We all know that cotton prices have been killing the textile industry till a few months back . The unrelenting rise in the price of cotton had led to the increase in fabric prices for most of the garment factories and hence ultimate buyers. The fabric prices were increased by almost each denim mill and sometimes to the tune of 50% or more . The apparel buyers and retailers had no option but to bear the increased costs.
However, the prices at the retail level in the major markets of US and EU did not undergo or reflect the changes in the costs. So , how much was the actual increase in prices for denim apparel shipped to US ?
The major impact of these increased prices has been visible in the shipments made in the first few months to the US and the EU . It would be interesting to see how the prices of imports were affected in the first few months of 2011 (January to April) compared to the average prices in 2010.
Import of Denim Apparel Into USA – 2010 and 2011 (Jan-April)
| From | Price (US$/pc) 2010 |
Price (US$/pc) 2011 Jan- April |
Difference |
| World |
7.15 |
7.71 |
+7.26% |
| China |
7.27 |
7.9 |
+8.66% |
| Pakistan |
6.44 |
7.48 |
+16.1% |
| Vietnam |
7.05 |
7.74 |
+9.78% |
We can see from the above table that the average increase in the prices of imports of all denim apparel from around the world into US is 7.26% . But when we see individually , we find that the increase in prices is different from different countries . The increase in prices from Pakistan was the maximum with the prices in first four months of 2011 crossing the prices in 2010 over 16% !
Other important countries too had their share of increase in prices . But if we really see , the increase in prices of apparel is still not justifying the increase in fabric prices – which increased at places by even more than 50%
This shows that the various players in the supply chain have absorbed part of the increase in prices . There is also a possibility of impact of cost reduction measures taken at various levels of production and sourcing.
We have also seen that the retail prices in US did not show much of increase and as a result some of the retailers like Gap have to suffer huge loss of income . Now, with the prices of cotton crashing by over 40% , it remains to be seen how the prices of apparel will move. Will these retailers be pressurizing their suppliers to reduce prices significantly to cover their own losses. Will the sourcing price of denim apparel fall to below pre cotton increase levels ?
It remains to be seen. However, the lesson that can be drawn from the entire episode are that :
- There is a constant need to monitor the possibilities of supply chain efficiencies to reduce costs of production . Companies should not wait for events like sudden increase in raw material increase to focus on this aspect.
- The prices at the consumer level are very difficult to increase especially when the economies are not in that great a shape.
- Innovative products are the only way to get higher margins from the market and basic products will always be under price pressures.
