The Global Economics of Fashion and Clothing – Part 1 – Clothing

How Important

Personal appearance – how we look – is important to most people. Nevertheless, we spend very little on clothing. Table 1 provides consumption expenditure shares for selected developed nations. On average, these countries spend only 4% on clothing. Italians are the exception, spending 8% on what they wear.

Table 1. – Consumption Expenditure Shares, Selected Countries, 2008

Item France Germany Italy Japan UK US Average
Housing, utilities 25% 24% 22% 25% 21% 19% 24%
Food 14% 11% 15% 15% 9% 7% 14%
Transport 15% 13% 13% 11% 15% 11% 11%
Recreation and culture 9% 9% 7% 10% 11% 9% 10%
Restaurants and hotels 6% 6% 10% 8% 11% 6% 8%
Health 4% 5% 3% 4% 2% 19%[1] 5%
Home furnishings, maintenance 6% 7% 8% 4% 5% 5% 4%
Clothing and footwear 4% 5% 8% 3% 5% 4% 4%
Communications 3% 3% 3% 3% 2% 2% 3%
Alcohol, tobacco, narcotics 3% 3% 3% 3% 3% 2% 3%
Education 1% 1% 1% 2% 1% 2% 2%
Other 11% 14% 9% 11% 15% 14% 12%

Source: OECD (2010),”Final consumption expenditure of households”, Detailed National Accounts (database).

Table 2 provides data on total and per capita clothing expenditures in selected developed nations. US clothing expenditures are more than double those of Japan, while Italy leads on a per capita basis. Clothing expenditures in China are growing rapidly. They now exceed $150 billion. Many international clothing manufacturers and retailers see China and India as huge potential markets.[2]

Table 2. – Clothing Expenditures, Selected Nations, 2008

Clothing/Footware Per Capita
Country (mil. US$) (US$)
United States 352,100 1,135
Japan 119,026 939
Italy 97,392 1,677
Germany 96,365 1,171
United Kingdom 72,839 1,168
France 65,977 1,019

Source: OECD (2010),”Final consumption expenditure of households”, Detailed National Accounts (database).

International Trade

As Table 3 indicates, the United States is by far the largest importer of clothing. It is expected its imports will grow by an estimated 3-10%[3] as the US phases out its quota on China clothing and textile imports. This quota, now gradually being rescinded, is the largest trade barrier in the world.

As the last column in Table 3 indicates, most clothing is produced domestically. In the US, imports constitute only 23% of clothing purchased. 

Table 3. – Clothing Imports, Selected Nations (mil. US$)

   

 

Imports

 

 

% World

 

Import % of Total

Country/Region 2008 Trade Consumption
World 375,614 100%
United States 82,464 22% 23%
Germany 32,417 9% 34%
Japan 25,866 7% 22%
United Kingdom 23,564 6% 32%
France 23,265 6% 35%
Italy 17,311 5% 18%

Source: http://stat.wto.org/Home/WSDBHome.aspx?Language=E

Table 4 provides data on the leading clothing exporters. China dominates and would be even larger in the absence of the US quota.

Table 4. – Largest Clothing Exporters (mil. US$)

  Exports Percent
Country/Region 2008 Total
World 361,888 100%
China (including HK, Macao) 148,939 41%
Italy 25,078 7%
Germany 18,109 5%
Turkey 13,591 4%
France 11,502 3%
Bangladesh 10,920 3%
India 10,854 3%
Belgium 9,747 3%
Viet Nam 8,971 2%
Netherlands 6,437 2%

Source: http://stat.wto.org/Home/WSDBHome.aspx?Language=E

Recession Effects

Clothing outlays are not recession-proof. As Table 5 indicates, clothing purchases fell in OECD countries reporting data for 2009.

Table 5. – Clothing Outlays, % Change 2008 – 2009

% Change
Country 2008-09
Turkey -7.5%
Denmark -5.5%
United States -3.6%
Iceland -3.1%
France -2.1%
Canada -1.7%
Netherlands -0.7%
Slovenia -0.5%
Finland -0.5%
Israel -0.4%

Source: OECD (2010),”Final consumption expenditure of households”, Detailed National Accounts (database).

Clothing Market Segmentation

The clothing market is extremely complex with “leakages” at most production and market levels. Some of these “leakages” are intentional in the sense of being done with the approval of the designers as a way to sell more product at different prices. There is also considerable pirating, particularly in the US where, unlike Europe, copyright laws do not apply to clothing.[4]

Market complexity and price differentials are greater for women than men’s clothing. Table 6 offers a rough, indicative sense of the price of a woman’s dress in different markets.

Table 6. – Woman’s Dress: Indicative Prices at Different Market Levels

Market Segment Price
Designer Clothing – Direct Purchase from Runway Show $25,000
Designer Clothing – Sold in high-end boutiques (original) $3,500
Designer/Brand Name Clothing – Own Store Sales, Dept. Store Sales (copy) $1,500
TJ Max type stores – new (copy) $800
Amazon – new (copy) $600
EBAY – new and used (original, copy, and pirated) $80

Table 6 prices, while only indicative, illustrate two important points:

  • There is probably a greater price range for specific items in clothing than any other industry;
  • The price mark-ups on materials and labor article are greater for clothing than any other industry.

Fashion

Why does this happen? Why are clothing prices not forced down by market forces to something near production costs? The answer: Fashion drives the clothing market. It will be the focus of the second part of this series.


[1] The US health expenditure is truly remarkable. And this, despite the fact that the US ranks near the bottom among OECD countries on health indicators such as life expectancy and infant mortality.

[2] http://www.china-window.com/china_market/china_industry_reports/analysis-of-chinese-cloth.shtml

[3] http://www.fas.org/sgp/crs/row/RL34106.pdf.

[4] For a good article on this, see Hemphill & Suk, “The Law, Culture, and Economics of Clothing”, Stanford Law Review, vol. 61, March, 2009, available at http://ssrn.com/abstract=1323487.

The content above was saved on the old Morss Global Finance website, just in case anyone was looking for it (with the help of archive.org):
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