In the past decade, clothing prices have been kept low by offshore labor and the increased use of synthetic blends with cotton. "But as the world economy recovers and demand for goods rises, a surge in labor and raw materials costs is squeezing retailers and manufacturers who have run out of ways to pare costs," the article suggests. Furthermore, the price of cotton has almost doubled, leading to a paralleled rise in the cost of synthetic blends (more on that in an upcoming post).
So why has the price of cotton risen so high? Why, our old friend supply risk is rearing his ugly head. Bad weather has affected crops here in the US, not to mention China, Pakistan, and Australia. "Restrictions on exports from India, the world's second-largest cotton exporter behind China, have also produced cotton shortages. On top of that, worldwide demand for cotton has risen as the global economy improves," the article goes on. Going even further, many factories have not yet ramped up to pre-recession production levels -- and they'll now have to pay workers more due to labor shortages.
It seems that the textile industry is now to the point where they can't help passing raising commodity prices to the level of the consumer: "Up until now, retailers have resisted passing along price increases to shoppers by shifting production to lower-cost regions like Vietnam, turning to other materials and absorbing cost increases." The prices of raw cotton are now so high, however, that smaller buyers are having trouble negotiating more manageable prices that large-scale corporations like Walmart are able to achieve (though they're definitely feeling pressure as well).
I recently had an insightful call with Ken Barker, CEO of a company called Naturally Advanced Technologies. Look for an upcoming post on this subject regarding some of the alternatives that are possible when cotton becomes too darn cotton pickin' expensive.
- Sheena Moore