Are retailers to blame for SA's clothing industry woes?

Renato Palmi.

The National Clothing Retail Federation of South Africa (NCRF) has conducted reviews of case studies, policy briefs, media commentary and debate within the apparel sector in relation to significant trade and industry realignment in this arena. Its findings reveal that dominant retailers in the value-chain are persistently identified as playing a catalytic role in these disputes. Local manufacturers tend to attribute the retailers' demand for low cost at source as a factor that hamstrings the viability of local clothing factories, which are required to comply with minimum wage levels set by the National Bargaining Council.

The NCRF, which represents six major clothing retailers, presents an alternative perspective on this scenario. Members of the NCRF contribute less than 50% of sales in the formal sector, with the balance being generated by the informal sector. Research indicates that, driven by South Africa's socio-economic demographics, the discount apparel sector makes up nearly 80% of the entire market. This profile is linked to income distribution, which ultimately compels consumers to prioritise price as the fundamental driver of their purchasing decisions. Style, colour, print type, the feel of the garment and sizing are subsidiary considerations for this market segment.

It's not simply a cost issue

Whilst they are committed to supporting the local industry, the NCRF members argue that, as profit-driven businesses, they are required to consider numerous supply chain factors. Sourcing local suppliers must take account of not only price, but also delivery, consistency in quality, reliability and flexibility from their suppliers. For example, only 63% of local suppliers are able to meet stringent delivery deadlines.

These indicators for retailers' support of local suppliers were clarified at the 2009 KwaZulu-Natal Economic Recovery and Jobs Summit. At this strategic forum, the Natal Manufacturing Association stated that aside from price-consciousness, a significant portion of local clothing manufacturers lacked capacity to implement rapid responses to production requirements, and could not meet a 60- to 70-day turnaround in delivery.

These efficiencies are crucial to securing a competitive edge in the national and global market. In media reports covering the recent turmoil experienced around Newcastle clothing companies, factory owners acknowledge that labour and efficiency issues affect their ability to compete with cheap imports. The challenge of global competitiveness is endorsed by international research that identifies flexibility, reliability, control, labour, pricing and management as critical ingredients for market share.

The ReDress Consultancy in collaboration with Ifashion, a local fashion website, ran a poll that asked the following question: "Can the major retailers be blamed for the current state the apparel and textile sector is in?" Just over 52% of the respondents said 'Yes' because of their "profit margins on imported goods." While 23% of the respondents stated that it was government's "protectionist policies that render the industry uncompetitive," 12% said 'No' because local manufacturers "are not competitive or reliable." A further 12% said the retailers could not be blamed because South African consumers are "happy to pay high prices for cheap quality imported goods."

Mutually beneficial collaboration is essential

The retailers' commitment to supporting local suppliers was demonstrated in December 2003, with a declaration forging a partnership between retailers and the Southern African Clothing and Textile Workers' Union (SACTWU) to find ways of enhancing the buy-local campaign. There was agreement then that the apparel manufacturing sector should formulate and apply mechanisms for stable and viable local clothing output.

Both the NCRF and apparel manufacturers understand that mutually beneficial collaboration is essential for the sector's growth and sustainability, and that it is not merely price that underpins this relationship. Contrary to popular belief, NCRF members hold that it makes more economic sense to support local manufacturers who are geographically convenient and as such, can provide retailers with "quick-to-market" options. This alleviates the risk run by retailers in ordering large volumes from overseas of fashion styles that might no longer be seasonal or "on-trend", as determined by rapidly mutating consumer demand.

In 2009, clothing and textile manufacturers met with retailers to cement their operational relations and find best-practice methods for retail sourcing of local textiles and apparel. Following from this, the NCRF members have developed excellent working relations with several suppliers who have restructured their production lines to meet international retail standards. This is necessary because consumers are knowledgeable and discerning in their purchasing, and demand good value for money.

Strikes, industrial disputes force retailers to look outside of SA

The NCRF is concerned by the labour disputes taking place between manufacturers, the National Bargaining Council and the Union, and will continue to observe the situation closely. The longer these disputes continue, the greater will be the negative impact on their business, and retailers may have no choice but to shift their sourcing focus from local to overseas suppliers.

The stakeholders in this wrangle should avoid a short-sighted approach in assessing the damage being done to productivity, the labour force and employment growth. SACTWU's Andre Kriel expressed this unreservedly at the 2009 KZN Summit, saying that although the demise of South Africa's clothing industry cannot be contemplated, as the unrelenting loss of jobs is extremely detrimental to our nation's social fabric, we cannot compete with a country like China, which subsidises its clothing industry.

The recognition that our local manufacturers are not out-performed, but rather out-subsidised, is echoed by the Apparel Manufacturers Association of South Africa (AMASA). However, it is baffling that SACTWU itself is initiating legal action against clothing companies in Newcastle who seek some reprieve from unrealistic wage regulations. It also seems unfair for SACTWU to blame retailers when specific manufacturers are closed down because they are not competitive.

Wage growth must match worker productivity

Employment figures for the formal clothing and textile sector vary dramatically, from 57 000 to 200 000 direct and indirect jobs in the clothing sector alone. The industry accounts for 15% of total formal employment, and contributes 6% of output for the manufacturing sector. According to Statistics South Africa, 74 000 jobs were lost in the manufacturing sector between the first and second quarters of 2010.

Stats SA's Quarterly Labour Force Survey revealed an increase from 24.3% (4.165 million) to 25.2% (4.310 million) in the unemployment rate between the last quarter of 2009 and the first quarter of 2010, with an increase of 11.7% in earnings paid to employees in the formal non-agricultural sector for the first quarter of 2010, compared to that of 2009. The survey shows that low worker productivity is the main deterrent to employers' predispositions towards pay rises, and that legislated wage hikes do not increase worker productivity.

Global research on wage increases highlights that, for long-term macro-economic stability, it is important to keep the growth of real wages in line with labour productivity. The NCRF would urge the Bargaining Council and the union to revisit their wage structures for the sector to accommodate particular needs in individual cases in terms of geographical location and company affordability.

Exploitation of our labour force cannot be permitted, but these agencies can lead us beyond the quagmire of dogma and into a new vision for the sector that is cognisant of economic realities in both the industry and the country. As a nation with a 25% unemployment rate, the Department of Labour must ensure that smaller manufacturers are not unfairly pressured through larger manufacturers trying to corner production.

A complex value chain

The Bargaining Council's August 2010 list reflects that 43% of national clothing manufacturers are not complying with wage regulations, and that in KwaZulu-Natal - the second-largest base for clothing operations - 54 of 131 known companies are compliant. This profile of wage regulations presents a view of distorted policy effects that undermine productivity and, in turn, the retailers' ability to support local operations.

The perception that retailers are supporting non-compliant companies is also misplaced. The clothing sector's value-chain is complex and to some extent, opaque, in that it consists of contractors and sub-contractors. Whilst NCRF members have undertaken to deal directly with compliant companies, it would be wrong to place the onus on retailers to ensure that their suppliers do not sub-contract to non-compliant companies.

Moreover, NCRF members are also competing with the mass of illegal clothing being imported into the country. In 2007, nearly R5 billion in clothing and textile imports from China alone were under-valued. These figures were substantiated by SACTWU, which stated in 2008 that 30% of all clothing sales consisted of illegal imports, resulting in "between 20 000 and 30 000 jobs losses in the clothing sector." NCRF members have regularly implored the South African Revenue Services and Department of Trade and Industry to reveal the names of companies and even individuals who are illegally importing apparel products so as to monitor their supplier base, but these requests have not been heeded.

This year alone, NCRF members have increased their rand-spend on local production through companies that have undertaken to up-skill their staff and institute efficient production output. These retailers are eager to continue supporting both larger and smaller companies, but the fragile state of the sector does not inspire confidence.

NCRF members are wholly committed to the local apparel industry and to their role in growing South Africa's economy. They firmly believe that the apparel sector can realign itself to create viable jobs through high quality and reliable production systems, and remain willing to participate in a communitarian space that allows for open and honest dialogue with all stakeholders to explore achievable and measurable outcomes in this sector.