Consequences of the Terrorist Attack for Textile and Apparel Industry

          The terrorist attacks against America's symbols of wealth and power on September 11, is expected to extend damage across many economic sectors in US, including clothing retailing. Besides the immediate consequences for the clothing exporting countries, there will be some longer-term consequences.

Loss of Employees

          Lost stores and the health and whereabouts of employees have remained a primary focus for retailers with outlets in or near the World Trade Center. Fortunately, stores in the Centre itself were located at the base of the towers, making it easier for employees to escape. Gap Inc employees left safely, as did those of Marks & Spencer owned Brooks Brothers, which has a location across the street from the Center. Its site was later used as a rescue centre. However, Gap lost one Gap and one Banana Republic store housed in the World Trade Center. Boston-based TJX Cos has been hard hit ?the company lost seven female employees, who were on the American Airlines plane which crashed into the north tower.

Loss of Business

          The economy of the US was already showing signs of distress in the months before the September 11 attacks. Sales figures on September 6 reported disappointing results. Federated reported a 2.6% decline, while Dillard posted a 2% drop. Saks Inc. posted 2% decline. Gap reported a 17% decline in spite of hard struggling. For most retailers, hopes of recovery collapsed after the attacks when consumer confidence plunged. Sara Lee Corp net income fell almost 5%  in its fiscal first quarter as the company continues to face tough competition, higher raw material prices and a weakening economy.

          With the consumer spending outlook becoming even gloomier, retailers are now requesting their suppliers to reduce or postpone their deliveries for the remainder of the year. Many Department Stores will also be canceling orders  In New York, shopping plummeted.

          Inevitably, clothing manufacturers in Asia, Mexico, the Caribbean and other countries, who mainly focus on the American market, will be hit by the fall in US consumption. Will European clothing imports compensate for this? Most probably not. European economy was slowing even before the terrorist assault on the US; now it could be heading into recession. Since the terrorist attacks, most economists have halved their forecast for euro-zone GDP growth in 2002, to just 1.1%.

Loss of Jobs

          America's fourth largest retailer, Sears, Roebuck and Co, announced to cut 4,900 salaried jobs in an effort to boost profitability at its 860 department stores. The job cuts represent 22 per cent of Sears' salaried work. The reductions are about 2 per cent of the company's total staff of 300,000 nationwide.

          US based retail clothing Nordstrom Inc. has slashed its workforce by 3.6% due to sales slowdown. Following the September 11th attacks, Nordstrom which has 126 outlets in 25 states, has responded to declining sales by laying off 1,600 employees. In UK, unemployment rate currently stands at a 26-year low of 3.1 per cent, but job cuts are mounting.

          Yarn manufacturer Parkdale America is to close two of its North Carolina plants because of high imports, an oversupply of yarn in the market and overall poor business conditions. Its decision will affect 84 workers at its plant at Belmont which produces cotton and polyester/cotton open-end yarns, and 34 workers at its plant at Kings Mountain which produces all cotton open-end yarns.

Loss of Confidence

          US consumer confidence plummeted in October to its worst reading for more than seven years as widespread lay-offs made Americans increasingly gloomy. Last year, US retail sales of apparel and footwear totaled about $322 billion . However, many produces are now bracing themselves for a huge fall in sales as consumers' confidence continues to wane.

          UK consumer confidence, which has held up well for most of this year, slumped in October to its lowest level. The Consumer Confidence Barometer fell for a fourth consecutive month to -5 in October from -1 in September and a peak of +6 in June. Sharp drops in confidence after shocking events can be a poor leading indicator of future economic activity.

Change of Strategy

          The terrorist attacks may also have some less expected longer-term effects. One of those could be the rise of protectionism, especially in the US. Harvard University researchers found that high levels of nationalism and patriotism are associated with support for protectionism. This finding suggests that sustained global conflict - which boosts nationalist fervour at home and abroad - could undermine support for free trade. Will the American textile and clothing industry accept without further campaigning the end of the ATC quota regime on January 1, 2005? Will they follow sensitive policies against China's, the textile and clothing exporting giant, who in the next few months will be admitted to the World Trade Organization?

Change of Sourcing

          Another longer-term effect of the September 11 attacks could be a change in the world map of clothing resourcing, and especially of Cutting, Making and Trimmin (CMT) activities.

          This map has never been a pure reflection of wage and salary differences between countries, and not even of differences in total production costs. Otherwise, countries such as Egypt, Cambodia, Vietnam would be the leading clothing producers of the world while little if any clothing would be made in Italy, Hong Kong or Turkey. International clothing buyers and contractors, When looking for new sourcing locations, do not rush automatically to the cheapest possible labour countries. They also take into account the overall efficiency of a country, special import terms, lead times, the flexibility of factories, the availability of local fabric and accessories, the knowledge of foreign languages and the many parameters which define the "business climate" of a country.

          Business climate factors which probably will be pushing companies to rethink their location strategy. Of course costs of clothing production will remain an important factor in deciding where to source. However more attention will probably be given to the general business climate in a country, including the security factor. Besides, American and European clothing groups will feel pushed to reconsider their choice whether to produce at home or overseas.

Change of  Investment

           Foreign  investment invariably flows to countries where safe and high returns can be expected, that is preferably to North America, Western Europe and Eastern Asia. It generally shuns poor or dangerous countries. Another longer-term consequence of terrorism might be that domestic and foreign direct investment in the US itself and in some other countries will be deterred, leading to reduced output.

Worldwide Hit

Taiwan : US Apparel Exports Could Shrink By $100m

          Exports are expected to shrink by 20 per cent or approximately US$100 million - although  demand for army and medical textiles could increase. US is Taiwan's largest outlet for textile and apparel products, accounting for 74 per cent of the island's exports in the third quarter

          In addition to subsiding market demand, higher rates for shipping services and war insurance costs on freight exports to the Middle East area are also hindering Taiwan's textile and apparel exports. After the US, Saudi Arabia and United Arab Emirates are its largest customers.

          On the positive side, US sourcing shifts away from Pakistan, Indonesia and other anti-US countries could benefit Taiwan.

Pakistan : Uneasy Position

          Violent opposition from parts of its own population and revenge strikes from Afghan forces could be the price Pakistan has to pay for its co-operation in the international struggle against terrorism.

           The ambitious Five Year Plan Textile Vision 2005 is aimed at reshaping the Pakistan textile and garment sector in a modern, dynamic industry. Government planners are dreaming of "a royal path" to modernization involving US$6b in investment over the period 2001-05. The chance that the sector can take this 'royal path' would considerably increase should the American-Pakistani cooperation against terrorism bring success (and a huge flow of American aid as 'thanks' ). It could however greatly diminish should internal political struggle - for and against the Taliban - result in chaos.

South Africa: US Clothing Sales Down

          October is proving a quiet month for clothing exports from South Africa to the US following the September 11 attacks, with a number of orders.

          Between March and September, clothing exports to the US from South Africa had increased by 45 % over the previous year. In March, South Africa qualified for preferential access to the US clothing market under the Africa Growth and Opportunities Act, which did away with import duties of between 15 per cent and 32 per cent for qualifying suppliers in nine sub-Saharan African countries. Following promulgation of the Act, South Africa is expected to improve on last year's figure of $142 million dollars of exports to the United States.

Indonesia: Textile Exporters Face Huge Slump In Orders

          Worries officials of the Indonesian Textile Association (API) say they expect the country's 2001 textile export to decline 25% this year due to the economic slowdown in the main US market. Indonesia's textile exports to the US topped $2.1 billion last year but that figure is expected to drop sharply in the next few months.

Several textile companies have already lost orders as a result of the US terrorist attacks, while others have been forced to slash their prices or risk losing the orders. About 26.3% of the country's textile export goes to USA. Textile companies may decrease production first or reduce overtime work in order to survive the difficult time.

UK : Plain for Clothing Retailers

          With the problems of M&S, the sale at a knock-down price of Bhs and the dramatic exit from the UK of C&A it is clear that the clothing sector has been among the hardest hit in Britain's beleaguered retail industry. Nevertheless, even worse news is on the horizon. The latest five year forecast from retail consultancy Verdict says that life will get considerably tougher over the next few years.

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