In this edition of the Market Intelligence report we will present a smorgasbord of developments in the global textile industry, starting with the emerging situation in Russia, which shows prospects for becoming again a very important market for our fibre.
The Russian wool market: re-emerging from the cold?
One of the major contributory factors to the collapse of the Reserve Price Scheme in 1991 was the withdrawal from the Australian wool market of the Soviets, as the breakup of the Soviet Union accelerated in the late 1980’s. To that point, the USSR was a major purchaser of mid- and coarser diameter wools, taking more that 15% of the clip, much for military use. Now, 20-25 years later, there are some interesting signs of the re-emergence of a Russian market for Australian wool – although of a completely different nature.
Our latest reports into the Russian domestic textile market places its value at around US$60b in consumer expenditure per annum, among the top six European markets. The market structure is such that international brands dominate the luxury and mid-tier market (e.g. Armani, Ralph Lauren, Chanel, Gucci, Diesel etc.), with imported product representing around 80% of the men’s clothing market, for example. By September 2011, six of the world’s 10 largest apparel retailers had entered the Russian domestic market (including Gap, H&M, and Next), and we have seen specialist US outfitters such as American Eagle open stores in Moscow in 2011.
Market growth is expected at around 3-5% per annum - however, much like China and many of our other key markets, expenditure growth is greatest at the premium end. Global Demographics expects 7.6% compound annual growth rate for the wealthiest tier of consumers – while only 4% of households, these already represent 16% of the market spend, and this will grow to around one-third over the coming two decades.
Importantly, growth is not just confined to the traditional outerwear markets in this cold, high northern latitude market – the sports/active market is growing particularly rapidly, with expectations of an average growth rate in the next five years of 16-19% per annum.
To compete with the imported product and brands, the Russian domestic industry is seeking to change, and the Russian government is taking steps to ensure domestic industry captures some of this growth – as seen in the recent “Strategy for Development of Light Industry of Russia”. As part of this evolution, we are seeing renewed interest in purchase of Australian Merino wool, which is a positive long-term development. To this end, in July, during our winter sales recess, AWI will lead a delegation of Australian wool exporters and buyers to Russia – encouraging signs that, after nearly 25 years in hibernation, the Russian domestic wool processing industry is re-emerging.
Australian production recovery slow
Historically, wool production in Australia has been closely related to season-opening sheep numbers – as sheep numbers rise, so to wool production, and vice versa. Over the last decade, the correlation between season-opening sheep numbers and greasy wool production has been better than 95%, and so, with sheep numbers on the rise again in Australia, we have been expecting greasy wool production to increase.
However, the most recent Australian wool production forecast has fresh shorn greasy wool production remaining at the 2010/11 level of 345 m kgs, with notable gains in Victoria, South Australia, and Tasmania offset by declines in Queensland and Western Australia. While our regular surveys of growers have shown consistent strong intent to grow the size of their flocks, primarily be retaining more females for breeding and holding onto older ewes, intent to increase and ability to increase are not the same.
With better seasons in many areas, washing yields are at very high levels - as result, greasy wool production is expected to remain static and clean wool production will increase by around 5 million kgs over 2010/11 levels.
The Global Financial Crisis hit all of our major markets and the wool pipeline hard. The following chart shows, using calendar year-based import/export data, how some of our largest markets have bounced back, while others (notably the UK) remain in the doldrums.
In general, the UK’s retail and clothing market has not recovered and continues to lag behind other markets. Reports have shown the number of retailers falling into administration in the first quarter of this year increased by 15% compared with the same period last year.
Nonetheless, the UK luxury sector is set to see sales growth of 8.5% in 2012. Meanwhile, 2012 is a particularly import year for Britain. 63% of the luxury brands surveyed believe the Olympic Games will positively impact their sales, with 20% anticipating a double digit rise as a direct result. Some 58% believe that the Diamond Jubilee celebrations will also boost sales. Let’s hope so.
Paul Swan and Allan Wang