Advertisement

Absorbing the Soaring Cost of Raw Cotton : Retailers Pad Blow of 38% Price Jump--at Least for Now

TIMES STAFF WRITER

Consumers who have watched cotton prices shoot up with each new report of a poor Asian harvest can breathe a sigh of relief that they won’t be paying the price at cash registers--at least not right away.

Retailers and analysts say that by and large, prices of denim jeans, T-shirts, bath towels and other cotton goods will not rise anywhere close to the 38% jump in world prices of raw cotton since the first of the year.

“Cotton prices in the last six months have gone through the roof, but retail prices in this country have not been affected by that,” said Haque, a wholesaler of cotton clothing in the California Mart who goes by one name. “Prices of turtlenecks and T-shirts have actually gone down.”

During the crop year that ended July 31, a whopping 20.4 million tons of cotton were made into sweat shirts, bedspreads, wrinkle-free dress shirts and other products worldwide. Americans lead the world in per-capita cotton consumption, and U.S. demand for cotton has doubled in the last decade, according to Terry Townsend, a statistician for the International Cotton Advisory Committee in Washington.

Advertisement

The appetite for cotton has been a boon to cotton growers worldwide, including those in California, which is No. 2 behind Texas among cotton-producing states. The United States is second to China in world production, followed by India and Pakistan.

But insects and poor weather have plagued cotton crops in those Asian nations. That is the main reason worldwide cotton production in the 1993-94 crop year was a measly 18.3 million tons, down almost 20% from two years ago, Townsend said. And the outlook for the coming crop year is at least as bad. On Monday, China reported that its 1994 cotton harvest will be 10% below its already somber projections.

This shortfall sent the price of cotton up 38%, from 60 cents a pound at the end of last year to 82.5 cents in June, before a seasonal decline to 75 cents in July, said Kevin Brinkley, an economist for the Memphis-based National Cotton Council.

As a result, manufacturers of cotton products are feeling squeezed by higher costs and lower profit margins. Now that their inventories have been drawn down, they are looking to raise prices, said Jeff Beck, an analyst with Anderson & Strudwick in Richmond, Va.

Advertisement

*

Companies that use lots of cotton--such as Levi Strauss & Co., Russell Mills and Fieldcrest Cannon--would not discuss changes in their costs or plans to raise prices. But analysts and industry experts agree that most companies will try to pass the higher raw cotton prices on to consumers.

“Clearly, there’s going to be an aggressive attempt to pass those price increases along,” said Nicholas Hahn, president and chief executive of New York-based Cotton Inc., an industry-funded research and marketing group. “Until now, many companies have been swallowing those higher costs, but I think we will see it this fall.”

But even when that happens, prices won’t rise dramatically, because “very little of the retail value of a shirt is tied up in the raw material,” Brinkley said.

Advertisement

For example, there is enough cotton in one 500-pound bale to make 765 dress shirts. Assuming cotton is priced at 85 cents a bale--a relatively high price--one dress shirt will contain about 56 cents’ worth of cotton. Even if the price of cotton were to double, that extra 56 cents is still small compared to the $30 to $40 price tag on a typical dress shirt, Brinkley said.

Some segments of the fabric and apparel industries--especially in high-demand areas such as wrinkle-free fabrics--are expected to raise prices as much as 7% or 8%, analysts said. Home furnishings companies, led by Springs Industries, has raised prices between 4% and 5% on its fall products, said analyst Kay Norwood of Interstate/Johnson Lane in Charlotte, N.C.

Manufacturers in other sectors, such as cotton jersey, are less able to raise prices because inventories are still high, analysts said.

But retailers in Southern California said the region’s weak economy will keep the price of cotton products low, at least for now.

Advertisement

“Our suppliers say their costs have gone up, but we have tried to convince them that it’s not in their best interests to raise prices,” said Donald Abrams, president of Costa Mesa-based 3-D Bed & Bath, which sells sheets, towels and bedspreads.

At Strouds in Encino, towel prices recently climbed a dollar to $10.95, said Allison Mortimer, manager of the home furnishings store where towels account for roughly a third of sales.

Wrinkle-free cotton products have gotten more expensive, said Bernadette Caprarella, owner of Cotton Corner, an Atwater Village store specializing in cotton clothing. But prices for the cotton tank tops, pants and sweat suits she also sells have held steady so far, she said.

*

Advertisement

Tony Lee, owner of Cotton Wear, a clothing manufacturing company in Los Angeles, said higher cotton prices have cut into his profit margin. “We absorb the cost. It hasn’t been reflected in retail” prices, he said.

But analysts say prices could begin to rise in the weeks before Christmas, when the more expensive cotton starts making its way into stores.

“If you walk into a store today and see a pair of blue jeans, they were probably made with cotton that was bought six or eight months ago,” said Jarral Neeper, a spokesman for Calcot Limited of Bakersfield, California’s biggest cotton marketing cooperative.

Cotton prices have jumped more than 30% in the last year, but analysts don’t expect retail prices of cotton products to rise nearly as much. Mill-delivered prices for cotton, in cents per pound:

Advertisement

June 1994: 82.48

HOW MUCH IT TAKES

Denim requires more cotton than any other fabric. For example, one bale of cotton (480-500 pounds) will make 215 pairs of jeans, but that same bale will produce 6,460 bras. Number of items that can be made from a bale:

Men’s jeans: 215

Advertisement

Dresses: 274

Women’s sweaters: 379

Terry bath towels: 690

Men’s dress shirts: 765

Advertisement

Nightgowns: 780

Work gloves: 1,918

Boxer shorts: 2,104

Diapers: 3,085

Advertisement

Brassieres: 6,460

Source: National Cotton Council


Advertisement