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From Field to Shelf Should the denim industry worry about knitwear?

Sep 15, 2020 (MarketLine via COMTEX) --

Anecdotal evidence suggests consumer demand for mass-market jeans has plummeted during the Covid pandemic. In contrast, demand for knitwear including cotton T-shirts, knitted shirts and sweatpants has increased as comfort becomes king. Robert Antoshak, managing director of Olah Inc, crunches the numbers to find out more.

Virtually all apparel products have suffered during the pandemic as consumer spending remains spotty, and rolling, uncoordinated lockdowns have hampered retailers' ability to sell their products from physical stores. Online sales have saved many of these companies, but the mix of products that sell online can favour more casual clothing, such as knitwear. Does that leave woven products like jeans kicked to the curb?

Closet space

The denim and jeans industry typically follows a five-year business cycle. And just before the Covid outbreak, the industry entered into a down-cycle – which has only accelerated. The big question for jeans and denim companies is will the cycle reverse itself once the pandemic is behind us? Or will knitwear remain a central part of consumer wardrobes?

It's an old trope in the denim industry: when the sector skips off the bottom periodically, knitwear raises its head as the accused culprit. In reality, though, it's not a case of one garment replacing another. In fact, the products are complementary. Think about it: T-shirts and jeans. It's more of a pairing than a competition.

However, during these Covid-filled days, many folks in the denim world fear that knitwear will knock denim off for good. Why? Well, with so many people working from home these days, comfort has won out over style.

More pointedly: the sweatshirt has won out over the jean. Or so the thinking goes. Take a listen from a recent programme aired by US-based National Public Radio, and you'll see what I mean. To listen to these folks, you wouldn't be wrong to conclude that it's the end of the denim world as we've known it.

Speaking honestly, though, it's probably more of a bump in the road. Let's take a look at some data to try to make sense of it all.

A tale of the tape

Although import statistics are a lagging economic indicator of demand, key trends can be gleaned from these data in import-dominated markets such as the United States. For instance, volume trends, average prices, and countries of origin are significant market performance measures thanks to the collection and availability of such data provided by the US Census Bureau, which functions as an agency of the US Department of Commerce, and the Office of Textiles and Apparel (Otexa).

As the following table shows, overall US apparel imports, when measured in square metre equivalents (SME), are down nearly 27% for year-to-date July 2020 compared to the same period in 2019. This is not surprising as Covid-related weak consumer demand, retail closures, and supply chain disruptions have wreaked havoc on the apparel business

But what's interesting is when we examine US imports of denim apparel and compare that to cotton knitwear like T-shirts and sweatshirts. In both categories, imports are down by comparable levels – just that knitwear is down slightly less year-over-year than is the case with denim. Specifically, US imports of cotton knit shirts (including sweats) are down for the year-to-date July 2020 by just over 31% compared to the same period of 2019, while denim apparel imports are down by nearly 35% over the same period.

After analysing these data, I conclude that this is empirical evidence of a slight market shift. Yes, imports of jeans have fallen faster than knitwear, indirectly suggesting that the market has consumed more knitwear than jeans this year. But let's be real here: when coupled with general hysteria dominating industry circles these days, such trends can be magnified by sourcing people to an alarming degree.

To place these results in context, all imports are down sharply from year-ago levels. The market has contracted, painful as it is; there's no getting around that fact. So if there's a lesson in this, it's best not to read too much into the data without proper context. To do so only leads to misleading conclusions and overreaction. Beyond that, though, there are broader implications to consider. 

More to consider

Think about this: I believe the most recent import statistics include delayed shipments from before the Covid outbreak, and are skewed to some degree. Remember all of those order cancellations? In the intervening months, many retail buyers have made good on their orders. Or at least, made provisions for orders to be fulfilled over a series of months.

To the extent that old orders are mixed in with new orders – albeit at significantly reduced overall import levels – I suggest we should wait until at least the year-end results to draw firm conclusions about what the market did or didn't do. It's nary impossible to know how much in the import statistics is a new or old product.

Even so, if we assume that current results include at least some pre-Covid production that is only now making its way to US ports, then the market situation is even worse than the official statistics suggest. Like things weren't bad enough already!

Bagging countries

Let's turn our attention to specific countries. During the Covid outbreak, China has held on to its top import position for US buyers, which makes sense if previously cancelled orders are only now making their way across the Pacific. That helps to prop up the statistics. If it is true that sourcing companies have diversified away from China to other regional suppliers, then I suspect we'll only see such statistical shifts by the year-end reports – after pre-Covid products have been finally delivered to US buyers.

Beyond China, it is intriguing to see imports from so many countries have actually rebounded. I didn't realise the US market had recovered from the Covid-induced economic recession so quickly. In reality, I don't think it has. As with China, other countries have improved or maintained their standing in the import pantheon because previously manufactured, but cancelled orders, have finally been resolved with buyers and shipped to the US.

As a consequence, this bounce in global imports may really be due to pre-Covid production only now being entered into the US, and does not necessarily mean it's due to some sudden new-found demand for foreign-made clothing. Again, it's likely a mix of pre-Covid products and new production.

I also find it interesting that US imports from many countries rebounded faster than imports from China over the past few months. Does this suggest that previously cancelled orders are increasing at a rate even greater than shipments from China? Perhaps, although we may never know for sure. What we do know is that fear in the marketplace takes precedence these days, and that will likely remain the case until the Covid crisis passes.

In the interim, context and careful analysis are more critical than ever. Because, as we've noted, what appears on the surface can be misleading, and while what lies beneath may be harder to ascertain, asking probing questions can lead to insightful answers. Put another way: crunch the numbers, but don't get crunched by them and be drawn to make the wrong conclusions and feed the market's fear and hysteria.
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