Industry Surveys

NOVEMBER 29, 2007 / APPAREL & FOOTWEAR INDUSTRY SURVEY
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ganization (WTO) on December 11, 2001,
and the elimination of quotas among all 149
WTO-member countries in 2005.
China accounted for 25.9% of all apparel
imported into the United States in 2006,
according to the American Apparel &
Footwear Association, a trade group. That is
nearly double the share in 2004 and comes
after textile quotas against the country were
lifted. In the footwear market, where quotas
were eliminated several years ago, China accounted
for 86.2% of all US imports in the
12 months ended December 2006.
Having plants in Mexico and the
Caribbean provides a quick turnaround time
that will prove less significant than China’s
lower costs. Indeed, because the Internet
speeds communications between an apparel
company and its far-flung plants — thereby
accelerating the cycles — geographic proximity
may become less of a concern.
China has other advantages as well. Its factories
employ highly skilled laborers capable
of producing complex garments. In contrast,
AGOA-eligible countries are unable to produce
fashionable, high-quality garments due
to the generally low levels of technical expertise
and literacy, underdeveloped infrastructure,
and a dearth of capital. In addition,
companies that set up and run plants in China
are taxed by the Chinese government at a lower
rate than if those plants were operating in
the United States. Moreover, by keeping their
sweetened profits in China, US-based apparel
makers can fund future growth.
HOW THE INDUSTRY OPERATES
Although apparel and accessories can be
considered as two separate industries, they
often overlap, with many companies selling
goods in both categories. In addition, their
consumer demand profiles are similar: apparel
and accessories such as footwear are
necessities, yet they are partly discretionary
as well.
At their most basic level, these industries
supply people with utilitarian attire that is
affordable and unlikely to change drastically
in style from year to year. For more fashionconscious
consumers, the industries strive to
update their assortments to reflect changing
trends or to offer innovative styles or features
that command premium prices.
While individual companies’ sales depend
on the specific products they offer, overall industry
demand is driven by general economic
trends, including changes in disposable personal
income, consumer confidence, and
consumer spending. During periods of prosperity,
for example, consumers are more inclined
to update their wardrobes, buy the
newest fashions on a whim, or splurge on
luxury items. During recessions, consumers
tend to shy away from luxury goods, postpone
apparel and footwear purchases that
are not absolutely necessary, or replenish
their wardrobes with inexpensive items.
Population growth and demographic
trends also influence demand. Obviously,
when the number of people rises, so does
overall demand for apparel and accessories.
However, with the US population growing by
only 1% per year, companies in this industry
are looking overseas for growth opportunities.
Economic growth will be particularly
dramatic in Asia. According to the World
Bank, more than 600 million people in East
Asia will earn enough to be considered middle
class by 2030, up from just more than
100 million in 2000.
Demographic trends within the United
States also can affect the quantity and type
of apparel and accessories consumers demand.
For example, as the leading edge of
the baby boomer generation (those born between
1946 and 1964) enters retirement,
these consumers have shifted their spending
priorities to needs other than clothing, such
as healthcare. They are also more likely to
buy comfortable clothes and shoes rather
than the latest fashions.
Changes in consumer attitudes and preferences
also have an effect on apparel demand.
Apparel designers and merchants must adapt
to lifestyle and fashion trends by altering
their product lines. To accommodate consumers’
increasing emphasis on fitness and
exercise, for example, many apparel manufacturers
have added athletic styles to their
mix. Preteen and teen markets tend to be
particularly fashion-driven, and apparel and
footwear brands must closely monitor and
anticipate the ever-changing styles and items
that these consumers want.
Although these industries are mature and
slow growing, they exist in a dynamic and
competitive environment. In order to improve
profitability, many companies are