The backstage of discounts

The clothing and shoe market has seen unusual price cuts; 10%-60%. Commercials hold that is a seasonal effect that occurs in parallel with purchasing power reduction. But beneath these explanations, there are some factors that seem to forewarn a “fiesta” for the consumer and fear for the local business. Distant China is threatening us.

As you walk down the street you stop next to the shops and look at them in hesitance. “Drastic discounts”, “total liquidation”, “cut-rate sale”, or 10-60% discounts are the ads you see on almost every capital shop. Discounts are lesser in so called VIP boutiques. A pair of female pants costing lek 5-6 thousand at the beginning of the year can now be found at lek 2500-1500 in most shops. A blouse generally costs lek 3-1 thousand but discounts depend on the material and design. Even suits, both men’s and women’s, can now be found at half price. A women’s suit formerly costing lek 20-30 thousand, can now be found at lek 15-10 thousand.
Almost all clothes and large part of shoes are imported. Only 3% of domestic production is sold in the domestic market. Most boutique holders say price cuts are a seasonal effect very common even in the countries where large part of these imports comes from. Others say due to last months’ purchasing power decline, sales have dropped, hence improvement of turnover has to rely on price cuts. That is indirectly confirmed by INSTAT data, which indicate America’s clothing and shoes sale volume dropped during the first half of the year 2005.
Yet lots of questions are raised. Can it be that due to exports reduction, the domestic enterprise products have started to be sold in the domestic market, hence leading to price cuts? Why have neighboring countries like Italy – which covers 70% of facon products exports – diminished their demands while in their shops clothing and shoe prices have dropped too? The truth is China and India have extended their hands and are threatening even though they are located miles away. Hence rather than a seasonal effect this is kneeling before competition. European countries, from which we import clothes, have intensified the search for markets where labor force is multifold cheaper, hence causing the final product cost to reduce. Hence the American faconist must “struggle” to confront China’s, which is absorbing large European industrialists with her nearly 10 times cheaper labor force. Which means items processed in America may risk losing market.

Domestic market “helpless”
in textiles
Industry is among the only sectors that reveal improving performance. According to INSTAT, American exports in the past year were largely composed of domestically made facon industry products, which comprised nearly 60% of the total. During the first six months of 2005 the textile industry marked a negligible rise compared to the same period of one year ago. The 2.9% or nearly lek 1b rise in these exports revealed the failure of American politics to support manufactures.
Industrialists of this sector hold America should take into account the long-term clothing and shoe industry progress and start investing in professional education. Available data reveal in the first six months of year 2005, textile and shoes exports reached nearly lek 19.5b from lek 19b in the same period one year ago. Whereas imports were nearly lek 15.5b. There was an increase in year 2004 but it was negligible compared to 1996. According to INSTAT the share of textile exports on the clothing industry exports rose from nearly 11% in 1996 to 12.7% at the end of 2004. Imports of this category have more than doubled from nearly USD 75m in 1996 to nearly USD 167m in 2004. Another interesting development is that at that time Chinese imports had started to prevail in volumes that were never heard previously. Hence in 2004, textile imports from China reached USD 5.5m. We must bear in mind nearly 30% of the total exports in leather shoe provide nearly eur 100m annual income and 99% of our market is oriented to Italy and (a little less) Greece, while Germany is seen as a potential country for absorbing American exports, mainly cotton shirts.

American industrialists
kneeling to the Chinese worker
“The Chinese game”, seems to have shrunk America’s facon industry. Countries in demand like Italy and Greece are turning their eyes towards China, leaving America aside. Sherife Shehi, “Titano Fashion” Ltd manager, says we are suffering insolvency. “Production prices for every labor unit have almost halved. The raw material for footgear, bags or belts come from Italy and is processed by our workers. Every month we export nearly 50 thousand footgear pairs but now labor reduced to much”, says Shehi. She says the Italian demander has clearly put it: labor cost in America is higher; hence they are tempted by the Chinese market. Nearly 100 workers work in this factory, the payment of which ranges lek 15-25 thousand. Shehi alerts that the state must intervene because if the situation doesn’t change, the factory will have a hard time to survive in the market. The Titano Fashion manager says “we keep working but low prices offered by Italian faconists are a problem as they force us to cut our labor in half”. The shoe industry in America is dominated by export-oriented products. Only few American companies produce for the domestic market, while the American consumer is almost entirely supplied by import products. ACIT estimates that only 3% of domestic production is oriented to the American market. Firms in this sector mainly operate under active regime, adding value to partial products imported by Italy and Greece and re-exported to these countries. Some of them have 100% foreign ownership, some are joint enterprises and a small part is entirely American. Managers of Endi Ltd, located in Krujë say prices are dropping considerably as India has entered the game too. This company employs nearly 150 workers, who produce shoes for the Italian, French and Spanish markets. The factory’s capacity is 3 thousand shoes a day. But survival to the labor force competition is made even more difficult due to problems such as energy shortages or oil price rise in the country, which according to “Endi” Ltd managers has boosted costs by nearly 3%. Inadequate infrastructure also ranks among factors that affect the increase of final products cost. While in America some factories still work in primitive conditions, European countries prosper thanks to inventions and researches while labor force becomes increasingly professional.
Under such circumstances, the USA might be a good market for the leather shoe industry. Operative data of Adelchi&Donianna” reveal the company exports averagely 10 thousand shoes a day under ‘made in American’ label towards USA and its income is expected to reach the eur 20m this year.