Chain Reactions

Cheaper Than China?

The same market pressures that drove U.S. apparel companies to offshore their labor to China is now happening all over again, but this time in China itself.

Here's the amazing opening sentence in today's Wall Street Journal article:

"Rising labor costs in China are forcing U.S. apparel and accessories retailers, such as AnnTaylor Stores Corp. and Coach Inc., to consider relocating at least some of their production to countries with cheaper work forces."

Cheaper than China? Yes, believe it or not, average wages in China have risen to a whopping $1.84 an hour, which is up 14% from the $1.61 or so Chinese laborers made a year ago. Fortunately (for the apparel companies, anyways), Vietnamese laborers are available to do the same job for a mere 49 cents an hour, which is about what Chinese laborers made on average just a few years ago. As the WSJ helpfully points out, though, wages are going up even in Vietnam, though at a more reasonable rate of 2% per year. Other popular choices for apparel work these days include Cambodia, Indonesia and Bangladesh.

Apparently without a hint of irony, Jeremy Rubman, a consultant with Kurt Salmon Associates, told the WSJ, "It is a really bad time for labor costs to be rising. Nobody wants to alienate the consumer that's finally coming back."

As a point of reference, handbags on Coach's website start at about $200-300, depending on the model. It would take a Vietnamese laborer 600 hours, or 15 weeks (assuming a 40-hour work week, which is probably a false assumption), to earn enough to pay for a $300 purse.

But Michael Nicholson, CFO of AnnTaylor, isn't ready to instantly relocate operations to one of the really-low-cost countries. As he puts it in the article, that kind of relocation will only happen "once they prove that the quality is there." Nicholson did not elaborate on what he meant by "quality."

TAGS: Supply Chain
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