China topped the news agenda last week as Prime Minister David Cameron joined the biggest-ever British delegation to the country to forge a closer business relationship. But the Asian superpower was on the lips of those in the fashion business for an altogether different reason.
According to HM Revenues & Customs, China shipped £2.1bn worth of clothing in the first nine months of this year, but manufacturing capacity is at its limit and many factories are struggling to meet demand on time - if at all. Last week, Drapers revealed young fashion giant SuperGroup was the latest to bear the brunt of the hold-ups, and that deliveries of heavy outerwear from its Superdry brand have been delayed, prompting some stockists to cancel their orders.
No one is immune
SuperGroup isn’t alone. High street retailers, from value chain Primark to mid-market giants Marks & Spencer and Next and premium chain Reiss, have all experienced delivery delays on autumn 10 product from China, to some extent.
The delays are blamed on mounting pressure on China’s manufacturing capacity, which in turn is attributed to cutbacks in the recession and a subsequent explosion in demand from China’s Asian neighbours and its domestic market - which are quicker to supply as goods do not need to travel as far, and cheaper to produce because health and safety standards are less strict.
“Orders that would have been accepted in 2009 are now being declined, or there is total inflexibility on cost,” says Grant Liddell, retail director at logistics company Uniserve. “No one wants to be busy fools in the global market any more.”
But increasing consumer spend in Asia is just one of myriad factors at play. Rising wages in China may have driven up demand for goods, but it has also pushed up career expectations - and garment manufacture has fallen out of favour.
According to Spencer Fung, chief executive of sourcing specialist LF Europe, China’s one-child policy instituted in 1978 has had a profound effect on the country’s workforces, as the well-documented “nation of little emperors” started to filter through.
“You have two parents and two sets of grandparents putting all their time, energy and money into just one kid. That kid is under pressure to get to university and, once at university, not a lot of people want to work in manufacturing,” says Fung. Even if they do go into manual labour, most Chinese favour technology factories, which are better paid and seen as superior to those for clothing, footwear, accessories and trims.
The Foxconn effect
The shift away from garment manufacturing towards technology has been exacerbated by the “Foxconn effect” - named after the Apple supplier that was forced to double wages overnight after a string of unexplained suicides by its staff, Fung says. The salary hike forced other technology manufacturers to follow suit and has triggered a migration of manual labourers to technology from other industries.
Donald Browne, production director at premium brand Ted Baker, believes the 2008 Beijing Olympics have also had a major effect on manufacturing capacity. “Suddenly all eyes were on China. The Government started looking at health and safety standards and ethics, which made production more expensive,” he says. It also signalled the start of a major migration of industry from the southern provinces to the areas around Shanghai, Beijing and further north, as the Government lured blue-collar workers to service the Olympics.
Once there, many of the garment workers who came from the north but had travelled south for work purposes were reluctant to return.
Elsewhere, regions that used to be garment manufacturing hotspots, such as Guangdong and Fujian, are increasingly turning their attention towards service industries and have pushed up manufacturing costs.
When this happened in the past, fashion businesses simply relocated their manufacturing to cheaper territories in the likes of Southeast Asia and South America. But the fact that most territories have already been explored, coupled with a steady run of disasters in the new regions - from riots in Bangladesh to shipping disasters in Pakistan - means this is no longer the go-to solution.
“Instead, UK fashion businesses are being forced to work with existing manufacturers in China - either by helping to develop the companies they work with or by relocating their production within China.
For Fung, the former route is always preferable. “It takes about two years to develop a factory, so it’s not that easy to move,” he says. “It’s better to stay with your existing suppliers and forge a closer partnership, maybe giving them a bigger percentage of your business so they see you as their most valued customer.” He also advocates working with lower-grade factories to improve standards.
Loyalty goes a long way, adds Browne. “China is all about honour and respect and if you’re not honouring and respecting your suppliers, they will not honour and respect you,” he says.
A loyal long-term relationship has helped women’s young fashion brand Fever secure production for spring 11, despite the production slowdown expected by the early fall of Chinese New Year (Drapers, November 5). Creative director Matt Barker says: “We’ve used a small family-run factory in Guangzhou for eight years and we’re their biggest customer, but if we were very small or they were very big it would have been hugely problematic.”
But for those that are committed to moving their production bases, the well-travelled migration route from the south and southwest coast of China to the north is becoming increasingly nuanced.
“We’re seeing a huge growth of business in northern China - Qingdao in Shandong Province and Dalian being the emerging Chinese markets for garments. Shanghai has seen double-digit growth this year - [but] southern China is still very buoyant,” says Liddell.
The Chinese government has also been promoting western Chinese regions as new hotspots for garment manufacture, but the sourcing and supply directors Drapers spoke to were sceptical that these regions had the required infrastructure.
According to the head of supply at one major retail group, the northern regions are stronger for production of textiles and garment components than for finished goods, but there is a growing number of areas near Shanghai that can produce garments and ship them out at speed.
In a trend-focused retail market, this issue remains a - if not the - key consideration. It’s all very well squeezing costs down at the manufacturing stage, but fashion businesses will not save any money off their bottom line if they don’t manage to sell those garments. There is no new China, but there is a new opportunity to reinvent the services China can provide.