Tuesday, February 10, 2015

American Consumers and Their Discontents

Another holiday shopping season has come and gone; it wasnt too bad depending upon whom you ask.  After some difficult years at retail, many stores reported better sales. Consumer attitudes have improved too, along with a seemingly improving economy. Things may be looking up, but as with many things in economics the aggregate story is a composite of differing, often conflicting factors.

Lets begin with the economy; it has improved.  According to the U.S. government, top-line GDP grew nearly 3% in 2014. Even better, unemployment is down while consumer spending rose nicely.  All in all, its a pretty rosy story except when you look at the fine print.  Although overall GDP grew last year, for many Americans it didnt continuing a long string of economic. Top wage earners did well; everyone else, not so well. Indeed, retail apparel store sales rose by more than 2% last year, but the growth was primarily at high-end stores. Mass market and discounters didnt do nearly as well. Perhaps it is the result of an increasingly weaker American middle-class? Or is it the effect of online sales up more than 7% last year which continued to carve a growing share of consumer dollars?

Then theres consumer confidence: it looks good until we dig into the details. Some consumers feel better about their economic prospects.  After all, the job market has improved.  But what about the kinds of jobs that are being filled? Many are for hourly wage service jobs.  Also, there are new distractions in the marketplace, particularly for younger consumers. In many ways, gadgets have cannibalized garments. Todays young consumer struggles with a very tight budget; theres not a lot available for frivolous purchases. $150 for a pair of jeans? Nah, shell buy a new mobile phone instead. How does that affect retail sales? Specifically, what does that do to apparel sales?

So what are the American consumers discontents? When it comes to apparel purchases, fashion, fit, availability, and source of production always are important. But today, perhaps more than ever, price remains central to consumer purchasing decisions, as economic uncertainty, changing demographics, and tight budgets continue to weigh on consumers.

Monday, January 12, 2015

The Global Cotton Industry: A Look At Its Past With Insight Into Its Future

For many people, the term globalization only has significance as a label for business development over the past 25 years or so. In fact, globalization is nothing new and is typified by the cotton business. The rise of textiles, as the first rung of industrialization, the rise of textiles, particularly in 19th century Europe, would not have been possible without the globalized production of cotton in Africa, Asia, the Americas, and elsewhere. Cotton, so it seems, was an essential, if unassuming, raw material of not only textiles but world development as well.

Today cotton is so ubiquitous that it is hard to see it for what it is: one of mankinds great achievements, so declares Sven Beckert, a historian at Harvard University, in his newly published Empire of Cotton: A Global History. Even so, as Dr. Beckert elaborates, cotton is as familiar as it is unknown," a prescient observation when we consider the current state of the cotton industry. If youve ever wondered why the cotton business behaves as it does, I recommend reading this insightful history. Deeply researched, highly analytical, and well written, Dr. Beckert successfully relates the importance of cotton to the evolution of global capitalism. Indeed, the authors case rests on his observation that although a mundane commodity, cotton was essential to the development of the global textile industry. In so doing, the cotton industry helped to create the global networks necessary for expansion of global trade. Moreover, cotton proved to be a far more versatile raw material than other natural alternatives -- such as flax, wool, or silk -- which not only suffered from small supplies but limited application in various textile products.

As Dr. Beckert points out, the mercantilist economies of the 18th or 19th centuries would not have been possible were it not for the availability of cotton to the burgeoning textile industries of Europe -- particularly in England, by far the most important producer of textiles into the 20th century. Far-flung supply chains, along with eager supplies of capital made the merchant community the vanguard of an increasingly globalized world. By the time of the industrial revolution in 19th Century Europe, cotton supply chains were already well established in the United States, Brazil, India, Africa and Asia. Indeed, with the advent of high-speed spinning and weaving in the 19th century, those supply chains were only deepened to meet the needs of European industry. Cotton, as a result, became the essential raw material for what became the single most important manufacturing sector in the 19th century, textiles.

Pulling no punches, Dr. Beckert describes capitalism as an exploitive force in the development of the global economy, but cotton was an essential thread intertwined with the growth of global capitalism. Without a ready supply of fibers, the industrialization in England and elsewhere in Europe would not have been possible. From the standpoint of economic development, this was a good thing. Yet such development came with the horrifically negative cost of slavery (to grow cotton) and labor exploitation (to produce textiles), negatives that, although disdainful, contributed mightily to the success of capitalism and, by way of that success, the introduction of much of the world to modernity.

However, due to its importance as a raw material, producers and manufacturers of cotton yarn and fabrics enjoyed a level of political influence seldom enjoyed by any industry throughout history. This influence, though, resulted in abuses in the political, economic, and social development of the world, ultimately resulting in the manipulation of political influence, economies of scale, and, inexcusably, the exploitation and enslavement of large numbers of peoples in the American South and elsewhere. Slave labor, in turn, helped to support the wheels of industry, which provided the markets and capital necessary to support the overall system of supply and demand. With the advent of the industrial revolution, exploitation of factory workers took on sinister levels second only to the slaves picking cotton in the fields. Nevertheless, these evils enabled a rapidly developing Europe to meet its potential as the industrial powerhouse of the world by advent of the 20th century.

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.