Doc News No9365 Document

The EU clothing market in 2008: Opportunities for Colombian manufacturers Sam Anson Economist and editor Textiles Intelligence April 21-22, 2008 Textiles Intelligence

Contents

About Textiles Intelligence and the IAF – 5 mins

Map of the EU and list of member states – 5 mins

Key EU imports of clothing –buyers’ preferences, import trends, markets for lingerie and swimwear – 35 mins

Key competitive factors when supplying the EU market: demand driven factors – 30 mins

Coffee break – 15 mins

Key competitive factors when supplying the EU market: supply driven factors – 15 mins

Case study: H&M – 5 mins

Emerging sectors: Performance fabrics and apparel and home textiles – 10 mins

Recommendations – 10 mins

Q&A – 20 mins

Textiles Intelligence

About Textiles Intelligence

International provider of independently researched reports on the international fibre, textile and clothing markets

Formed as a spin off from the Economist Intelligence Unit (EIU), part of the Economist Group

Publishes four subscription-based publications

Textile Outlook International

Global Apparel Markets

Technical Textiles Markets

Performance Apparel Markets

Subscription reports Textile Outlook International Technical Textile Markets Performance Apparel Markets Global Apparel Markets 25% discount for all conference delegates Textiles Intelligence

The International Apparel Federation and Global Apparel Markets

The IAF is a worldwide knowledge network that collects and disseminates information, statistical, benchmarking and otherwise, on developments in apparel design, manufacturing, distribution, sourcing, trade and technology.

politically neutral global association

open to entrepreneurs and executives from the apparel chain worldwide.

Members include national clothing associations and companies whose core business is sourcing, designing, development, manufacturing, distribution, and retailing of apparel products.

Associate members include educational institutions and companies that supply textiles, accessories, equipment, technology, and services to the apparel industry.

The International Apparel Federation and Global Apparel Markets

The mission of the IAF is to develop business contacts which foster dialogue, and knowledge exchange between individuals active in the world apparel value chain:

for the betterment of business practices

for the promotion of the international image of the apparel business

for the advancement of technology and the promotion of its' use

for the encouragement of innovation and new ways of thinking

for the growth of apparel trade worldwide

for the improvement of social, health and safety, and environmental conditions relating to the apparel chain worldwide, and

for the advancement of apparel related education and training.

Annual conference. 2008 conference is in Mastricht, Netherlands

The International Apparel Federation Textiles Intelligence

The International Apparel Federation

If you have any questions regarding the IAF, please contact Mrs. Nadia van Staden PR & Communications P.O.Box 428, 3700 AK ZEIST, The Netherlands E_ vanstaden@iafnet.com T_ +31 30 - 232 09 08 F_ +31 30 - 232 09 99

Over 50% discounts

15 Individual reports referred to in this presentation:

Significant discount for delegates:

Buy World Textile and Apparel Trade and Production Trends for US$495 (normal price US$1,030 each)

Buy any other report for US$295 each

Buy 5 or more reports for US$195 each

Buy 10 or more reports for US$95 each

Map of the EU

EU member states

Austria

Belgium

Bulgaria

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Ireland

Italy

Latvia

Lithuania

Luxemberg

Malta

Netherlands

Poland

Portugal

Romania

Solvakia

Slovenia

Spain

Sweden

United Kingdom

The EU market in 2006

EU clothing imports were worth US$141 bn, or 45% of world trade in 2006

Almost half of the EU’s clothing come from inside the EU

More than 200 countries supplied the EU in 2006

Countries in N and S America produced just 1.3% of the EU’s clothing in 2006

Many EU firms are outsourcing manufacturing operations to lower cost locations abroad

Preferences for large retailers

20-50 large retailers dominate

They prefer producers who are:

flexible;

quick to respond;

reliable (communications, production, delivery);

strength in design skills;

quality production;

able to demonstrate strong influence over 3 rd party suppliers;

open minded;

and can show evidence of willingness to collaborate with competitors if required

can show evidence of social responsibility;

ecologically aware;

Brief history of EU trade: 2000-07 Textiles Intelligence

Brief history of trade: Timeline

Ten new members joined the EU in May 2004

EU quotas eliminated on December 31, 2004

Temporary “safeguard” quotas on certain clothing imports from China imposed on January 1, 2006

Two more new members joined the EU on January 1, 2007

Temporary quotas on imports from China removed on December 31, 2007

EU25 before quota elimination Textiles Intelligence

EU apparel imports Growth shared evenly between suppliers Textiles Intelligence

EU25 imports in 2005 (after quota elimination) Textiles Intelligence

Textiles Intelligence China and India gain market share

How did China cope with safeguard quotas introduced in EU in 2006? Textiles Intelligence

Let’s look at the six clothing categories covered by China safeguard quotas Textiles Intelligence

Big VOLUME drops from China in every category subject to safeguards! Textiles Intelligence

Big price rises from China! Textiles Intelligence

How did Vietnam, a competing country, respond to China’s quotas? Textiles Intelligence

Big VOLUME rises from Vietnam in every category subject to China safeguards! Increases in volume Textiles Intelligence

Steep price falls from Vietnam Textiles Intelligence

Nearby suppliers Textiles Intelligence

Key movers: 2005-2007

Egypt: +8% value, +10% volume

Macedonia: +17% value, +20% volume

Serbia: +38% value, +43% volume

Price increases from

Turkey: +3% value, no change in volume

Morocco: +4% value, -1% volume

Madegascar: +11% value, +6% volume

Albania: +14% value, +4% volume

Moldova: +16% value, +10% volume

Intra EU: +2% value, -11% volume*

Switzerland: +5% value, +1% volume*

High volume Asian suppliers Textiles Intelligence

Vietnam: +17% value, +42% volume

Cambodia: +3% value, +5% volume

Malaysia: -3% value, +3% volume

Taiwan: -3% value, +1% volume

China: +9% value, +6% volume

Bangladesh: +7% value, +6% volume

Sri Lanka: +9% value, +8% volume

India: +6% value, +4% volume

Pakistan: +5% value, +4% volume

Asian suppliers which are cutting prices in order to compete Textiles Intelligence

Less successful Asian suppliers have cut prices in an attempt to remain competitive:

Indonesia: 0% value, -2% volume

Thailand: 0% value, -3% volume

Macau: -5% value, -8% volume

South Korea: -7% value, -9% volume

Myanmar: -6% value, -9% volume

Key suppliers to the EU market in 2007 Textiles Intelligence

Top 10 EU suppliers: 2007

Intra EU: 46% of value, 23% of volume

China: 20% of value, 34% of volume

Turkey: 8% of value, 8% of volume

Bangladesh: 4% of value, 9% of volume

India: 4% of value, 4% of volume

Tunisia: 2% of value, 2% of volume

Morocco: 2% of value, 2% of volume

Hong Kong: 2% of value, 2% of volume

Indonesia: 1% of value, 1% of volume

Vietnam: 1% of value, 1% of volume

Source: Textile Outlook International and Euratex

Key suppliers of T-shirts and cotton trousers in 2006 Textiles Intelligence

Top 10 T-shirt suppliers

Turkey 27%

Bangladesh 17%

China 12%

India 10%

Mauritius 3%

Morocco 3%

Hong Kong 3%

Tunisia 2%

Thailand 2%

Romania (now EU) 2%

Top 10 suppliers of cotton trousers

Turkey 15%

China 15%

Bangladesh 12%

Tunisia 9%

Romania (now EU) 9%

Hong Kong 7%

Morocco 7%

Pakistan 4%

India 3%

Indonesia 2%

For more information:

For more information on international trade in textiles and clothing, please see:

“ Trends in EU imports of textiles and clothing”, once a year in Textile Outlook International ,

“ Trends in US imports of textiles and clothing” - once a year in Textile Outlook International ,

“ World trade in textiles and clothing” - once a year in Textile Outlook International ,

“ World textile and apparel trade and production trends” – twice a year in Textile Outlook International.

“ Clothing Trade and Trade Policy” – four times a

Year in G lobal Apparel Markets

EU lingerie market Textiles Intelligence

European markets for lingerie Low end basic products Source: Marks & Spencer

Key facts

Worth US$11.3 bn in 2005 (56% bras, 29% briefs)

Germany is the largest market, followed by Italy, the UK, France, and Spain.

Consumption of items of lingerie per woman rose by 12-13% during 1994-2005

Average price of bras was US$17.58 per item in 2005.

Italy has highest average prices, followed by Spain, France, Germany and the UK.

Key facts

Flurry of merger and acquisition activity, culminating with the divestment by Sara Lee of its European branded intimate apparel business to Dim Branded Apparel (DBA) in February 2006 and its UK-based Courtaulds private label apparel business in May 2006.

Future prospects for brands in the bra business appear reasonable.

Briefs market is becoming intensely competitive as sales of multipacks in supermarkets exert downward price pressure on suppliers and other retailers.

Nightwear is an important part of the lingerie market

Source: Textile Outlook International – European market for lingerie

EU swimwear market Textiles Intelligence

European markets for swimwear One-piece swimsuit Two-piece bikini

Key facts

Worth US$3.11 bn in 2005.

Forecast to reach US$3.16 bn by 2012.

Innovative and unique designs are very important factors

Italy had the highest sales and highest prices in 2005 and it was the only country in Europe to experience price increases in swimwear during the year

Prices are expected to fall in all countries except Italy, Germany and Spain.

Major differences in cultures between countries –the all in one swimsuit is more popular than the 2-piece bikini.

Italy is the largest market, followed by Germany, France, the UK and Spain.

Key facts

Main Trends:

Many different styles and designs including functional designs to help improve wearer’s figure - tummy tuck, cover up – as well as different lines for different body shapes.

Source: Textile Outlook International – European market for swimwear

Designs by body shape Small bust Larger bust Larger bottom Larger thighs Larger tummy Narrow hips Source: www.miodestino.co.uk

Key factors when supplying the EU clothing market Textiles Intelligence

Key competitive factors in supplying the EU market

Market driven factors:

Knowledge of the market

EU trade policy: under heavy pressure to constant reform from many lobbying groups

Target customers: largest and fastest growing retailers – keep abreast of their financial performance and sourcing strategy

Understanding that the EU market is the fastest changing market in the world, mainly driven by oversupply from Asia, extreme fashion trends and increasingly celebrity activity - “gossip” and “styles”

Understanding sizing, pricing and seasonality is a very important asset

Key competitive factors in supplying the EU market

Market driven factors:

Current socio-economic trends:

Eco-friendly production

Corporate social responsibility

Emerging high value sectors: Home textiles and Performance Apparel

Textiles Intelligence www.textilesintelligence.com

EU Market: Key political and commecial lobbying groups

Key decision-making bodies in EU:

The European Commission

The Council of Ministers

The European Parliament

The European Committee for Standardisation

Brussels-based industry associations

Euratex

Eurocoton

IWTO (wool)

EU Market: Key political and commecial lobbying groups

Key commerce based associations:

AEDT–The European Association of Fashion Retailers;

Eurocommerce

The Foreign Trade Association (FTA)

Workers’ representations

European Trade Union Federation

Sizing Textiles Intelligence

Sizing

Sizing varies from one EU country to another. All are very different from USA and LatAm.

EU initiative to standardise sizing but it’s a long way off.

Pricing

Pricing

Prices have fallen for clothing across the board.

Low and Mid priced clothing is very popular and comes from Asia. However, weak in flair and creativity for design. Quality is generally acceptable, however.

Low and Mid priced clothing is sold mainly by supermarkets and large high street retailers and basic department stores.

Much high priced clothing is still produced within the EU but retailers are looking for new suppliers abroad as there is pressure on margins due to high cost of labour, rising energy costs and slow EU economic growth.

High priced clothing is sold by luxury department stores,

independent boutiques, own brand stores and via the internet.

Seasonality EU markets are traditionally very seasonal. Temperatures and climates vary massively from one country to another. Southern med countries – hot dry summers, cool but not cold winters. Sometimes flash rain and thunder storms throughout the year. North European countries are characterised by cold and wet winters, variable springs, hot summers with unpredictable rain and pleasant autumns. High end retailers focus on the 2 traditional collections a year. Mid and low end retailers are blurring collections with many having 6 or more collections a year to encourage a new and fresh attitude to clothing.

Selling via the internet Textiles Intelligence

Volume and value of clothing sales via the internet is growing fast.

Time-poor cash-rich consumers are shopping from home for convenience.

Established retailers also sell online.

Most established catalogue sales channels are now done online

The biggest retailers have exclusive websites while resellers and agents collaborate.

Some stores offer free delivery.

Selling via the internet Textiles Intelligence

Internet sales is characterised by:

High % of returns which can be resold as shoppers cannot try the clothes on before they buy

Lower prices due to lower overheads for retail space, advertising, staff etc

High levels of cooperation between competitors.

Very low margins for agents and resellers.

Target customers: largest EU retailers

Target customers: selected fast growing retailers Textiles Intelligence

Fast growing retailers: The importance of supermarkets in EU clothing retailing

Supermarkets growing share of UK and EU clothing market

In UK, Asda and Tesco are in the top 10 largest clothing retailers

Supermarkets are using convenience, existing distribution, large customer base – online delivery within 24 hours

Supermarkets are looking to expand range of clothing to higher value added goods

Reward cards create loyalty

Textiles Intelligence For more information see “Apparel business update”, Global Apparel Markets every 3 months

Fast growing retailers: The importance of supermarkets in EU clothing retailing Textiles Intelligence For more information see “Apparel business update”, Global Apparel Markets every 3 months

Tesco’s home page For more information see “Apparel business update”, Global Apparel Markets every 3 months

Asda’s clothing range, George, has its own dedicated website For more information see “Apparel business update”, Global Apparel Markets every 3 months

Understanding the speed of change of fashion trends

Good sources of information include:

Global Apparel Markets (a one-stop shop);

The International Apparel Federation;

Just style;

www.iamfashion.blogspot.com

Fashion trade press;

Financial Times;

Fashion supplements to EU tabloid papers;

Major retailer’s websites.

Spring/Summer collections 2007 vs 2008

2007

2008

2007

2008

2007

2008

Major EU fabric fairs

EU fabric fairs remain important events for high quality fabrics for suppliers to the EU

Spinners and fabric manufactures have met Asian competition with innovative designs, high quality, fast turnaround times and superior customer service (see later)

Demand is growing fastest for eco-friendly products – organic cotton and natural dyes

However, in recent times, Chinese trade fairs have

become more important for buyers

Major EU fabric fairs

Munich Fabric Start, Germany

Tissu Premier, Lille, France

Milano Unica, Milan, Italy

Texworld, for non-European Textile Producers, Paris, France

Première Vision Pluriel, Paris, France

For more information see “Fabric and Apparel trends and fairs” in Textile Outlook International twice a year and in Global

Apparel Markets once a year

Socio-economic trends: Green textiles and clothing

Green textiles and clothing is becoming an increasingly important factor in the EU market in terms of production and consumers

Eco labels and official certification

EU Eco label

Organic Cotton

Retailers’ initiatives

For more information see “Green textiles and clothing” in Textile Outlook International and “Organic cotton” in Global Apparel Markets

Socio-economic trends: Corporate social responsibility

Social responsibility – “giving back to society”:

Worker incentives

Schools

Child care

Charitable donations

Facilities for workers (exercise, restaurants)

Environmental responsibility

Charity donations

Local civil projects – schools, water supply, hospitals, orphanages

Home textiles Source: John Lewis Partnership

Emerging sectors: Home textiles

Home textiles include:

Bathroom textiles

Bedding

Cushions and cushion covers

Table linen

Window dressings (curtains, drapes etc)

Bedding and window dressings are largest sub sectors

72% of UK market and 75% of German market

EU import market was worth Euro5.3 bn in 2006. UK is by far largest market in EU.

Key suppliers were Turkey (15%), Pakistan (12%), China (11%), India (9%), Portugal (8%), Germany (5%), Belgium (4%), France (3%), Poland (3%), Czech Republic (3%), Italy (2%)

Emerging sectors: Home textiles

Common fibres include: Cotton, linen, silk, wool, modacrylic, nylon, acetate, acrylic, polyester, rayon

Key growth areas:

Innovative functional fabrics

temperature regulation, odour management, antibacterial coatings, phase change materials, easy care, stain resistance, flame retardancy, fragrance encapsulation, cosmeo textiles, anti-static

Eco friendly fibres and fabric,

Simple designs are popular in EU market

For more information please see report on “Developments in

Home textiles” in Textile Outlook International Sep-Oct 2006

Emerging sectors: Performance apparel

Performance apparel:

Waterproof breathable fabrics;

Temperature regulating fabrics;

Compression clothing;

Antimicrobial technology;

Ultra violet protection;

Insect repellent;

Flame retardent;

Personal protective equipment;

Anti odour;

Anti-static technology

Compression clothing made from elastane and polyester in Guatemala

Trends in sourcing strategies: a case study on H&M

H&M has reacted to:

Highly competitive market

Removal of quotas has meant there’s a situation of over supply

Fast changing consumer tastes

Heavy influence by media

Large retailers with strong brands have the best knowledge of the market and the majority of control

H&M is one of the world’s largest and fastest growing clothing retailers

Pioneer of fast fashion

Fast fashion refers to the speed at which a retailer is able to spot a trend on the catwalk and have it available, at an affordable price in the shops

Achieves this with efficiency and flexibility throughout its supply chain

H&M has strong knowledge of fashion and is adept at anticipating trends

This makes it popular with consumers, , especially women, who want to have the most up-to-date fashion items

It has grown at a formidable rate, despite challenging economic conditions

H&M’s strategy:

Centralised key functions of design, buying and logistics;

Decentralised decision making for all other aspects;

Third party manufacturers;

Regional distribution centres, or “hubs”;

Celebrity endorsement; and

Hi-tech communication technology.

H&M aims to produce “fashion and quality at the best price” through:

creative designers

Strict quality control

Few middlemen

Buying in large volumes

Comprehensive market knowledge

An extensive supplier portfolio

Efficient distribution

Corporate social and environmental responsibility

H&M has established a reputation for social and environmental awareness

All suppliers must adhere to the company’s code of conduct

Forced and child labour

Full Audit Programme

Environmental legislation on handling of chemicals, waste management and water treatment

Outlook:

Store expansion will be focused on USA, Europe and Japan – 1,500 stores at end 2007;

Product diversification – household textiles and men’s shoes and maybe performance apparel

For more info please see Profile of H&M: pioneer of fast fashion in Textile Outlook International Jul-Aug 2007

Key competitive supply factors

Supply driven factors to enhance competitiveness in a fast changing and unpredictable market:

Low labour cost

Relative value of exporting currency

Manufacturing efficiency and quality

Collaboration with local competitors and third parties

Short lead times vs distance to market

Flexibility and responsiveness to clients’ needs

Building of long term relationships with customers

Competitive investment climate with competing countries (including trade policy and investment incentives)

Labour costs in competing countries Textiles Intelligence

Relative value of exporting currency Textiles Intelligence

China’s currency has risen against all these countries China’s weak spot: the value of the renminbi is rising Textiles Intelligence

Manufacturing efficiency and quality

Buyers look for:

Low operating costs;

Implementation of total quality management systems;

Investment in good quality machinery, perhaps on a modular basis;

Removal of expensive and unnecessary gadgetry

Machinery which has been designed for low labour costs

Worker incentive schemes for efficiency and quality

Efficient strategy for fabric sourcing and 3 rd party services

Collaboration with local competitors and third party suppliers

Buyers are also impressed with:

Evidence of collaboration with competitors

Evidence of development of specialist production “hubs” or “clusters”

Evidence of influence over third party suppliers (accessories, finishing, labels etc)

Efficient capital markets in country

Efficient logistics and communication methods

Strong knowledge of foreign markets

Other factors

Short lead times: Speed to market and up-to-date fashion items allows retailers to keep a competitive edge

Modern Information Technology methods which is compatible with buyers encourages EU customers to do business:

Product Lifecycle Management (PLM);

Three dimensional design and visualisation software;

Virtual fabric samples and catwalk technology;

Radio Frequency Identification labels;

Collaboration and relationship building with local logistics companies and those in EU can help optimise shipping times

Flexibility and responsiveness to customer needs

EU market is changing very fast

Retailers want manufacturers who are flexible and quick to respond

No sooner has one trend, fashion or “social phase” been implemented in a product range, a new one is on its way

Flexibility is key to win business in terms of:

Order size – small versus large;

Quick response – turn around a design in days;

Blurring of conventional seasons;

Integration of emerging products at short notice – lifestyle products, performance coatings, garment decoration

Incorporation of celebrity “fads” can make a quick buck

Building long term relationships with suppliers and customers

EU customers have knowledge of market and knowledge of clothing manufacture

EU customers don’t have knowledge of suppliers and third parties in less developed countries

EU customers can keep abreast of changes in trends and have exceptional ability in design and innovation

EU customers need help from suppliers in terms of producing clothing at low cost quickly and with minimum returns

Out of a portfolio of 130+ suppliers, retailers have a focus on three or four producers which they have a long term win-win relationship with

For more information, see “Strategies for manufacturers in

The post quota era to 2015” in Textile Outlook International

Recommendations

Use Colombia’s political and social situation to your advantage

If capacity is underutilised, consider collaborating with competitors to streamline operations and improve efficiency

Create a databook containing key operational performance statistics in english to put on your website and give to EU customers (see ACI – Agencia de cooperacion y inversion- for template)

“ Shout” about your competitive advantages and achievements through the international textile and clothing press

Consider establishing a full time press representative to generate and receive press releases

Collect impressive statistics about your company’s achievements and send the information via press releases to the international community

Recommendations

Read the textile and clothing business-to-business press every day to learn what’s going on and to decide your target countries and customers.

Use internationally-recognised terminology

Update websites in English

List company’s strengths (technology, quality, social responsibility) in an obvious place.

Update marketing and sales brochures regularly and make sure the English is well translated

Many large retailers have strict requirements for safety, ecology and treatment of employees. EU certification in these aspects can be a business winning advantage

Thank you