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The Rupp Report: Empty Shelves In Western Stores?

Jürg Rupp, Executive Editor

The first-ever Rupp Report's title three years ago was "The Winds Of Change," referring particularly to China (See " The 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 The 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 " Asian 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 7, 2010