California Apparel News

Central American factories are looking to capture more apparel business from Asia.

MIAMI BEACH, Fla.—Textile and apparel factories in the vast region that stretches from North America to South America believe they are in their best position now to grab apparel orders away from Asia.

That’s because the region’s main competitor, China, is no longer the cheap and easy place it was for fast turnarounds and competitive pricing for clothing.

For many it amounts to this: Stand in line and wait for your order, which could take months to complete.

“We think opportunity abounds in Central America,” said Mary O’Rourke, president and managing partner of O’Rourke Group Partners, a New York consulting company to the apparel and textile industry. “Brand owners and retailers are re-evaluating their costs and their suppliers. Obviously, all cotton-dominated categories are first on the list.”

O’Rourke was speaking at the annual meeting May 1–3 of the American Apparel Producers’ Network, an Atlanta-based group comprising apparel manufacturers in the Americas and the brands and retailers that use them.

O’Rourke noted that the gap between rawmaterial prices, labor costs and productivity is narrowing between the East and the West as Chinese and Indian factories are busy revving up production to meet their own consumers’ demands for trendy clothing.

Wages are rising in all Asian regions. In coastal factories in China, apparel workers’ wages have risen from about $1.18 to $1.45 an hour when including social benefits, compared with $1.05 in Nicaragua and $1.45 in El Salvador. Hourly wages in Bangladesh have increased to 41 cents, up from 29 cents recently. And Vietnam’s wages hover around 51 cents an hour. India’s are pegged at 58 cents an hour.

These days, productivity levels in Guatemala, Nicaragua and Honduras are on par with Chinese factories and well above those in Vietnam and Bangladesh.

And when it comes to lead times, Central American factories clearly are the winners, averaging 54 to 60 days to ship an order, compared with China’s 120 days, O’Rourke said.

Consequently, the cost to produce a pair of men’s basic cotton blue jeans in China is about $8.96 while the same pant costs $8.40 to put together in Nicaragua when you factor in duties and shipping costs.

“Chinese apparel factories are within range of Central America, and this is almost unheard of,” O’Rourke said.

Central America is also considered a good area to produce uniforms for people such as fast-food employees, office workers and delivery people who wear a corporate outfit. “There is an inherent need to source uniforms in this hemisphere, which will continue, because of quality requirements and inventory that has to be held,” O’Rourke said. “When you look around at uniforms, employment has been off. At the end of the day, we’ll see a lot of growth in this category.”

Still, the region has its challenges. Not many mills in the region make woven fabric, and most trim manufacturers are concentrated in Asia. The scarcity of local trim manufacturers often keeps apparel makers waiting for buttons, labels, zippers and embroidery to arrive days after production orders come off the sewing line.

That problem also affects U.S. clothing makers. Bonnie Meck, chief operating officer at FesslerUSA, a family-run operation in Orwigsburg, Penn., that specializes in quick-run, high-end apparel production, complained she often has to wait six weeks for apparel inputs to arrive to complete a project. “We depend on quick turn,” she said. “That kind of shoots me in the foot.”

Central America is also facing a capacity problem. Many factories closed or downsized during the recession and haven’t returned to pre-recession levels. Alfonso Hernandez, chief executive and chairman of Argus International, said that in 2009 he had 7,500 workers in three tops and bottoms factories in Nicaragua and El Salvador. Now he has 5,000.

“We used to be open to all business. Now we are concentrating in three production categories: denim, knit tops and woven tops.”

Some in the industry believe factories in the Western Hemisphere have to amplify their product capabilities instead of concentrating on cotton knit tops and denim and twill bottoms and become more diverse. “The earth may not be flat, but it sure ain’t level,” said Mike Todaro, the AAPN’s managing director. “We need to be finding tipping points that make it more level.”

Others believe that factories have to make it easier for brands and stores to do business in the region.

“People went to China because of cheap needle,” said Kurt Cavano, chairman and chief executive of TradeCard Inc., which connects buyers and suppliers with technology and a global network of experts. “Why did they stay there? For one reason: China makes it easy to do business there. The wake-up call for the retailers is that rising prices in China are going to force you to source in other areas. hellip; We have to adopt the Chinese philosophy of making it easier for everyone.”

The future of fabric prices

Rising raw-material prices is another complicating factor in apparel production. And no one is expecting cotton or polyester prices to retreat from their high perch soon.

That was reinforced by Wally Darneille, president and chief executive of the Plains Cotton Cooperative Association in Lubbock, Texas. After cotton spiked sharply in 2008 to $1 a pound, cotton prices went to all-time highs with futures hitting $2.20 a pound in March this year. December futures reached $1.44. He doesn’t expect cotton prices to dip until early 2012.

“We really had a perfect storm of five consecutive years of consumption, which exceeded production. World stock got dangerously low,” he said.

Then there were weather problems in Pakistan, China and the United States in 2010 as well as financial institutions investing in commodities such as cotton to make money off the rising prices.

This year, Texas cotton farmers are in the middle of a drought and waiting for a few drops of rain to plant their crops. They have until early June to do that. “The new crop is not off to a real good start,” Darneille said. “It has been cold in central Asia, and there has been bad weather in China. In the Southeast of the United States, they haven’t been able to get to a field in a month because of all the rain.”

Already, U.S. cotton export shipments are committed for 5.8 million bales, which is the highest it has been for this time of year. “Producers need enough cotton to get into their new products, so they bought early,” Darneille said.

He estimates the current crop will sell for $1.50 to $2.25 a pound. The new crop should fetch $1 to $1.50 a pound.

For 2010/2011, U.S. cotton production is estimated to be 18.3 million bales.

Polyester prices also are expected to stay high due to supply-and-demand issues, prompted by apparel producers substituting some cotton products with polyester. Also, petroleum prices, a polyester input, are expected to remain high as the economy recovers.

Now in its 30th year, the AAPN is a nonprofit business network that covers the entire apparel-industry supply chain. At the meeting, David Sasso, vice president of international sales for Buhler Quality Yarns, was introduced as the organization’s incoming president, replacing Carlos Arias, president of Denimatrix.