Value Circularity: cotton, colanders & the specialty store market

Posted by Kathleen Fasanella on Nov 16, 2010 at 11:38 am / Sourcing, Textiles and Inputs / Trackback

Considering the economy, the increase in cotton prices is coming at the worst possible time. Truth be told, it’s not just cotton but many commodities. One problem is consumer expectations; they’ll want prices to remain static in keeping with diminished incomes. Compounding everything, the cost of services (even offshore) are also increasing. Meaning, will producers raise their prices and maintain quality levels or will they reduce value to keep prices the same? I don’t think we’ve given the consequences of this nearly enough thought.

If consumers don’t fully understand the mechanism of cost increases, neither do producers. When you send work (money) off shore, those economies become better off. If they’re better off, they start buying goods and services they couldn’t afford before. If those (local) consumers can buy more stuff, producers who used to work for you will produce stuff for their own markets. And why not? With proximity, their overhead is lower. This also impacts things like cotton prices because they now need the fabric for their increasing consumer market meaning less for you and higher costs for what is available. The summary being, in order to make it profitable to continue making stuff for you, they’ll charge you more when you and your customer can least afford it because their increasing consumer base takes up the slack.

But back to cotton prices. The Wall Street Journal says prices haven’t been this high since 1870.

“I’ve seen a lot of big moves, and this exceeds everything,” said Sharon Johnson, senior cotton analyst at First Capitol Group, a financial adviser. “It’s not something you’re going to see again in your lifetime.”

For the apparel industry, rising prices have upended roughly two decades of cheap cotton. Consumers have become used to relatively low prices, making it hard for garment producers to pass on the rising costs, especially as the economy struggles to recover.

The two decade comment is noteworthy; it’s only been in the last twenty years that clothing prices and the value commensurate to them have decreased. I’ve been thinking a lot about this lately, and it’s not just clothes but other stuff too. I think we’ve been making price and value trade offs too long and that is what is really behind consumer discontent. We’ve become increasingly narcissistic, expecting to be served up what we want, when we want it and at the price we expect to pay because we rule. Yes? No? Part of this expectation isn’t incidental; we come to expect lower prices if only due to the computing industry. As computing technology advances, it becomes much cheaper. Somehow we’ve come to expect that mechanism to hold true of every other market. And of course, the customer is always right even when we’re wrong. Am I right or am I right?

Recently I bought a $38 colander. It pained me to pay that much and not given to such things but I love my colander. I’ve been warring over them for several years. They’ve all gotten so cheap and they don’t last. My pricing expectation was a bit of an eye opener. It’s been so long since I could find a good one that I didn’t know what a good one should cost. And that’s the other thing. Because consumers wanted “value” (read: static prices), the cost increases were taken out of the product side resulting in a less costly product considering inflation and all. Which affects distribution and market penetration. Retailers have set price point categories. In many stores, the better stuff got dropped once it hit the highest sustainable range of what consumers will pay. Meaning, eventually the better stuff either wasn’t being made anymore or those who could manage to survive were increasingly shuffled into the specialty store market. Boutique like places. I bought my colander at the a Store. I didn’t intend to shop there. I only went because I wanted to hire one of the employees (a friend of a friend) to come to my house to tell me how the heck I should decorate it because I’m clueless and in our household, I’m the designated boss of such things (blind leading the blind-er). I want to buy all of their furniture too. I almost described it as “incredibly overpriced” but that just means my pricing + value expectations have failed to evolve to reflect the cost of goods for things I like.

Which brings me back to you, the producers. What’s it going to be? What decisions will you make? Will you effectively lower the cost of goods to maintain static prices or will you maintain quality levels and increase prices? And then, what will your competitors do? Maybe this will be okay for you because you’re already selling to the specialty store market -but what if producers who’d been selling to department stores do the same only they hit the big box retail price point limit and they’re increasingly pushed into selling at specialty stores too? What then? You never had to compete with them in terms of sharing floor space.

One benefit of the increase in cotton prices could mean a lot of people get out of the tees market. I see that as a good thing because the market is over saturated and has been for years. If higher cotton prices put a damper on that, I see it as a welcome course correction. Just my opinion of course.

I close with a PSA to consumers: buy now. Between fewer production slots available for existing manufacturers and stratospheric cotton prices, all forecasts point to higher clothing prices next year. And from the rest of you, I’m wondering if you’ve put much thought into the value equation. It’s past the point of planning longer term strategies. I figure that people who proactively work toward implementing in house production will be sitting pretty 3 to 5 years from now when everyone else will be scrambling. What say you?

13 Responses to “Value Circularity: cotton, colanders & the specialty store market”

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Laura
November 16th, 2010
9:49 PM

You hit the nail on the head. I’ve been mulling this over myself. I’m sick of buying things that break 5 minutes after I buy them, but I hate the thought of spending three times as much money. I’m trying to get over it and spend the extra money and buy quality, but I really just wish the manufactures wouldn’t even give me the choice of the cheaply made inexpensive stuff, because sometimes it is so hard to resist.

Michael
November 17th, 2010
6:41 AM

It’s interesting that cotton has gotten quite a bit of press in the last day or two over the 30% increase in the commodity price. With QEII ramping up expect that other commodities will follow suit rapidly, in line with the decline in purchasing power of the US$. I agree that those producing on shore are in a somewhat better place but bear in mind where other manufacturing inputs and equipment come from. Your “buy now” message to consumers I think would apply equally to the local nascent manufacturer (until such time that the required inputs and equipment are once again of local origin).

LizPf
November 17th, 2010
6:46 AM

Another problem is that some of us formed our idea of what things *should* cost many years ago.

I got my idea of what clothing prices seem right back when I was in college, in the late 1970s. I could buy inexpensive mall pants for $15, tops for $10. The idea of paying $50 for pants hurts, but I can stretch my brain that far … $80? Too much.

I have my own kitchen story … I’m looking for a new teakettle. In the under $50 range, I have yet to find one that is designed to function (fill with water, whistle, pour easily, and be cleanable) and will last more than 6 months (if the handle rivets are loose in the box on the shelf, what will they be like in a year?) To me, it’s obvious that most consumers prefer style to function or durability.

Going back to clothing, if I found a pair of pants that was sewn well, of durable fabric designed for my needs (useful pockets!), and fit, I would cough up the $80. If.

Esther
November 17th, 2010
7:38 AM

The US government needs to stop subsidising cotton growers. Taxpayers simply can’t afford it and it goes against principles of the free market. The irony is that the subsidies gave the impression of cheap cotton clothes. But it was all an illusion. They really weren’t that cheap when you realise how many tax dollars went into it’s production. I have little sympathy for the cotton farmer who has taken subsidies and is living off taxpayers.

ALESSANDRA GUTIERREZ
November 17th, 2010
7:40 AM

Not sure where I read this but I’ve heard that this is the moment for niche cottons.

Harper
November 17th, 2010
7:49 AM

Esther’s right.
According to my suppliers Silk just went up from $30. to $48. per kilo for yarn, which means my Brides are going to have a bit of a shock this year. I am maintaining my quality since I’m in the luxury business in the first place, but have to add an estimated $1-300 per client this year to cover the increase in their goods which includes Muslin and Cotton Interlining. It sucks but it won’t last forever. Or like any shock, everyone will just get used to it.
Americans need to think twice about throw away clothing anyway!

Kathleen
November 17th, 2010
8:05 AM

Re: cotton subsidies. Maybe now is a good time to remind people of this post I wrote about the cotton industry. I’ve written quite a few, that’s the only one that comes to mind by name this morning. Anyway, cotton production is complex and costly in myriad ways beyond direct tonnage pricing. It’s one of the reasons I think push manufacturing of tee shirts is environmentally and morally reprehensible. Particularly when you consider that so many go unsold and disposed into the off-off-price market and sent to sub saharan Africa and Asia at prices so low that it puts domestic manufacturers there out of business and who then go and kill themselves leaving widows and starving children behind. It doesn’t matter how organic or fair trade manufactured those tees are, they can be dripping with blood by depressing the market through over-supply and the effect is even worse if they’re exported because you can’t find a first tier market buyer. No one wants to read that, it’s painful but people must become more aware and responsible for their economic decisions that impact people in far flung lands.

Harmony
November 17th, 2010
10:46 AM

Once again Kathleen you succinctly and thoughtful address a complex problem. The externalities of these “value” aka “cheap” products are eventually going to catch up with us (the signs are showing). The good news/bad news is that we are almost all over-stuffed and very few actually need much. I think 2nd hand stores are going to be very popular in the coming years.
My motto for the last 6 years has been: Better living through more stuff hasn’t delivered on its promise. I predict better living through thoughtful things…. but people are going to have to pay more… and be happy with a lot less stuff.
Time will tell.

Rocio
November 17th, 2010
2:16 PM

The timing of this post is impeccable!

I was just having this same conversation with my business partner yesterday because over the last couple of weeks… the number of enquiries for full package has gone through the roof!!!
In 20 years in the business, we’ve NEVER seen a week like the last two…
Some companies are starting to realise the implications, but most are still waiting to see what everyone else will do…
Rayon and Polyester are also going up, so the impact is across the board and not just limited to cotton

We guarantee the same price for 6 months for full package orders being placed now, but we anticipate that the bulk of the industry is not going to react until next year…. and by then they’ll be paying more

Peter
November 17th, 2010
2:31 PM

I received a message from a business associate in HK yesterday, saying that she met with her mill, and cotton costs might be decreasing. I was skeptical, but in today’s Wall St. Journal (online), there is an article stating that cotton futures have dropped dramatically in the past few sessions.

It’s probably too early to breathe a sigh of relief, but there might be a light at the end of the tunnel…

karen judge
November 18th, 2010
9:20 AM

Not sure if it’s ok to cite pricing here but (I’m gonnna do it anyway), the silk charmeuse we use has moved from $9.35/yd in August to $12.75 now. Unbelievable. Every mill/broker I speak to has a different reason as to why this is happening but their pricing is all very similar. I suppose that’s how pricing of a commodity works…

Annik Van Steen
November 19th, 2010
2:10 PM

@LizPf: Reminds me of washing machines. (One of) The best brand of washing machines is Miele. They also have a price according to that quality. These German machines get 40 years old, and counting. (the rubber bands need to be replaced every 25 years)

But, then I hear people say: “I’ll buy a cheaper one and when it breaks, I’ll just buy another one.” And they buy a brand that is known to last 5-7 years …

Christina Smith
February 12th, 2013
12:24 PM

re, your point that the cost of things has increased, but it looks like it hasn’t because we’re being offered lower-quality stuff.

I feel that the prices of clothes do not necessarily reflect their quality. It doesn’t appear that there is much of a correlation. For example, about 10 years ago, I bought a sweater at Old Navy for around $25. It was cotton with a bit of spandex in it. That sweater lasted me 5 years of constant use before the neck part started to disintegrate. Contrast that to a sweater I bought at a fancier store, for around $160, which lasted a SINGLE wear before it started getting pilly…It was 100% merino wool. I had a high value expectation for that merino wool sweater, and a low value expectation for the Old Navy sweater, and I got the opposite of my expectations. The above scenario has repeated itself quite often in my life, at different low/high end stores. And further, within the same store, there is a lot of variation in quality.

My point is that you CAN spend 3 times as much for something and end up disappointed. I feel like shopping is a bit of a mine-field…

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