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The Garment Industry Land Rush: New Markets

By: Russ Jowell
Dec 18

 

Last month we examined an interesting phenomenon within the global garment industry that hearkened back to the Oklahoma Land Run of 1889. The phenomenon was that of hundreds of garment makers leaving behind traditional garment sourcing destinations, like China,  in search of more favorable grounds on which to make and sell their goods. Today we’re going to look at how the same phenomenon is taking shape on the consumer end of the garment market. Just as many factories are seeking out countries with more favorable conditions for making garments, shifting economic conditions in traditional consumer markets are also forcing factories to look elsewhere to sell their goods. What’s fascinating about this phenomenon is that many of the same countries losing prominence as sourcing destinations are gaining prominence as consumer markets. Some of these countries are even exploring ways to leverage their existing garment making capacity to meet their growing domestic demand.

Let’s begin by looking at some of the troubles facing the traditional apparel markets in Europe and the United States. Lingering economic side effects from the 2008 global recession coupled with growing governmental uncertainty have taken a notable toll on consumer confidence in the west. A recent report from Reuters indicated that confidence among U.S. consumers hit a 5-month low in early December, partly due to growing concern that the U.S. Congress will not act to prevent the so-called “fiscal cliff” from taking effect. In Europe, recent statistics have indicated that rising utility bills and increasing worry about jobs has given rise to the world’s lowest consumer confidence levels. The ripple effects of these issues have eroded consumer demand for apparel, in turn causing retailers and brands to curtail their orders. Data from the U.S. Department of Commerce indicated that overall U.S. textile and garment imports saw a 1.3% year-on-year decline in September, the month when many U.S. retailers make purchases for the busy holiday shopping season. European imports have not fared much better.

This uncertainty has not gone unnoticed by the world’s top apparel-making countries. An official with Bangladesh’s Export Promotion Bureau (EPB)recently expressed the need for the country to diversify its export markets with apparel industry officials from IndiaSri Lanka, and Vietnam making similar assertions. These countries are starting to take action; over 10% of Bangladesh’s apparel revenues in Q3 2012 were generated outside of Europe, Canada, and the United States, representing a 28.65% increase from the same period in FY 2011. India has also set out to increase their apparel exports to new markets by 11%.

So what are these new markets being targeted by sourcing countries? There are several of them, but the most lucrative ones seem to be within the quartet of countries known as BRIC (Brazil, Russia, India, and China). Identified as four of the world’s fastest emerging economies, they are also presenting great opportunities for new apparel markets, though as we will soon see, two of these countries are already top apparel producers and are leveraging that title to their advantage.

Let’s begin with Russia. The growing amount of expendable dollars Russian consumers have in their pockets has apparel manufactures seeing great profit potential. A recent report by research firm Euromonitor International indicated that the country’s apparel market has not yet reached saturation, maintaining its attractiveness to exporters, and supplying countries have taken notice.  A Vice President of the Bangladesh Garment Manufacturers and Exporters Associaion (BGMEA), recently told Fibre2Fashion that exploring the Russian market is not a choice, but a must for Bangladesh. To this end, a high level delegation from Russia is expected to visit Bangladesh this month to assess the country’s garment industry,  following a reciprocal visit by Bangladeshi officials to Russia earlier in the year. Bangladesh’s geographic neighbor India is also vying for a piece of the lucrative Russian market; earlier this year officials from India’s Apparel Exports Promotion Council (AEPC) attended one of the region’s largest apparel fairs in St. Petersburg.

India and Bangladesh also have their sights set on the growing consumer market in China, where disposable incomes have almost doubled over the past decade. At a recent seminar organized by the BGMEA, a senior research fellow at the Bangladesh Institute of Development Studies (BIDS) called the Chinese apparel market an “untapped opportunity for Bangladesh” and stated that Bangladesh could easily export US$1 billion in ready made garments to China within the next few yearsIndia’s AEPC has also announced that it’s taking measures to double its apparel exports to China in the next 3 years. Both countries, however, along with a host of others looking to enter the Chinese market, could face competition from China itself, where the scale of domestic sales has more than doubled in just 6 years. As with India and Bangladesh, China has recognized the need to seek more markets for the goods they make. Fortunately, thanks to their growing middle class, they may not have to look outside their own borders. The CEO of shipping giant Maersk has predicted that China will evolve into a consumer economy by the year 2022, shifting away from its reliance on exports. Consequently, officials in Beijing are trying to steer the country toward a consumer economy and away from exports. The apparel industry is taking an active role in this transition. A Vice-President of the China National Garment Association recently noted that tapping into the domestic market has become the “key breakthrough” for garment producers. A recent survey of 614 clothing manufacturers China also indicated that over 90% of their sales came from the domestic market in 2011. Much of the domestic growth, however, is in products considered low to middle end; China is still struggling to build its own robust luxury brands to compete with the likes of Prada and Gucci, an important goal considering that the country is predicted to become the world’s second-largest luxury goods market within the decade.

Like it’s northern neighbor China, India is also finding itself in a transitional stage within the garment making community. While India is still the world’s #2 apparel maker, rising wages and a growing middle class are turning their economic focus inward. Domestic apparel demand is on the rise and suppliers have taken notice. Consumer spending on clothes in India is expected to surpass US$60 billion by 2015. While the government has made access for foreign retailers easier, domestic consumption of apparel is also on the rise. A recent study by Wazir Advisors and the Confederation of Indian Industry (CII)indicates a 13% increase in domestic textile consumption between 2007 and 2011 with demand expected to reach US$100 billion by 2016. Rapid expansion plans from foreign retailers like Britain’s Marks & Spencer means opportunities for foreign suppliers are still plentiful, and government officials are working to build a steady supply of apparel to meet demand. India is reportedly the third fastest-growing market for American made apparel, even in the light of the recent economic struggles of the United States. The country’s Commerce Secretary has also announced an initiative to increase imports from Bangladesh. The country hopes that balancing trade with Bangladesh will help in gaining duty free access to wealthier Western markets.

As you can see from both parts of this blog series, it is an exciting time in the world of apparel sourcing. Many developed and developing nations have changed their attitudes for each other from defense to diplomacy. As a result, formerly isolated, impoverished countries are finding themselves preparing for an influx of industry. Countries like Myanmar that were formerly shunned by the international community are now laying the groundwork to become new sourcing destinations while those countries with well-established garment-making communities are starting to reap the economic rewards of their labors in the form of increased disposable incomes. Those rewards, in turn, will create more demand for disposable goods, like apparel, creating more opportunities for more countries to shift from aid to trade, putting them on a path to prosperity.

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