The Rupp Report: Empty Shelves In Western Stores?

The first-ever Rupp Report’s title three years ago was “The Winds Of Change,” referring
particularly to China
(See ”
Rupp Report: The Winds Of Change
,” June 5, 2007).
In the last decade, the global situation
for the production flow of textile goods around the world has changed dramatically with an —
up-to-now — unthinkable speed: China became the powerhouse of the global textile production.
Virtually all Western companies, big or small, moved their production to China, squeezing out the
best prices for their products. On the other hand, Western production sites disappeared, and the
know-how too.

A Decent Price For A Decent Piece Of Work

In 2008, the financial chaos started for the now very well-known reasons. In the midst of the
financial turmoil, the last paragraph of
Rupp Report: “Beware Of Protectionism,”
February 17, 2009, mentioned that “it seems the textile
industry is back in protectionism and economic war. This was meant to be gone a long time ago, but
it seems the Western governments are lacking better ideas to stimulate the industry than to put up
new barriers. And I wonder how the big retailers in the West want to fill up their shelves, if the
Chinese textile industry is in trouble. Who will pay the higher price? The Western consumer is not
ready anymore to pay a decent price for a decent piece of work.”

A Stimulus Package …

Realizing that its textile industry was very much depending on orders from outside, the
report further mentioned that “the Chinese government also is drafting a stimulus package for the
textile industry, including preferential loans, to boost sales and create new jobs.” Some Western
countries didn’t like this action and were thinking about establishing new quota systems for
textile products; nevertheless, it took years to abolish them. China opposed any return to the
quotas that decreased its textile exports to the United States and Europe. A senior Chinese
Ministry of Commerce official mentioned that “China’s textile companies are having enough trouble
already, but would exercise voluntary discipline to avoid any export surge.”

… Led To Another Wind Of Change

In parallel with the rising income of the population, these activities triggered — among
other circumstances — a sharp rise of the domestic market in China, and the editorial in the
April/May/June 2009 issue of Textile World Asia reported: “After weeks of bad news, it seems that
there is some hope — at least for China. Many Chinese textile manufacturers seem to be fed up with
price discussions abroad and are selling domestically”
(See ”
Markets: Sunrise For China?

Textile World Asia, April/May/June 2009).

New Reality

And today, the Chinese textile industry is somewhat in trouble — the value of the renminbi;
higher energy costs and social standards; higher salaries, which are up 17.3 percent from 2004 to
2009; and a soaring domestic market. This last factor, in fact, is not a real problem for the local
textile producers. However, it is a dilemma for the Western purchasers. The cards are reshuffled,
and more and more purchasers from the West are facing a new attitude from their Chinese partners.
It seems the Chinese textile industry is not dependant on Western orders anymore. Their orders are
not accepted anymore or are not delivered; and there are bottlenecks in production. This is mainly
the case for small and medium fashion enterprises (SMEs). The Chinese refuse to to be the cheap
Jack anymore for the Westerners and prefer to sell locally, virtually for the same prices. Big
retailer companies are grouping their purchasing with other companies to have more power over their
Chinese suppliers. On the other hand, some companies are already moving out their production to
other countries like Indonesia, Bangladesh or Vietnam.

More Speed

With the increasing supply troubles, another issue is becoming evident: speed. Fashion is
dependant on smaller lots and fast delivery times. Small lots and speed are ever the archenemies of
all Asian production. Currently, as some SMEs report, it is virtually impossible to order 500
pieces per color of one article, while big retailers are ordering 100,000 pieces per color.

Even more important for success is the delivery time. Trends must be implemented immediately
to satisfy the customer. Experts say that to be successful in the competitive fashion markets, a
new product should be in the store within four weeks from design to production. In general,
deliveries from China take eight to 10 weeks.

An Opportunity For The West?

Is this a change for the disappearing European textile industry? Maybe. To accelerate
sourcing, big European retailers have already moved their production back to Europe. On the other
side, depending on the manufacturing site, the production costs increase from 20 to 50 percent.
Depending on the quality level, many European labels are producing up to two-thirds of their
turnover in Europe. The speed of sourcing is considered and evaluated to be higher than just the
pure costs of the article.

It is an extremely interesting situation with a high level of suspense: For the last 50
years, the caravan of textile production has moved constantly eastward to get cheaper purchasing
prices, but without lowering the margin. And now, we are at the beginning of the story again: Who
will pay the higher price? Is the Western consumer now ready to pay a decent price for a decent
piece of work? Time will tell.

September 15, 2010