Beside other challenges, companies need to handle the rapidly increasing price of raw materials. As per recent report, the price of wool is higher than ever before this year and the demand is booming, while drought in Texas and rising Chinese imports have pushed cotton futures to nearly six years peak in US. Along with all these, synthetic fabric manufacturing oil price has become 50% higher than the previous year.
World’s largest retailers including Abercrombie & Fitch and Ralph Lauren have declared that the increasing supply chain cost is a potential threat. Retailers have a very limited options on their end regarding pricing, and due to that they are facing decline in mall traffic and increased competition from low price online based competitors. As a result, brands like H&M are planning massive discounts in coming months to reduce their inventory and now they are seeing rising prices for cotton and polyester which squeezed profits. Chief executive of not-for-profit organization UK Fashion and Textile Association, Mansell Adam thinks that there is a very tight margins within the supply chains. Unless your company is a supplier of luxury goods, it is tough to survive at the moment.
Due to the bad weather reducing global supplies, cotton price is jacking up all time. the independent strategic agency Cotlook warned about a decline of cotton stock by the end of this year. While Chinese manufacturers are also drawing down huge amount of government stockpiles.
Oil price is rising steadily since last year due to oil production and supply outages of the organization of petroleum exporting countries. Especially Russia has reduced production and countries like Venezuela and Libya have been in supply crisis to global importers. Brent Crude, an international benchmark trader, traded a barrel for $78 a week ago, which used to be sold around $50 a year ago. On the other hand, the demand for Wool is rising faster than farmers can handle. In a recent review, UBS commodity analyst, Wayne Gordon pointed that you have to have the breeds of Sheep, and it takes 2-3 years to have any impact on global market. It will put a huge pressure on fashion industry.
All the global brands have a very difficult choice to determine their future in the long run. They have to choose between – rise prices and lose customers or keep customers and accept lower profits. To look back, according to a local British data company, more than 700 clothing stores shut down last year which is a very tough situation for British fashion industry. Recently, at Abercrombie & Fitch, commodities are pushing expenses higher, but the company also said that the transportation cost is a bigger threat right now. Analyst from Cowen John Kernan said that things are going to be tougher and they are going to raise prices to offset inflation and that will be difficult.