Remember when gas was just 60 cents in the early 2000s and late 1990s? Soon we will all remember the days when Fashion was "cheap" as well. With over 25 million tonnes of cotton being consumed each year, a shortage was to be inevitable. To businesses, a cotton shortage means a loss of profits and to the common consumers, it could mean a consistent rise in the price of clothing, as the cost of cotton alone doubled the last year. But why is there a cotton shortage? First of all, China - the world's largest cotton producer, suffered from a major drought and unusually cold weather which devastated the cotton fields. Meanwhile, India - the world's second largest cotton producer, set very strict trading policies to limit their exports in order to maintain the balance of supplies and protect their country's economy from fluctuating prices. Then to make this situation even more preposterous, Pakistan - the world's fourth largest producer, was hit by a disastrous flood, severely damaging their cotton crop and subsequently another flood in India. Wait. I forgot to mention that the growing labor shortages, especially in China, are resulting in wages being higher than ever which is driving up the cost of cotton even more! Wow.
Due to all of the unfortunate events, the textiles industry is in an extremely dangerous position and businesses are fearing the sky rocketed prices of cotton and other raw materials acting as substitutes such as synthetic or polyester as designers look for cheaper alternatives - which I will explain later. To clarify the results of the shortage with the basics of economics, the "law of supply and demand" states that if QS (quantity supplied) is less than QD (quantity demanded), the price will rise to meet the new equilibrium (point where demand & supply curve intersect). In addition the "law of demand" regarding "prices of related goods" or "substitutes" state that an increase in price of one good leads to an increased demand for the related good - and an increase in demand means an increase in price as well. An example of a retailer that has been hit hard by the cotton shortage is the fashion giant and "hipster-loving" American Apparel. If you didn't know by now, AA is on the brink of bankruptcy. Besides the countless sexual harassment lawsuits, declining sales and having a $91 million debt, I believe that the primary reason why they are facing a crisis is because 80% of their products are organic cotton. Just about two years ago no one would have imagined for AA to have fallen this low because they had an exceptional competitive advantage over other retailers for being vertically integrated - a retailer that also manufactures, wholesales, markets and distributes their own products. Unfortunately, the bigger they are, the harder they fall.I had the privilege of attending a Michael Belcourt Lecture where Don Green and Michael Budman, co-founders of Roots Canada were speaking. At the end of the lecture they were asked about how the rising price of cotton would affect Roots. They replied by saying there won't be much change and they will take the innovative approach. But cotton is a major component in Roots and in many other retailers. The ICA (International Cotton Association) is doing everything they can to combat this situation but businesses will undoubtedly take a big hit. Ultimately the increased costs will be passed on to the customers and we will likely see more blended cottons and other alternative fabrics being used in the future.
