Your browser is no longer supported. For the best experience of this website, please upgrade to a newer version or another browser.

Your browser appears to have cookies disabled. For the best experience of this website, please enable cookies in your browser

We'll assume we have your consent to use cookies, for example so you won't need to log in each time you visit our site.
Learn more

Rising cotton prices are here to stay, experts warn

Higher cotton prices look set to become a permanent feature for the fashion sector long term and will change the way retailers manage their supply chain, according to analysis from consultancy Kurt Salmon.

THE BIG PRODUCERS

The big four cotton-producing nations:

  • China - 30% of global production
  • US - 23% of global production
  • India - 15% of global production
  • Pakistan - 10% of global production

Source: Kurt Salmon

Cotton prices per pound of cotton:

  • January 2010 - $0.70 (44p)
  • November 2010 - $2.40 (£1.50)
  • January 2011 - $1.30 (81p)
  • June 2011 - $1.90 (£1.18)

Source: Cotton Council International

 


Higher cotton prices look set to become a permanent feature for the fashion sector long term and will change the way retailers manage their supply chain, according to analysis from consultancy Kurt Salmon.

Having peaked in late 2010 at $2.40 (£1.50) per pound, almost triple what they were a year earlier, cotton prices reacted to a so-called perfect storm of factors which limited supply as demand spiked.

Dr Sven Kromer, senior manager at Kurt Salmon in Germany, says: “I expect prices will now stay at a higher level although stock levels are building back up, so they may dip but not back down to the levels in 2009.”

Allen Terhaar, executive director of Cotton Council International, which promotes the use of US cotton, agrees that retailers should expect the rises to level off but remain higher than they have historically been. “We’re right in the middle of a rollercoaster ride,” he explains. “We are going to end up with pricing being more in line with other commodities in the long term because the demand from markets such as China is going to grow.”

On average, raw cotton represents 10% of the cost of producing a garment, but when you add in labour costs this rises to 30%, making the price hikes significant.

And Kromer warns that the longer-term impact could push retail prices up by as much as 25% if the costs are not offset by retailers. He suggests that the way cotton products are produced and designed will need to be adapted as a result:

  • Retail price management - Kurt Salmon predicts that footfall driving cheaper entry-level prices will remain the same, but there will be a greater weight of stock at the premium end of the market where prices will rise.
  • Product development and material management - designers will use value engineering to minimise production costs and cheaper blends will be more widely used, as well as supply deals being renegotiated over longer periods to take advantage of economies of scale.
  • Sourcing and production - in the longer term production will move to cheaper regions such as Africa, and suppliers and retailers will look for savings in transport costs.
  • Merchandising and inventory management - retailers will become sharper at keeping stock wastage low and supply pipelines short, and according to Cotton Council International, retailers should look to promote and merchandise the natural quality of cotton.

According to Terhaar, consumers value cotton above other fibres used in clothing, but he admits the price hikes have prompted the growth of blends: “Brands are trying to convince consumers that blends are as good, but only the consumer can decide.”

Kromer believes there is leeway to raise retail prices on cotton garments in fast-fashion multiples since consumers are less aware of the increases when garments move so fast. “The customer is used to stock changing fast, so increases in fast fashion can be made more easily,” he adds. “It is impossible to balance the rising costs by savings in the supply chain alone.”

How receptive consumers are to these rises remains to be seen, but a key factor in that equation will certainly be the speed with which the West recovers from the current financial crisis and spending gets back on track.

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.