Saturday, October 25, 2014

A Funny Thing Happened On The Way Cotton's Demise: It Changed

There's been a lot of negative talk lately about cotton: how it's lost its mojo and fallen out favor with consumers. In todays market, cotton is challenged in significant ways as it has to compete with an oversupply of synthetic fibers, a fast evolving textile supply chain, and changing consumer attitudes toward natural fibers. Of course, cotton always has to contend with weather, insects, weeds, and other growing problems; farmers year in and year out face such production challenges. Even so, there's always the demand of the market that ultimately tells the story of the success or failure of a product. Over the past few years, it seems as though the textile supply chain and consumers prefer synthetics. Cotton has lost market share.

I've written several critical commentaries about the cotton business in various publications over the past few months. Much of my concern has centered on the lack of focus on the part of the industry to address inroads made by synthetics. Further, theres confusion in the market over cotton's message. The frankly fallacious campaign conducted by proponents of "green" production (at the expense of traditional growing practices) has only helped to undermine the benefits of cotton. However, I'd like to suggest that the opposite is beginning to happen: cotton has shown remarkable resilience in the face of an otherwise dour market.

Let me explain. For many years, U.S. exports of cotton struggled to find a consistent presence in the global market. Traditional U.S. cotton that is, cotton typically produced in the Southeast, short staple, of standard- or low-quality filled the needs of domestic open-end spinners. However, as that industry collapsed, sales to more competitive overseas mills fell as well. The first decade of this century was tough for many growers, as they not only lost much of their traditional customer base, but also lost much of the overseas market at the same time. Lack of demand for traditional U.S. cotton resulted in a series of smaller crops. Some farmers stayed with cotton, but many fled to other more profitable crops such as corn and soybeans. Despite the dismal market for cotton at the time, something unexpected happened: new varieties of cotton were developed to meet the demand of overseas mills.

The Global Market for Denim: Problems and Opportunities

The global denim business faces considerable pressures these days. The global recession of a few years ago has left a lasting impact on consumer spending. Expensive is out; cheap is in. Credit-fueled spending has given way to tight budgets as consumers continue to pay off their debts from the years leading up to the recession. As a result, sales of jeans in the United States, for example, have declined over the past several years, while the popularity of low-cost knitted athletic wear has gain considerable market share. There was once a time when the purchase of a pair of jeans for a young consumer became a prized possession. Today, that’s less the case, as smart phones and other gadgets compete with jeans for the attention of consumers. It is true that the extreme high end of the jeans market remains robust, but the mass market for denim around the world has stalled.

Another factor has also affected the denim market: synthetic fibers. In an effort to lower the cost of mass-market jeans production, many manufacturers have replaced cotton with some polyester. Stretch fibers have, of course, been a force in denim for many years. But since cotton prices soared to over $2/pound in 2011, both mills and apparel companies have scrambled to find more economically priced fibers for use in their denim. Of course, cotton prices have since moderated, but so has the price of polyester solidifying gains by synthetics.

So all of these factors add up to one thing: there’s an oversupply of denim worldwide. For sure, the jeans business is cyclical. Even so, skepticism plagues the market. Many retailers have told me that without question, denim has passed “the top of the cycle” right now. Due to anemic demand, and an increasing switch to blends, global denim prices are relatively weak. The overcapacity situation has further dampened price levels. It appears that demand will only fall over the next few years. Over that time, excess capacity will be shed around the globe. Yet, even though capacity will be reduced in aggregate around the world, some countries will actually step up construction of new mills.

In terms of trends, I foresee a continuing decline in aggregate denim capacity over the next few years as inefficient mills in Europe, North America and Asia are dismantled, while at the same time new capacity comes on-line in China, India, Turkey and Brazil. The growth in these countries and a smaller number of other producers, such as Vietnam, will in time grow to offset declines in less efficient capacity elsewhere. Indeed, the cyclical nature of the global denim business seems to indicate a cycle of approximately five years in length with capacity being added and deleted as fashion and other factors increase and decrease demand for basic denim.

Friday, August 29, 2014

The Weave of Time: Global Textiles in 2024

Welcome to Kingpins

At the recent Kingpins show in New York, I saw a bit of the future, along with some stark reminders of the past. For one thing, I saw the executive director of the BetterCotton Initiative share a cotton panel with the director of Bayer CropScience’s e3 Cotton program to discuss the lives of farmers in both the developing and developed world. Whereas just a few years ago such a panel discussion would have been impossible, at the Kingpins event I witnessed the future of cotton production: a blending of technology, sustainability, and desire to improve the lives of farmers throughout the world. As recently as five years ago, such a discussion — if it had even been possible to get the two groups together — would have deteriorated into who had the “greenest” products, fears over GMO, and tedious technical refutations. Today, it is clear that more constructive dialogue in cotton is more possible than ever before, setting the stage for future collaboration and initiatives. As a cotton person, I can attest that the Kingpins panel was an event to behold -- a positive development that holds great promise for the future.

And then there were reminders of a painful past. Visitors spoke of tight margins, flat domestic sales, and woeful corporate results from the most recent quarter. Exhibitors, in turn, worked feverishly to sell products made with technologies and business practices that have existed since the dawn of the Industrial Revolution: mass production, unit price programs, and product design. Or, to put it more succinctly: price, availability, and delivery. In fact, despite the challenges of today’s market, many buyers visiting Kingpins sought out only those manufacturers using the oldest equipment and techniques. Buyers today look for old in an effort to stand out in a crowded market of new. Contemporary innovations, such as sustainable production, were marketed by virtually all exhibitors, along with the promise of simpler supply chains, a return of U.S. production, and, above all, value for the purchasing dollar.

So, I participated in a show where I had a glimpse of the future, while being reminded of the past — a dichotomy for an industry struggling to exist in a rapidly changing world. For me, it’s ironic as I can see would-be cotton foes working to find common ground while buyers of today’s textiles are looking to turn back the clock to a simpler time, when production was crafted locally, and customers were visited by car or train, as opposed to 747 jet. Today’s market, although more interconnected thanks to technology and the Internet, is actually a far more impersonal place. Sellers and buyers just don’t spend the time with each other as they used to, before the advent of Skype, IM, and email. Today’s far-flung supply chains and quick-turn business practices developed in tandem with the Internet. Which gets me thinking about the future of textiles, the outlook for sourcing, product development and innovation. It also gets me thinking about the fate of today’s major producers of textiles — in particular, China. But I am not concerned with the far future, but rather just the next ten years. Let me explain.