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Target Corporation (TGT) Q2 sales increased by 2.8 per cent, driven by better-than-expected increase in comparable sales. Comparable sales in style (which includes the majority of the retailer’s apparel categories), baby, kids and wellness grew by more than 7 per cent in the quarter, three times faster than the company average.
Comparable sales was four to five per cent in both home and apparel categories, with apparel showing the strongest performance in baby, kids and women’s ready-to-wear. Digital channel sales grew by 30 per cent and contributed 0.6 percentage points to comparable sales growth. About 80 per cent of digital channel sales growth was driven by home and apparel. One of Target’s key strategic initiatives is to become a leader in digital, since it plays such a major role in driving store traffic.
Gross margin rose by 50 basis points to 30.9 per cent of revenue, reflecting heightened promotional markdowns in the second quarter of 2014 and a favorable merchandise mix in 2015. Net income increased by 221 per cent, up 20.6 per cent from the second quarter of 2014.
The company is pleased with the second quarter financial results, as traffic growth, strong sales in the signature categories and continued expense discipline drove better-than-expected profitability.
World cotton output in 2015-16 is forecast at 109 million bales, 2.5 million bales below last month's projection and 10 million bales below 2014-15. Global cotton area in 2015-16 is seven per cent below 2014-15. The 2015-16 production is projected below consumption and would be the smallest crop since 2009-10. For India, which is expected to be the largest producing country, cotton crop is projected at 29 million bales in 2015-16, about two per cent below last season’s 29.5 million bales. With a normal monsoon this season, a seven per cent reduction in area is partially offset by a higher yield expectation.
In China, production is forecast at 26 million bales in, four million bales below last season, with fewer incentives to plant cotton resulting in a reduced area of nearly 18 per cent in 2015-16.
Pakistan's crop is forecast is at 10.2 million bales, nearly four per cent below 2014-15, while area is expected to rise two per cent, with reduction in yield, reducing Pakistan’s production by 400,000 bales in 2015-16. Brazil’s crop is forecasted to remain the same in 2015-16 at seven million bales, as area and yield are projected to equal that of 2014-15. However, India’s exports in 2015-16 are expected to expand significantly.
Among the CPOs, Ethiopia emerged as the most sought after nation and turned out to be the most attractive for international buyers of apparels. Out of the 40 CPOs, 13 said they would start sourcing from Kenya, five said they would increase the value of apparels they sourced from Kenya. Another 28 said they would start sourcing from Ethiopia and eight said they would increase the value of apparel sourced from there.
East Africa emerges strong
The survey ‘East Africa: The Next Hub for Apparel Sourcing’, shows Ethiopia has cost advantages, whereas Kenya has higher production efficiency. Mauritius is third, and 13 respondents said that they would start sourcing apparels from there, while another three said they would increase their value of apparels. Lesotho, Madagascar, Uganda, Tanzania, Botswana, Egypt, South Africa and Swaziland were the other African countries that are emerging.
At present, Kenya’s apparel industry specialises in supplying high volume bulk basics such as trousers, as per the report. Almost 92 per cent of Kenya’s apparel exports went to the US in 2013. Over $400 million worth of apparels that includes jeans and towels consumed in the US are manufactured in Kenya’s Export Processing Zone (EPZ), at present. According to Adan Mohamed, the Industrialisation Cabinet Secretary, this is projected to many fold. Also, in recent years, due to foreign direct investments from Asia and Middle East as well as support from the EPZ developed by the Kenyan government, the capacity of Kenya’s garment factories has grown.
Future goals for the sector
The revival of textile and leather industries is one of Jubilee government’s price focus. This will be help take advantage of Agoa and global markets. The government intends to invest in industrial and enterprise skills to sustain these industries. Besides, they would be initiating a targeted approach to identify potential international investors for these priority industries.
With economic liberalisation in 1990, there was an influx of textile goods in country. Also, the average capacity utilisation in textile mills went down by almost 50 per cent. Once the fifth largest forex earner, the textile sector’s contribution to GDP dropped. Agoa Act though, offered government support and several prospects, which helped the industry. According to the McKinsey report, if they wish to attract international buyers, both Kenya and Ethiopia have to address compliance and risk issues. And as the CPOs surveyed pointed out, Kenya needs to address corruption, high crime rates and social compliance.
Global cotton prices have fallen over the past months however, NY Futures sharply reversed after the release of this month's USDA report. Prices for the most actively traded December futures declined slowly but steadily throughout the month of July. In August, prices broke out of the range between 63 and 68 cents/lb for the first time since mid-March by falling through support near 63 cents/lb. However, following the release of this month's USDA report, which featured large downward revisions to figures for US production and ending stocks in 2015/16, prices rebounded from levels near 62 cents/lb back to those near 65 cents/lb.
USDA report indicates price recovery
The A Index followed NY futures lower throughout July and August and dropped to values below 70 cents/lb for the first time since April. The Chinese government facilitated the largest percentage decrease in the value of the RMB relative to the US dollar since 1994 early this week. The shift in the exchange rate lowered the value of the CC Index in dollar terms slightly from 96 to 93 cents/lb. In local terms, the CC Index has been steady at values near 13,150 RMB/ton.
Indian spot prices for the Shankar-6 variety moved marginally lower over the past month. In international terms, values declined from 69 to 67 cents/lb. In local terms, prices declined from Rs 34,400 and Rs 33,700 per candy. Pakistani spot prices also decreased slightly. In international terms, values fell from 56 cents/lb to 53 cents/lb. In local terms, prices decreased from Pakistani Rs 4,700 to 4,500 per maund.
Price outlook for 2015/16
The response by NY futures to the latest USDA release was likely driven by the substantial changes made to figures related to the US. It is not uncommon for there to be large revisions to US production estimates in reports released in August. This is because there is a change in methodology used by the USDA between the July and August releases.
From May, when the first complete estimates for upcoming crop year are released, to July, the USDA relies on commodity analysts and statisticians to develop forecasts. In August, and throughout the harvest period, data gathered from field surveys conducted by observers across the cotton belt are used to generate yield and production forecasts. This year, due to heavy rainfall in many cotton growing states, there was considerable uncertainty related to acreage planted, abandonment, and yield. As a result, the change in methods could have been expected to result in important revisions to existing estimates.
This month, the US planted acreage number was lowered 100,000 acres nationally from 9 to 8.9 million. Abandonment, which refers to acreage planted but not harvested due to poor crop conditions, was increased from 500,000 acres to 1.0 million acres. The national yield forecast was lowered 27 lbs/acre (3 per cent). In combination, these changes generated the 1.4 million bale (10 per cent) decrease in US harvest expectations this month.
Accompanying the reduction to the US harvest estimate were changes to US export numbers and ending stocks. A 200,000 bale increase from 11.0 to 11.2 million to the 2014/15 export figure contributed to a 500,000 bale reduction to 2014/15 stocks. For 2015/16, the US export estimate was lowered 800,000 bales, from 10.8 to 10.0 million and was a result of the smaller production number. The implied tightness in US supplies could emerge as a factor supportive of prices in 2015/16.
The China Keqiao International Textile Expo 2015 (Autumn) is scheduled to take place from October 16-19, 2015 at the China Textile City International Convention & Exhibition Center in Keqiao district, Shaoxing city, Zhejiang province. The exhibition area will spread over 34,000 sq. mt. and the expo will feature 1,400 international stands. The expo is very popular and though more than 90 per cent of the stands were booked, many textile enterprises are still looking to register.
The reason for the expo’s popularity, is that since its foundation, the Keqiao Textile Expo has stood out from fabric shows everywhere in the country. The expo has become one of the top three along with the Shanghai Fabric Show and Fabric Show in Canton Fair.
The show works as a meeting ground for exhibitors and companies looking to source. Also, the solid industry chain and improved industry base works as a strong support for the expo, say experts. Moreover, they feel it has some advantages over the Fabric Show in Canton Fair and Shanghai Fabric Show. The Keqiao Textile Expo’s outstanding feature is the textile cluster production area, with convenience for follow-up visit and cooperation.
Pakistan Hosiery Manufacturers and Exporters Association (PHMA) is opposing the government’s move to impose import duty on yarn. The move aimed at protecting the spinning sector, but the association believes this would have a negative impact on value-added textile sector.
Usman Jawaad, Chairman, North Zone, Pakistan Hosiery Manufacturers and Exporters Association (PHMA) strongly opposed the move and said that PHMA stands with Pakistan Readymade Garments Manufacturers (PRGMEA) and Exporters Association, Pakistan Apparel Forum (PAF) and all other business associations, who had already expressed their displeasure about the proposed move.
He said that value-added textiles in general and the apparel sector in particular were under severe pressure due to fierce competition in the international market from countries like Bangladesh, Vietnam and Cambodia. He further added that squeezing the apparel manufacturers would in turn lead to a decline in export earnings along with unemployment.
Apparel manufacturer say the All Pakistan Textile Mills Association’s (APTMA) demand to impose five per cent duty on yarn import exposed their support of a free market. The value-added textile sector, in 2010, was faced with cotton yarn shortage due to short cotton crop. However, the spinners’ lobby opposed restrictions on yarn exports. The APTMA also opposed the Indian government’s move when it imposed restriction on cotton exports to Pakistan. Now, the very people were advocating a ban on import of yarn.
Jawaad added that as the apparel industry adds more value to Pakistan’s cotton than any other segment of the textile industry, it deserves to be safeguarded of its business environment. The PHMA thus demanded that any unilateral policy be avoided and overall national interest should be foremost and the main objective while drafting the country’s policies.
Planet Textiles Summit on textiles and sustainability is scheduled for the October 14 in Shanghai, alongside Intertextile Shanghai Apparel Fabrics, (scheduled from October 13-15), and is organised by Messe Frankfurt. The Planet Textiles Summit will touch key topics such as tough new environmental legislation in the Chinese textile sector and how it is being enforced. One of the speakers is, Zhao Lin of Solidaridad who will highlight the work of the Better Mill Initiative in China. The three-year Better Mill Initiative (BMI), in partnership with H&M and other major international retailers was launched by Solidaridad.
Besides the summit, the fair will also feature an increasingly popular ‘All About Sustainability’ zone. This was created in response to demand, from both Chinese and global textiles industry. This year’s zone is bigger by 30 per cent, and features three sections: an educational zone, and ecoBoutique display and a seminar area.
Wendy Wen, Senior General Manager of Messe Frankfurt (HK), said sustainability is a major issue in China since the past few years. It’s not just the government and the textile industry that are concerned with this issue, but even the consumers are concerned, as they have become more conscious of protecting the environment. She added that both, the Planet Textiles Summit and All About Sustainability were a response to the increasing interest in China.
The summit as well as the fair will take place at the newly built National Convention and Exhibition Center, Shanghai, China. Planet Textiles 2015 will take place in English, and have simultaneous translations in Chinese.
World cotton output in 2015-16 is forecast at 109 million bales, 2.5 million bales below last month's projection and 10 million bales below 2014-15. Global cotton area in 2015-16 is seven per cent below 2014-15. The 2015-16 production is projected below consumption and would be the smallest crop since 2009-10. For India, which is expected to be the largest producing country, cotton crop is projected at 29 million bales in 2015-16, about two per cent below last season’s 29.5 million bales. With a normal monsoon this season, a seven per cent reduction in area is partially offset by a higher yield expectation.
In China, production is forecast at 26 million bales in, four million bales below last season, with fewer incentives to plant cotton resulting in a reduced area of nearly 18 per cent in 2015-16.
Pakistan's crop is forecast is at 10.2 million bales, nearly four per cent below 2014-15, while area is expected to rise two per cent, with reduction in yield, reducing Pakistan’s production by 400,000 bales in 2015-16. Brazil’s crop is forecasted to remain the same in 2015-16 at seven million bales, as area and yield are projected to equal that of 2014-15. However, India’s exports in 2015-16 are expected to expand significantly.
Cotton yarn market has lost ground once more and stakeholders are not very optimistic about future business amid sluggish sales. In China, sale/production ratios fell at some spinning mills while the outlook turned gloomier given the increase in inventory levels. Sluggish demand further downstream has started taking its toll on polyester market sentiment. Polyester spun yarn prices were stable to firm in China, and deals were concluded in small volumes due to lack of substantial demand. While most yarn makers kept running at a stable rate, demand was sluggish as inventory with fabric makers piled up.
Prices in India were seen easing in line with cotton fiber prices while it moved up Pakistan. In Pakistan, polyester yarn prices mostly rolled over on stable raw material pricing. Prices in India reflected the recent hike in PSF prices at the beginning of this month.
Viscose spun yarn prices were flat in China and volume off-take was slower than expected, exerting downward pressure on market sentiment. Yarn makers did not support the recent hike in VSF prices and kept their offers flat. Viscose yarn price in India rose in rupee terms, reflecting the recent hike in producers’ prices for VSF.
Devaluation in Chinese Yuan has posed a challenge not only for China, but Vietnam as well. Going by a recent statement of Ministry of Planning and Investment, Vietnam’s export to China, especially farm produce, may become more competitive in the coming months. China already holds an edge over its counterparts in the area of export. Vietnamese exporters, still unaffected, are expecting tough times ahead. Textile and garment exporters are expecting things to change for the worse by next year when the agreement some companies have with Chinese partners comes to an end.
Vietnamese exporters may enjoy benefits from the Vietnam-EU Free Trade Agreement (FTA) as the import tariff on Vietnam’s textile and garment products will be cut from 9 per cent to zero per cent after seven years.
Deputy chair of the Vietnam textile and Apparel Association, Dang Phoung Dung feels, the weak Yuan is not a good indication for markets in Vietnam. It will give a boost to Chinese imports in the country and will affect local enterprises negatively.
