Has Tesco found the key to mass merchandiser fashion?

So far this recession, discounters, mass merchandisers, a few fashion specialists and the internet have been the winners in apparel retailing. But no-one's cracked doing all these things right at the same time.

Is that what Tesco's trying to do?

Mass merchandisers like Wal-Mart or Carrefour really haven't made much progress at the fashion end of the clothing business. At the value for money end – they've performed terrifically: but fashion has always been trickier for them. In many locations, out of town superstores often aren't a logical place to buy fashion from, customers don't go into them in a fashion buying frame of mind and the environment just isn't right. But the internet has suddenly become a far more credible place to buy fashion from, with web specialists like ASOS having an outstanding 2008, and fashion retailers like New Look getting far more from their websites than seemed likely only a few years ago. The mass merchandisers haven't shared in this, though: Tesco – outstandingly successful with its online food business – stopped transactions on its clothing website, www.clothingattesco.com, last year and now just offers a limited clothing range on its main site. Clothes are available at a minority of its stores.

Now it's announced the relaunch of a clothing website by this autumn. Though apparently limited to its private labels, there were lots of rumors at the Barcelona Bread & Butter trade show this week Tesco were approaching smaller brands exhibiting at the show and asking them to supply the new Tesco site. If true, they've picked a great time to do it: many independent labels will be struggling – and the offer of supplying ideas to Tesco can give developing designers a cash flow that's almost impossible to find from conventional indie branding right now. With the right designs and designers, Tesco may well be able to make branding as irrelevant in clothing as it's made it in wine or fuel. And the web might not only be the place to do it – but to sell to customers in territories where it doesn't have a physical presence.

To add to conventional clothing retailers' worries, both Tesco and Wal-Mart have announced hefty (though slightly trimmed) store expansion plans for 2009: Wal-Mart will, for the first time, add more store square footage internationally than at home in the US - with 19 - 20mn- new square feet from small convenience stores in Mexico to a new Sam's Club in Shanghai and its first wholesale joint venture store in India. Tesco plans to add about 11.5mn sq ft internationally this year. Metro has just organised its buying systems to let operational divisions have greater autonomy.

Who knows whether Tesco have finally found the right formula for the fashion end of the market – and it might not matter much anyway. The mass merchandisers have signalled getting fashion right is a priority. As long as they're around, and there's a fashion sector, they're going to keep on refining their offer until it's right. It's by no means certain they'll sort fashion out eventually – but I'd say that's the way to bet.

Who’s devised the right sourcing organisation: Metro or PVH?

On January 19, Germany's Metro retail chain announced it was cutting 5% of its workforce and decentralising sourcing into its four main divisions. On January 27, Phillips Van Heusen (PVH) announced it was cutting 10% of its staff and setting up a central sourcing organisation, headed by a Chief Operating Officer, Global Supply Chain.

So who's going to buy and source their clothing better? Both, neither or just one?

Almost certainly both. The management of both companies know a lot more about the challenges facing them than I do – or, to be honest, any of my readers. They're wildly different businesses: Metro employs 300,000 people, and the 15,000 people being fired amount to six times as many people as PVH's entire workforce. There are times it makes sense to centralise procurement, and times you need to let different parts of a business make their own decisions, not just about what to buy, but about how it's shipped, how much inventory to carry, what the terms of business are and so on.

Equally of course, both centralised and decentralised sourcing can create corruption, lazy buying, empire-building, poor accountability and all the other curses that can hurt any buying organisation. It's the quality of the management and the way they're held accountable for their actions that really make the difference: the central/devolved debate is never really about objective rights and wrongs but about a specific organisation's needs at a given moment – and the precise skills it has available.

Some professional buying specialists don't see it that way. Like the other management disciplines that have argued their importance over the past quarter-century (like physical distribution, marketing, personnel management and IT) they believe as a matter of principle that they ought to behave representation on a company's main management committee, establishing clear central policies (and getting grandiose names for themselves) . And sometimes that view might be right – though that view almost always ignores the real need for local divisions to be run by people who are truly accountable for the local bottom line.

Both Metro and PVH will have staff right now who think that sourcing's being done better at present than it will be under the new arrangements. Those staff aren't necessarily wrong – though they'd be irresponsible and disloyal if they spent time moaning about the new system rather than working to make it work. The current arrangements, in both cases, will have some advantages.

The question that matters is which company will improve its returns from selling clothing better. And that's an extremely open question

All these stimuli and no-one’s stimulated

Do any of these government stimulus packages mean there are apparel suppliers suddenly able to offer better value?

Or are the world's governments getting creative when it comes to "helping" their clothing and textile industries without improving their competitiveness one single jot?

Colombia yesterday joined the list of countries whose idea of protecting their industry is cutting import duties: they've just abolished tariffs on imported cotton. At the same time, Brazil's deserves a year in the naughty corner: they've announced an import licence system on all textiles and apparel, which local businesses think will add 30 days to the order cycle. The US decided to make it mandatory for all Transportation Safety Administration staff to wear made in US uniforms. Meanwhile Spain's textile trade association has politely suggested to its government it might tell staff to think a bit more about buying Spanish clothes or textiles – but nothing so vulgar as making it mandatory.

Others are of course coming out with more straightforward protectionism: Egypt's announced a subsidy for cotton growers – trivial by the standards of the $22 bn the US subsidises its cotton growers, but still a new subsidy. And – unlike many other countries – a subsidy that translates into lower prices for buyers

Some countries are even having second thoughts. Indonesia late last year announced an almost instant ban on clothing or textiles being imported except through five designated ports. They've now delayed the scheme till February 1.

The good news is that almost no-one's doing yet is imposing quotas or increasing import duties. But the only stimulus package that's had our clients actively get more interested in a country was the series of increased VAT rebates on exports launched by China in November – packages which buyers saw as translating directly into lower prices.

Are we missing something here? There's a prize of a year's subscription to The Source for the reader telling us the best example of a government stimulus – apart from China's – that's should really make buyers sit up and place the country concerned higher on their priority list.

Suggestions, please, to intelligence@clothesource.net

Why buying into Arcandor might be a really smart move for Wal-Mart

Almost everyone we've spoken to thinks the idea Wal-Mart's buying Arcandor is really, really stupid -and that the people who've started buying Arcandor shares on the rumours it might be are even dumber.

Wal-Mart's pulled out of Germany once, they say – and you'd think the last thing on earth anyone would think of buying right now would be a department store chain or a travel company.

And we agree. We'd be amazed if Wal-Mart were thinking of buying, or buying into, Karstadt or Thomas Cook – though Wal-Mart's main European buying centre is astonishingly close to where the original Thomas Cook organised his first package holiday back in the 19^th century, thus starting the whole inclusive tour industry that today's Thomas Cook is a fairly small part of.

Ah. But Primondo?

Primondo? Well, Arcandor LOVES silly names (with one like Arcandor, you have to). Most of us still think of Primondo as Quelle – a strong home shopping business, with a €2.7 bn turnover, employing 8,000 people across 16 countries – Germany, Austria, German-speaking Italy and most of Central/Eastern Europe. Compared to, for example, Tesco, Wal-Mart's use of the internet has been so-so – though it's been forced into web-based grocery home delivery in Tesco's home territory of the UK, because the market demands it. And just about every retailer right now, however loud they moan about business, is looking at pretty spectacular numbers from its web operations.

Wal-Mart's got one huge strategic weakness: most of its business is done is US dollars, but most of its foreign profits are in British pounds – which on today's currency markets, are looking more like Great Depression era Hungarian pengoes every day. Getting a secure euro-denominated profit flow at the same time as acquiring a lot more internet expertise and an easy entry into Central/Eastern European retailing sounds like a shrewd move. Probably a lot shrewder than the glorified convenience stores Tesco's provoked them into opening in the western USA

What's in it for Arcandor? Cash.

Arcandor just needs more money. It might prefer to sell off Karstadt or Thomas Cook – but the likelihood is it'll get a great deal more for Quelle (I don't care. Primondo's a ridiculous name, and Quelle's a real brand. Which is why that's the brand they use on the catalogues and websites most of their customers use. And if Wal-Mart DO buy it, I bet the Primondo name will be the first thing to go).

So if you're one of the many thinking Wal-Mart's no more likely to buy Thomas Cook than its pork chops are to fly themselves to Bentonville, you're probably right. But don't be astonished to find buying Quelle makes Wal-Mart home delivery vans as common a sight on the streets of Germany and Austria as they already are in England

Have European manufacturers discovered the real world?

Europe's clothing and textile manufacturers are suffering like most other businesses. But have they got sharper than their US counterparts?

The trade associations of Spain and Italy were both reported on January 28 to be looking for government support. The Spaniards wanted loans to help them overcome the "financial strangulation" their banks are imposing on them, and might be about to launch a "Buy Spanish" campaign aimed at public-sector textile buyers – who, they claim, spend €500 mn a year on taxpayer-funded clothing and fabric.

The Italians are a bit riled their government hasn't responded favourably to a set of requests they made in November for government subsidies to encourage Italian consumers to buy more textiles, better access to credit and a different attitude from the EU towards the Italians' desire to allow "Made in Italy" to be put on clothing and fabric.

But neither group seem to be showing any interest in pitching for more barriers against the Chinese – except that the Italians think more should be done to stop Chinese counterfeits being imported.

Partly of course this is because the scale of the job losses in the Italian and Spanish industries is dwarfed by what's going on elsewhere: losses at the two together come to about half the losses in just one UK retail chain, Woolworth's. The trade associations in the Eastern and Central European countries where there are far, far more jobs in danger of disappearing have come out so far with very few proposals for the help they need – and when they do, they might be more interested in pushing for re-introduced quotas or anti-dumping duty.

Nonetheless, the measured tone of the Italian and Spanish pitches for support strike an extraordinary contrast with the hysterical anti-Chinese rants US textile spokespeople have specialised in for the past decade. Ass if the Europeans understand that paying lobbyists and politicians a fortune to help orders move from China to Bangladesh is a wonderfully charitable gesture to one of the poorest nations on earth - but that this really isn't a time to be frittering away money and time helping Bangladesh, when it's capable of getting all the business it wants by itself.

That doesn't mean some idiot politician won't try campaigning for anti-China measures. But Europe's major textile industries seem to be making it clear, there are a lot more useful things Europe's governments can do to prop up their textile businesses than go on a destructive crusade against China.

Will their US counterparts get infected by this extraordinary outbreak of common sense?

Guatemala abuses may be test bed for US sanction policy

In the small print of a little-publicised US government report may lie the seeds for a whole new set of apparel sourcing problems.

In the last few days of the Bush administration, the Department of Labor issued the conclusions of its investigation into allegations of widespread abuses – including murders – during 2008 in Guatemala, all alleged to be part of campaigns to intimidate trade unions. It concluded there was no immediate reason for increasing pressure on Guatemala over the claimed abuses.

But it did not materially deny the abuses (though in a society as violent as Guatemala's, anti-union campaigns may not be the only reasons people get murdered or tortured): it merely pointed out the difficulties Guatemala's government, however well-meaning, was having in enforcing laws. And it committed to a further review in six months' time.

The likelihood is, of course, that\t a Bush administration gave the benefit of the doubt to the argument for keeping Guatemala's exports going, so there are jobs for its workers to do. An Obama administration is more likely to give the benefit of the doubt to the argument that America workers are losing their jobs to a country where workers' rights are routinely abused. So, in turn, there is now a stronger incentive for the Guatemalan government to enforce workers' rights – and for any Guatemalan employers who might be supporting rights abuse to stop their support, if there is a high risk they might lose their biggest customer. Equally, of course, there is now a strong incentive for any American business about to get clothes made in Guatemala to consider other Central American locations, if there is now a question mark over possible US trade sanctions after the Doll issues its half-year review.

Either way, the clear evidence abuses are probably continuing even though the Guatemalan government agreed to eradicate them when it signed the DR-CAFTA free trade agreement, brings such abuse allegation back into the limelight – just as the US acquires a President and a Congress more sensitised to the issue than for some years. Rights abuses are likely to become a significant factor in determining where to make clothes from now on

“Currency manipulation” claims most likely battleground for apparel industry protectionism

President Obama's Treasury Secretary started the new US Administration with a strong attack on Chinese currency manipulation.

This may turn out to be the central area for US measures against imports from China: for the apparel industry, far more important than the unlikely possibility of successful petitions by America's spinners or weavers for anti-dumping cases to be brought against China.

Click here for a full outline of the problem, and how it is likely to affect the world's clothing trade, in our new "Background Briefings" for subscribers to The Source.

Indian clothing overcapacity threat looms.

"Investment in Indian clothing and textiles will grow 38% between 2008 and 2012, generating 17.4 million new jobs". "There is a real risk $20 bn of the past five years' loans to the apparel and textile industry may default"

Hard to reconcile the first claim, made in mid-January by India's federal Textile Minster, with the second, made about the same time by the chairman of the Confederation of Indian Textile Industry (CITI). Does India really expect its clothing and textile industry to invest billions of dollars more when its businessmen say the investments they've already made are about to explode in their faces?

The official answer is "Well. Not quite. We expect foreign companies to invest $8 bn in an industry our own businesses are going to invest more billions in". Which sounds even dozier.

The truth about the two claims, of course, is that no-one is expected to take either of them remotely seriously. India's clothing industry want a ton of government help in bringing raw material prices down and solving its major cash shortage – and the convention in India is that lobbyists just make up the biggest number they can: even the CITI chairman didn't waste any energy trying to explain how this $20 bn number was invented: at the press conference the claim was made, his colleague could only find two-thirds that amount in total investments. Similarly, as our article shows, asa the country's textile minister was making his extraordinary "prediction", Indian state governments, from Karnataka to Uttar Pradesh, were abandoning unrealistic plans to build extravagant integrated textile parks for which investors could not be found – or which proved simply impossible to build. You're not meant to believe any of this: just understand that the government would like to see a lot more jobs.

But however exaggerated the claims might be, Indian businesses are still predicting ten million export job losses – another number that seems to have been plucked out of the air, but still indicative of widespread worries among Indian manufacturers. India simply can't offer jobs to its citizens from the factories it's got: new ones will merely add to the problem. Equally, though, however inflated its government's claims of new factories might be, it's going to be subsidising the building of more, and some businesses are going to take up those subsidies.

All this over a time period when overcapacity in apparel and textile manufacturing will become a greater problem worldwide. Not just because of falling demand, but because businesses' response to the crisis will be to squeeze more production out of the factories they have already – in essence, driving prices down everywhere.

Good for clothes buyers. But terrible for the profitability of the world's clothes makers – and a really, really rotten time to inject another 17 million people into appaerl making. Or even 1.7 million

 

 

Trade protection’s out. Say hello to managing conflict

Keeping foreign competitors out suddenly isn't high on most producer countries' priorities for supporting their apparel and textile industries.

Top of the list is simply getting cash. Dress it up however you like – but factories are convinced their banks aren't lending when they should. And when they DO lend, they're charging way, way over the odds. Banks have a different point of view: but priority number one for governments is managing the conflicts between those banks and the people who make the things that they lend the money for. And it's not "foreign banks" who are the villains here: it's those greedy chaps from their own country that are standing in the way of businesses trying to make a few thousand dozen shirts for Gap or H&M. Governments are having to find ways of getting cash into the hands of those businesses

Conflict management is what priority number 2's all about. An astonishing number of governments are under pressure to bring down the price of imported raw materials. Malaysia's already grasped the nettle, and just brought import duties down. China's manufacturers want lower import duties on cotton, but its farmers don't. Egypt, officially, wants lower import duty on raw materials for goods it exports – but there are all sorts of people in Egypt who really would prefer the country's manufacturers bought local raw materials.

It was ever thus. The splendid "Sheep in the Cotswolds: The Medieval Wool Trade" by Derek Hurst keeps on stumbling over examples of conflict between wool growers, spinners and weavers: for 500 years, most British weavers found British growers or spinners bigger obstacles to success than their Spanish or Flemish competitors, or their Italian buyers. And it's as true today – both in producer and consumer countries. The argument against making Chinese imports pricier isn't some theory about free trade: it's that pricier Chinese clothes make it tougher for Boeing, or Airbus, or Italian Parmesan makers, or American cotton growers, to sell to China. And it's totally against the interests of the Europeans or Americans who buy Chinese clothes to wear, or who get their wages from selling them in shops. Who massively outnumber the few remaining European or American producers of anything.

Many politicians or lobbyists would prefer things were different. Appealing to nationalism simplifies things. But politics for the next few years is about keeping as many of your citizens in work as possible. And that means doing what it takes – not what feeds your patriots' prejudices.

That's also why deciding on stimulus packages takes so long. Consulting every interest group in your country's a lot more time-consuming than having a simple view that foreigners are killing your business. But getting it right is essential for any politician who wants to stay in power

Why Obama makes China+2 the apparel sourcing strategy for 2009

Anyone listening to President Obama's inauguration speech could tell: this isn't a man who makes unnecessary enemies. He wants an AWFUL lot of people's help. And economics is just one of a host of areas where he wants it.

Economically, it's growth – or at any rate as little decline as possible - and stability he wants. And making life difficult for America's major trading partner didn't feature anywhere in the speech. Or in the 61-point Plan for America he's published beforehand. Not surprisingly: America doesn't just need to sell China Boeings: it needs to keep China as the biggest customer – bigger even than the US itself – for its cotton growers. And, with four times as many jobs being lost in America's clothes shops and department stores as in its apparel and textile makers, making clothes more expensive just isn't a priority right now.

We think it's unlikely this President will go out of his way to upset China. But we might be wrong – and if we are, many garments from China will get a lot pricier in the US – and the EU will be under similar pressure to create sanctions. We think it's unlikely China will collapse in the civil unrest some are forecasting. Or its currency revalues to push prices up. Or that China will drag its prices down aggressively. But we DO think it likely buyers are going to want smaller quantities, on shorter lead times – which almost inevitably means trying to find value for money sources nearer home,

We might be wrong. With the very greatest of humility, we believe no-one can accurately forecast how everything's going to pan out this year. And if we're wrong, some sourcing decisions are suddenly going to look very ill-advised indeed

To us this means one thing. 2009 will be a year for buyers to keep their eggs in several baskets. In fact, when we've worked this through with clients, it rapidly turns into the year they need China + another low cost Asian country + a local supplier (from Honduras, say, or from Romania). And that often means a different low cost Asian supplier and a different local supplier in each category.

So forget all that hokery from 2005 about China conquering the world of apparel making. Smart sourcing in this recession means China + 2

Vietnam’s garment industry strikes seem to disappear

So where have the strikes gone?

Last year, there were 775 strikes in Vietnam, mostly in the industrial south, compared to 541 the previous year. For the past few years, the peak time for Vietnamese strikes has been the end of January, just before and after the Tet holiday, when workers make sure they get their annual bonus, or negotiate next year's pay rates. Last year, with rising inflation, this was a major problem in Vietnam's garment factories – especially foreign-owned ones

For the past month, many local papers have been happily predicting the same rash of strikes this year. So far, they've been disappointed. 4,000 workers at Taiwanese-owned Sun Jade's Thanh Hoa shoe factory went on strike in early January over claims of widespread management abuse – though the factory was described, with the meticulous accuracy so often found in the activist press as a garment factory owned by a mainland China company. And on January 12, 800 workers at the Taiwanese-owned Chin Phong garment factory went on strike over unpaid December wages and an unpaid Tet bonus.

And that's it. And – very possibly that will be it, because the world's changed a great deal since last Tet. Inflation's collapsed, so there's far less need to negotiate higher wages. In the past, the real reason for Tet bonus strikes was that factories tried to delay them till after the holiday, to encourage workers to return to the same factory after the break. Most factories this year would be delighted to lose a chunk of their workforce without severance pay – so if they can afford it, they'll willingly pay the Tet bonus. But not if a factory just can't afford to pay overdue wages, or is sitting on a mass of unpaid social security deductions. Obviously, of course, some struggling factories that have got behindhand on paying wages will suffer strikes from workers who calculate a strike will force payment. But the workers know that in many cases, strikes will just tip an unhealthy business into bankruptcy. So no wonder activists seem more interested at present in stopping struggling managers from running off with the cash than with extracting better bonuses.

Strikes certainly aren't a thing of the past in Vietnam. But the annual round of Tet strikes may be a holiday tradition that won't be seen this year

How secure is garment-making in China?

ChinThis may well be the time to think seriously about the reliability of China as a clothing source. Not just because some suppliers are going to go bust: name a country where they won't and I'll be on the first plane there this afternoon. But because, says Wei Jingsheng, a well-known Chinese dissident, there's a real risk of widespread civil disorder. And it'll happen – he says – this year or next

The real reason China's the world's largest clothing supplier is that buying from there is relatively painless. Unlike India, its garment factories cover just about every kind of product and fabric it's possible to imagine. They can lay their hands on any component quickly and – as far as most eyes can see almost effortlessly. Unlike in Bangladesh, goods get to ports and onto ship almost instantly, at any rate most of the time. Making in China's cheaper than in many countries – but it's always been possible to buy cheaper in countries like Cambodia. Customers have long been relaxed about paying a Chinese supplier slightly more than the lowest possible price to ensure relative certainty that garments will arrive, to specification, at the home port more or less on precisely the day that was agreed in the first place.

One of the crucial requirements for peace of mind is public order. In the past 20 years, as this industry has spread its sourcing around the world, we've seen repeated examples of national industries being destroyed by civil unrest. From the collapse of Yugoslavia's garment industry when the country fell into civil war, to the damage inflicted on the industries of Nepal, Fiji, Madagascar and Haiti by lower-level chaos, serious unrest stops buyers from buying. And it doesn't have to be full-scale conflict: Bangladesh's share of the world market fell in the first half of 2008 after publicity about a series of riots.

China's textile and garment industry, however, has avoided almost completely any disruptions through public unrest – at least as far as overseas customers are concerned. From time to time, stories have appeared from Hong Kong-based activists about riots based on old textile plants getting privatised, and staff being summarily fired, way inland in China. But usually, these have been factories no-one was buying from: until late in 2008, there were almost no recorded examples of serious unrest near any of the coastal-region businesses Western buyers bought from, or their nearby raw material suppliers

But that's about to change, says Wei Jingsheng. China's last 20 years have been generally peaceful because its economy has been growing. The Chinese tolerated limited civil rights because the country's booming economy gave most of the country a standard of living they'd never previously known. China might have been light on freedom of speech – but China's growing wealth gave more and more Chinese freedom from want and freedom from fear.

Jingsheng claims all that's changing already: he claims there were 100,000 public protests in China during 2008. He talks about "tens of millions of peasant workers who will return to the cities after the Chinese holiday season to closed factories and no jobs", and claims unemployment is really over 20%. He predicts riots in coastal cities. He believes that for Wen Jiaobao, the country's Prime Minster, "His end is set, except for the timing of his departure". Which, we are told will trigger off violence.

The trouble is, though, that there's just no way of verifying his forecasts. Or even his assertions about what's happening right now. How can he possibly know whether there were 100,000 violent protests last year, or 10,000 or 1,000? He's got no way of knowing – but lots of motivation for exaggerating. Information about China is hard to come by – but there's no reason to believe an opponent of the government is any more reliable than the government itself.

Whether he's right or wrong, though, his warning has to be heeded. The general orderliness that makes China worth buying from will certainly be threatened as Chinese unemployment rises. There's no way of being sure how far Chinese unemployment will rise: we can't even predict that for countries with near-infinite amounts of free, uncontrolled, information like the US or Germany. There's even less clarity about how the Chinese will react to their economic machine slowing down. The next 5 years might well see a near-peaceful slowing down of China's recent breakneck growth.

I wouldn't bet on it. A year ago, you'd have said China was likely to remain among the most peaceful of supplier countries for a long time. You now have to assume there's much higher risk of disorder than there was this time in 2008. There just isn't the information available to quantify the risk of serious disorder – but the risk has to be high enough to feature in buyers' sourcing strategies.

A year ago, we were saying buyers needed to have alternatives ready in case prices got out of control. That risk has gone away for the moment. We'd now advise it's just as important to have alternatives in case of disorder. And to watch China's unemployment figures as intensely as we were watching its inflation a year ago

Western job losses make protectionism less likely

In the last six months of 2008, America's specialist dress shops alone lost twice as many jobs as the whole US textile and apparel manufacturing industry. And the current pattern of job losses in the West is making conventional measures to protect apparel or textile making jobs a lot less likely than in the past.

Take the US job figures for December 2008, for example. 40,000 fewer people employed in clothing stores than in July and 45,000 fewer in department stores. Between them, these two industries employ just under three million people. Jobs are being lost in clothing and textile manufacturing, too, of course – 4,000 since July in clothes manufacturing, 10, 000 in textile mills and another 4,000 in home textile plants. Less than 20,000 job losses, or a quarter of the losses in just two segments of apparel/textile retailing. The three apparel/textile manufacturing industries now employ less than half a million people: about a sixth of the clothing/department store workforce.

And there's no protectionist law anyone can invent to stop stores losing customers.

A decade ago, two and a half times as many people worked in the making of clothes and textiles: between July and December 1998, over 40,000 of those jobs disappeared. The US produces more detailed data about job losses faster than other western countries – but the general principle is true of Europe and Japan as well: the current recession is killing service jobs – especially in retailing – and there really aren't many jobs in manufacturing to disappear. Even in a country like Germany, which still has a strong manufacturing industry, there's no significant number of clothes or textile manufacturing jobs: it's jobs making high-tech cars, machinery or plane parts that businesses and unions want to see defended.

Google "job losses" right now – and the stories (in English at any rate) are about retail jobs disappearing in the US and UK. Drill down a bit, and the big numbers are mostly in retailing too. 30,000 jobs went in December when Woolworth UK closed – and no job loss announcement anywhere in the developed world has been so big over the past year.

If a government wants to preserve jobs, it has to stimulate demand and make borrowing easier. Keeping foreign goods out doesn't do this (if anything, it discourages demand, by making goods more costly), so pressure on politicians to discourage imports will inevitably be less than in previous recessions. And anti-import lobbyists will have less clout.

That doesn't mean no pressure of course. But with empty shops appearing in every mall and High Street in the developed world, arguments for preserving textile jobs loom large in very few serious politicians' list of urgent problems. In fact, of course, arguments about any kind of trade don't loom large in most politicians' list of problems: it's not imports that are killing Europe's and America's car industries: it's Europeans' and Americans' reluctance to buy any cars at all. The silly November promise by the world's leading politicians to make real progress on the Doha round of the WTO's trade talks got nowhere because no-one in the real world actually saw the point of the talks.

At Clothesource, we believe 2009 will end without any new European or American anti-trade rules, and with no anti-dumping or countrervailing duties imposed on Asian clothing or textiles. We might be wrong, and this is no time to indulge in fripperies like gambling. But we're certain the politicians of Europe, North America and Japan will have to fight through dozens of more urgent issues before turning their attention to the relatively minor question of job losses in textile manufacturing.

US sales stop getting worse – for now at least

The Clothesource US Clothing Sales Index got 27% better in December – though most media tried their best to keep it secret.

Like for like sales at the 16 largest US clothing retailers who publish monthly sales fell 8.3% in December over 2007 – on the face of it a great deal better than the 11.3% fall they showed in November. Total sales got "better" too: down 5.6%, compared to a November fall of 9.2%. And it wasn't just a strange Clothesource sample: America's International Council of Shopping Centres estimates all chain store like for like sales fell 1.7% in December over December 2007 – a substantial "improvement" over November's 2.7% fall (the ICSC data includes supermarkets, which aren't having anything like as rotten a time right now as clothing stores – never mind the hard goods sections of department stores.

We've less clear evidence about profitability of course: we know a lot of December's sales were the result of aggressive margin reductions – and for many US chains, the cost of this is still an unknown, since there's a negotiation still to be had with suppliers about markdown money, and how much of it's going to pay for all that discounting. And that's really the point.

It's clear that the sales pain varies a lot from chain to chain. Sales at some of the chains gossips like to undermine most – like Ross, Bon-Ton and Sears – are actually doing a lot better than average. It'll be a while before it's clear what falling sales are really doing to margin and to liquidity: no-one really believes we'll go through 2009 without some substantial apparel retailer getting into serious trouble, and it'd be just silly to kid ourselves sales aren't going to take a turn for the worse sometime this year.

But it's just as silly to pretend – as too many commentators have over the past day – that America's December sales figures are another sign of gloom. They're certainly a clear sign the recession is going to be with us for a while still, and retailers' commentaries about driving inventory down implies orders to suppliers are likely to fall disproportionately.

Above all, though, they're further evidence some people do well in the worst of times. And that there's more to clothes retailing than just watching things get worse.

Could Romania be Europe’s next apparel sourcing hotspot? Again?

Could Romania's clothing industry really become the first beneficiary of the economic crisis?

In the early years of this decade, Romania was set to become Western Europe's biggest clothing supplier on some measures. Two days or so by fast truck from retailers' distribution centres in Germany or the UK, no duty or quota and a couple of hours' flight for managers and quality controllers, it was the perfect location for making Fast Fashion.

The phasing out of quotas on Asian imports in 2005 undermined Romania's competitiveness, which was further hit when Romania's 2007 EU entry allowed Romania workers easier access to better-paying jobs in the West, and sent local wages up. Recruiting trained staff didn't get easier either. And in the first few months of EU membership, growing confidence in Romania's economy sent its currency up – creating further pressure for higher prices.

Signs are, though, that all that's started to reverse. Just as Western European buyers need Romania more than ever.

Buyers' needs for reliable, close, garment makers are growing more urgent every day. Retailers and wholesalers need smaller inventories – and with no Customs controls between Romania and its French, Italian, German or British customers any more, garments and other sewn products can move from final factory inspection to shops' clothes rails in just days. Order quantities can be tiny. Buyer managers can get to supplying factories, and factory management to buyers' offices, without any of the visa palaver that's making business travel between Europe and China such a nightmare – so decisions can be made a lot later than they have to be if garments need shipping halfway round the world. And Romania's location, together with the growing frequency of air links, means raw materials can be shipped in from both the West and Turkey in little more than hours if necessary. Again: without all those time-consuming documentation requirements.

EU membership didn't put prices up as much as many think. Using Far Eastern fabric in Romania actually got cheaper when Romania joined the EU, since buyers paid only 4-5% duty on the fabric value, rather than the full 12% on the whole garment value they'd had to pay beforehand.

But now the economic crisis is improving Romania's competitiveness. Its currency is devaluing – even against the British pound, which is worth more against it today than in April last year. The recession in Italy is sending Romanian migrant workers home – leading to easier recruitment for garment factories. While Western buyers want value, they want short orders, fast response and late decision making more than ever before. Romania's still got a formidable infrastructure of good facxtories. And it's just a great deal easier – and more transparent - to work in than most of its rivals. Could it really become the next big sourcing hotspot again?

Declaration of interest: Clothesource operates a quality control business in Romania. We obviously make no secret we'd like to see more people using it. But the truth is: now is the time it makes better sense to use it than ever.

Retail overcapacity: the real threat to the world apparel industry

The most horrifying number about the clothing industry I've seen in the entire current crisis has been a forecast by Credit Suisse about UK retail chain Next.

It's a bit gloomy, but not startlingly so: it predicts like for like sales go on falling about 5% for a year or two – but with extra space and home shopping sales, turnover by 2011 will still be a bit more than at present. It expects profits to fall – but just by 15% or so over the next few years. CS expects Next will be around, reasonably healthy and paying OK-ish dividends for a good few years yet. It's a very long way away from those "everyone but Wal-Mart will be bust by the end of 2009" rants the Internet's packed with right now.

The killer's in the detail. By 2011, CS projects, Next will be making as much money from its home shopping (which increasingly means Internet) business as from its physical stores. Worse, it predicts sales per square foot in its physical shops by 2011 will be less than half the sales per square foot Next saw in 2001 – and earnings (ie net profit before tax) per square foot will be a staggering 70% below their level a decade earlier.

No retailer is a perfect microcosm of the retail industry, and no doubt things won't pan out quite as CS predicts. But the general picture of chains putting on extra space (which means extra rent and extra wages) faster than they're putting on sales, while an increasingly successful Web business cannibalises the shops – well that's true of just about every clothing retailer in the West. And it's something they've got limited experience of.

Sales flat, or down 10% or so? Well, that just takes them back to where they were in 2006 – which for most chains was alright, really. Deflation? That's been a constant for clothing retailers for the past ten years. The rest of Western Industry Inc. might have only just cottoned onto it – but the apparel industry's been living with falling prices as long as most buyers and store managers can remember. And no, customers don't put off buying: they just get used to falling prices and expect them to be permanently going down. Sales per square foot half what they were a decade back, though? That really is a new problem.

There are simply too many clothes shops: the world's retailers have been planning for a spectacular explosion in demand -but those plans came to fruition just as demand started falling. All those acres of prime but underused retail space have to be rented, heated (or cooled), manned and guarded at the expense of someone's profit. They can't be easily unloaded: there are retail categories far more pressured than clothing (like home textiles, electricals or music) going down a lot faster, leaving rows of empty shops, and a surprising number even of bankrupt clothes shops are being snapped up by their former management, or someone who thinks they can make them work.

So who's going to carry the cost of all that space? Well, in our experience, most retailers believe a problem shared is a problem dumped onto someone else's balance sheet. Somehow or other, it's so often the supplier who ends up paying.

Is that going to be how things progress for the next five years? No idea: but it's certainly something many retailers are going to want to pursue – along with freezes on new space, more emphasis on the internet, and faster overseas expansion.

'Low demand' and 'excess supply' sound like different ways of describing the same problem. But overseas expansion and more internet investment merely add to worldwide retail overcapacity. Sales promotion ultimately increases the size of the market – but most strategies for a chain's overcapacity just add to the total problem.

I've absolutely no idea what the answer is going to be. But the industry needs to find one or two (or several hundred) pretty fast. It really is THE big challenge for the next five years

Are UK clothing sales not quite as bad as we thought?

Could it be that apparel retailers' sales aren't anything like as bad as the media want to pretend?

Because that's certainly what the first tranche of December sales figures issued on January 5 and 6 seem to imply.

It started with Japan, where Uniqlo reported a 10.2% same-store increase in December. Admittedly that's down from the 30% growth they claimed in November, when Uniqlo were just about the only apparel business reporting growth. But it's still positive growth.

But in Britain, we've actually seen serious, positive improvements over the past couple of days. Unlike their US counterparts, British retailers don't announce their numbers in the same way, or at the same time. But a small flow of surprisingly unbad news started with midmarket department store chain John Lewis announcing on January 5 its clothing sales for the five weeks to Jan 3 were up 4% on last year.

The news seemed to turn sour when clothing specialist Next announced a first half-year fall of 7% in like for like stores. But this sharp decline covered a remarkable improvement – from a 9.4% annual fall in the first three months, to a 2.4% fall in the following quarter. Its Directory (ie, mostly internet) sales actually grew 5.6% over 2007. Apparel-driven department store chain Debenhams pulled a similar trick of making numbers look worse than they were by announcing a 3.3% fall in like for like sales in the 13 weeks to January 3. Depressing – but a bit better than the 4.2% fall they'd revealed in the previous quarter. And apparel specialist New Look went a whole stage further by announcing its like for like sales had actually grown 2.8% Worst of all – if you're one of the many Britons who are never so happy as when you're being really, really miserable – New Look announced total sales were up a disgraceful 14.5% in the 14 weeks to Jan 3.

There's no doubt these sales were helped by extraordinarily aggressive discounting, so it'll be some time before we know what was happening to profits. Market leaders Marks & Spencer, and US-owned Wal-Mart, TJX and Gap report later in the week, and the other two majors – Arcadia and Primark – aren't due to release figures for same time. The retailers reporting on Jan 5 & 6 may turn out to be untypical, and we may hit a wall of worsening news.

But it's still a very different picture from the stream of collapsing smaller UK apparel chains that are being reported at present – and the even longer list of chains rumoured to be struggling. Even with these stores, though, there's a very odd common feature. Most USC stores were bought from the liquidators almost immediately by their former owner, Tom Hunter. Most Officers Club stores were bought by their chief executive within hours of the company's going into administration. The Envy chain was almost bought out of administration before it went in. And press reports today are that the largest UK clothing retail chain to collapse so far – Adams Childrenswear, with 270 stores – is likely to receive a bid for the 160 stores still trading from its former owner, John Shannon. All this after most Mk One stores were grabbed by rival Internacionale after bankruptcy. Practically every single UK apparel chain that's gone out of business so far has re-emerged within days.

Now the fact that an astute trader is prepared to buy most of a bankrupt business doesn't mean the business is healthy, of course: in the US Steve & Jerry's went bankrupt only months after coming out of Chapter 11, and press reports are that Goody's will be auctioned off next week, two months after coming out of Chapter 11. In Britain, with a lot of people and not much space, it's pretty easy to convince yourself that a chain of stores will always have a value.

But overall, Britain's clothes stores at present are keeping sales about 5-7% below last year at worst (which means about the same level as 2006) – and some, like Asda and New Look, seem to be doing a great deal better. Clothes chains that fall down dead are mostly collapsing because of massive debt – and are therefore attractive to entrepreneurs once stripped of their debt.

Things might well get a lot worse, and everyone who's reported so far has said what they're doing to protect themselves if that happens. But so far, the honest – if unpopular – truth is that sales, possibly temporarily, look to be bottoming out. Exaggerating the severity of a decline is just as uncommercial as naive optimism