Holiday Shoppers Will Feel Impact of High Cotton Prices
November 23, 2010 Gap Inc., J.C. Penney Co. and other U.S. retailers may have to pay Chinese suppliers as much as 30 percent more for clothes as surging cotton prices boost costs, says a report by Bloomberg.
“It’s a little terrifying to deal with cotton suppliers now,” said Vicky Wu, a sales manager at Suzhou Unitedtex Enterprise Ltd., a closely held, Jiangsu province-based clothes maker that counts Gap and J.C. Penney among its clients.
Cotton futures in China have surged more than 70 percent this year and were at a record earlier as the global economy emerged from recession, allowing people to spend more on clothes. Production of the fiber in China, the world’s biggest user and importer, is forecast to lag behind demand for a 12th year, cutting its stockpile to the smallest since 1995, according to the U.S. Department of Agriculture.
(Editor’s update #1: New York cotton futures were down sharply at the open Tuesday, November 23. The March ’11 contract, which is now being traded as the nearest old crop month, was down 490 points, after reaching a life-of-contract high of 157.23 on November 11. The December 2011 contract was down 172 points to 84.80, after reaching a life-of-contract high of 100.62 on the same day.)
(Editor’s update #2: At the close, March 2011 was down the allowable 600-point limit to 117.29, and December 2011 was down 132 points to 84.20)
“American consumers better get used to rising prices on the shelves of Wal-Mart and other retailers,” said Jessica Lo, Shanghai-based managing director at China Market Research Group. “China’s manufacturers are getting squeezed not only by rising cotton costs but also soaring real estate and labor costs.”
John Ermatinger, Gap’s Asia president, declined to say whether it would raise prices. “We are going to be mindful of our competition,” he said in a Nov. 10 interview in Shanghai. “We are going to be mindful of our consumer. That’s how we’ll ultimately establish our prices.”
Shandong Zaozhuang Tianlong Knitting Co., which makes Polo Ralph Lauren Corp. T-shirts and track suits for Le Coq Sportif Holding SA, has raised prices as much as 70 percent from a year earlier, said sales manager Fred Hu. “If cotton keeps rising like this, we will need to lift prices by 30 percent by the Spring Festival next year or we lose money.”
T-Shirt Price Increase
Closely held Tianlong ships 80 million yuan of clothes to Europe, North America and Japan annually, and raised the price of T-shirts it sells to Ralph Lauren to $4 each, from $3.20 in July, he said.
Unitedtex, which sells $24 million worth of shirts and jackets annually to Gap, plans to raise prices by 5 percent to 30 percent for products that will be available in April, Wu said in an interview. The supplier plans to increase capacity to meet the retailer’s demand, she said.
“It’s very hard to budget for input cost, if prices are as volatile as they are,” said Peter Rizzo, Sydney-based managing director at FCStone Australia Pty. “It heightens the awareness of Chinese textile manufacturers to look at risk-management tools.’’
Cotton-silk blend fabric has surged about 70 percent to approximately $2.3 a yard since July and prices are now quoted on a daily basis, manufacturing executives Wu and Hu said.
One-Week Pricing
“We can give clients a price now, but it will only be valid for a week,” said Tianlong’s Hu.
Some manufacturers aren’t taking orders for next year because of fluctuating cotton prices, J.C. Penney Chief Executive Officer Myron Ullman said Nov. 12.
“If cotton goes up 50 percent or 70 percent, or wherever it lands, there will be an impact on pricing that everybody in our industry is going to feel, but our objective is to have a competitive advantage, particularly on key price points the customer would expect us to maintain,” he said.
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