Casey Huth

Profile of U.S. marketplace for CATEGORY 638 // Men & boys cotton knit shirts

Cotton Knit T-shirt Market

Cotton knit t-shirts hit retail markets with the "casualization" of U.S. clothing tastes, expressed in the trend toward corporate dressing-down, T-shirt sales gained from this trend as well as from the synergy between corporate merchandising campaigns and the desire of millions of Americans to wear clothing expressing their loyalties to sports teams, rock groups, and other popular icons.

Fiber & Mill Production

COTTON – Soft white vegetable fiber from ½ to 2 inches long, which comes from the fluffy boll of the cotton plant, grown in Egypt, India, China, and southern U.S. Cotton is one of the strongest and most washable fabrics and makes removing stains easier.

Cotton fabrics can withstand hot temperatures for washing and ironing. Fabric shrinks due to relaxation of yarn tension; however there is a maximum shrinkage. Highly resilient to degradation, however chlorine and oxygen bleaches over prolonged use will cause degradation.

At the textile mill, the bales are opened by machines, and the lint is mixed and cleaned further by blowing and beating. The short lint that comes out usually is separated and sold for use in other industries.

The mixed and fluffed-up cotton goes into a carding machine which cleans the fibers some more and makes them lie side by side.

The combing action of the carding machine finishes the job of cleaning and straightening the fibers, and makes them into a soft, untwisted rope called a sliver (pronounced sly-ver).

On modern spinning frames, yarn is mare directly from the sliver. The spinning devices take fibers from the sliver and rotate it up to 2,500 revolutions in a second twist that makes fibers into a yarn for weaving or knitting into fabrics.

Machines called looms weave cotton yarns into fabrics the same way the first hand weaving frames did.

Trading Partners and Imports in U.S.

Table1: U.S. General Imports in U.S. Dollars (Source: OTEXA)

Table2: U.S. General Imports in U.S. Dollars Top Countries (Source: OTEXA)

U.S. Consumption

Although these trends had markedly different impacts on the various branches of the U.S. men's and boys' shirt industry felt the effect of competition from overseas manufacturers, who were producing cheap goods with cheap labor.

Additional long-term uncertainties were thrown into the mix by the passage of the 1993 North American Free Trade Agreement (NAFTA).

Shirt manufacturers had to respond to the challenges posed by foreign competition. One strategy involved a combination of downsizing U.S. operations by closing plants and laying off production workers, as well as outsourcing an increasingly large amount of work to company-owned plants or contractors in Mexico or the Caribbean Basin.

Many U.S. companies manufacture shirts with cheap foreign labor by sending cut fabric to these foreign plants, where they are sewn and finished. The finished items are then shipped back to the United States at preferential duties

Offshore production gave U.S. companies a chance to produce their goods with cheap labor, but domestic production had its own advantages, especially proximity to the huge U.S. consumer market and the ability of rapid response to shifting consumer demands.

Leading U.S. shirt manufacturers also capitalized on domestic production advantages by pursuing a consumer-driven "quick response" strategy. This strategy integrates numerous dimensions of the production cycle with the goal of shortening a cycle's duration, implementing productivity improvements, and shrinking inventory levels through the immediate transmission of consumer taste to manufacturers.

Figure 1 Pie chart for Imports in U.S. Dollars for year 2011

Honduras & CAFTA

With a GDP of $33 billion, Honduras’ total annual trade with the rest of the world averages $16 billion. The United States is Honduras’ largest trading partner, purchasing more than two thirds of its total exports. Over the past decade, imports have increased in terms of absolute dollar value, with the United States getting an increasing share.

With a population of 8 million, Honduras is now the third largest exporter of apparel and textile products to the U.S. market, behind only Mexico and China, while ranking first among the Central American countries.

With the implementation of CAFTA, the best opportunities for U.S. exports of goods and services to Honduras are in the areas of apparel, cotton, food processing, auto parts and service equipment, safety and security equipment, computers and peripherals, computer services, telecommunications, textiles and textile equipment, and electric power generation equipment.

Trade Balance

The U.S. goods trade surplus with Honduras was $1.6 billion in 2011, a 144% increase ($969 million) over 2010.

Exports

Table3: Imports from Honduras to United States 2006-2011 (Source: OTEXA

Honduras was the United States 40th largest goods export market in 2011. U.S. goods exports to Honduras in 2011were $6.1 billion, up 33.4% ($1.5

billion) from 2010, and up 139% from 2000. U.S. exports to Honduras are up 88.8% from 2005 (Pre-FTA).

Five countries have recorded positive growth in exports into USA during the first 3Q of 2012 out of the top 10 countries; Vietnam, Mexico, Italy, Sri Lanka and Honduras.

The top export categories in 2011

o Mineral Fuel (oil) - $1.5 billiono Cotton, Yarn and Fabric - $1.0 billiono Electrical Machinery -$414 milliono Manmade Staple Fibers - $371 million

Table4: U.S. Apparel Imports in U.S. Dollars (Source: OTEXA

Research and Technology

A key variable factoring into the production cycle of a shirt batch—generally 1,500 shirts—has been the length of time it takes to move from one operation to the next.

Manufacturers have also been exploring the unit production system (UPS) as an alternative to existing assembly operations. Under the UPS garments are manufactured one unit at a time rather than as parts of a series or bundle. An overhead conveyor whisks garment pieces to sewing operators, who quickly stitch a collar, button, or pocket before the machine shoots the clothing to another worker. Some manufacturers that have experimented with the UPS report increases in productivity, but no statistics are available for the industry as a whole.

The most notable drawbacks associated with the UPS are its relatively high start-up costs and, according to traditional investment criteria, its tendency to generate a marginal return on investment. Only bigger companies will use this method.

Exports & Consumption in U.S.

U.S. shirt production is heavily concentrated in the southeastern states, especially North Carolina, Alabama, Kentucky, South Carolina, and Georgia, which together account for about 55 percent of total shipments.

North Carolina and Georgia account for one-quarter of the almost 2 million U.S. jobs in textile production, apparel manufacture, and production of synthetic fibers and cotton. California also commands a huge percentage of the jobs, about 181,000 in various textile-related industries, three times more than all of New England.

The two most important supplies for men's and boys' shirt establishments are knit fabrics and broad woven cloths. For most of the twentieth century, knit and woven shirts were assembled from cut pieces of fabric according to the "bundle system."

Sewing a dress shirt requires anywhere from 20 to 40 operations under this system. Each operation is the specialty of a certain sewing-machine operator, who performs his or her single task on a large bundle of cut pieces, reties the pieces in the bundle, and then sends them along to the next operator.

The industry's largest manufacturers report that department stores and mass merchandisers are the biggest consumers of their products. In addition, a number of firms are expanding sales through their own retail divisions, especially factory stores at outlet malls.

Table 5 : U.S. Top States of Import

NAICS Codes

315211 (Men's and Boys' Cut and Sew Apparel Contractors)

315223 (Men's and Boys' Cut and Sew Shirt (except Work Shirt) Manufacturing)

Industry LeadersDiscount stores, national chains, and department stores dominated

sales of men's and boy's shirts. Discount stores owned an 18.9 percent share of the market with earnings of approximately $9.6 billion. Major chains owned about an 18.7 share of the market with earnings of approximately $9.5 billion.

Department stores owned a 17.7 percent share of the market, with earnings of approximately $9.0 billion, but specialty chains such as Gap are rapidly gaining ground. In 1997 specialty chains had a 10.6 market share, with earnings of $5.4 billion, an increase of more than 17 percent.

Honduras Cotton T-shirt Knit Manufacturing Companies

Distribuciones, Distribuidora de Equipos, Tabush manufacture 100%

cotton knit t-shirts for men’s and boy’s to the following United States suppliers:

Wal-Mart, H&M, JC Penny, Target, Levi's, Lee, Target, K- Mart. They

specialize in brands that are imported into U.S. stores: Hanes, Fruit of the Loom,

Jockey, & BVD.

U.S. Manufacturing

American Apparel is a vertically integrated manufacturer, distributor and retailer of non-branded basic fashion apparel based in Los Angeles, California, USA.

By the end of 2009 it was operating 281 retail stores in 20 countries. The company continues to run its wholesale business, and also operates an online retail e-commerce website.

In contrast to most other US clothing manufacturers and retailers—which tend to outsource production to countries with low labor costs—all of American Apparel’s manufacturing operations are in the Los Angeles metropolitan area. The company promotes the fact that its merchandise is “made in the USA” and “sweatshop free”. Wages are therefore much higher than the global average and, indeed, the company claims to employ the highest paid apparel workers in the world.

Why Honduras?Lack of brands and less value added production in China are

severe problems that the industry has to tackle with internally. Although the industry is big in its size of exports, its growth could be mainly attributed to quantitative growth of low-end products, the price of which is a major means of competition.

Rising costs in labor, raw materials and energy are adding extra burden on exporters. For example, China is now 20-30% higher than Vietnam, Sri Lanka and Cambodia in labor costs, which undoubtedly makes it less competitive.

Since the United States has been Latin America’s biggest partner throughout much of the region’s history, and this trend continues today. This includes Chile, Colombia, Guatemala, Venezuela, Honduras, and Mexico.

In 2011 trade between the United States and Latin America topped $800 billion, more than three times the region’s exchanges with China. It is also growing faster than U.S. trade with nearly any other region in the world—over 80 percent in the last decade.

COST TO EXPORT IN HONDURAS

The Cost to export (US dollar per container) in Honduras was last reported at 1242 in 2011, according to a World Bank report published in 2012. Cost measures the fees levied on a 20-foot container in U.S. dollars.

All the fees associated with completing the procedures to export or import the goods are included. These include costs for documents, administrative fees for customs clearance and technical control, customs broker fees, terminal handling charges and inland transport. The cost measure does not include tariffs or trade taxes. Only official costs are recorded.

Workforce

Occupational categories in the men's and boys' shirt industry fell within four production-related classifications: cutting, sewing, finishing, and miscellaneous departments.

Prices

Design & Printing

The cotton knit t-shirts that are imported from Honduras will be sent to HNOFG Clothing located in the United States (Idaho) to avoid the labor costs and

production tax over seas.

Sources

Honduras Trade. OTEXA. N.p., n.d. Web.

International Market News, “Guatemala offers “fast-fashion” options for Asian investors”, June 17, 2004 http://www.tdctrade.com/imn/04061703/clothing136.htm International Trade Administration (2007). Data accessed via http://trade.gov/index.asp International Trade Administration - US Department of Commerce, “Guide to the Caribbean Basin Initiative: 2000 Edition”

http://www.trade.gov/media/publications/pdf/cbi2000.pdf

Enterprise Surveys, 2003 http://www.enterprisesurveys.org/ExploreEconomies/Default.aspx?economyid=86&year Gereffi, Gary and Olga Memedovic (2003). “The Global Apparel Value Chain: What Prospects for Upgrading by Developing Countries?,” via www.inti.gov.ar/cadenasdevalor/

UNESCO, “Honduras General Profile,” Statistics in Brief http://www.uis.unesco.org/profiles/EN/GEN/countryProfile_en.aspx?code=3400

United States Customs Service, What Every Member of the Trade Community Should Know About: The U.S.-Caribbean Basin Trade Partnership Act United States Department of Agriculture (2007). Data accessed via http://www.ers.usda.gov/data/fibertextiletrade/ United States International Trade Commission (1998). “Textiles and Apparel: Assessment of the Competitiveness of Certain Foreign Suppliers to the U.S. Market,” via http://63.173.254.11/pub3671/main.html

"Cost to Export (US Dollar per Container) in Honduras." Cost to Export (US Dollar per Container) in Honduras. N.p., n.d. Web. 11 Dec. 2012.