Background

At the beginning of 2008, the apparel industry was focused on fears that Chinese prices would go through the roof as rising wages, new labour laws, worker shortages, the appreciation of the Yuan and higher exporting costs took hold -sending many buyers in search of cheaper suppliers elsewhere.

Three major regulatory threats also topped the international apparel trade agenda: the end of US safeguard quotas on some Chinese textile and apparel imports, the risk of anti-dumping actions against certain apparel categories from Vietnam, and the imposition of import monitoring on shipments of apparel from China to the European Union (EU).

Just 12 months later, though and it's a very different picture. The global economy has ground to a halt. The US, Japan, most of continental Europe, parts of Asia and possibly Australia are expected to join the UK in recession this year; growth in most emerging markets is faltering; and the currency markets are in chaos, with the British pound sitting at a 23-year low against the US dollar.

Among the hardest hit are clothing stores, as shoppers largely cut back on all but essential purchases and trade down to discount brands. Official figures published by the Commerce Department, for example, show US retail sales fell by more than expected in December as shoppers cut back over the holiday shopping period. Sales fell by 2.3% at department stores, while clothing and accessories purchases dropped 2.5% and are now 7.1% below the level seen a year earlier.

Governments around the world are using every weapon at their disposal to fight the crisis, with economic stimulus packages and cuts in interest rates aimed at rousing the financial markets and encouraging consumer spending. But all these efforts are going to take time for consumers to feel the benefit and to start shopping again in any meaningful way.

Not surprisingly, the sourcing landscape is changing too. Retailers are overstocked; they have too much inventory, and are cancelling orders. In future, it seems, buyers will want smaller quantities, on shorter lead times -which mostly means trying to find value for money sources closer to home.

Retailers and importers are also faced with the pressure that the financial turmoil and economic recession have weakened their purchasing power. Input costs have come crashing down and China's share of Western clothing imports has risen There are fears of widespread civil unrest in supplier countries, including China, as hundreds of thousands of workers are laid off and more and more young people join the labour force with little hope of finding a job. Measures taken by individual countries to shore up their clothing exports-such as a series of tax rebates on Chinese exports-also substantially change their relative competitiveness.

The US textile and apparel industries also have to deal with the uncertainties of a new administration in Washington for the first time in eight years. The election of new US President Barack Obama, who took office on 20 January, has given rise to fears of a protectionist stance against foreign clothing suppliers like China.

Even though times are tough, there are still opportunities to be had. Retailers that have a clear idea of who their target market is, and can give their customers what they really want, will be best placed to ride out the storm and could even gain market share.

Setting the scene

The fallout of the global banking crisis has already taken some fashion victims, with Mervyns, Steve and Barry's, Woolworths and Marchpole Holdings falling into difficulties last year. There was no reprieve for retail businesses in the final week of 2008 either, with chains including Adams, The Officers Club, Morgan and USC all filing for administration during the festive period.

"The fashion retail sectors have already shown that they are not immune to the global banking and economic crisis" according to the Ian McGarrigle, the chair of the world Retail Congress Advisory board.