yuan soon gained against the euro. This, coupled with slowing economies there, eventually resulted in a drop of exports to the region.

Apart from problems abroad, suppliers were dealing with challenges at home, including lower rebate rates, stronger yuan values against the dollar as well as the euro, and higher material and labor costs.

Combined, these domestic and overseas pressures forced many factories to close down in the past few months. This trend is expected to continue through the first half of 2009.

In an effort to aid the ailing textiles industry, the China government raised the VAT refund twice in late 2008. The yuan also closed at a five-month low on Dec. 1, 2008, when it fell 0.65 percent. This came after the yuan held steady for four months.

Material costs have been declining as well. Cotton, the main material for T-shirts and polo shirts, fluctuated about 5 percent in early 2008. Costs started falling in July, with quotes now between 11 and 16 percent lower year-on-year, depending on the grade. For instance, 18 to 21s carded cotton dropped to $3,300 per ton, 21 to 32s semicombed cotton is approximately $3,400 and 32 to 40s combed cotton is $3,900.

Fabric costs have stabilized as well. Single jersey and pique are about $8.30 per yard, with double jersey $0.50 to $1 above that. Blended fabric such as 65:35 or 80:20 T/C tops out at $8.20 per yard. CVC with up to 35 percent polyester is between $8.20 and $8.30.

Even with these developments, however, China suppliers of T-shirts and polo shirts remain cautious about the months ahead. Presently, many of them are finishing orders placed a few months back. But once these shirts are done, they are no longer sure if the same number of orders will be placed for the next half-year.

Unutilized capacity is already a problem for a few companies, and one of the reasons some plants shut down. If manufacturers’ fears hold true, then more factories will have to stop operations in the months ahead, particularly those focusing on low-value models. Without any competitive advantage other than price, these makers might be hard-pressed to match the lower quotes offered by suppliers in other countries.

Many buyers, especially those sourcing for large retailers and discount stores such as Wal-Mart, have become even more price-sensitive nowadays.

Suppliers interviewed for this report claim that the lowest price they can offer for a 120 to 160gsm pure cotton shirt is $1.20. But makers in Cambodia, Vietnam and Bangladesh can quote as low as $0.90 for a shirt with the same specifications. The lower cost of labor in these countries allows makers there to bring prices down.

As a result, many volume buyers have now shifted their sourcing from China to these South and Southeast Asia countries. This is another reason companies are apprehensive about prospects for the second half of 2009. If labor costs continue to rise, makers might not generate as many orders in the first half of the year.

To cope, many suppliers are now shifting their attention to markets such as the Middle East, South America and Africa. At Wenzhou Highway Trade Co. Ltd, for instance, Algeria now accounts for 70 percent of exports.
Product focus
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Product focus

OEM orders make up the bulk of T-shirt and polo shirt exports from China, accounting for more than 80 percent of outbound shipments. Less than 5 percent carry in-house brands and the rest are ODM orders.

China suppliers continue to offer a full range of T-shirts and polo shirts that cover all price points. But while low-end models used to dominate exports up until a couple of years ago, midrange designs are now accounting for a larger share of production.

Higher expenses and growing competition with other low-cost manufacturing countries are making it more difficult for China makers to rely on low prices to generate orders. Nonetheless, most suppliers will continue to concentrate on OEM orders in the next six months. But instead of working with promotional buyers, and large retailers and discount stores, many of them are now choosing to partner with private label companies.

The former are concerned mostly with how low product prices can be, while the latter take value additions into consideration.

To meet the needs of private label buyers, suppliers are increasing the rate and pace of R&D investment to produce higher-value T-shirts and polo shirts.

While some companies are hiring designers to strengthen capability, most are allocating expenditure to material research and sourcing. Some suppliers are now adopting fabric with moisture-management properties similar to Nike's Dri-Fit, Lenzing's Tencel and Invista's Coolmax. The branded versions are also being employed, albeit on a smaller scale and they cost twice as much as the local versions. Dri-Fit and Coolmax average $10 and $13 per kilogram, respectively.

An increasing number of companies are also adopting environment-friendly fabric made from renewable sources of fiber. Soybean and bamboo are in the forefront as they are readily available in China.

Often referred to as vegetable cashmere, soybean-fiber fabric has a soft hand, good drape, and luster similar to silk and cashmere. In addition, the textile is durable, moisture-absorbent and has natural anti-bacterial properties.

The fiber can be blended with silk, wool, cotton, spandex and hemp to produce fabric with a range of functional properties. Polyester-soybean blends can have UV-resistant, wrinkle-resistant and breathable functions, while models mixed with PP can be thermal regulating and moisture absorbent.

When blended with silk, soybean fabric is hydroscopic and extra-soft, resists odor and has increased luster.

Bamboo fiber is breathable and has the ability to inhibit bacteria and mildew growth. Its anti-bacterial properties remain active even after 50 washings, as proven in tests done by the Japan Textile Inspection Association.

Additionally, bamboo fiber is cool to the skin and resists wrinkling naturally, resulting in easy-care garments that need no ironing. Moreover, bamboo-fiber fabric is lustrous and has cottonlike softness and drape.

When used in T-shirts and polo shirts, bamboo fiber is usually blended with spandex for stretch, and cotton or lyocell for increased softness and a quick-dry function.

Bamboo charcoal versions are being adopted in some models as well. The fabric is as soft as cotton, retains warmth better than wool, and is said to reduce odor, improve blood circulation, release negative ions and have far-infrared functions.
Note: All price quotes in this report are in US dollars unless otherwise specified. FOB prices were provided by the companies interviewed only as reference prices at the time of interview and may have changed.
Disclaimer: All product images are provided by the companies interviewed and are for reference purposes only. Those product images featuring products with trademarks, brand names or logos are not intended for sale. We, our affiliates, and our affiliates' respective directors, officers, employees, representatives, agents or contractors, do not accept and will not have any responsibility or liability for product images (or any part thereof) which infringe on any intellectual property or other rights of a third party.

17/07/2009