34-252-XIE

Russell Kowaluk

Canada’s once beleaguered clothing industry appears to have stabilized over the last few years, following several periods of downsizing and stagnation dating back to the late 1980’s. Strong improvements in sectors such as women’s sportswear, men’s and boys’ suits and jackets and the sweater industries are promoting sustained growth in clothing manufacturing. With interest rates and inflation maintaining near historic lows, along with a favourable exchange rate, it was only a matter of time before Canadian clothiers would see improved productivity in an industry driven by retail demand, both domestic and foreign.

Enhanced job security and income growth, and strong domestic retail demand now prevail, along with the return of consumer confidence. Record exports, industrial competitiveness as well as an overall shake-out of the sector as a whole, are contributing to an improved, more efficient industry. This research paper highlights the results of the 1996 Annual Survey of Manufactures (ASM), which, together with other prevailing economic indicators, suggests continuing stability in the clothing sector into 1997.

• The Canadian economy continues to surge in early 1998

During the first eight months of 1998, the value of shipments increased 4.7% from 1997 levels, as revealed by the latest estimates of the Monthly Survey of Manufacturing (MSM). In fact, 1998 second quarter clothing shipments exceed quarterly values registered during the peak productive years of 1989 and 1990. MSM shipments were $6.8 billion in 1997, up 6.9%. This is in line with the expansion of the Canadian manufacturing sector as a whole. Another encouraging sign was an average unemployment rate of 8.5% for the first seven months of 1998, the lowest average recorded since the late 1980s. In 1997, Canada’s Gross Domestic Product (GDP) climbed an impressive 4% over the previous year, although, the first half of 1998 showed signs of slower growth. From January to June, the GDP indicator climbed by 2.9% compared to the same period in 1997.

The clothing industry may be examined from various angles. The sector comprises 18 individual industries based on commodity output and breaks down into four major classes: men’s and boys’ clothing (Standard Industrial Classification 243); women’s clothing (SIC 244); children’s clothing (SIC 245) and "other" clothing (SIC 249). The bulk of manufacturing (68.1%) occurs in the men’s and women’s sectors, and, historically, shipments are divided evenly between the two. (Chart 1. Percentage share of manufacturing shipments, clothing industry) The "other" clothing and children’s clothing industries follow. Over the last decade, the manufacturing of women’s apparel has outstripped men’s in terms of shipment values. In 1996, 36% of the value of shipments originated from women’s manufacturers, followed by 32.1% for men’s and boy’s, with "other" clothing representing 25.1%.

• The number of establishments remains constant

In 1996, there were 1,756 manufacturing establishments, 29 more than in 1995 and close to the number reported for 1994. Despite the stability of the past few years, this number was approximately 40% lower than it was before the recession of the early 1990s. Clothing ranks seventh among the 22 industry categories in terms of establishments. Eastern Canada is home to 87% of the country’s apparel manufacturers with the majority of firms being in Quebec (1,113), followed by Ontario (382).

Shipment values climb marginally, contributing to industry stability

In 1996, the clothing industry reported a fourth consecutive increase in manufacturing shipments of $6.6 billion, up 1.7% from the previous year. (Chart 2. Value of manufacturing shipments, clothing industry) As in 1995, the clothing industry ranked 16th out of the 22 major manufacturing group industries. In real terms, (using Industry Price Indexes), shipments fell 0.6% to $6.2 billion. This was the first decrease in three years.

The all-manufacturing sector witnessed a rise in shipment values of 2.6%, although these remained flat in constant dollars. Apparel manufacturing continued to lose ground to other industries in terms of the major group’s overall share in shipments. Clothing’s portion now stands at 1.6% of all shipments, down slightly from 1995. Despite the current stability in the sector, which is partially due to major restructuring, downsizing, and efficiency gains, other segments of the economy continue to grow faster.

Looking at the value of shipments by SIC, we can see an evolution in the clothing industry over the last 10 years. (Table 1. Value of shipments, by SIC, clothing industry) The fundamental distribution among the SIC’s has remained relatively constant since 1986, although women’s sportswear (SIC 2442) presently dominates the market share. It is interesting to note how certain sectors have gained or lost importance. This provides a good illustration of the way in which fashion responds to changing trends, social issues, and economic prosperity, and the way clothiers must react.

Market share, based on shipment values for the four major categories, has shifted slightly over the past decade. Women’s wear now constitutes 36% of the total value of shipments, up 4 percentage points since 1986. Men’s clothing, by comparison, stands at 32.1%, an increase of 2 percentage points. The other clothing industry saw its segment fall 6.2 percentage points, to 25.1% of the market, primarily because of declines in niche SIC’s such as fur goods (SIC 2495) and "other" apparel (SIC 2499).

• Value added

The contributions of clothing manufacturers to the Canadian economy in terms of value added rose 1.2% to $3.3 billion for the year 1996. The fourth consecutive increase registered, this is slightly below the 2.0% gain reported by manufacturing as a whole.

• Provincial distribution - Quebec continues to hold the fort in apparel

Quebec retains its status as the dominant player in the clothing sector, with the hub of fashion located in Montreal. Quebec originates 62.1% of total Canadian shipments, followed by Ontario and Manitoba. The breakdown has remained largely unchanged over the last 10 years, other than slight adjustments between provinces, including a growing trade in British Columbia. Cities such as Toronto, Winnipeg, and Vancouver maintain thriving manufacturing districts. Between 1995 and 1996, the growth in clothing shipments varied from highs in Saskatchewan and Alberta of 26.1% and 21.3% respectively, to a 9.0% drop in shipment values for British Columbia. Quebec expanded its shipments by 1.5%, and Ontario’s shipments were up approximately 1%, both, however, were slightly below the Canadian average of 1.7%.

• Women’s sportswear is a big seller!

The key commodity sectors as measured by shipments for 1996, include women’s sportswear (SIC 2442), with 21.8% in shipment values; men’s and boys’ shirt and underwear (SIC 2434), at 10%; and the men’s and boys’ suit and jacket industry (SIC 2432), with 9.1%. The glove industry (SIC 2493) is the smallest sector with 0.6% of the total clothing industry shipment values. In terms of growth rates, the occupational clothing industry (SIC 2492) and the fur goods industry (SIC 2495) expanded at 13.8% and 11.2% respectively.

Two industries worth noting are women’s sportswear and fur goods. Women’s sportswear (SIC 2442) is near the $1.5 billion mark and is more than double the second largest industry in terms of shipment values. (Chart 3. Percentage share of manufacturing shipments, women's clothing industry). This decade has seen an increase in women’s participation in sports and a corresponding increase in the demand for women's sporting goods. As a result, designers and manufacturers are responding to consumer demand for athletic casual wear.

In comparison, the demand for fur goods (SIC 2495) has also changed over the past 10 years. This industry's share of other clothing industry (SIC 249) has been declining since 1986. Ten years ago, this sector represented 20% of "other" clothing industry (SIC 249) shipments compared to 5.9% in 1996. However, the share of the fur goods industry did show an improvement during the past five years. Export demand for fur goods from the U.S. and the Pacific Rim is rising.

"The bad press fur has received over the years is largely a thing of the past", says Alan Herscovici of the Fur Council of Canada, stressing that trappers and farmers sell "no endangered species of any kind, only furs that are in abundance…mostly beaver, fox, and muskrat pelts." (1)

The rebirth of the fur business traces its roots to an odd confluence of circumstances, from a stronger economy and expanding number of affluent people…to a mercurial swing in fashion and lifestyle...(2)

Depending on conditions, annual shipment values for the 18 individual industries can fluctuate significantly from year to year. Factors influencing this fluctuation include the volatility of fashion trends, fickle consumer demand, contract arrangements with suppliers or distributors, international trade demand, and even varying climatic conditions during a particular season.

• Retail sales are recovering

The activity of the retail market is a useful gauge to consider when observing the clothing environment. Retail sales have been on the rise for a number of quarters.

The 2.4% increase for sales in the first quarter of 1998 was the largest quarterly advance since the third quarter of 1994. Clothing sales have generally been rising since the start of 1996, with sales accelerating in early 1998. (3)

These healthy increases coincide with rising disposable income, up 1.1% in 1997, and increased consumer confidence. On the other hand, Canadians are saving at a rate approaching record lows. Between 1995 and 1997, total savings fell almost 75%. (Chart 4. Personal disposable income, savings and retail clothing sales) Canadian consumers are also spending record amounts on credit, an indication of the public's eagerness to shop.

Inflation has not been a factor for a number of years. The annual rate of change in the Consumer Price Index (CPI) has not exceeded 2.5% since 1991, and the same holds true for the clothing market. The average rate of inflation for 1997 was 1.6%.

International trade - Canadian exports continue to boom

Once one of the most trade-protected sectors, the apparel industry is now exceedingly dependent on trade, and perhaps the most significant change in recent years to affect the industry has been trade liberalization. Consequently, the growth of exports and the divergence in the destination of these exports has been dramatic.

Apparel companies have increasingly had to export to survive, a trend that will only gain momentum with time … The market is now global and companies that don’t adapt are likely to fall by the wayside. (4)  

Trade reform originated with the signings of the 1989 Canada-U.S. Free Trade Agreement (FTA) and the 1994 North America Free Trade Agreement (NAFTA), resulting in the gradual reduction of import tariffs by the United States and Mexico. In addition, the Multi-Fibre Arrangement (MFA) of 1995 began a 10-year phase-out of quotas on imports with low-wage countries. The aftermath has been detrimental for some, but beneficial for many entrepreneurs.

While China and other Asian countries dominate the lower end of the market, Canadian manufacturers have repositioned their rank in the trade as mid- to upper-market suppliers, a niche that Canadian firms seem to be exploiting well. Demand for Canadian product abroad, especially by the United States, is the driving force supporting much of manufacturing’s productivity in recent years. Exports of apparel, as reported by Statistics Canada’s International Trade Division, were just under $2.0 billion, the highest level in 15 years. This represents an annual growth rate of 24.4% from 1996 and an impressive 586% increase since the signing of the FTA in 1989. The annual growth rate has been constant for the last couple of years, and is comparable to that of the all-manufacturing sector.

• 1997 International trade balance expands

For the first time since 1991, the peak of the last recession, 1996 import values retreated 6.1%, to $3.4 billion. Subsequently, the industry’s traditionally negative international trade balance witnessed one of its largest improvements in recent times (Chart 5. Annual percentage change in exports, imports, and trade balance, clothing industry). The trade deficit retracted one-half billion dollars to $1.8 billion, a drop of 22.3% from the level in 1995. 1997 witnessed a strong turnaround in the trade market. Although the expansion of Canadian exports continued at a faster pace than imports as manufacturers compete in markets beyond the nation’s borders, importers also regained their hold in the clothing industry. Foreigners exported $4.0 billion worth of clothing into the Canadian marketplace, a 20% increase since 1996. Freer trade and the ongoing weakness of the Canadian dollar has made the industry highly enticing at the global level. Despite the downward trend of the international trade deficit in recent years, 1997 saw a sharp increase to $2.1 billion.

Export growth has been gradually eroding the gains of importers into the Canadian market (Chart 6. Shipments, exports, imports and the Canadian market, clothing industry, selected years). 1996 exports represent 24.2% of the value of total shipments, compared to a 51.0% share for imports. Export expansion is expected to continue to outpace the growth of shipments and imports in 1997.

• Inputs - Cost of production remains flat

In light of the new, openly competitive marketplace, Canadian manufacturers in all industries have been merging, downsizing and computerizing as a means of reducing overhead and increasing efficiency. Total production costs of clothiers in 1996 rose only 0.2%, following a 4.4% increase in 1995 that coincided with higher growth in output values for that year. Input costs, as a portion of total production, remained relatively unchanged in 1996. The cost of materials and supplies as a share of the total, which has been decreasing since the late 1980s, fell 0.8% and represents 48.7% of total production costs.

The cost of labour, although edging up 1.1% in 1996, has been dropping since the recession of the early 1990s. Current labour costs represent 26.7% of total production. In the face of heightened global competition, Canadian manufacturers have had to become more efficient to control costs, and are using an infusion of technology and sub-contracting as two means of doing so. Contracting out has evolved into an industry in itself.

Many established manufacturers still cut and sew their own lines, but there is no doubt that sub-contracting the work out is gaining in popularity. (5)

Contracting out not only reduces the labour costs of manufacturers, it allows them to concentrate on design and provides work for hundreds of other shops.

Capacity utilization

In 1996, the clothing industry operated at a reasonably healthy 83.0% capacity, up 2.5% from 1995, and in line with the all-manufacturing rate (82.5%). According to 1997 estimates, the sector will expand by another 5%, the highest growth rate since the pre-recession years. For the first time in several years, apparel manufacturers are performing at a higher capacity utilization rate than the all-manufacturing sector. After experiencing stronger expansion during the mid-1990s, other industries are showing signs of slower production with higher inventory levels and moderating trade abroad.   

Following seven years of decline, originating with the recession of the early 1990s and a subsequent period of industry-wide restructuring, 1996 witnessed a modest 1.2% increase in the number of employees working in the clothing industry. This is commendable for a sector, struggling to recover since the last recession and contending with enhanced global competition. Total employment grew to close to 80,300 employees. Surprisingly, clothing ranked fourth among the 22 industries in 1996 as measured by the annual rate of growth in total employment. (Chart 7. 1996 Change in total employment, by major manufacturing group) Overall, the industry is the 11th largest employer among the manufacturing groups, unchanged from one year ago. Similar findings are available from the Survey of Employment, Payrolls and Hours (SEPH), a monthly survey of employers. According to SEPH, the growth trend in employment will continue through 1997 and early 1998.

Despite the slight increase in employment for 1996, more than 30,000 jobs have been lost since 1988.

The steep drop in employment from 1989 to 1992 coincided with the downturn of the economy. However, the clothing industry fared much worse than other manufacturing industries…due in part to the introduction of the Free Trade Agreement as apparel imports from the United States increased consistently following its introduction on January  1, 1989. (6)

Because of trade liberalization, the current rise in the number of employees may be partly associated with the ongoing boom in export demand.

It is noteworthy that the increase in employment in 1996 was mainly associated with the manufacturers of women’s apparel that witnessed a gain of 6.8%. This coincides with higher shipment values and demand for women’s sportswear and casual-wear.

The apparel industry continues to have the lowest average hourly earnings of all manufacturing industries, a predicament that has plagued the labour-intensive sector for some time. Average hourly earnings were $9.12 in 1996, well below the manufacturing average of $16.38. As a result, the industry continues to fall behind other manufacturing sectors, some of which boast annual earning increases in excess of 5%. Commitments in technological innovation are an encouraging sign:

The profusion of electronic aids now available have helped raise the standards of operation of the Canadian apparel business to levels as high as any other industry in the country. (7)

Total wages and salaries paid in 1996 amounted to $1.8 billion, an increase of 1.1%. After years of decline during the early 1990s, income paid had been relatively constant for the past four years. Real earnings dipped a marginal 1.2%. Despite the significant decrease in employment levels over the past decade compared to most other industries, clothing manufacturers remain labour intensive. Salaries and wages accounted for 27% of the value of shipments in 1996, down marginally from 1995. This remains well above the 16% average for the Canadian manufacturing sector as a whole and emphasizes the labour intensity of the apparel sector. Average annual earnings remained flat at $22,016 per employee, less than the manufacturing sector’s average of $38,351 per employee. The clothing sector characteristically employs a high proportion of female and immigrant workers in lower-skill, entry-level positions.

Conclusion

Since the recession of the early 1990s, Canadian clothiers have experienced industry-wide restructuring and downsizing, market volatility, and trade liberalization. As we can see from the results of the 1996 Survey of Manufactures, which include higher shipment values, increasing employment and booming exports, the clothiers who make up the more efficient and streamlined industry are now experiencing stability in an intensely competitive marketplace.

There is pent-up demand among consumers, who have been cautious in their spending habits since the last recession. The resurgence in demand for apparel has been a key contributor to the ongoing stability of the clothing sector. Trade reform earlier in the decade has resulted in the resurgence of exports and an increase in domestic spending. There are no signs of depreciating retail sales in 1997, especially in areas such as women’s sportswear and casual-wear, and various niche sectors. Following years of stagnation, disposable income is rising marginally, while the former "jobless" recovery since the last recession appears to be a thing of the past, as the unemployment rate declines. Price inflation, interest rates and exchange rates remain low.

Can Canadian manufactures defy the economic turbulence of 1998? For the time being, Canada’s once troubled clothing industry is enjoying a period of improvement and stability as it positions itself for the next millenium.

Clothing Industry:

Clothing manufacturing establishments are primarily engaged in the manufacture of clothing. The following 18 four-digit industries are classified to Major Group 24, Clothing Industry:

1989 Canada-United States Free Trade Agreement (FTA) (or General Agreement on Tariffs and Trade (GATT)): Under the terms of the General Agreement on Tariffs and Trade (GATT or FTA), tariffs on various commodities traded between Canada and the United States must be decreased and/or removed over six-year period commencing in 1995. The Canadian government will initially replace its system of import quotas with tariffs.

Under the FTA, all clothing tariffs between Canada and the United Sates (which, with a few exceptions, ranged from 15% to 25% in 1988) will be removed by January 1998 (External Affairs Canada, 1988).

Multi-Fibre Arrangement (MFA): The Multi-Fibre Arrangement set up in 1995 is a 10-year phase-out of quotas on imports from low-wage countries.

(1) "Montreal, the emperor still has clothes," Canadian Apparel, Volume 21, No. 5, September/October 1997, page 21 and 22.

(2) "Watching the fur fly by," The Globe and Mail, October 4, 1997.

(3) Retail Trade, Statistics Canada, Catalogue No. 63-005-XPB.

(4) "Montreal, the emperor still has clothes," Canadian Apparel, Volume 21, No. 5, September/October 1997, page 21 and 22.

(5) "Montreal, the emperor still has clothes," Canadian Apparel, Volume 21, No. 5, September/October 1997, page 21 and 22.

(6) "Sizing up employment in clothing manufacturing," Perspectives on Labour and Income, Spring 1997, Statistics Canada, Catalogue No. 75-001-XPE.

(7) "Parting Shots," Canadian Apparel, January/February 1997, Vol. 21, No. 1, page 13.

Sources

American Review of Canadian Studies.
     See especially "The changing structure of the Quebec economy." Volume 26, Winter 1996.

Canadian Apparel, Canada’s National Apparel Industry Magazine.

Canadian Textile Journal.

Industry Canada.
     Sector Competitiveness Frameworks–Apparel, Part I: Overview and Prospects. Consumer
     Products Industries Branch. 1997.

Statistics Canada.
     Consumer Prices and Price Indexes. Prices Division. Quarterly. 62-010-XPB.

     Employment, Earnings and Hours. Labour Division. April 1998. 72-002-XPB.

     Exports by Commodity. International Trade Division. Monthly. 65-004-XPB.

     Gross Domestic Product by Industry. Industry Measures and Analysis Division.
     Monthly. 15-001-XPB.

     Historical Labour Force Statistics 1997. Households Survey Division, Annual. 71-201-XPB.

     Imports by Commodity. International Trade Division. Monthly. 65-007-XPB.

     Industry Price Indexes. Prices Division. Monthly. 62-011-XPB.

     Monthly Survey of Manufacturing. Manufacturing, Construction and Energy Division. August 1998.
     31-001-XPB.

     Perspectives on Labour and Income "Sizing up employment in clothing manufacturing." Vol. 9,
     No. 1,  Spring 1997. 75-001-XPE.

     Provincial Economic Accounts, System of National Accounts. Annual. 13-213-PPB.

     Retail Trade. Distributive Trades Division. March 1998. 63-005-XPB.

     Standard Industrial Classification 1980. Standards Division. 12-501-XPE.

     Survey of Manufactures 1997—Guide and Instructions. Manufacturing, Construction and Energy
     Division.

Style–Canada Fashion News.

The Globe and Mail.

Toronto Life.
     See especially Vol. 32, Fall 1998.

This article was written by Russell Kowaluk.  Russell is a Statistics Canada economist in the Manufacturing, Construction and Energy Division.

Further information on Canadian manufacturing can be found in the publications Manufacturing Industries of Canada: National and Provincial Areas (Catalogue 31-203-XPB), available annually for $68 per issue in Canada and for $68 U.S. outside Canada, and Products Shipped by Canadian Manufacturers (Catalogue 31-211-XPB), available annually for $67 per issue in Canada and for $67 U.S. outside Canada. Order this publication and other Statistics Canada publications by telephone, dial 1-800-267-6677, by fax: 1-800-889-9734, or by Internet.

For more information about manufacturing data or time-series, call the Disclosure and Dissemination Unit, Manufacturing, Construction and Energy Division at (613) 951-9497 or by Internet: manufact@statcan.gc.ca.   For information from International Trade Division telephone 1-800-294-5583 or by Internet: trade@statcan.gc.ca.