How Long Does it Take to Close 36,738 Apparel Factories?

About 1 year…

But are they closed?  Serving other markets?  In hibernation?

A report released by Panjiva, a company founded in 2006 that mines U.S. Customs and Border Protection data to create useful reports on suppliers, claimed that the number of apparel suppliers shipping goods to the U.S. dropped 85 percent over the year (ending October 31, 2008).  Circa October 2007, approximately 43,653 factories were supplying apparel to the U.S. One year later, the data revealed that only 6,262 remained.  While some of these factories may be surviving by diverting attention to other markets, there's no doubt that a great many of these suppliers have probably shut down completely.

It's not difficult to surmise the cause. 

Looking at the retail side, Q4 '08 is showing the signs of pain up and down the supply chain.  Order cancellation, inventory build-up, tightening credit, and of course, weak consumer shopping are rippling throughout the retail and manufacturing environment.  

The end, or even the beginning of the end, is not in sight.  Problems beleaguring consumers and retailers will surely extend, and likely worsen in Q1 & Q2 of '09.  Once the holiday cheer is over, the credit card statements come and many feel consumers will be on spending lock-down.  Inventory surpluses will need to deplete before buyers will once again begin signing off on orders. One merchandise planner for a major department store commented to me that Q3 of next year may still be early for things to finally hit bottom on the retail side.  Much will depend on the next few months.

With respect to the many factory closings, damage has been done and even more may close.  But, it's unclear how many of these factories have closed permanently, or rather, gone into hibernation.  Many of these apparel factories may be smaller shops, with 300 or less workers and no heavy machinery.  Equipment might be liquidated or stored easily and, as mentioned in my previous post, labor forces in a given locale of a developing country, particularly China, have a way of contracting and swelling much more easily than in, say, the United States.  In China, it's not uncommon to see a series of furniture shops open and close in a matter of months when a large apartment building goes up and residents moving in will need furniture.  Start-up costs/barriers may be no more than: buy some furniture and rent the space. 

Thus, as the consumer spending, and subsequently retail, begins to turn the corner, which we may begin to see by Q3 of '09 (hopefully), we may see factories begin to come out of "hibernation" and pick up operations again.  After all, management prowess, labor skills, and industry contacts don't disappear.  The availability of credit is another question.