By David Gill
Last month’s New York Home Fashions Market was the beginning of what looks to be a period of uncertainty for the U.S. textiles industry.
While vendors reported that the attitude among their retail customers was generally upbeat, they also said the fourth quarter could prove difficult for the industry. Not only is the economy’s weak recovery clouding any projections for better business, but the continuing rise in worldwide cotton prices has created problems in pricing textiles products for both vendors and retailers.
According to press reports, world cotton prices neared $1 a pound in the week after market, up 54 percent year over last year and a 15-year high. In addition, vendors at market noted that floods in Pakistan and possible problems with the cotton crops soon to be harvested in China and India will likely keep prices climbing well into 2011. “You can expect another spike to come in December or January,” said Larry Queen, president of AQ Textiles.
Projections beyond that time call into question whether this is a spike or whether cotton pricing is on a long-term upward trend. “Cotton could go as high as $2,” said Renald Fenton, vice president of marketing for Premier Fine Linens. “It could lead to a restructuring (of the textiles industry), with marginal players ending up shutting down.”
As always, the question becomes how much of this added cost can vendors pass on to retailers. And, as always, the answer to this question is: Some, but not a lot. “On pricing, we’ve had to make some adjustments,” said Fritz Kruger, vice president of marketing for Pacific Coast Feather. “It depends on the items. We’ve borne a lot of the increases on our new products.”
Often, what a vendor asks for has as much to do with business strategy as it does with boosting the bottom line. “We’re trying to maintain our margins but still be competitive,” said John Piazza, president and chief executive officer of WestPoint Home. “We need to mitigate what we ask for, but nobody among the retailers has said a flat No.”
Some vendors did say their customers did show some sympathy for their situation. “Retailers do understand the problem because many of them source directly from Asia in both apparel and home,” Fenton said. But clearly the cotton issue created a charged atmosphere during market week. “The retailers were trying to protect their current programs in the wake of all the price increases that have already been made,” Fenton said. “The vendors are also guarded, trying to absorb as much as they can.”
Kruger added, “This week has seen a very awkward dynamic. The retailers have been very quiet about our new products, so we’re putting a lot of energy on our core items. We’re concentrating on our guaranteed winners and merchandising the tar out of them.”
Vendors have also begun to look at other ways to cope with cotton prices. “We’re looking for new countries to source from,” Queen said. “Bangladesh and Vietnam are possibilities. Sourcing may be cheaper than investing in another facility.”
But looking at new places to source from presents another set of difficulties. “There isn’t another country to replaces China’s infrastructure the way it has developed,” Piazza said. “India’s not there yet. You might have to sample products from other countries piecemeal.”
With the cotton situation and the economy, vendors felt that the potential for sales growth in the fourth quarter is somewhat muted. “Retailers are very conscious of their inventories,” Queen said. “They will go in light and if they want it, they’ll have to pay more for it.”
Aside from pricing, the outcome of the fourth quarter could depend on the tried-and-true economic principles of supply and demand. “Until supply catches up to demand, business conditions will be iffy,” said Keith Sorgeloos, president and CEO of Home Source International. “If there is a continuing curtailment of demand like we have seen over the past few months, this could cause negativism and draw the consumer backwards. If that happens, I believe we will see a lot of promotional activity in the fourth quarter.”
While agreeing with Sorgeloos’ cautious view of the fourth quarter, Linda Kulla, vice president of Bardwil Industries’ bath division, said there is a caveat to being promotional. “Promotion may have a place in holiday merchandising, but it’s at this level where cotton prices really hit,” Kulla said. “Retailers have to make money. The risk of being promotional is that consumers come to expect it, and after that, it’s difficult to get prices back up.”
Kulla is one vendor executive who saw retailers as being generally upbeat during market. Another is Steve Palmer, president of United Feather & Down. “Everyone is clearly looking forward, even though things are still challenging from the consumer’s point of view,” Palmer said. “Retail numbers have been up this year, and you also see debit-card purchases exceeding credit-card purchases, which means that consumers are managing their money better.”
Palmer also believes that price will not be the be-all and end-all in holiday shopping. “Consumers are looking for good value—not the cheapest price, but they will pay more if the value is good,” he said. “They are also looking for products that are sustainable, and I don’t mean that necessarily in the eco sense. They want products that will last.”