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Turning Back to the Real Thing: Lowered Cotton Prices Signal End to Substitution

Cotton prices have returned to historical averages, and that is good news for both the apparel industry and consumers.

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Cotton Incorporated

Photo By Lifestyle Monitor™ Survey

Cotton prices have returned to historical averages, and that is good news for both the apparel industry and consumers.

When cotton prices spiked in March 2011, some retailers and manufacturers struggled with the rising costs and substituted other fibers to keep costs down. Consumers noticed the switch — and were not pleased.

Sharon Johnson Crump, senior cotton specialist at Knight Futures, a division of Knight Capital Americas, explains why consumers were seeing this difference.

"U.S. and foreign manufacturers reduced their purchases of U.S. cotton," Johnson Crump says. "Domestic mill use dropped from 3.9 million bales in 2010-11 to 3.4 million bales in 2011-12, a decline of 13%. Foreign mill use was off 8.1 million bales to 102.6 million bales or minus-7.4%."

Among consumers who have purchased apparel for themselves in the past six months, more than half (54%) say many of the clothes that used to be made from cotton now seem to be made from other fibers, according to the Cotton Incorporated Lifestyle Monitor™ Survey.

Further, 41% of consumers say the quality of apparel has decreased compared to last year, the Monitor shows. And more than half are bothered that retailers/brands would substitute synthetic fibers for cotton in their jeans (58%) and T-shirts (58%).

But market conditions are such that the trend may change.

"Cotton is regaining its competitive stance against other fibers, natural and manmade, and consumption is forecast to rebound in the upcoming 2012-13 crop year," says Johnson Crump.

Mike Stevens, a Louisiana-based independent cotton analyst, says cotton prices have dropped approximately 50% over the last year.

"Cotton crossed back below a dollar one year ago," he says, pointing out that bales are now trading very close to the 20-year average of the $0.70s, after peaking above $2 early in 2011. "Cotton producers worldwide responded to the high prices 18 months ago by planting fence row to fence row. The imbalance between excessive supply and dwindling demand has worsened for nine consecutive months."

The National Cotton Council's Gary Adams, chief economist, explains that demand for apparel in general has decreased.

"Cotton prices have moderated and are more competitive with manmade fibers. That will slow the substitution, but the bigger concern now appears to be weak demand at the consumer level for textile and apparel products, regardless of the fiber content."

The uncertain economy continues to affect consumers, 34% of whom are still "somewhat or very pessimistic" about it, while 29% are neither optimistic nor pessimistic, the Monitor shows. And the fairly low level of "very or somewhat optimistic" shoppers (37%) has meant mixed results for store sales.

The International Council of Shopping Centers reports that, despite some bright moments, retail sales at the end of June lost momentum and slowed to just 1.4% over last June. This followed a quiet May with year-ago retail sales up just 2.9%.

"Going forward, we will see an improvement in cotton consumption," Johnson Crump says. "But it will be tough getting there because of the economic slowdown both here in the U.S. and in Europe."

When cotton prices traded over $2, there was concern that those costs would be passed along to the consumer.

"If there has been any increase in apparel, I think it's been met with stiff resistance by a consumer who has been trained to wait for sales," Johnson Crump says. "Especially in the economic environment we've had for the last three-to-four years. I think the discounts have compensated for the cotton cost increase."

But consumers have noticed a price change. Almost 7 out of 10 (69%) say the price of clothing, in general, has increased compared to last year (among those who purchased new clothes in the past six months, and six out of ten (60%) say the fabric of the apparel they have purchased recently seems to be thinner than it used to be. And more than half (53%) say clothes do not seem to last as long as they used to, according to Monitor data.

"With budgets continually pinched by the slow growth in the U.S. economy, a major source of complaints has been diminished durability," says Jon Devine, senior economist with Cotton Incorporated.

When shopping for apparel, 58% of consumers define "good quality" as "durable/long-lasting," followed by "made of good strong fibers/fabrics/materials" (23%), the Monitor survey reveals. Also, 62% agree cotton apparel tends to be higher in quality than synthetic. Perhaps most striking: most consumers would pay a premium to keep cotton from being substituted in their jeans (63%) and T-shirts (58%).

"Due to its association with qualities like comfort, style and durability, consumers consistently indicate they prefer cotton in the apparel and textiles they purchase," Devine says.

There is now plenty of it in the market. This year's record harvest, paired with price increases and the pullback by jittery consumers, has led to a record supply. Devine says although retail prices remain about 6% higher than before the price hike, average import prices for cotton-dominant apparel have decreased about 8% from their peak early in the fall.

Johnson Crump says the price decrease will allow manufacturers to add cotton back into their fiber selection.

"Consumers clearly favor cotton and manufacturers will be in a position to accommodate those preferences over the next 12-to-18 months."

This article is one in a series that appears weekly on WWD.com. The data contained are based on findings from the Cotton Incorporated Lifestyle Monitor™ Survey, a consumer attitudinal study, as well as upon other of the company’s industrial indicators, including its Retail Monitor and Supply Chain Insights analyses. Additional relevant information can be found at CottonLifestyleMonitor.com.

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