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Costing . . .Why this tsunami of cost increases?
2011 AAPN Annual MeetingMiami, FloridaMay 2, 2011
Mary T. O’Rourke
O'Rourke Group Partners LLC
Recent Price Increases . . .
Unprecedented Limited relief in sight
Global scale Regional implications
O'Rourke Group Partners LLC 2
Key Drivers . . .
Increase in global fiber demand Recession interrupted / masked the trend
For example, China: Per capita fiber consumption rises from
15 to 33 pounds over the last decade Less arable land available for cotton
More needed to feed developing populations Food equals 40 – 60% of household
income Widespread weather issues
O'Rourke Group Partners LLC 3
Fabric Prices . . .
Significant rise in raw material price inputs Cotton fiber nearly triples over six months Polyester staple fiber up 40%
Price per yard gap East/West narrows
Fabric cost component of garment increases Disproportionately to other component costs
O'Rourke Group Partners LLC 4
Other Factors . . .
Fabric availability tighter, increasing lead times Asian labor cost increases in key countries Less available labor in China (for apparel) Fuel increases drive up transport costs Increasing energy demand and costs in Asia New financing terms
Deposits and/or fabric pre-paid More Letters of Credit
East/West garment price LDP narrowed and/or eliminated in various apparel categories
O'Rourke Group Partners LLC 5
Average Apparel Manufacturing Hourly Labor Costs – US $
O'Rourke Group Partners LLC 6
Fully loaded, including social charges – Q4 2010/Q1 2011
Labor Productivity Matters . . .
O'Rourke Group Partners LLC 7
Some at 60-65%
35-45% more typical but
targeting 50% + with USAID program.
40-45% not uncommon;
improvements are slow.
Inland factories at 55% -65%;
Improvement emphasis.
Some as high as 75%
Comparative Lead Time – DaysOrder to US Distribution Center
O'Rourke Group Partners LLC 8
Some reporting 42 – 50 days.
Basic Denim Pricing DifferentialsAsia v. Regional (February 2011)
O'Rourke Group Partners LLC 9
10% Denim gap to Asia15 – 20% Basic Cotton Twills18 - 20% Cotton Knit Jersey
23 – 25% Woven Textured Poly
Men’s Basic 100% Cotton Denim Jean CostJune 2010 v. February 2011
O'Rourke Group Partners LLC 10
Garment: China NICARAGUA China NICARAGUA Fabric: China Mexico China Mexico
8.96
7.07
8.40
7.31
13.75 oz. OE/OE, medium
Product Sourcing ImplicationsPoly/Cotton Twill Pant / $
O'Rourke Group Partners LLC 11
Fabric Source China China China China Mexico U.S.Fabric $/Linear Yard 2.90 2.90 2.96 2.96 3.65 3.85
Fabric Yield/Yards Req'd 1.5 1.55 1.6 1.6 1.5 1.5
Labor Productivity 0.75 0.60 0.50 0.65 0.65 0.65
10.40 10.57 10.47 10.37 9.57 9.91
O'Rourke Group Partners LLC 12
Selected Uniform MarketsEstimated % Regional Sourcing
CBI/CAFTA
MEXICO
USA
45%50%
60%
65%70%
85%
O'Rourke Group Partners LLC 13
Regional opportunities abound. . Everyone is re-evaluating costs and suppliers. All cotton-dominant categories Highest fabric yield-required categories
Jeans Trousers
Greatest quality and highest in-stock program requirements Uniforms
Regional Competitiveness in Apparel Manufacturing Degree of regional cost competitiveness takes
many by surprise. Synthetics getting another look regionally Increased demand for speed to market.
Leaner inventories required at retail. More replenishment program shifts. More frequent, faster fashion deliveries. Cycle compression in pre-production facilitating
and providing more cost reduction. Must improve sampling turnaround for basic
fashion items.
O'Rourke Group Partners LLC 14
Other Important Trends Big box retailers and major brand owners
involved in fabric cost negotiation. Asian garment shifts to West but trim and
findings often remain Asian-sourced. Buyers want to delay associated “new
source” product testing and approval process.
Regional capacity limitations emerge. Who will lead expansion?
O'Rourke Group Partners LLC 15
For further information:
O’Rourke Group Partners, LLCMary T. O’Rourke
Managing [email protected]
(917) 567-3540
www.ORourkeGroupPartners.com