Rana Plaza collapse to raise clothing cost : US survey

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Mourners holding up portraits of their relatives, missing since the Rana Plaza collapse on April 24, at the scene in Savar Friday, during the one hundredth day of the disaster. — AFP photo

Nizam Ahmed Executives in apparel sector and agents in RMG trade believe that the cost of clothing will rise in the coming months as a sequel to the Rana Plaza collapse, according to a leading business monitor in the United States. After the Rana Plaza incident, operational cost of the garment factories in most exporting countries, mainly in Bangladesh, is increasing. Its reasons include spending extra money in improving safety standards and meeting various demands of workers, like higher wages. The overall rise in clothing cost will equally hurt the manufacturers and the consumers. It is likely to curtail profit margin of the garment companies, as they may not be able to raise retail prices, fearing the shoppers' backlash, added the business monitor. "Apparel unit cost looks to increase at a low-single-digit rate next year, after a decline since 2012," said a survey, conducted by the Cowen and Company among 15 leading executives and agents that handle apparel sourcing for retailers and brand manufacturers. The company deals with investment brokers for the New York-based Cowen Group, Inc, which is a diversified financial services firm, and together with its consolidated subsidiaries, provides alternative investment management, investment banking, research, and sales and trading services. More than two-thirds of the survey respondents see higher apparel cost next year, with 20 per cent of them expecting cost to even increase at a high-single-digit rate (below 10). Rising labour costs, led by China's 61 per cent compounded increase during the past three years, was cited by 56 per cent of respondents as the biggest headwind for apparel sourcing, said the survey. However, 33 per cent of the executives surveyed cited compliance cost, which involves the need to reduce subcontractors that are playing an important role in the increasingly "fast-fashion" driven apparel export market, particularly in Bangladesh, said John Kernan, a Cowen analyst. This is the first time they asked about compliance in the survey. The rest of the respondents cited energy cost as the main concern. "Manufacturers are increasingly subcontracting unit orders to factories that are not approved by American and European retailers to manufacture goods." "Changing compliance is likely to raise the pricing matrix in those regions, where unit costs can be 20 per cent to 30 per cent cheaper than China. As manufacturers are forced to reduce subcontracting, there could be order delays and higher costs surrounding the need to airfreight goods," he added. Leading brands and retailers in Europe, the US and Canada, who buy garment products from Bangladesh, have taken separate but identical multi-million dollar projects to improve safety standards and workers' rights in local garment factories over the next five years. In the wake of tragedies in the RMG sector, global retailers including Wal-Mart, Gap and Abercrombie & Fitch have pledged various moves to improve workers' safety. Bangladesh is the second largest garment exporter of the world after China, controlling about 20 per cent of the total US apparel import with a dramatic share increase in the recent years.