In the Know: Menswear News

Inside the business and culture of men's fashion.

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Menswear issue 10/18/2010

China Syndrome


The talk of the men's wear industry lately hasn't just been fashion trends. Among the most pressing topics is the increased cost of producing in China—by far the largest source of imported clothes and footwear in the U.S.—which is likely to lead to higher prices at retail.

As China modernizes, labor costs have been rapidly rising in factories there as a growing middle class emerges. Wage levels in the crucial Pearl River Delta manufacturing area, for example, increased by an average of 17 percent in the first half of 2010, according to the Hong Kong Trade Development Council.

"Labor and transportation cost pressures are a major concern for executives that may be underappreciated by investors," concluded an August report from Credit Suisse.

China accounted for 37.9 percent of all imported garments to the U.S. in 2009. In footwear, China's heft is even greater, controlling 76.1 percent of imported shoes to the U.S.

One country that could benefit from China's rising costs is Mexico. According to HSBC's September Trade Confidence Index report, "U.S. companies are gaining enthusiasm for trade with Latin America."

Mexico provides high-quality facilities with proximity to the U.S.—a key factor considering the capacity issues and rising costs related to transporting goods across the Pacific. According to Credit Suisse, speeds of container ships have slowed from an average of 10 days to cross the Pacific to 15 days, as shipping companies aim to lower capacity.

Ropa Siete Leguas, which operates a 2.2-million-square-foot denim production facility in Torreon, Mexico, is picking up new business from brands seeking alternatives to China, says Michael Press, who heads up its U.S. office. The company produces jeans for brands including Ralph Lauren, Gap, Levi's and its own label, Vintage Revolution. "Companies that we've been in discussions with have point-blank said that China is too volatile right now in terms of where costs are going and freight issues," says Press, "and they don't want to work with so many unknowns." —D.L.

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