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Costing... Why this tsunami of cost increases? 2011 AAPN Annual Meeting Miami, Florida May 2, 2011 Mary T. ORourke O'Rourke Group Partners LLC.

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Presentation on theme: "Costing... Why this tsunami of cost increases? 2011 AAPN Annual Meeting Miami, Florida May 2, 2011 Mary T. ORourke O'Rourke Group Partners LLC."— Presentation transcript:

1 Costing... Why this tsunami of cost increases? 2011 AAPN Annual Meeting Miami, Florida May 2, 2011 Mary T. ORourke O'Rourke Group Partners LLC

2 Recent Price Increases... Unprecedented Limited relief in sight Global scale Regional implications O'Rourke Group Partners LLC2

3 Key Drivers... Increase in global fiber demand Recession interrupted / masked the trend For example, China: Per capita fiber consumption rises from 15 to 33 pounds over the last decade Less arable land available for cotton More needed to feed developing populations Food equals 40 – 60% of household income Widespread weather issues O'Rourke Group Partners LLC3

4 Fabric Prices... Significant rise in raw material price inputs Cotton fiber nearly triples over six months Polyester staple fiber up 40% Price per yard gap East/West narrows Fabric cost component of garment increases Disproportionately to other component costs O'Rourke Group Partners LLC4

5 Other Factors... Fabric availability tighter, increasing lead times Asian labor cost increases in key countries Less available labor in China (for apparel) Fuel increases drive up transport costs Increasing energy demand and costs in Asia New financing terms Deposits and/or fabric pre-paid More Letters of Credit East/West garment price LDP narrowed and/or eliminated in various apparel categories O'Rourke Group Partners LLC5

6 Average Apparel Manufacturing Hourly Labor Costs – US $ O'Rourke Group Partners LLC6 Fully loaded, including social charges – Q4 2010/Q1 2011

7 Labor Productivity Matters... O'Rourke Group Partners LLC7 Some at 60-65% 35-45% more typical but targeting 50% + with USAID program. 40-45% not uncommon; improvements are slow. Inland factories at 55% -65%; Improvement emphasis. Some as high as 75%

8 Comparative Lead Time – Days Order to US Distribution Center O'Rourke Group Partners LLC8 Some reporting 42 – 50 days.

9 Basic Denim Pricing Differentials Asia v. Regional (February 2011) O'Rourke Group Partners LLC9 10% Denim gap to Asia 15 – 20% Basic Cotton Twills 18 - 20% Cotton Knit Jersey 23 – 25% Woven Textured Poly

10 Mens Basic 100% Cotton Denim Jean Cost June 2010 v. February 2011 O'Rourke Group Partners LLC10 Garment: China NICARAGUA China NICARAGUA Fabric: China Mexico China Mexico 8.96 7.07 8.40 7.31 13.75 oz. OE/OE, medium

11 Product Sourcing Implications Poly/Cotton Twill Pant / $ O'Rourke Group Partners LLC11 Fabric SourceChina MexicoU.S. Fabric $/Linear Yard2.90 2.96 3.653.85 Fabric Yield/Yards Req'd1.51.551.6 1.5 Labor Productivity0.750.600.500.65 10.40 10.57 10.47 10.37 9.57 9.91

12 O'Rourke Group Partners LLC12 Selected Uniform Markets Estimated % Regional Sourcing CBI/CAFTA MEXICO USA 45% 50% 60% 65% 70% 85%

13 O'Rourke Group Partners LLC13 Regional opportunities abound.. Everyone is re-evaluating costs and suppliers. All cotton-dominant categories Highest fabric yield-required categories Jeans Trousers Greatest quality and highest in-stock program requirements Uniforms

14 Regional Competitiveness in Apparel Manufacturing Degree of regional cost competitiveness takes many by surprise. Synthetics getting another look regionally Increased demand for speed to market. Leaner inventories required at retail. More replenishment program shifts. More frequent, faster fashion deliveries. Cycle compression in pre-production facilitating and providing more cost reduction. Must improve sampling turnaround for basic fashion items. O'Rourke Group Partners LLC14

15 Other Important Trends Big box retailers and major brand owners involved in fabric cost negotiation. Asian garment shifts to West but trim and findings often remain Asian-sourced. Buyers want to delay associated new source product testing and approval process. Regional capacity limitations emerge. Who will lead expansion? O'Rourke Group Partners LLC15

16 For further information: ORourke Group Partners, LLC Mary T. ORourke Managing Director morourke@ORourkeGroupPartners.com (917) 567-3540 www.ORourkeGroupPartners.com


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