Soaring cotton prices force apparel makers to shift sourcing, product mix

With cotton prices hitting a 15-year peak, apparel makers are adjusting their product mix and sourcing to avoid raising retail prices.
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Natural disasters in Asia and shifts in supply and demand have pushed cotton prices to a 15-year peak in the United States, forcing outdoor apparel manufacturers to adjust their product mix and sourcing to maintain retail prices.

“It is definitely affecting all apparel manufacturers, particularly those that import product,” Ken Feldstein, director of sourcing and product development for Life is good (www.lifeisgood.com), told SNEWS®. “On average, the prices we pay for cotton are 10 to 20 percent higher over the past year.”

Why the price hike?

Feldstein said that cotton prices have risen partly because floods and droughts have affected crops in major cotton-producing countries like China and Pakistan. With less cotton available on the worldwide market, the prices have jumped. But he said general economic conditions have played an even greater role.

“Business had been down so dramatically the last two years that companies have been buying less,” said Feldstein. “Then there was a sudden, positive bump in retail in the latter part of last year, and it sort of woke everybody up simultaneously and they placed orders at the same time. The demand became so enormous, it drove the prices up.”

Other factors have contributed, as well. Nicole Bassett, director of sustainability for Prana (www.prana.com), said that in 2009 India banned the sale of cotton fiber outside the country to bolster its own economy. The government encouraged companies in India to product their own cotton fabrics rather than send the raw fibers to other countries. “The ban didn’t last very long, but it threw a wrench in pricing,” she said.

With all of these forces affecting the cotton market, prices increased to more than 88 cents a pound in April, up 55 percent from a year earlier, according to the “A” index produced by trade publisher Cotlook Ltd. (www.cotlook.com). And this week, Reuters reported that cotton prices in the United States reached $1 a pound, the highest they have been in 15 years.

Affect on retail prices

Though cotton prices have mushroomed, outdoor apparel manufacturers told SNEWS they hope to absorb the costs rather than raise their prices at retail.

“I don’t see Prana raising prices,” said Jeff Brown, the company’s production manager. “We want to really protect our customers and come in at the price points we have historically tried to have.”

Feldstein said Life is good doesn’t intend to jack up prices either. “When you’re a brand with a specific, target customer who is loyal, we try really hard to hold prices, and we’ve done a pretty good job of that,” he said.

Still, some brands will have to adjust prices on certain products. Retail prices for some Gramicci cotton apparel will increase 2 percent to 5 percent, said company president Marty Weening. “But that’s probably half as much as what will generally take place in the market,” he said.

Weening added that Gramicci (www.gramicci.com) will not raise prices on products that include blends of cotton and hemp, because hemp yarn takes up a great amount of volume and allows the company to greatly reduce the amount of cotton in a piece of apparel. 

Battling rising costs

Like Gramicci, many outdoor apparel companies are preventing price increases by producing clothes that include lower percentages of cotton. But companies known for their cotton apparel are also dealing with the problem by adding more pieces made of synthetic materials.

“We’ve made quite an effort to spread out risk by looking at cotton alternatives,” said Bill Weber, owner of Arborwear (www.arborwear.com). “Synthetics have become a significant portion of our line. This helps balance out some of the higher costs of cotton and reduce our dependency on it.”

Life is good has also added more synthetic clothes to its line. “We’re trying to diversify our product,” said Feldstein. “We do have a well-defined cotton T-shirt business, but we also have product categories that are more performance driven with more man-made fibers. That’s gotten more important for us.”

While companies are shifting toward synthetic clothes, they are also adjusting their sourcing strategies. Feldstein said Life is good will focus less on sourcing cotton from China and look for places less affected by turbulence in the world economy. 

“We’re working with a significant manufacturer in India that grows its own organic cotton, and that keeps prices down because their supply is vertical and less influenced by what’s going on around the world,” said Feldstein. He said the company is also purchasing more cotton from countries that have free trade agreements with the United States, and therefore, no duties on cotton imports. “There’s an automatic savings of say 20 percent,” he said.

Weber said that Arborwear would begin to source cotton from a great variety of places to battle rising costs. “Different parts of the world do not experience the same challenges at the same time…at least that’s the strategy we are playing out,” said Weber. “Our hope is that by using a blended supply chain we can balance out the instabilities and benefit from a broad vendor base.”

Brown said that Prana is encouraging all of its partners in its supply chain to absorb a portion of the increasing costs so that everyone benefits. “If everybody along the supply chain can absorb some of the costs, it won’t affect Prana’s margins and pricing as much,” he said.

The future of cotton

Manufacturers mostly agree that prices for conventional cotton will continue to rise in 2011, but they will level off as growers produce more to match demand. But that’s not necessarily the case for organic cotton, which outdoor apparel manufacturers are using more and more.

Weening of Gramicci projects that the price of organic cotton will rise steadily over the next three years because more cotton clothes will be made with organic fibers. “Demand is going to be great,” he said. “It’s going to become standard, so prices will continue to increase.”

--Marcus Woolf

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