CENTRAL AMERICAN SOURCING
Fast Means Cash for Central American Clothing Makers
GUATEMALA CITY, Guatemala—Mounds of knit fabric printed with colorful images of Charlie Brown, Snoopy and Lucy are piled up inside the vast warehouse area of Imperial Fashion, a full-package supplier that knits, dyes and finishes fabrics that go into T-shirts.
The T-shirts are cut and sewn for companies that have licenses for characters such as Hello Kitty, Snoopy, Batman, Angry Birds and several Disney properties. The company’s No. 1 customer is Kmart, for whom the company made 5 million pairs of Joe Boxer pajamas last year. Its No. 2 customer is Walmart.
Imperial Fashion is expecting its business to increase 10 percent to 15 percent this year as more U.S. retailers and apparel companies look south to Central America now that fast fashion has turned up the heat on turnaround times.
"Our clients are looking for quick response. The problem is they want the same prices as Asia, and that is a complicated problem for us," said Juan José Massis, whose family runs Imperial Fashion. "My idea is that with all the problems with Bangladesh and Chi
na, people are moving their sourcing to other areas. Disney is completely out of Bangladesh."
At Custom Made Services, a full-package company that makes a lot of fan wear and team uniforms, time is of the essence. Four years ago, the company moved to a newer facility that has a more technical warehouse for picking fabric faster. The company also bought an ERP system to help replenish orders quickly.
When the company launched in 2004, deliveries were done in 12 weeks. That got whittled down to nine weeks, said Rafael Sandoval, the company’s president. "If we have a contract with the customer and have the fabric available, we can do deliveries in two weeks," he said, noting he works with Teamwork in San Diego and Akadema in New Jersey.
Quick turn has always been one advantage for Guatemala and the other Central American countries that make up the Dominican Republic–Central American Free Trade Agreement. But it is becoming more important than ever.
That was a theme echoed by the exhibitors at the annual Apparel Sourcing Show, held May 20–22 in Guatemala City.
One part of the show floor was dominated by several vendors inside the Cotton Council International pavilion. They included U.S. companies such as Tuscarora Yarns Inc., Swisstex Direct, Parksdale, Hamrick Mills, Frontier Spinning Mills, Buhler Quality Yarns Corp. and Antex Knitting Mills.
Another part of the exhibition floor was occupied by Guatemalan apparel manufacturers and textile mills hoping to snag more business with U.S. apparel brands.
"The strength of this region is being fast, and it is hard to replace that in Vietnam," said Keith Dartley, president of Swisstex Direct, which has textile factories in El Salvador and Los Angeles.
Quick turn is the reason that Joseph Greco, president of Greco Apparel in Pennsylvania, was walking the show floor. He has been sourcing a polyester/cotton/spandex fabric from Liztex, the largest textile mill in Central America, for scrubs that are cut and sewn in the Dominican Republic. "My scrubs client was producing in China with a four-month lead time," he said. "Now, once we get the fabric to the Dominican Republic, it is a five-week to six-week turn time."
He is also taking advantage of the tariff-free status for synthetic fabrics, whose duties can be as high as 32 percent per garment if shipped from a non–free trade agreement country.
Duty-free synthetics has been another attraction for sourcing managers. It is so big that a large hub of synthetic fabric producers specializing in performance wear has popped up in El Salvador and is taking hold in Guatemala and other Central American countries.
"The fastest-growing part of our business is the performance sector," said Swisstex Direct’s Dartley.
When the Los Angeles–based company opened its knit fabric venture in El Salvador in 2007, it was knitting, dyeing and finishing about 70,000 pounds of fabric a week. That has grown to 280,000 pounds a week, Dartley said. The company produces polyester fabric for Under Armour, Adidas, North Face and Dick’s Sporting Goods. It also does novelty cotton blends and cotton/polyester fabric. Recently, the factory added sueding and napping capabilities.
Swisstex also supplies about 25 percent of the fabric used by T-shirt maker Rio Garment in Honduras, owned by New York–based Hampshire International.
David Gren, Hampshire International’s president, was at the show talking to fabric vendors about supplying the factory, which makes tops for Forever 21, Wet Seal, Eddie Bauer and others. "The T-shirt business has become fast fashion," he said. "Before, lead times were 12 to 16 weeks. Now they are eight weeks."
But even with a free-trade pact with the United States, the apparel industry in the region is only making slow strides because of competition with Asian countries where labor rates are one-third of what they are in places such as Guatemala.
Last year, Guatemala exported $1.32 billion in apparel and textiles to the United States, its main market, compared with $1.25 billion in 2012. Nicaragua, which has the lowest minimum wage in the region, saw its apparel exports to the United States climb to $1.43 billion last year, compared with $1.35 billion the previous year. Honduras’ exports to the United States slipped to $2.5 billion last year, compared with $2.57 billion in 2012.
"The industry keeps improving every year but not as fast as we would like it to," said Sergio de la Torre, Guatemala’s economy minister and the owner of Actex Trims, which makes woven labels, hangtags and heat-transfer labels.
The Guatemalan government is working on a program in which four towns located between the country’s two major ports would set up a special development zone where workers would earn salaries that are much lower than in the rest of the country. In Guatemala, the average minimum wage for an apparel worker is $375 a month with benefits.
"People in this area are asking very strongly for employment," said de la Torre, noting this is a very poor agricultural area where people sometimes earn no more than $4 a day with temporary work. "The people in the towns and the mayor are proposing a new minimum wage that would be different from the rest of the country."
That wage hasn’t been established yet, but a commission of politicians, residents and employers is meeting to establish a salary of around $175 to $200 a month, which would fall somewhere between Haiti’s minimum wage and Nicaragua’s minimum wage.
Goods from factories in this zone would be relatively close to the country’s two main ports—Puerto Quetzal on the Pacific Ocean and Puerto Barrios on the Atlantic Ocean. Those ports are only a three- to four-day boat trip to either coast of the United States. "We think we can compete with a lot of companies in Asia with this," de la Torre said.
The government is also pushing to extend the investment and employment law that has in the past eliminated income taxes paid by new companies investing money and employing people in Guatemala. It has been one of the driving vehicles to building up the apparel industry in Guatemala. About 60 percent of the country’s apparel and textile concerns are Korean-owned.
"New businesses in Guatemala City would pay no income taxes for 15 years, and if they are located outside of Guatemala City, they would pay no taxes for 25 years," the economy minister explained. "And you can extend that for a 70 percent reduction in taxes for another 10 years."
Many fear if Congress doesn’t extend this law and it expires, Guatemala’s apparel and textile industry will be decimated.
The economy minister believes it will pass soon.