Rising labor costs in China are prompting footwear execs to investigate new ways to bring product to market, according to a sourcing discussion at FN Platform Tuesday.
“Every [cost] of touching a shoe has gone up. You have to think of more ways to be valuable to the consumer and to communicate [with the factories] daily. You’re not going to [change] China, the prices are going to continue to go up,” said Bearpaw President and CEO Tom Romero, who added that he has seen a 10 percent to 15 percent price increase.
Other speakers at the Sterne Agee-sponsored panel, which was hosted by analyst Sam Poser, included Rick Muskat, EVP of Deer Stags; Pat Devaney, U.S. liaison for Stella International; Richard Kleinberg, VP of The Gilbert Co.; and Matt Tedesco, EVP of Exquisite Apparel.
Tedesco observed that 2010 brought a handful of challenges within the apparel industry, in India and Pakistan as well as China. “This is a global issue, not a China issue,” he said. “We need to figure out different ways to bring product to market.”
While Kleinberg agreed that last year was volatile — noting that he saw fewer available ships and containers, in addition to price increases — he still anticipates a better year ahead. “We will be a lot more stable,” he said.
To remedy the cost issue, Muskat suggested working with retailers and discussing efficient and quick ways to deliver product, such as having lower margins. But, he added, companies should also be focused on pleasing the consumer and studying their needs. “At the moderate sector, [Sears and Kohl’s], that customer doesn’t have extra money to spend,” Muskat said. “[The consumer] is not driven by want but by need.”
In addition to the mid-tier market, the higher-end segment also will be effected, according to Devaney, whose company works with luxury brands such as Prada and Bally. “The domestic business in China will change going forward, and if you’re going to stay in business and be profitable, [brands should adjust],” he said.
Devaney added that when he traveled to China last month, he visited during a labor break, which gives workers a hiatus from production and encourages them to return to the factories. But because workers are returning to their jobs in such high numbers, he is optimistic about the year ahead. “I’ve never seen a better return rate of workers, so we feel pretty good about setting up for 2011,” he said.
Ultimately, Muskat said, to handle the current sourcing issues in China, brands will need to get creative in their partnerships with factories and retailers. “We don’t have options of other places to go for sourcing. The infrastructure is not there yet in other [countries],” he said. “We need to find ways to cut down expenses, and we can overcome it within the next 12 months.”