Retailers express further concerns around Chinese import quotas
06 September 2006
The country's six largest clothing retailers, Edcon, Truworths, Woolworths, Foschini, Pepkor and Mr Price today said that further concerns have emerged as they compile the necessary information in response to the government's proposed imposition of quotas on Chinese clothing imports.
Apart from the significant inflationary impact expected of 20% to 25% or more on prices of some key categories of clothing to consumers and shortages of stock for their shelves, others factors are emerging that are of as great a concern.
Preliminary investigation between the retailers and clothing manufacturers confirm the retailers' expectations that local companies will be unable to make up the expected shortfall the quotas will inflict. Even where there is some excess capacity locally, retailers are convinced the additional supply will not match the current price, quality or fashionability South African consumers currently enjoy.
Preliminary calculations show that if these regulations are implemented as they are proposed, the South African Revenue authorities could lose over R1 billion from the top retailers alone through lower profits, lost sales and lower VAT collections by December 2006 as many products cannot be replaced in such a short time..
Indeed, the retailers confirm they would already have been procuring most items they believe possible and acceptable to consumers locally so as to avoid the 40% customs duty and 10%-15% shipping and insurance costs on imports, if there was sufficient capacity and diversity in the local manufacturing industry. These costs are already been borne by the millions of consumers on all imported clothing.
Estimates of 20- 25% or greater increases in prices can be expected on some necessities such as children's clothing, warm winter padded jackets and denim to name just a few, if these regulations go ahead. The increases will affect many more product items as very few are excluded. The only significant exclusions are T-shirts, Knitwear, shoes and accessories.
The retailers are now able to estimate that up to 60% of their customers' favorite fabrics not readily available in South Africa will be restricted by the quota, endangering even further the likelihood of satisfying consumer demand and imperiling jobs in the cut make and trim manufacturing industry. The local fabric industry can be as much as 50% more expensive, is far less flexible and many fabrics on the list are simply not readily accessible to South African retailers locally, if at all. Further, retailers depend on reliability and timing of deliveries which is a serious problem at the moment without the additional pressure which would be placed on the industry if these quotas are implemented.
Ironically this issue could lead to even more serious problems for some clothing manufacturers than they currently have. In the short term the unavailability of suitable fabrics could cause some factories to face severe short term problems which could threaten their viability before the end of the year.
Many of the major retailers in South Africa are collectively procuring more from local suppliers than ever before given the growth in their collective businesses over the last four years. At the same time competitive pressure and Chinese imports have assisted in lowering clothing inflation which has been low to negative over the past few years. Consumers have welcomed these low prices matched with variety and better quality than ever before.
These factors and our growing economy have lead to some professionally run retailers making excellent profits over the past few years. Retailers have hardly increased input gross margins over past years. Benefits of cheap imports have generally been passed on to consumers as evidenced by low and negative inflation in many clothing articles sold in stores. Profits have been as a result of economic growth and improving demand as consumers discover the benefits of well priced clothing.
Over the last two to three years, retail profit growth has driven significant growth in new employment of tens of thousands of jobs in retail and in the enormous services industry that supports retail such as logistics, transport and IT services. Retail has been one of the fastest growing source of new employment in the economy over the past years.
In addition there has been a boom in shopping centre development. These factors are assisting South Africa in attracting many billions of rand in foreign investment and in tax revenues which is then paid by and collected by retailers for the revenue authorities.
The impact of significantly reorganizing the supply chain through quotas needs to be carefully evaluated as the clothing supply chain is complex and impacts on the economy broadly. Related infrastructure sectors such as transport, roads, port development may be impacted by limiting imports through quotas.
The retailers believe that the battle against the massive amount of illegal or under-invoiced garments to South Africa is being addressed in the wrong manner by focusing on control of the recognized and ethical companies through quotas, instead of waging a valid battle against illegal imports.
There are many legal importers providing an excellent service to South African consumers by sourcing demanded items at best prices from around the world.
However the retailers believe that quotas will inevitably lead to corruption and the creation of undeserving wealth by some middle men.
In addition importers who have imported for many years will benefit whilst those who have not will be penalized.
Retailers believe that millions of consumers and the whole South African economy will suffer unnecessarily in what should rather be a battle against illegal imports and a focus on fixing an uncompetitive local clothing manufacturing industry.
Consumers demand lower prices not significant increases in clothing prices! Another irony is that if duties were to be reduced to around 20% which is closer to the norm internationally, from the current 40%, many clothing prices in South Africa could actually fall by about 10% or more.
The retailers call for an urgent and immediate suspension of the implementation of the China agreement to stop the chaos and enormous cost that this process is already causing.
They call on the authorities to urgently appoint a task force of independent professionals to talk to all parties and compile an impact study of the consequences to the SA economy for review by the government of these regulations before taking them any further.