The steep spike in the price of raw cotton is rippling through the global supply chain in the textile and apparel sectors, stoking concerns about how much more consumers will be willing to pay for clothing and other products.
Prices for cotton have almost doubled over the past year as supplies tightened amid continued robust demand.
More recently, weather-related shortages in China and Pakistan and a curb on Indian exports have added to the supply constraints.
That has translated into rapidly declining inventories, with the jump in cotton prices earlier this week above the $1 (U.S.)-per-pound level, the first time in 15 years it has done so and only the second time since the U.S. Civil War.
The impact of the soaring price is being felt right through to the wholesale and retail sectors, where some apparel manufacturers have already raised prices.
Montreal-based Gildan Activewear Inc. – a major supplier of blank cotton T-shirts to wholesalers – has raised its prices by 6 per cent and will decide later this year if another price hike is warranted, said Laurence Sellyn, executive vice-president and chief financial officer.
“Cotton represents about one-third of our total manufacturing cost. It’s a big factor,” he said.
Meanwhile, San Francisco-based jeans maker Levi Strauss & Co. said recently it plans to raise prices in the spring on some of its products, despite the continued fragility of the post-recession retail market.
Some observers warn that it won’t be easy trying to pass on the higher costs of cotton, as well as steeper freight and labour costs, to cash-strapped consumers.
“Additional increases are likely. To what extent consumers are willing to accept them remains to be seen,” said Sharon Johnson, a cotton analyst at First Capitol Group in Atlanta.
Manufacturers and retailers face a delicate balancing act of raising prices at the risk of losing customers, she said.
“I would think [retailers] would run into consumer resistance,” said John Robinson, a professor and economist at Texas A&M University.
Ron Lawson, managing director of Sonoma, Calif.-based Logic Advisors, says he would be surprised to see significant price hikes at the retail level.
“This will result in slightly higher retail prices but it’s not going to cause a runaway price explosion,” he said.
Bob Kirke, executive director of the Ottawa-based Canadian Apparel Federation, said the worldwide shrinkage in cotton supply is having a noticeable negative impact throughout the supply chain.
“It does have a knock-on effect, for sure, especially heading into the crucial Christmas season,” he said.
Orders for apparel and such cotton products as sheets and curtains were placed months ago and some retailers will be left scrambling to find alternate suppliers or products if their anticipated shipments don’t come through, he said.
He predicts there will likely be “some small increases in cotton-rich products that will be passed on the consumer.”
Many observers are calling for a drop in cotton prices over the next few months, as global inventory is built up again thanks to bumper crops in the U.S. and the resumption of exports from India next month.
“I’m expecting a correction in the near term,” said Texas A&M’s Prof. Robinson.
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SKY-HIGH COTTON
- Global cotton prices have broken through the $1-a-pound level for the first time in 15 years.
- Spike in prices is expected to work its way through the textile and apparel supply chain.
- Retailers assessing how strong consumer resistance might be to attempts to pass on the raw-material price increase.
- Wholesale T-shirt supplier Gildan Activewear of Montreal has increased prices by 6 per cent and U.S. denim maker Levi Strauss increasing prices on some products for spring.
