Swedish Clothier Hennes & Mauritz is trying to source clothing from Ethiopia

Swedish Clothier Hennes & Mauritz is trying to source clothing from Ethiopia

The Swedish clothing chain H&M Hennes & Mauritz is looking at Ethiopia as a new low cost country to produce clothing, as the apparel retailer races to keep shelves stocked at a growing number of stores worldwide reports WSJ the Wall Street Journal

So far, the company has been heavily relying on Bangladesh for its clothing line production, and a move to Africa would expand its sourcing footprint but not replace its commitment to production in Asia. One supplier says that H&M is looking to source one million garments a month from Ethiopia. A company spokeswoman stated that the fashion company has placed test orders with Ethiopian suppliers, and that large scale production could start as early this fall. Spokeswoman Camilla Emilsson-Falk states: “As a growing global company we have to look at how we guarantee that we have the capacity to deliver products to all our stores where we have a rapid pace of expansion”. H&M is adding stores in a number of markets, a move needed to help offset stagnant same store sales in some regions.  Emillsson-Falk adds: “we are doing that by increasing production in our existing production areas and also by looking at new ones”.

H&M joins a host of rivals looking for alternatives to areas such as southern China, because of rising costs. Sanford C. Bernstein investment research company estimates cost per unit manufactured in Ethiopia were more than half the cost in China as of 2011 (latest available data). But this is not without risk since rising costs in Ethiopia might create a problem in the future. Already in 2011 costs rose 18 % in 2011 as against 2010, compared with a hike of 7.7 % in China. If the upward trend of costs in Ethiopia would continue at the same pace, Ethiopia’s costs per unite might exceed China’s by 2019, states analyst Anthony Sleemen of Bernstein. Ethiopia is not a newcomer to the textile and garment industry. It projects textile exports in the order of USD one billion by 2016.  The nation’s textile and apparel exports amounted to around USD 99 million for the past 12 months ended in June (+17 %).To reach that goal it lures foreign investors to modernise machines and factories. The country gives also infrastructure and financial support (competitive interest rates, cheap land and labour, tax breaks over five years) in order to allow diversification away from a primarily agricultural to an industrial economy. Already Turkish, Indian and Chinese companies are investing into the sectors in Ethiopia. The government has facilitated the establishment of a textile manufacturing in Ethiopia by eliminating trips to multiple offices and by setting aside industrial parks for the building of factories. H&M has established its office in Ethiopia’s capital of Addis Ababa around a year ago and has been buying clothing forma number of manufacturers, among Tadesse’s Kebire manufacturing was honoured by the Swedish company with a test order of 150000 garments monthly. H&M is trying to form a cluster of companies, because they want to source one million pieces per months.

Tesco PLC and the British arm of Wal-Mart Stores Inc. are also buying clothing from Ethiopian manufacturing plants, but American companies have so far been shying away from investments in Ethiopia.

Of course retailers see advantages in diversifying their footprints, and they try to find sources closer to the markets they sell in, because this brings savings in shipping costs and lead times, and depending on how H&M’s retail network expands, the proximity of production could help offset production cost disparities.

Spanish Inditex (Zara) sources from Morocco and Tunisia and Société Générale analyst Anne Critchlow voices the opinion if H&M can play part in supporting the development of this industry in Ethiopia while benefiting from lower delivery costs and perhaps shorter lead times to Europe than from China, “Why not Ethiopia”. The county has tried to push the two sectors over a decade, but only now the growing interest is there. Ethiopia hopes to reach exports in these two fields in the next fiscal year in the order of USD 500 million, declares Fassil Tadesse, president of the Ethiopian Textile and Garment Manufacturers Association.

Some sources attributed H&M’s test orders in Ethiopia with the fact that the firm was looking for store space in South Africa, but H&M’s spokeswoman denies concrete plans for a store in South Africa.

www.wsj.com


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