Big changes - including price wars and job losses - are in store for the US retail industry when a decades-old system of import quotas for textile imports expires this year, retail experts say. The United States currently limits clothing and textiles imports to protect its domestic trade. But when December 31 rolls around, retail experts anticipate a massive wave of cheap goods from overseas, particularly from China, India and Pakistan, three top textile manufacturing countries.
This flood of inexpensive products could push clothing prices down even further, continuing a long-term import-driven trend. But while that's a boon for bargain-hunting consumers, it could bite into retailers' profit margins.
More retail companies will likely be forced to source their goods from low-cost areas overseas just to maintain a competitive edge, and those that are unable to adapt quickly may get hurt, experts say.
The shift is also likely to drastically alter the domestic textile business, eliminating, by some estimates, hundreds of thousands of US jobs.
Frank Badillo, senior economist and global research program manager at retail consultants Retail Forward Inc, said he sees a "significant period of shakeout and consolidation in the apparel industry," with the lifting of the quotas.
"Those companies that can get it right ... will be the ones that rise to the top," said Badillo.
US retailers may find themselves facing rivals who already have the infrastructure in place to take advantage of low-cost production areas as soon as the quotas are loosened, Badillo said.
Spain's Mango and Hong Kong-based Esprit, for example, which make a lot of their products in low-cost, non-US areas, are waiting in the wings to begin their US expansion.
"Mango is not entering the United States until next year because it hasn't been able to build up enough production under quotas to supply us," Badillo said. Esprit will open its first store this year and expand in 2005, when it will likely have more freedom to get goods from overseas, he said.
HUGE JOB LOSSES SEEN: The World Trade Organisation estimates that clothing from China could make up half of all US apparel imports once the quotas disappear, up from about 16 percent in 2002.
The US Labour Department estimates the end of quotas could result in the loss of some 245,000 US jobs between 2002 and 2012. US textile interests in recent weeks have been calling for "safeguards" starting in 2005, aimed at stemming the flood of cheap goods from overseas.
But an increase in low-cost imports at some point is almost inevitable, opening the door to fierce price competition among retailers. Government data shows apparel prices have fallen, prior to this year, about 2 percent a year for the past five years, Badillo said.
Once the quotas expire, prices at the retail level could fall by as much as 5 percent, Smith Barney retail analyst Kimberly Greenberger said at panel this month, although she added that that is a "worst-case scenario" and unlikely to significantly dent apparel retailers' sales growth.
Manufacturers and retailers are likely to try to keep consumer-level prices steady as costs fall and pocket the difference, analysts said.
"For the manufacturers, it's important to get back some of the margin that they've had to erode to continue to sell to retail organisations," said Marshall Cohen, chief industry analyst at retail research company The NPD Group.
Stores that can differentiate their products from their rivals', take advantage of lower costs to make higher quality goods and also keep some of the cost savings will be under less pressure to cut prices, Greenberger said.
Many companies have brought in products early or made shifts in their production to prepare for the quota expiration, Greenberger said.
Still, more changes may need to be made in the post-quota period, Badillo said. "It will mean a significant period of adjustment for the apparel industry, both for suppliers and retailers."