Introduction: Over-supply and Weak Demand

The market for apparel in the United Kingdom appears set on a difficult path. Two recent developments are particular matters of some concern, large-scale over-supply and a weakening of consumer demand.

The market for apparel is diverse and by its very nature complex; but considering the consumption of clothing and accessories in the whole, there have been over the past few years substantial changes to the pattern and to the volume of supply (with some impact on underlying consumption). The market is now adjusting and some supply-side corrections are evident, but there is also a further complication with the real and imminent prospect of global economic recession and a slowing of U.K. consumer demand, this coming at a time when the U.K. textile system is awash with apparel goods. This situation prompts some important questions...

• Why is supply running so far ahead of demand?
• Can the supply/demand imbalance be sustained?
• When might corrections come and how long will they take?
• Where are we headed long-term?

Recent Changes to Supply and Demand

In 1980 total consumer demand for apparel in the U.K. was 368 thousand tons (mKg), or 6.5 Kg/cap. The underlying consumption trend increased year-on-year, to 502 mKg by 1990, 678 mKg by 2000 and by 2007 to 907 mKg (14.9 Kg/cap). Growth over the past few years has however been particularly strong.

An increase in availability remains the key factor in maintaining comparatively low unit prices at retail and affording underlying demand a degree of supply-side push, caused by Chinas entry into the WTO in 2000 and sustained by the end of global textile quotas in 2005, increasing global competition in textile and apparel export markets and, in markets such as the U.K., realised by very strong growth in cheap apparel imports.

The impact was evident in strong growth in apparent market demand (the volume of apparel goods manufactured in the U.K. combined with net imports, and a reasonable measure of market supply), but moreover, in the difference between underlying consumer demand and inflated supply. Essentially over the past six years or so supply has run far ahead of underlying demand and the volume of total stock in the U.K. system increased dramatically. We estimate the volume of accumulated stock in the textile pipeline in 2000 was 153 mKg, including all apparel goods all along the supply-chain, from dockside to shop floor. In 2007 accumulated stock was estimated to be far larger at 474 mKg.

From our modelling of the entire U.K. textile system it is clear that there now an underlying pressure for the system to re-balance; for the volume of supply to decrease over the coming years and for the level of accumulated stock to fall. In the normal course of events this might not be a problem, indeed, it is such machinations of the textile cycle that drive the U.K. and indeed, the global textile system. What is exceptional is that from a historical perspective the volume of over-supply is very high, and the need for market corrections to supply is coming at a time when the rate of growth in consumer demand is likely to be far more modest.

The Next Few Years

Underlying consumer demand for total apparel is expected to weaken over the next few years and strong decreases in supply are likely. We estimate market supply will decrease by 4% in 2008, from 941 mKg in 2007 to 904 mKg. In 2009 a further decrease of 1% is forecast, reducing market supply to 895 mKg. The mechanism for the reduction in supply, for the decrease in accumulated stock, is likely to be apparent over the next few years in weaker import growth, a squeeze on domestic manufacturing (such as it is), greater competition and discounting at retail, a proportionately small degree of re-export out of the U.K. system and some small wastage.