For the high end denim sector business is somewhere between ‘not bad’ to ‘very good.’ Not so for the volume end of the business, which continues to suffer. At Kingpins Hong Kong (May 24-25), market feedback from manufacturers and suppliers was very different than at the Amsterdam show in April. One of the key reasons was that the European market is focused on quality and innovation, while other markets are still pretty much price and volume driven. The hard reality is that the era of cheap, big volume orders is slowly coming to an end. It’s not over yet, in fact it’s a long way from it, but the growth isn’t there. So it has come down to suppliers going head to head, vying for business from a decreasing pool of buyers who can place large orders. That translates into intensive price negotiations, which leave mills with little to no margin.
Adding to this, there is a significant decrease in order size, as even big customers look to adopt more responsive business models. “From what we see, the market is not doing so well this year. Customers want something cheaper. A lot of orders are price driven,” said Fred Cheung, sales executive fabric department at Base Wealth Limited. “The problem is that while buyers are pushing prices down, the volume has also dropped a lot. In previous years, on average, buyers were ordering 30,000 to 40,000 yards per order. Since last year, most buyers are only ordering 10,000 to 20,000 yards. The quantity has dropped almost 50% on each order,” he said. This season, Base Wealth is trying to move up market by offering more textured denim fabrics. For example, the company showed stretchable dobby denim that looks like French terry at Kingpins Hong Kong. Still, the bestsellers are products with an 80s vintage look and bi-stretch products.
“Business is a little bit slow. Only the big players seem to have good business. We see that buyers like H&M, Levis, Inditex and American Eagle are doing pretty good. They are the ones that are feeding the factory,” said Syed Kamran Shah, manager marketing at Soorty Enterprise (PVT) Limited.
“Overall, all the markets, including the European market, are very slow. Apart from that, currency fluctuation is also impacting our business,” he added. Soorty is one of the largest denim mills in Pakistan. It has 14 facilities in Pakistan, one garment division in Bangladesh, and a product development center in Turkey and in Amsterdam.
“I can only speak for Turkish mills. This year is not very good. The market is very slow. However, I think the second half of 2017, the market is going back to the same level as last year,” said Olgun Oral, sales & marketing at Kilim Denim.
“Currently, the orders are coming very slowly. A lot of companies are cutting back on spending because they are uncertain about the future. So you can imagine how the situation is. Eventually, if the order comes through, the volume won’t be very big, ” said Mr. Oral. Kilim specializes in producing over dyed denim with fancy constructions.
“European brands are looking for some different items. That’s why the Kingpins Amsterdam show has more interesting products than the show’s other editions. We have to add more value to our product, there is no chance if we keep doing the same basic products,” Mr. Oral told Inside Fashion.
Many mills echoed Mr. Oral’s point of view.
“Overall, we feel the market is slightly better than 2016. The raw material prices, especially cotton yarn prices, are relatively stable, which helps a lot,” said Vincent Lai, director at San Shing Cotton Weaving (HK) Ltd.
“Suppliers want to make products that can get stable orders. This generally means that they won’t invest in developing products with too much texture or jacquard, since those products don’t attract volume orders. However, this market sector is exactly what we are aiming at. We are small and flexible, so we can afford not to fight to the last penny on big orders. Instead, we focus on something a little special,” said Mr. Lai. San Shing’s MOQ can be as low as 500 meters per order.
Extending Product Lifecyles vs. New Developments
Another issue is that there is no clear direction for product development this year, said mills. The jacquards and colored denim that have been popular for a few seasons, have almost completely disappeared, with most suppliers going back to the authentic or vintage-look denim.
The lack of interesting, inspiring new products (especially at the mass market level) is largely due to the high cost in product development. “What mills have been developing is not so exciting. For example, some suppliers are adding sustainable elements to the products, some are going back to authentic denim, recreating the 70s’ or 80s’ vintage look. Those are selling points, but I don’t feel this is a good phenomenon. It’s more like a gimmick that suppliers adopt, trying to please the market,” said Mr. Lai at San Shing. “The actual costs of those developments (sustainability, retro looks) aren’t very high. Mills are repackaging the so-called ‘salt and pepper’ retro look into a new trend. This is just being lazy,” he said. “The truth is, because the market isn’t very stable, suppliers are not really pushing boundaries in product development. They are trying to find the easy way out – by repackaging what’s old into new, so they save money and effort,” he told Inside Fashion.
“Let me put it this way, if one really wants to develop something new, one has to invest in new materials, new techniques, and therefore drive up the cost, at least initially. Nowadays, nobody can really afford that. Everyone is trying to extend the product life cycle and reduce development costs. Developing new products every season has put too much pressure on manufacturers. Suppliers realized that extending the lifespan of their current products is much more cost effective. In the past, a new development might last for only two seasons. Now, suppliers hope that the product lifespan can extend to four seasons – at least last for an entire year. Next season, I bet suppliers will start to add stretch or sustainability elements to the ‘salt and pepper’ look. They will do some small modification to make this product last a little longer at the market,” said Mr. Lai.
Sustainability Enters the Mainstream Market
Sustainability used to be more talk than action. During the past two years, international brands and retailers have become more environmentally conscious and sustainability has moved from being “window dressing” to a “must have” in new collections.
“We have a lot of pressure to be more sustainable. It used to be just a concept, now major brands are asking for it. For example, Levi’s is doing a recycled cotton program with us. We have been making denim with recycled cottons for them for several seasons,” said Neo Niu, sales at Shandong Maystar Textile and Garment Co., Ltd.
“We’ve collaborated with Marks & Spencer and G Star on special sustainable projects. The ‘Raw’ collection from G Star is made with our denim. Next season Target, Espirit and S’Oliver are planning to do similar projects with us,” said Mr. Oral at Kilim.
“Sustainability is on trend now. A lot of buyers are asking for sustainable products. We have a collection that is made of 100% organic cotton. C&A has been buying this for two seasons. Target, GAP and Levi’s are planning to buy it from us next season,” said Frank Ha, sales manager at TEC Corporation
However, for brands pursuing sustainability it also means extra cost for suppliers. Generally, speaking buyers are demanding sustainable products but expect it to be priced the same as regular products.
“It is difficult to produce fabric of the same quality standard with recycled cotton. It requires good production knowledge and extra technical know how,” said Mr. Oral at Kilim.
According to many suppliers, making sustainable products often increases production costs. And suppliers have to find ways to digest the cost themselves, especially in the more competitive market sectors.
“We use recycled yarn, which is much more difficult for dyeing and washing – the degrees of dyeing and fixation is different from on raw yarn. To pass the same test standards, we have to invest a lot more money and attention. Generally speaking, it still costs around 10-15% more to produce than the regular products,” said Stanley Li, vice president at Maystar Textile and Garment Co., Ltd., adding that the price gap was narrowing.