Inside an alpaca shearing shed located 3800 metres above sea level, a local herder balances on a wooden crate as he points to a chart detailing the results of a recent genetic research program. Kilos of thick alpaca fibre are piled on a table to his right while to his left, droves of alpacas are baying as workers prepare injections of ivermectin to kill off larvae and nymphs from potentially deadly ear ticks.
Through a local translater, he reveals the oldest recorded animal on the ranch in Puno, a 1303km haul from the Peruvian capital of Lima, was just sixteen at the time of passing. Alpacas are delicate creatures, he continues, and in addition to the prospect of extending their life span, this research could also contribute towards the production of stronger, longer fibres in an increasingly competitive market.
The contrast between new and old is prevelant in Peru, from the ranches which dot its highlands to the clusters of apparel manufacturers in the south. The latest instalment of Peru Moda, a trade show aimed at promoting the country’s textile, clothing and accessories sector, has just concluded and many of these firms are once again on the cusp of evolution. As the cost of garment manufacturing and raw materials continue to rise in China, the country’s 2,252 exporting companies have never been in a better position to exploit the potential for new business.
According to the latest figures from export and tourism commission Prom Peru, the United States is the country’s most important apparel and textile export destination with market share exceeding 40 per cent. Principle export products here increased in the first four months of 2011 - including cotton t-shirts (13.3 per cent), men’s polo shirts (11.7 per cent) and women’s polo shirts (14.6 per cent) - but exporters also pushed towards South America and Europe with Columbia, Brazil, Chile, Bolivia, Germany and the UK cited as growing markets.
US-based manufacturing expert Liza Deyrmenjian, who was invited to speak at an industry seminar preceding Peru Moda, believes while favourable trade agreements between Peru and the United States have ensured strong trade between the two parties, there are also opportunities for Australian brands and retailers. Deyrmenjian is the president of afingo.com, a price and service comparison website specialising in global fashion manufacturers.
“For Australian-based companies, China is geographically closer but Chinese manufactureres specialise in massive volume,” she explains. “When smaller volume orders come in it disrupts their flow; some fashion brands may think 5,000 units of their collection is a lot but that’s not the case in this context. Asia is doing an average 50,000 units for a regular client. In the near future, I think Peru will likely pick up a lot of business that China can not facilitate.
“Each type of garment will have a certain price range depending on the complexity and work necessary so there isn’t one standard guideline [for Peru]. But the average price of a garment is roughly $10 for production costs, though this doesn’t include fabric, trims, lining and so on. Scale is obviously another important consideration - the more you make, the less expensive it becomes per unit.”
According to business information firm IBISWorld, there are a number of key advantages US retailers enjoy in Peru compared to other markets. Analyst Cathy Hewish says textile trade has increased steadily following the US-Peru Trade Promotion Agreement in 2002, which allowed items made with US material to enter back into the market duty free.
“Many companies which service the American market are looking to Central America as an alternative to manufacturing in China,” Hewish explains. “Due to closer proximity to the target market, the turn around time between design and getting items into store is shorter. Lead time for the American market takes between 54 to 60 days to ship an order, compared to 120 days for orders from China. Moreover, the cost of manufacturing items in coastal factories in China has risen to levels comparable with El Salvador and Nicaragua.”
While the latter offers benefits to multiple regions, Hewish says cost is not necessarily an advantage for brands manufacturing in Peru. Wages in regions such as Bangladesh and Vietnam are more competitive still, and both markets have recorded strong growth in apparel exports over the last few years.
According to the Vietnam Textile and Apparel Association, the first four months of 2011 saw earnings in the garment sector increase 33 per cent to reach nearly US$4 billion. Between 2006 and 2010, Vietnam’s share of imports into the United States of mens, womens, boys and girls wear increased from 6.1 per cent to 9.7 per cent. India too is gaining traction, as global giants including VF Corporation, H&M and GAP make the most of domestic raw material prices, which have dropped as a result of government restrictions on exports of cotton and cotton yarn.
Deyrmenjian of afingo.com concedes there are many markets which are opening up to retailers, South American notwithstanding.
“For the past three decades, we have all been so used to thinking that Asia does it fast and for the least amount of money. ‘Overseas’ has typically meant Asia but there are other more efficient answers to manufacturing offshore.
“The main things to bear in mind about overseas manufacturing is you need experience and proximity: if something goes wrong and you have opened a line of credit that’s already been cashed, getting your refund or corection can be a costly process.”
So why did local representatives for Prom Peru invite the likes of David Jones, Myer, Just Group and Specialty Fashion Group over 12,000km to the latest edition of Peru Moda? The answer may lie in an interview with Incalpaca Tpx, a retailer and manufacturer of apparel for the likes of Lacoste, Prada, Carolina Herrera and Eileen Fisher.
The firm, which also undertakes development work for US department stores Dillards and Nordstrom, draws over 50 per cent of its international manufacturing revenue from North American clients. Marketing manager Renzo Morante says international expansion is an imperative for the company.
“We want to get a better mix between the countries and the seasons so we are working at 90 per cent capacity, twelve months of the year,” he explains. “We are doing overtime during the fall season for the Northern Hemisphere, so we are always looking for Southern Hemisphere markets to grow in. Textile industries also work in advance so when the global financial crisis hit, there were no forward orders from [strongly impacted countries such as the US]. When there was a resurgence, we had to create orders in a matter of weeks.”
The company has 1500 employees and while it specialises in alpaca products, it has also introduced bamboo, wool, silk and cotton blends to its mix. Morante says lead times are between 60 to 120 days with average FOB prices at $40 for a sweater to $75 depending on quality. Costing is also dependent on clients, with set prices put forward by US chains realised through using blended fibres for instance. This commitment and flexibility in working with brands and retailers is evident across a number of local manufacturers, including Textil del Valle, Nettalco and Topy Top.
Like Incalpaca Tpx, Nettalco is starting to see a recovery in industry orders following a slump in consumer demand during the financial crisis. The vertically intergrated textile company - this is a key selling point for many manufacturers in Peru - offers services across fabric and colour development, patternmaking, knitting, dyeing, finishing of yarns and fabrics, cutting, embroidery, sewing and finishing of garments.
Prior to 2008, it was producing one million garments per month before this dipped to 800,00 in the wake of a softening market. Director of marketing Mario Dal Pont says production lead times, which can be eight to 10 weeks for solid colour garments and 10 to 12 weeks for stripes or special yarns, and quality have allowed it to remain strong.
“Our four biggest clients are Lacoste, Land’s End, L.L Bean and Hannah Andersson and we’ve had them all for 10 years or more - Land’s End for close to 20 years,” he says. “We offer a full package so it makes it very easy for the client.”
One of the largest Peruvian apparel manufacturers, Topy Top, has also evolved to offer a vertically intergrated solution, with four facilities offering everything from spinning and pre-production to washing and packaging. Founded in 1983, the family-owned company specialises in 100 per cent cotton and cotton blend fabrics with clients including GAP, Abercrombie & Fitch, Zara, Hugo Boss, Ralph Lauren, Nautica and Dillards.
Director Estevan Daneliuc Peslar says 50 million garments are produced by the firm each year with annual turnover at $300 million across its export/supply and retail divisions. Lead times are between 45 to 60 days depending on quantity, with minimums set at 5000 per style.
The majority of exports are to North American clients with five per cent directed at Europe, the main client of which is High Street giant Inditex. Peslar says that in 2009/10, Topy Top broke into the Brazilian market in a bid to extend its supply base.
“The biggest problem for us is the biggest problem everywhere - the price of cotton,” Peslar says. “It’s impossible to translate the cost of raw materials... and it’s just the beginning. All commodities are becoming expensive. There is the additional competition in the Asian market yes, but we are not competitive with cheap products. We make good quality, high-end products for brands such as Polo Ralph Lauren. We make one million Polo Ralph Lauren [polos] per year.”
If negotiations, which commenced on March 2010 in Melbourne, come to a strong conclusion sourcing cost pressures could potentially be minimised for Australian fashion brands and retailers. The Trans-Pacific Partnership Agreement negotiations intend to develop a free trade agreement linking Australia, Brunei, Chile, New Zealand, Singapore, Peru, the United States Vietnam.
Negotiations are still underway with the last round of talks, staged in Singapore from March 24 to April 1, discussing initial market access offers.