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Bangalore. Just as recession-battered American consumers are trickling back to malls, clothes makers in the United States face a tough choice.

Squeezed by soaring raw material, labor and freight costs, manufacturers from Nike and VF Corporation to Hanesbrands and Levi Strauss are fretting they might have to raise prices in fragile markets to maintain margins.

Price tags on everything from jeans to jumpsuits are likely to rise next year, ending about three years of serious discounting.

“It’s the worst time possible,” said Nate Herman, vice president of International Trade with the American Apparel and Footwear Association (AAFA), which represents more than 700 apparel companies, brands and suppliers.

“As the economy is showing signs of resurgence and people are more willing to come out and buy, we have this huge cost pressure from the back-ends.”

He said the last time the American apparel industry had seen such broad-based rises was in the mid-1990s.

During the recession, many factories in China shut down as demand dropped. Now, decreased production capacity, coupled with lower cotton output and higher prices of oil and labor, are pressuring production costs.

Bob Shearer, chief financial officer at VF Corporation, the world’s largest apparel company with brands such as Lee, Wrangler and Jansport, said:

“Costs overall in apparel are going up. Cotton-based products might be pressured more than other types, but it’s an overall trend.”

The AAFA and Perry Ellis International CEO George Feldenkreis expect prices to increase about 5 percent. “I think it will be felt around Christmas and going forward,” Feldenkreis said.

With consumer confidence still fragile, companies are trying to delay price rises by seeking cheaper inputs, but this may only be a short-term fix, said Jeremy Rubman, of retail consulting firm Kurt Salmon Associates.

“In the long term, I think we’re looking at sustained inflation in the apparel supply chain. Costs are going to go up and the reality is that apparel companies don’t have the margins to absorb it,” he said.

During the latest recession, apparel retailers took on massive discounting to drive sales, and that trend has continued, albeit more temperately.

With consumers conditioned to buying at discount, the stage could be set for a war of wills between retailers and customers.

“Consumers focus more on what they’re saving than they do on what they’re spending and so they get really fixated on getting a bargain,” said Kit Yarrow, consumer psychologist and professor at the Golden Gate University.

“It’s a question of whether or not they’re going to just hold out for a little longer until they realize prices will be higher permanently because of higher costs of labor and fabric,” Yarrow said.


Reuters