Cotton Quandary

       

       

By David Gill

Cotton was king in the Old South. It rules the home textiles industry, and it will continue to do so as the industry moves into next year.

In 2011, cotton’s biggest impact went beyond serving as a prime ingredient in finished textile goods—it elevated prices.

During this decade, when the U.S. economy was on an upswing, manufacturers of bed ensembles, basic bedding and other soft-home products played up value and brands. Until the last couple of years, they had some success at this endeavor.

Then, beginning in late 2009, cotton supplies throughout the world began to draw down drastically as demand rose in developing economies (including China, which has become a major consumer), launching an upward price surge that took cotton prices to significantly more than $1 a pound earlier this year.

“There were so many drivers,” said one vendor executive. “Fewer acres were planted a couple of years ago, and bad weather hurt the harvests. Then, earlier this year, speculation in prices on the spot market took hold.”

With that, vendors and retailers began to struggle with the reality that prices for finished products had to rise, and that battle stretched well into 2011. “The first two quarters were extremely difficult due to finalizing price increases with various retailers, and the fact that business was at a bit of a standstill until pricing was resolved,” one textiles executive said.

The situation was not helped for vendors by the fact that some retailers insisted that vendors take specifications down rather than permit even a marginal price increase. “The more price-sensitive retailers have been more vigorous in pursuing the de-spec option,” said Bob Hickman, senior vice president of sales and marketing for United Feather & Down.

However, this has not been true across the retail board. “The less price-sensitive have worked with us,” Hickman said. “They can’t afford to compromise on quality. They’re absorbing and we’re absorbing, and in the end, the price has gone up for the consumer.”

Beginning toward the end of the second quarter, cotton prices began to edge downward—cotton prices were less than $1 a pound in November. “The speculation peaked earlier this year,” said one textiles executive. “Now you’ve seen more acres planted and more high yields.”

But this did not quite ease the pricing situation. “Although cotton prices have dropped, the vendors and overseas suppliers are still working through inventory that is owned at the higher prices,” said Beth Mack, chief merchandising officer for Hollander Home Fashions. “This, plus the uncertainty of the fall crop (floods in Pakistan and droughts and fires in the U.S.), creates an environment of uncertainty.”

Another vendor executive said the falloff in cotton prices could eventually mean “further chaos” in establishing finished-products prices going forward. “The key to this scenario will be what happens with the fall harvest of cotton throughout the world, especially in India, China and Pakistan and, to a smaller degree, the U.S.A.,” he said.

Last year, although the acreage that was planted rose throughout the world, droughts here and floods in Pakistan reduced the harvest. As of last month, it was unclear how this year’s harvest made out.

Going forward, according to the textiles executives, it will all boil down to a matter of supply and demand, which “will determine what will happen going into the first quarter of 2012,” one executive said. “If supplies are plentiful and demand is weak, pricing will fall precipitously. If supplies are affected by weather or some other natural occurrence and demand is strong, prices will rise again but probably not to the degree we have seen over the past year.”

While cotton pricing is expected to continue its strong impact on the textiles business going into next year, executives are somewhat optimistic about the overall shape of their business. “We see strong numbers coming out of products that are promoted (advertised) as well as products that carry technology and that carry a strong value message,” Mack said. She cited Hollander’s HoMedics brand, which uses the Flexotech mesh material to create different comfort zones in basic bedding.

Hickman said the fact that consumers took a greater interest in better quality bedding offers hope for 2012. “Consumers deferred their purchases over the past couple of years, but now are looking at higher quality bedding as a necessity,” he said. “Consumer confidence is certainly not robust, but 91 percent of people are working. People won’t spend extravagantly, but they will spend.”