The Hindu Business Line : Textile retailers need to negotiate savings: AT Kearney

TOMORROW textile players worldwide will blow a farewell kiss to almost 40 years of what was seen as an unfair tariff regime. However, there are many questions about how all the players in the textile value chain should approach the new `era'.

Some of the questions so far have revolved around costs and retail prices, the larger impact of the removal of quotas and how to deal with the uncertain business atmosphere in 2005.

AT Kearney, in its report `Turning risk into reward: Textile and clothing quota elimination', said retailers needed to aggressively negotiate "savings" or face narrowed profits and even inventory write-downs.

It advised companies to have a plan for the next five years and tabulate various savings; for instance, savings that have been accrued by sourcing products from cheaper producers and limiting the number of intermediaries within the supply chain. By tabulating these savings, companies would be able to understand and even plot various retail pricing and cost savings scenarios.

Manufacturers must also be prepared for informed, persistent retailers that will be negotiating for almost all these savings. "It is a zero-sum game, with savings either accruing to supplier factories, to branded manufacturers that outsource production, or to retailers,'' the report said.

The study added that retailers and manufacturers would also have to re-examine product portfolios, assessing the role each category or brand plays in the company's overall strategy. For manufacturers, this could mean pruning portfolios or repositioning brands.

And finally the Wal-Mart example

The study warned that even moderate and premium priced companies needed to worry about the impact the giant US retailer Wal-Mart would have on them.

It said: "For Wal-Mart, quota elimination is more an opportunity than a threat given the profit differential between apparel and its other product offerings, such as grocery."

It said that Wal-Mart had been actively restructuring its apparel offerings by providing higher quality brands and negotiating lower prices. It is even doing this with leading brand manufacturers such as Levi Signature.

The report added: "For manufacturers, Wal-Mart may be a new customer, but a formidable one that demands and receives price concessions year after year."

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