THE GARMENT TRADE'S NEXT REVOLUTION

WHAT'S LIKELY TO CHANGE BETWEEN 2010 AND 2015

April 2010

CLOTHESOURCE LIMITED, 10 PARK STREET, CHARLBURY, OX7 3PS UK

WWW.CLOTHESOURCE.NET INTELLIGENCE@CLOTHESOURCE.NET
Contents

Introduction
1. 2009: How a 20-year emerging-market garment-making boom went into
reverse
1.1 World apparel market 1990-2009
1.2 2008/9: Not so much as collapse as a gentle slowdown
1.3 Why 2008/9 shocked so many people
1.4 Offshore relocation petered out
1.5 Restraints on trade finally dropped
2. Changes among garment makers: 2000-2009
2.1 Winners and losers
2.1.1 Long term winning and losing countries
2.1.2 Long term winning and losing regions
2.1.3 “New” and “old” countries
2.1.4 The effect of an integrated raw material industry
2.1.5 The impact of duty free deals
2.2 How prices changed
2.3 The Basic Economics of emerging-market garment making
2.3.1. Where the costs lie.
2.3.2: Cost and revenue unpredictability
2.3.3: Impact on garment manufacturers
2.4 Producer government intervention
2.5 Trade Barriers
2.6 How the EU, US and Japan differ in category sourcing strategies
3. Changes among buyers: 2000-2009
3.1 Where the buyers are
3.2 Western buyer concentration
3.2.1 Still a fragmented industry
3.2.2 Still concentrated in West
3.2.3 Strength emerges
3.3 Apparent results
3.3.1 Lower inventory
3.3.2 Faster SKU churn
4. Principles underlying sourcing: 2010-2015
4.1 What we know: The Twelve Laws of Sourcing 2009
4.1.1. Hotspots: No new ones: offshore move complete
4.1.2. Factories’ problems: China, not recession
4.1.3 China: Ruthless, shameless, loaded, focused
4.1.4 Garment making: Inherently unstable
4.1.5 Buyers: Increasingly focused on “whole-life” profitability
4.1.6 Recovery: What recession didn’t cause, recovery won’t cure
4.1.7 US & EU Neighbours: Losing share to nimbler Asians
4.1.8. Vertical integration: Not yet a competitive advantage
4.1.9 Ethical sourcing: Activists, not consumers, set the agenda

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
 4.1.10 Protectionism: Barriers are falling and won’t be rebuilt
4.1.11 “Fringe”countries: Many endangered
4.1.12. The underlying principle:China rules - Till the next revolution
4.2 New issues likely to emerge between 2010 and 2015
4.3 2010-2015: Issues we know will influence the garment trade
4.3.1 China’s working population starts falling
4.3.2 The effect of trade embargoes or sanctions
4.3.3 Changes in preferential trade rules
4.3.4 Japan’s production relocation
4.3.5 Trade rules enforcement
4.3.5 Emerging retail markets
4.3.6 Importer technical standards
4.3.7 Changing compliance/ethics standards
4.4 New issues that MIGHT emerge
5 Countries
5.1 Key trends: Top ten supplying countries
5.1.1 China
5.1.2 Bangladesh
5.1.3 Turkey
5.1.4 Honduras
5.1.5 India
5.1.6 Vietnam
5.1.7 Indonesia
5.1.8 Pakistan
5.1.9 El Salvador
5.1.10 Mexico
5.2 Country summary and issues for estimation
5.2.1 Non-China Asia
5.2.2 EU Neighbours
5.2.3 US Neighbours
5.2.4 Africa
5.2.5 New countries
6 General conclusions
7. Recent History: Major supplying countries
8. Assumptions for 2015 forecasts
8.1 Forecasting method
8.2 Purchasing Assumptions: % change on previous yr
8.3 Market share assumptions
9. General Environmental Forecasts for 100 countries
10. 2010-2015 Forecasts
10.1 Garment export volumes 2008-2015 (bn pieces)
10.2 Year on year total changes 2008-2015 (%)

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
Tables
Table 1: Fastest growing apparel exporters: 2004-2009
Table 2: Fastest falling apparel exporters 2004-2009
Table 3: Fastest declining apparel exporters 2004-2009
Table 4: Price change by country: 2008-20009
Table 5: Trade restrictions imposed by major apparel markets: 2009
Table 6: US and EU sources of casualwear
Table 7: US and EU sources of tops and dresses
Table 8: US and EU sources of intimatewear/swim
Table 9: US and EU sources of formalwear
Table 10: Countries subject to boycott/sanctions, 2010
Table 11: Sourcing history 2004-2009 100 Major suppliers
Table 12: Base Market size assumptions by year
Table 13: Key market share assumptions: Sales to EU
Table 14: Key Market share assumptions: sales to US
Table 15: Key market share assumptions: Sales to Japan
Table 16: Trading environment forecast: Top 100 garment exporters
Table 17: Garment Export Volumes by country 2008
Table 18: Garment Export Volumes by country 208
Table 19: Garment Export Volumes by country 2010
Table 20: Garment Export Volumes by country 2011
Table 21: Garment Export Volumes by country 2012
Table 22: Garment Export Volumes by country 2013
Table 23: Garment Export Volumes by country 2014
Table 24: Garment Export Volumes by country 2015
Table 25: Annual export change by country: 2010-2015

Figures

Figure 1: World apparel imports 1990-2009

Figure 2: annual change in apparel imports: 1991-Q4 2009
Figure 3: Fastest growing apparel exporters 2009/8
Figure 4: Change in apparel exports by region: 2004-2009
Figure 5: Garment export growth: textile makers vs textile importers
Figure 6: Imported clothes price index: 2004-2010
Figure 7: China price history: 2004-2009
Figure 8: China's changing stance on export rebates
Figure 9: China's population 2000-2030
Figure 10: FTA candidates: price index with & without duty
Figure 11: Asian producers' share of Japanese clothing imports 2008/9

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
Introduction
In the past 20 years, the number of garments being imported into rich countries has
increased sixfold – almost entirely the result of production being relocated (and
often re-relocated) for greater efficiency.

By 2009, it was clear that a number of basic principles underlay the process of
sourcing garments from poorer countries. But between 2010 a number of those
principles may change in response to known changes in the outside environment –
above all the imminent decline in the number of Chinese of working age.

Unless there is a worldwide slump or some other catastrophe (of a degree far worse
than the 2008/9 Crash, or the pandemic scares of the past decade) China will then
start seriously running out of workers it will be happy to see used as production line
fodder for low-cost exports. At the same time, demand for garments elsewhere in
Asia will grow as Japan continues its garment relocation from China and as the EU
develops its attempts to create Free Trade Agreements with Vietnam and India. The
timing and results of these new influences (and of competitor reaction) are
uncertain: but they will certainly change the garment production landscape.

The market for offshore-manufactured garments has withstood all kinds of

fluctuations in the surrounding world, and in many cases it is now reasonably easy to
predict how the market will respond to future events – though not everyone would
agree with all of them.

Inevitably, there will be events we simply cannot forecast. We can make sensible
forecasts about how China will react to a smaller working population – but we
cannot predict, for example, major wars. Or indeed less shattering events: scarcely
anyone predicted either the 2008/9 Crash or even the two years of fast growth and
high emerging-market inflation that preceded it.

This report looks at the key lessons for garment sourcing learned during the
industry’s long boom between 1990 and 2009. It looks at new issues likely to arise
between 2010 and 2015 and which countries will be most affected – and then
forecasts, country by country, the net effect of known trends on each garment
exporting country’s total apparel exports.

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
 1. 2009: How a 20-year emerging-market garment-making
boom went into reverse
1.1 World apparel market 1990-2009
The world apparel market is dominated by clothes bought in rich countries but
imported from poorer ones. 86% of the world’s spending on clothes comes from
countries whose population accounts for 15% of the people on the planet. 90% of
the clothes they wear are bought from poorer countries, and 80% of the world’s
spending on importing clothes comes from the EU, US and Japan – a dominance that
has never been seriously challenged
Figure 1: World apparel imports 1990-2009
The market for clothes, measured
in garments, imported from poorer
countries grew almost sixfold
between 1990 and 2008. It fell – by
4.3% in 2009: for only the second
time since

The near-hysteria that followed the 2008/9 reverses in sales gives some clues to the
changes

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
 1.2 2008/9: Not so much as collapse as a gentle slowdown
World garment imports began slowing in the second quarter of 2008. The fall
reached its worst point a year later, when in Q2 of 2009 they were about 9% below
where they had been in 2007. By the end of 2009, they were back at about the 2007
level. Whatever knock-on complications occurred, the scale of the fall was both
gentle and precedented. Exports fell faster in 2001, for example.

Figure 2: annual change in apparel imports: 1991-Q4 2009

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
 1.3 Why 2008/9 shocked so many people
The 2008/2009 fall in Western apparel imports struck many of those exposed to it as
novel for seven reasons:
1.
2.
3.
4.
5.
6.
7.

1.4 Offshore relocation petered out

The sixfold growth in clothing imports over twenty years was mainly
fuelled by increasingly liberalised world trade

1.5 Restraints on trade finally dropped

At the end of 2008, the remaining US quotas on Chinese clothing
imports were finally removed.

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
 2. Changes among garment makers: 2000-2009
The total number of garments imported by rich countries fell 4.3% in 2009: their
value fell xx% in dollars at current exchange or yy% at 2008 exchange rates.

The fall in value was the result of lowered prices, not trading down.

2.1 Winners and losers

The apparent major winner was China – though the most quoted numbers can rather
misrepresent what happened.
Figure 3: Fastest growing apparel exporters 2009/8

2.1.1 Long term winning and losing countries

Since 2004, among significant supplying countries, the fastest growth came from
xxxx.

Table 1: Fastest growing apparel exporters: 2004-2009

The fastest-declining countries among those with any shares in 2009 were from a
number of places:

Table 2: Fastest falling apparel exporters 2004-2009

2.1.2 Long term winning and losing regions

The 2009 fall of the Tigers simply accelerated a trend that had been going on since
2004. Similarly, US and EU neighbours lost share in 2009, as they had been since
2004, but the loss picked up pace in 2009. Africa’s sales almost disappeared.
Figure 4: Change in apparel exports by region: 2004-2009

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
 2.1.3 “New” and “old” countries
Since quotas were removed, a number of countries have virtually ceased to be
garment suppliers. These countries’ 2009 garment exports were at least 80% lower
than they had been in 2004:
Table 3: Fastest declining apparel exporters 2004-2009
Change In
exports to
JUSEU
Country 2009/2004

2.1.4 The effect of an integrated raw material industry

The post-quota world was to countries with limited raw material production.

Figure 5: Garment export growth: textile makers vs textile importers

2.1.5 The impact of duty free deals

Several apparently contradictory principles seem to have applied to duty free deals:
1.
2.
3.

We believe there is an underlying general truth:

a)
b)
|Page
THE GARMENT TRADE’S NEXT REVOLUTION
 2.2 How prices changed

Prices fell as soon as quotas were removed in 2005, then drifted back up as some
quotas were reintroduced.

Figure 6: Imported clothes price index: 2004-2010

Figure 7: China price history: 2004-2009

Table 4: Price change by country: 2008-20009

2.3 The Basic Economics of emerging-market garment making

Two basic facts about garment manufacturing are often overlooked:

2.3.1. Where the costs lie.

2.3.2: Cost and revenue unpredictability

2.3.3: Impact on garment manufacturers

2.4 Producer government intervention

Faced with falling demand from mid-2008, garment manufacturers around the
world looked to their governments for help. Many governments looked to impose
trade barriers in response – a subject we cover in the following section, but rarely
high in garment makers’ lists of priorities since few were threatened by rising clothes
imports: their problem was falling demand for exports. What exporters wanted were
subsidies

Figure 8: China's changing stance on export rebates

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
2.5 Trade Barriers
Faced with the risk of growing unemployment in late 2008 and 2009, several
countries’ immediate reaction was to create import barriers. With very few
exceptions, such attempts failed.
Table 5: Trade restrictions imposed by major apparel markets: 2009

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
2.6 How the EU, US and Japan differ in category sourcing strategies
The major buyers still vary considerably in their geographic sourcing policies.

Japanese buyers xxxxx

US and EU buyers xxxxxx

In Casualwear:

Table 6: US and EU sources of casualwear

In tops/dresses:

Table 7: US and EU sources of tops and dresses

In intimate/swim

Table 8: US and EU sources of intimatewear/swim

In formalwear and others

Table 9: US and EU sources of formalwear

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
 3. Changes among buyers: 2000-2009
3.1 Where the buyers are
3.2 Western buyer concentration
3.2.1 Still a fragmented industry
3.2.2 Still concentrated in West
3.2.3 Strength emerges
3.3 Apparent results
3.3.1 Lower inventory
3.3.2 Faster SKU churn

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
 4. Principles underlying sourcing: 2010-2015
Principles that seem to underline the trade – and issues so far
unresolved

4.1 What we know: The Twelve Laws of Sourcing 2009

4.1.1. Hotspots: No new ones: offshore move complete
4.1.2. Factories’ problems: China, not recession
4.1.3 China: Ruthless, shameless, loaded, focused
4.1.4 Garment making: Inherently unstable
4.1.5 Buyers: Increasingly focused on “whole-life” profitability
4.1.6 Recovery: What recession didn’t cause, recovery won’t cure
4.1.7 US & EU Neighbours: Losing share to nimbler Asians
4.1.8. Vertical integration: Not yet a competitive advantage
4.1.9 Ethical sourcing: Activists, not consumers, set the agenda
4.1.10 Protectionism: Barriers are falling and won’t be rebuilt
4.1.11 “Fringe”countries: Many endangered
4.1.12. The underlying principle:China rules - Till the next revolution

4.2 New issues likely to emerge between 2010 and 2015

There are a number of issues we know will arise between now and 2015 and
influence the garment trade. Inevitably, new, unpredicted, issues will also arise

4.3 2010-2015: Issues we know will influence the garment trade

4.3.1 China’s working population starts falling

Far from having an infinite supply of workers, China’s labour force starts falling in
2015.
Figure 9: China's population 2000-2030

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
4.3.2 The effect of trade embargoes or sanctions
These countries were subject to trade embargoes, sanctions, or selective buyer
boycotts in early 2010:

Table 10: Countries subject to boycott/sanctions, 2010

4.3.3 Changes in preferential trade rules

There are three sets of trade rule changes which, in spring 2010, are under active
discussion or implementation and will affect the garment industry

a) Intra-Asian trade

b) EU imports
The EU had three major sets of trade negotiations, and one significant policy
review, under way:

- Euromed/West Balkans completion

- Latin America
- Asia The EU has announced progress on Free Trade Area (FTA)
negotiations with xxx, xxx, xxx

Figure 10: FTA candidates: price index with & without duty

- Policy review: Rules of Origin

Rules of origin cause great emotion.

c) US Imports

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
 4.3.4 Japan’s production relocation
Japan accounted in 2009 for14% of China’s clothing exports.

Figure 11: Asian producers' share of Japanese clothing imports

2008/9

4.3.5 Trade rules enforcement

4.3.5 Emerging retail markets

4.3.6 Importer technical standards

4.3.7 Changing compliance/ethics standards

“Ethical” issues in garment sourcing usually involve one of four kinds of issues:

a) Quality of Government.

b) Human Rights

c) Environment/sustainability

d) Animal Rights

4.4 New issues that MIGHT emerge

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
5 Countries
5.1 Key trends: Top ten supplying countries
5.1.1 China
5.1.2 Bangladesh
5.1.3 Turkey
5.1.4 Honduras
5.1.5 India
5.1.6 Vietnam
5.1.7 Indonesia
5.1.8 Pakistan
5.1.9 El Salvador
5.1.10 Mexico

5.2 Country summary and issues for estimation

5.2.1 Non-China Asia
5.2.2 EU Neighbours
5.2.3 US Neighbours
5.2.4 Africa
5.2.5 New countries

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
6 General conclusions

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
7. Recent History: Major supplying countries

Table 11: Sourcing history 2004-2009 100 Major suppliers

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
 8. Assumptions for 2015 forecasts
8.1 Forecasting method
Our forecasts give our estimates of apparel exports to their major customers for the
world’s top 90 manufacturing countries. In almost every case, exports to Japan, the
US and EU (a group we call JUSEU) make up 90% or more of all their exports, and
apart from apart from China, India, Russia, Egypt, South Africa and Brazil, exports
account for 80% or more of their apparel production.

Our method is:

- We start with apparel imports by Japan, the US and EU in 2008

and the first six months of 2009.
- We then forecast changes in total apparel imports by each of
these importers in 2009, 2010, 2011 and 2012
- We make a limited number of forecasts about changes in
individual exporting countries’ share of their main customers’
purchases.
- Those share changes inevitably mean changes in other countries’
shares
- Those shares, on the basis of the assumed changes in demand,
automatically produce new export totals
8.2 Purchasing Assumptions: % change on previous yr

Table 12: Base Market size assumptions by year

2009 2010 2011 2012 2013 2014 2015

Yr (f/c) (f/c) (f/c) (f/c) (f/c) (f/c)

US
EU
Japan
JUSEU

8.3 Market share assumptions

Table 13: Key market share assumptions: Sales to EU

Table 14: Key Market share assumptions: sales to US

Table 15: Key market share assumptions: Sales to Japan

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
 9. General Environmental Forecasts for 100 countries
Table 16: Trading environment forecast: Top 100 garment exporters

Forecasts for:

Albania, Argentina, Armenia, Australia, Bahrain, Bangladesh, Belarus, Bolivia,

Bosnia, Botswana, Brazil, Brunei, Bulgaria, Burma, Cambodia, Cameroon, Cape
Verde, Chile, China, Colombia, Costa Rica, Croatia, Cyprus, Czech Republic,
Dominican Republic, Ecuador, Egypt, El Salvador, Eritrea, Estonia, Ethiopia, Fiji, Gaza
+ Jericho, Georgia, Guatemala, Guyana, Haiti, Honduras, Hong Kong, Hungary, India,
Indonesia, Iran, Israel, Jamaica, Japan, Jordan, Kenya, Kyrghistan, Laos, Latvia,
Lebanon, Lesotho, Lithuania, Macao, Macedonia, Madagascar, Malawi, Malaysia,
Malta, Mauritius, Mexico, Moldova, Mongolia, Morocco, Nepal, Nicaragua, North
Korea, Oman, Pakistan, Panama, Paraguay, Peru, Philippines, Poland, Romania,
Russia, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, South
Korea, Sri Lanka, Swaziland, Syria, Taiwan, Tajikistan, Tanzania, Thailand, Tunisia,
Turkey, Turkmenistan, UAE, Uganda, Ukraine, Uzbekistan, Vietnam, Z'babwe,

|Page
THE GARMENT TRADE’S NEXT REVOLUTION
 10. 2010-2015 Forecasts
10.1 Garment export volumes 2008-2015 (bn pieces)

Table 17: Garment Export Volumes by country 2008

Table 18: Garment Export Volumes by country 208

Table 19: Garment Export Volumes by country 2010

Table 20: Garment Export Volumes by country 2011

Table 21: Garment Export Volumes by country 2012

Table 22: Garment Export Volumes by country 2013

Table 23: Garment Export Volumes by country 2014

Table 24: Garment Export Volumes by country 2015

10.2 Year on year total changes 2008-2015 (%)

Table 25: Annual export change by country: 2010-2015

|Page
THE GARMENT TRADE’S NEXT REVOLUTION