Insight into denim and jeans 2018 supply chain issues and trends

November 29, 2018

Malcolm Newbery

This extract from the Denim and Jeans Report, 2018 Edition, can be accessed via a request to Malcolm Newbery Consulting. It was first published in just-style.com in November 2018. What is below is a summary of the main points in two chapters, one chapter on supply chain characteristics in the jeans, denim weaving and cotton chains, and one chapter on current trends and issues.

THE DENIM AND JEANS SUPPLY CHAIN

Characteristics of the denim jeans supply chain

There are five main chains in the clothing industry, and many sub-divisions of them. The jeans segment of the fashion clothing industry in the developed world is dominated by two of these supply chain models

Retailer buys brand. Brand outsources the manufacturing of the garment. Brand chooses and buys fabric from weaver
Retailer designs its own-label garment. Retailer buys garment directly from a manufacturer. Retailer chooses the fabric and instructs the manufacturer from which weaving mill to get it

The decision makers are the own label retailers or the brands determining both the fabric supplier and the garment manufacturer who will sew the jean. The influencers are the fabric mills. The garment manufacturer is normally just a “doer” chosen for their manufacturing capability.

Consumption and production of jeans around the world

The just-style world retail market in jeans is estimated for 2018 at US$ 57.30bn and amounts to 1985 million units. In the full report, these figures are analysed by continent and for certain major markets. Apply to Malcolm Newbery Consulting for access to figures.

Production has been assumed to equal consumption, as there is no way to account for stock builds and declines. However, because of the existence of the black and grey markets, we believe that around 2500 million pairs of jeans are produced, of which approximately 550 million are not sold in the organized retail market. There is a table in the full report outlining the largest 13 manufacturing countries, which account for 93% of the world’s jeans production. Apply to Malcolm Newbery Consulting for access to figures.

Jeans imports and where they come from

Both the value and the volume of jeans imports by continental region are dominated by USA and Europe. USA imports 98% of the jeans it consumes, with 85% coming from just six countries. China leads with a 30% share.

Europe imports from many more sources, including internal trade. But it too imports most of what it consumes, with 91% of consumption coming from eight countries. Bangladesh is the leading supplier with 30%. China has 22%, Pakistan 17% and Turkey 11%. . Although figures suggest that 60 million pieces are “manufactured” in Europe, the flexibility and confusion surrounding country of origin labelling in the EU means that most jeans labelled “Made in Italy” or “Made in France” were probably sewn in Turkey, Tunisia or Morocco

Calculating denim production and capacity

It is very difficult to know what actual denim output is, as production figures can be highly suspect. It is better to use denim capacity, which is the potential output of the installed denim weaving looms. Sadly, that also has problems, because weaving looms that weave denim cotton, can also weave other fabrics. . Stocks of denim will rise and fall depending on the variance between metres consumed and metres produced. Moreover, there will be weaving looms intended to produce denim that are idle at times. Nevertheless, capacity has to be greater than production, and our estimate is that it is 4,530m linear metres. 3,000m metres of that is in China, India and Pakistan. Only 150m metres is still woven in USA, the land of the five pocket Western jean. Apply to Malcolm Newbery Consulting for access to further figures.

The major denim mills around the world

I believe there are approximately 500 substantial mills specialising in denim around the world. More than 50% of the weaving capacity is in Asia, mainly in China, India, Pakistan and Japan. Of the 500, an approximate estimate is that

300 are believed to be in China, but information there may be misleading
100 are in the rest of Asia, most of them in India and Pakistan
40 are in Europe, the best known in Spain, Italy and Belgium
40 are in South America, the largest in Brazil and Mexico
10 are in the Rest of the World
10 are in North America

For a more detailed list of the major weavers, apply to Malcolm Newbery Consulting.

Denim trade and exports

The denim industry is one of the most international product categories in clothing. Apart from China, India and possibly Turkey which have vertically integrated industries, I believe that over 75% of the denim woven is exported. The major exporters are China, Turkey, Pakistan and Italy. Between them they account for 70% of the world’s denim export trade. Apply to Malcolm Newbery Consulting for access to further figures.

CURRENT TRENDS AND ISSUES

Introduction to the trends and issues section

In April 2017, in the previous edition, I said that it was difficult to know where to begin on this section, as there appeared to be a bewildering number of different issues facing the sector. In particular, should the denim and jeans executive, who needs to know which are the trends to watch, be concentrating on

Consumers
Design and product
Technology, operations and the supply chain
Corporate social responsibility (CSR) or
Business issues

Consumers

Everyone today is talking about consumers. The fashionable suggestion now is that the consumer can in go any direction the man/woman wants with no concern about being out of step with fashion. This flatly contradicts traditional marketing theory which said that brands or own label retailers either spotted trends, or created them and then “pushed” them at the consumer. The jeans consumer was either a fashion follower or a supporter of functionality or authenticity (heritage).

The latter worked because businesses could plan the supply chain. The former is a recipe for instant chaos, with the brand or retailer desperately chasing after this week’s consumer direction.

Design and product

If you take the first consumer view (“we can plan”), then you can create collections around a mix of classic five pocket Western, modern skinny or eccentric fad (flares, ripped, distressed etc.). Otherwise you can’t.

But it is easier to plan the fabric, and to follow technology trends such as

The move away from 100% cotton to incorporate manmade fibres and particularly elastane in the garment
Using chemicals to incorporate fade resistance (particularly in black jeans)
Creating two way stretch

The other current trend (no longer a fad) is organic. The organic craze is completely different. It is being driven by retailers as well as brands. H&M is reported to b the world’s largest user of organic cotton. H&M believes that the millennials are eco-warriors who will buy responsibly sourced products. None of this has got much to do with the “look” of the garment. It is more about the labels on the inside and what it makes the wearer feel (a satisfyingly feel-good glow) on their own insides.

Technology, operations and the supply chain

As the longest running fad in clothing history, why should jeans suddenly be waking up to, and wondering about technology developments? The answer is that they have not woken up suddenly. Technological advances are a continuous process. But those that are “in fashion” at the current moment join technology with all things CSR (Corporate Social Responsibility). CSR is a business catch all for things ethical, sustainable and environmental, such as

The breakdown of traditional seasonality patterns
Environmentally-friendly indigo yarn dyeing processes that use foam instead of water - eliminating 99% of the water typically used in indigo-dyeing
A new $50m denim mill that will produce yarns and fabrics for the North American market with a focus on sustainability and innovative technology
New sustainable denim fabrics using Refibra branded lyocell fibres (from the Austrian fibre producer Lenzing)
An aniline-free denim indigo dye,( from Archroma)
A new version of its Lycra T400 fibre with enhanced sustainability thanks to the use of EcoMade technology. The new fibre is made from a combination of recycled materials, such as PET bottles diverted from landfills, and renewable plant-based materials (from Invista)

Note that all of these recent technology developments are from chemical based fibre companies, and that all lead directly to CSR based marketing.

Corporate social responsibility (CSR)

Ethical, sustainable and environmental are three words used regularly in the marketing promotional material encouraging the consumer to buy jeans. There have been a number of CSR related events in the last 18 months, jumping on what appears to be an environmental bandwagon. They include

Cotton is dirty. That's right, cotton uses more pesticides than any other crop, is responsible for countless farmer suicides, uses more water than any other row crop, and on top of that, it's genetically modified like some deleterious mutation.
Swedish online menswear brand Asket has successfully traced 68% of its supply chain, from cotton farms to final garments, just five months after making a transparency commitment
Crystal International has included in its Third Global 5-year Sustainability Targets for 2018-2022 plans to

Reduce carbon footprint per garment by 10%
Reduce fresh water consumption per garment by 8%
Plant 1 million trees
Empower 40,000 females through its CARE (Crystal Advocates Respect and Engagement) learning and development programme
Engage employees in 10,000 volunteering hours

Denim manufacturing giant Isko has become the first Turkish manufacturer to become a signatory member of the Zero Discharge of Hazardous Chemicals (ZDHC) group. The move is in line with the company's commitment not to use harmful substances as a core part of its holistic 'Responsible Innovation' vision

Business issues

At the end of the day, all this is very laudable, but can only be pursued in a context of denim and jeans profitability. So, I am ending this posting with a number of remarks about the business trends to follow or avoid, in order to keep your company in business

Concentrate on growing (not diluting) your gross margin. Levi’s have raised theirs from 51.8% to 53.2%. That is good for any clothing brand
Be ruthless. Close facilities that just do not function profitably any more. International Textile Group (ITG) announced plans to cease operations at the Cone Denim White Oak facility in Greensboro, North Carolina
Avoid the temptation to embrace verticality. There is no evidence that vertically integrated denim and jeans companies get any business advantage. In fact the reverse is probably the case
Actively engage in managing customers’ expectations, particularly in the area of stock control. It is good for the customer, and good for the brand, but it requires information interchange, as practised in VF Corporation’s long established vendor managed inventory approach
Do not pretend you are untouchable. Examples of retailers with a jeans category who have either succumbed completely or are struggling are American Apparel, Gap, Abercrombie and Fitch, and Marks & Spencer
In the USA and UK, department stores are collapsing (Sears, House of Fraser, and Debenhams)

Jeans executives in brands or own label retailers cannot and must not relax.