With demand dull and landed costs still prohibitively high, foreign shipments of denim jeanswear entering the US continue to sag, foreshadowing another year of contraction for the ubiquitous symbol of Americana. On a year-over-year basis, June foreign trade data indicate imports of the woven bottomswear item sank for an unprecedented nineteenth straight month. At less than 4.7 million dozens, volume in this latest month was off -3.8% from a year earlier to the lowest June in a dozen years. The dull demand is evidenced both by moderating growth in inflation-adjusted retail apparel sales and more directly by declining quarterly comps at denim-rich stores like Abercrombie & Fitch and Aéropostale. The other key factor, higher unit costs of imports, remains a hindrance on shipments. At $91.66 per dozen, the average landed cost of total denim jeans in this latest month finally began to ease from a year earlier, following seventeen straight months of year-over-year cost hikes.
The streak of declines in imports over the first half of this year strongly suggests full-year volume will sink again in 2012, perhaps to the lowest annual tally since 2004. Cumulative imports this year stand at less than 17.6 million dozens, off -8.1% from the same period last year and the lowest year-to-date total since 2004. We estimate shipments over the remaining six months of 2012 would need to surge 6.6% from the same period last year to avoid another annual contraction. Considering denim jeans imports have not grown that fast once in nearly two years and that demand is showing few signs of an appreciable near-term rebound, we think another annual drop is more likely. If so, this would mark only the second time in more than 23 years of recordkeeping that annual imports would have decreased for a second consecutive year. Full-year volume may struggle to reach 41 million dozens, the lowest annual volume in eight years.
Aside from the issue of stalling demand, the outlook for record-high landed costs is crimping the sector. At more than $101 per dozen, the average forecasted unit cost for denim jeans imports this year would mark an unprecedented high, following last year’s surge to the current record of nearly $98 per dozen. Last year’s spike and the slower growth to another record this year follows a similar pattern witnessed elsewhere, as cost pressures cross the length of the textile supply chain are showing signs of exiting. Already, the average landed cost of denim jeans imports is less than a year ago, and evidence suggests more declines may materialize in coming months. Even so, any declines are not likely to match the eye-popping double-digit increases witnessed last year, suggesting costs may remain relatively high well into 2013.
The higher costs and lower volumes of imports witnessed so far this year are broad-based across most key suppliers. As the graph below demonstrates, with the exception of the CAFTA-DR region, cumulative imports from most other key suppliers are lower versus this same period last year, while average landed costs are higher. We expect full-year cost increases across many suppliers will ease from current rates, suggesting declines in full-year imports are likely to moderate from the present. Even so, if the volume of consumer demand remains lackluster, imported denim jeans in 2012 are likely headed lower again, adding to cotton’s persistent deferment of demand across the global textile supply chain.
