34-252-XIE

Manufacturing, Construction and Energy Division

HAS THE CLOTHING INDUSTRY ADAPTED TO THE CHANGING ECONOMIC ENVIRONMENT?

Yasmin Sheikh

December 1999

Introduction

The clothing industry consists of establishments engaged in the production of Men’s, Women’s and Children’s wear as well as furs, foundation garments, hosiery, gloves, sweaters and occupational clothing. This industry plays an important role in the broader fashion industry which encompasses the textile, leather, footwear, accessory and cosmetic industries as well as organizations involved in fashion education, modelling, fashion publications, promotion sales and distribution.

The clothing industry is labour intensive and can function with limited number of special skills; it is therefore manufactured in almost every country in the world. Low-wage developing countries with an abundant labour supply provide tough competition to countries such as Canada. Historically, this competition was restricted by the imposition of country-specific import quotas. However, a change in government Trade Policy has exposed the Canadian clothing industry to a different economic environment of reduced trade barriers and strong competition. The apparel and Textile industries now fall under the normal trading rules of the General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO) besides being part of the North American rationalization process under the Free Trade Agreement (FTA) with the United States and the North American Free Trade Agreement (NAFTA) with the U.S. and Mexico.

Accentuated by the 1991 recession, the clothing industry passed through a transitional period in the early nineties, when many businesses folded or amalgamated, big cuts in employment took place and value of shipments declined consecutively for three years from 1990 to 1992. Although job losses and decreases in the number of establishments continued into 1995, the industry has experienced persistent growth in the value of manufacturing shipments since 1993. Using data from the Annual Survey of Manufactures (ASM) for 1988 to 1997, this paper will show how the Canadian Clothing Industry has adapted to the present era of trade liberalization. It will highlight the accomplishments in 1997 and comment on the recent period of growth using the Monthly Survey of Manufacturing (MSM) and other indicators.

Overall economic conditions are congenial for the growth of the Clothing Industry

The Canadian economy experienced strong growth of 4.1% in real Gross Domestic Product (GDP) in 1997. The adverse impact of global economic turmoil and low commodity prices on the Canadian economy in 1998 slowed economic growth to 2.9%. Strong export(1) performance has given a boost to the GDP which improved to 3.7%(2) for the first three quarters in 1999.

At the same time labour market conditions continue to improve with unemployment rate dipping to 8.3% in 1998(3). Latest figures released for September 1999 show that employment rose by an estimated 64,000 for the month, bringing gains so far this year to 173,000 (+1.2%). September's job growth resulted in a drop in the number of unemployed, causing the unemployment rate to fall to 7.5%, its lowest level since June 1990(4).

Furthermore, inflation has remained mild, averaging 1.6% in 1997 and 1.0% in 1998(5). In September 1999, however, consumers paid 2.6% more than they did a year ago for the goods and services contained in the Consumer Price Index (CPI) basket. September's rise was primarily due to higher energy prices. Excluding the increase in energy prices, the CPI rose 1.6% in September(6).

Growth in Canada’s manufacturing sector in 1997 was also strong at 6.8% but slowed down to 3.2% in 1998. However, strong growth resumed in 1999 as reflected in the Monthly Survey of Manufacturing (MSM) showing an increase in manufacturing shipments of 8.9% for the first eight months.

The value of shipments of clothing fell short of the increase in overall manufacturing. However, there is room for optimism in the future of this industry as shown by growths of 4.4% in 1997 from the ASM and rates of 1.3% in 1998 and 2.1% for the first eight months of 1999 as illustrated in the MSM. Strong exports of apparel have had a positive impact on Canadian manufacturing of clothing (Figure 1. Clothing Industry, Value of Shipments).

Clothing industry-market share analysis by sub-groups

According to Statistics Canada’s Standard Industrial Classification 1980, clothing represents Major Group (MG) 24. This group is further classified into four sub–groups namely Men’s and Boys’ Clothing (SIC 243); Women’s Clothing (SIC 244); Children’s Clothing (SIC 245) and Other Clothing (SIC 249) such as sweater, hosiery, fur and occupational clothing.

Manufacturing shipments of the clothing industry in 1997 were valued at $6.9 billion representing an increase of 4.4% over 1996. Men’s and women’s apparel accounted for the major proportion (68.1%) of the total manufacturing output of this industry, other clothing for 25.8% and children’s for 6.1%. Over the past decade, women’s and men’s clothing has gained ground at the expense of children’s and other clothing with women’s clothing gaining more market share than men’s clothing (Figure 2. Clothing Industry, Value of Shipments, Share of sub-groups, 1988 and 1997).

Women’s apparel is the largest sector accounting for 35.1% of the value of clothing shipments in 1997. Over the past decade this sector has been steadily gaining market share with shipments increasing from $2.2 billion in 1988 to $2.4 billion in 1997.

Women’s sportswear is the largest industry in women’s clothing. During the past decade women have increasingly become more health conscious and physically more active, participating in sports and fitness workouts. Canadian clothing manufacturers have responded to the increased demand for athletic and casual wear by women. Thus, the value of shipments of women's sportswear has more than doubled in ten years and its market share of total women’s clothing increased from 43.4% in 1988 to 60.3% in 1997.

Men’s clothing is the second largest sub-group

Men’s and boys’ clothing holds the second largest share of the apparel manufacturing. The value of shipments increased 9.6% from $2.1 billion in 1988 to $2.3 billion in 1997 with its market share of the clothing industry increasing from 31.2% in 1988 to 33% in 1997.

The sure winner within this industry was the Men’s and Boys’ suit and Jacket Industry that increased its share of the pie of men’s clothing from 20.9% in 1988 to 30.2% while Men’s and Boys’ Coat Industry lost its share from 14% in 1988 to 8.6% in 1997. Other sectors that lost market shares were Men’s and Boys’ Pant Industry and Men’s Clothing Contractors.

The men’s and boys’ shirt industry that includes athletic wear such as sports shirts and t-shirts increased their shipments by 14.8% in ten years. The market share increased by just over one percentage point (29.1% in 1988 to 30.5% in 1997), far from the 17% gain enjoyed by women’s sports wear. However, one should note that the women’s category is more inclusive, encompassing co-ordinated clothing such as suits skirts and jackets.

Establishments that specialize in cutting and sewing apparel as contractors are more pronounced in women's wear than in men's wear. Together they accounted for 30.6% percent of total establishments, but only 7.3% of total shipments of clothing in 1997.

Milder winters, active animal rights movements and wider choices have led to a decline of the fur industry

The two smallest industries in the clothing industry, children’s wear and other clothing experienced a drop in shipments of 7.9% and 9.4%, respectively, between 1988 and 1997, losing market share to men’s and women’s clothing.

Changes in the "other" category which includes diverse items such as furs, foundation garments, hosiery, gloves, sweaters and occupational clothing are a reflection of the developments over the past decade. Shipments of occupational clothing, hosiery and foundation garments increased while those of fur goods, sweaters, gloves and other apparel industries decreased.

The most notable decline took place in the fur industry. Domestic and foreign demand for fur apparel has been affected by world-wide milder winters in recent years and active animal rights movements. At the same time the increased array of outerwear products such as synthetic furs, fashionable down-filled coats and coats lined with lightweight synthetic fibres have widened the choices available to consumers.

On the other hand, with an increasing number of women in the workforce, the shipments of foundation garments have received a boost. At the same time, development of new materials for protective industrial clothing and safety consciousness may be responsible for an increase in occupational clothing.

Canadian clothing industry - a regional view

Clothing is manufactured in all regions of Canada except the territories. Fully, 62% of the establishments were located in Quebec in 1997, accounting for an equal percent of the industry's shipments and 57.1% of employment. Ontario was home to 22.5% of establishments that produced 25.2% of industry's shipments and absorbed 27.2% of its workforce. Manitoba and British Columbia also made significant contributions (Figure 3. Clothing Industry, Regional Distribution, 1997).

Over the past decade Ontario has lost almost half of its clothing establishments with the value of manufacturing shipments also declining by 4.1%. The decrease was spread over all sub-sectors except women’s wear. Shipments originating in the province of Quebec rose by 5.4%, despite a decline of 42.5% in the number of establishments indicating that there has been some consolidation of apparel production and efficiency gains. The increase in the shipments took place in both men’s and women’s apparel industries.

Canadian clothing industry - labour perspective

The Canadian apparel industry went through a period of upheaval with the introduction in 1989 of the FTA followed by the recession of the early 1990s. More intense competition from the U.S., coupled with increasing offshore imports, accentuated the impact of the decline in domestic demand over the early 1990s on Canadian producers. While shipments of clothing declined from 1990 to 1992, decrease in employment started in 1989 and continued into 1995 with the biggest losses occurring in 1991 and 1992. The employment level stabilized in 1996 and for the first time since 1988 went up by 5.7% in 1997 (Figure 4. Clothing Industry, Employment by sub-group for selected years).

In 1997, the apparel industry contributed 1.6% of the total manufacturing shipments and 5.1% of total manufacturing employment.  It contributed 2.3% of total manufacturing Gross Domestic Product (GDP). The relatively high contribution of the industry to total manufacturing employment as compared to its contribution to manufacturing shipments or manufacturing GDP reflects the industry's high degree of labour intensity. The industry as a whole has been slow to adopt Advanced Manufacturing Technology (AMT)(7), although some sub-sectors such as knitting (which is more capital intensive than other sub-sectors) and men's wear (which is less susceptible to style changes) have been quicker to embrace technological advancement. The extent of use also varies by stage of production. Computer-aided technology is increasingly being used in the pre-production stages such as designing, pattern making and marking and fabric cutting and during the final production stages in the form of automated garment-pressing equipment, and sorting and packaging systems. The assembly stage however, has seen few major developments due to the complexity of design required for machinery capable of converting soft, limp fabrics into three-dimensional garments.

The clothing industry consists of many small establishments. Of the 1,665 establishments in 1997, 74.5% employed less than 50 people and contributed only 28.1% to the value of total shipments. On the other hand, 4.6% of the establishments with 200 or more employees accounted for 37.3% of the manufacturing shipments.

Employment was largest in the Men’s and Boys’ Clothing sub-group at 37.9% of the total employed in the sector followed by Women’s Clothing at 28.7%, Other Clothing at 28.5% and Children’s Clothing at 4.9%.

At the Canada level, an average worker employed in the clothing industry earned $9.03 per hour. This wage varied across provinces, the highest wage of $10.19 was still considerably lower than the hourly wage of $16.70 in the all-manufacturing sector. Overall, wages in the clothing sector, increased by $1.67 between 1988 and 1997 with employees producing men’s and boys’ clothing receiving the highest raise of $2.06 (Figure 5. Clothing Industry, Hourly Wages by sub-groups, 1988 and 1997). Within sub-groups the average wage ranged from a high of $12.27 for those making women’s dresses to a low of about $7.50 an hour for women’s clothing contractors.

In 1997, labour costs on average represented 27.8% of production costs in apparel manufacturing, compared with 15.8% in the total manufacturing sector. Within sub-groups these costs were highest in men’s clothing sector at 34% and lowest in children’s wear sectors at 21% of their respective totals.

Canadian clothing industry - international trade (8)

Canadian households in 1988 spent 6% of their personal disposable income on clothing and footwear that came down to 4.7%(9) in 1998. The demand for apparel has been affected by other competing priorities, such as the purchase of computers and electronics, by a trend toward shopping in discount stores and by consumers increased insistence on good value for the price paid. According to the ASM, except for 1995, domestic shipments of clothing have persistently contracted, since 1989.

Historically, Canada has had a negative trade balance in clothing. Although imports of clothing still exceed exports, the latter have grown at a much faster pace. While the value of imports doubled in ten years, the value of exports in 1998 was five times higher than in 1988. The phenomenal growth in exports has helped manufacturers of clothing keep the present level of production (Figure 6. Market for Clothing Products).

" …. change is occurring within the context of a process of North American rationalization that is giving rise to both strongly increasing apparel exports to, and growing imports from, the U.S. Recent export success, due in part to the low Canadian exchange rate, reflects the Canadian apparel industry's successful adaptation to changing conditions, which augurs well for the industry's long-term prospects". (10)

Canada’s most important trading partners for exports of clothing are: the United States, Japan, United Kingdom, Germany and Russia while those for imports are: China, United States, Hong Kong, Republic of Korea and India. "Low-wage countries have historically been the source of about three-quarters of Canadian apparel imports, with China, Hong Kong and the Republic of Korea being the most important suppliers. However, since the implementation of the FTA and the NAFTA, the United States has become the second most important source of imports overall and the fastest-growing source in many product categories".(11)

Canada's highest export orientation is in women’s sportswear, followed by men's and boys’ suit and jacket and men's and boys’ shirt and underwear. Interestingly enough, the highest proportion of imports also consisted of the same products however, in terms of importance, imports of men's and boys’ shirt and underwear exceeded women’s sportswear and men's and boys’ suit and jackets. This indicates that specialization is taking place within product categories, perhaps with low-price-end products being imported from countries with cheap labour supply and Canadian Manufacturers specializing in high-priced designer products. This premise is supported by at least one of the initiatives instituted by the Quebec government in 1994, to promote fashion design and increase sales of high-value-added, quality apparel. Tax credits as a percentage of the design costs incurred by a qualifying manufacturer are allowed as an offset to the amount of any corporate tax due(12). Specialization in high-end-price products is likely contributing to the exceptional rise in the value of exports of clothing.

Fur apparel that ten years ago made up 44.3% of total exports accounted for only 5.7% of the total in 1997. Foreign demand for fur apparel has been affected by world-wide milder winters in recent years, active animal rights movements and wider array of outerwear products available to consumers.

Conclusion

In 1997, clothing establishments numbering 1665 shipped goods valued at $6.9 billion, an increase of 4.4% over 1996. This was the fifth consecutive increase in the value of manufacturing shipments. Current data from the Monthly Survey of Manufacturing show a further enhancement of 1.3% in 1998 and 2.1% for the first eight months of 1999. Total employment of about 84,000 in 1997 marked the first notable increase of 5.7% since 1988.

Since 1989, domestic shipments of clothing have decreased persistently, except for 1995. Manufacturers have only been able to maintain the present level of production as a result of phenomenal growth in exports. While imports doubled, exports in 1998 were five times the value in 1988. "The export trade is very important to this industry, as consumer demand for apparel within Canada over the past few years has not been strong enough to allow manufacturers to benefit very much from economies of scale. Through the growth in export sales, Canadian apparel manufacturers have the opportunity to increase their profitability and their productivity". (13)

It was interesting to note that the highest proportion of exports consisted of the same products (men's and boys’ suit and jacket, men's and boys’ shirt and underwear and women’s sportswear) as were imported, indicating thereby that specialization is taking place within product categories.

Although some adjustments were required, the clothing industry appears to have adapted well to the changing economic environment of the past decade.

Definitions

Major Group 24 - Clothing Industry

The following four-digit industries are classified (by the Standard Industrial Classification System) to the Clothing Industry (Major Group 24).

For more detailed information on the classification system please refer to Catalogue 12-501-XPB, Standard Industrial Classification, 1980. 

Competition (14): In 1993, about 66 percent of world trade in apparel consisted of developing countries shipping apparel products to developed ones. Few, if any, countries rely exclusively on domestic sources of supply to meet their needs. World apparel trade is roughly valued at $190 billion.

China is the world's leading exporter, shipping goods valued at close to $17 billion in 1993 followed by the European Union (EU) and Hong Kong, which shipped goods valued at $11 billion and $9 billion respectively. Global competition is extremely intense, especially in the EU and the United States, which are the traditional major markets for Canadian producers. In 1993, the leading importers of clothing were the EU ($33 billion), the United States ($32 billion) and Japan ($12 billion).

Trade Policy (15):  From 1974 to 1994, apparel and textile industries in the developed countries did not fall under the normal trading rules of the General Agreement on Tariffs and Trade (GATT). Trade in these industries was governed by the Multi-Fibre Arrangement (MFA) that enabled countries to impose country-specific controls to restrict imports that caused disruption of home markets.

The introduction of the Free Trade Agreement (FTA) in 1989 followed by NAFTA in 1994 changed the Canada-U.S. trading environment by providing preferential access to the lucrative U.S. market and to the Mexican market. As other free trade agreements are negotiated, such as that between Canada and Israel or the interim bilateral FTA with Chile, competition in the Canadian market is expected to increase and new opportunities for Canadian companies may become apparent.

In addition to the phase-out of tariffs under NAFTA, the industries are also facing reductions of tariffs and quotas as a result of the Uruguay Round of multilateral trade negotiations under the GATT, concluded in 1994. The textile and apparel sectors are scheduled to be brought under the World Trade Organization (WTO) trading rules over a 10-year period reducing the average tariff for apparel from 25 percent to 18 percent.

The phase-out applies only to Canada’s agreements with member countries of the World Trade Organization (WTO), which comprise 32 of the 43 existing bilateral restraint agreements.

Public policy in the textile and apparel industries has also included duty remission programs, which currently cover outerwear greige fabrics, shirting fabrics, outerwear apparel, blouses, shirts and co-ordinates, outerwear fabrics.  These programs, which aim at assisting the most vulnerable sub-sectors of the apparel industry adjust to increased competition, primarily from low-wage sources will expire on December 31, 2004.   Producers who received benefits under the five existing duty remissions would be allowed to import certain quantities of apparel or fabrics duty-free to complement products that they make in Canada.  Annual remission benefits for each individual recipient will be restricted to amounts it received in 1995.  These remission orders will help Canadian apparel and fabric manufacturers face the pressures of increased import competition as quotas are liberalized and eventually eliminated in 2005 under the WTO.

References

1.  Total merchandise exports increased 11.9% for the first three quarters in 1999 compared to 6.9% for 1998. CANSIM Matrix No. 909

2.  Statistics Canada, CANSIM Matrix No. 4680

3.  Statistics Canada, CANSIM Matrix No. 3451

4.  Statistics Canada , Daily, October 8, 1999

5.  Statistics Canada, CANSIM Matrix No. 9940

6.  Statistics Canada , Daily, October 15, 1999

7.  Marshall, Katherine et al, Sizing up employment in clothing manufacturing, Perspectives on labour and Income, Spring 1997, Statistics Canada, Catalogue No. 75-001-XPE

8.  The analysis in this section is based on two different sources of data - the Annual Survey of Manufactures and special tabulations from International Trade Division. While the two surveys are conceptually different, within their own realm they are consistent from one year to the next. Hence derived variables such as domestic market and Canadian market give a good indication of their relative size and the change thereof, from one year to the next.

9.  Statistics Canada, CANSIM Matrix No. 9205 and No. 6535

10.  Industry Canada, Sector Competitiveness Framework Series, Apparel, Trade, (http://strategis.ic.gc.ca)

11.  Industry Canada, Trade Trends Database, (http://strategis.ic.gc.ca)

12.  Industry Canada, Sector Competitiveness Framework Series, Apparel, Other Government Support Mechanisms, (http://strategis.ic.gc.ca)

13.  Industry Canada, Business Information by Sector, International Environment, (http://strategis.ic.gc.ca)

14.  Industry Canada, National Sector Team - Consumer Products, (http://strategis.ic.gc.ca)

15.  Industry Canada, Business Information by Sector, Public Policy Governing the Industry   (http://strategis.ic.gc.ca)

Sources

Industry Canada, Consumer Goods Branch, Evolving Patterns: Canada’s Competitiveness in the Apparel and Apparel Textiles Industries, 1995.

Industry Canada, Industry sector, Consumer Products Industries, Sector Competitiveness Frameworks, Apparel: Part1- Overview and Prospects, 1997.

Industry Canada, (http://strategis.ic.gc.ca)

Industry, Science and Technology Canada, Industry Profile, Apparel, 1990-1991.

Industry, Science and Technology Canada, Industry Profile, Fur Apparel, 1990-1991.

Kowaluk, Russell, Stability prevails in the Canadian Clothing Industry, Statistics Canada, Manufacturing, Construction and Energy Division.

Marshall, Katherine; Guévremont, Denise; Pronovost, Stéphane; Sizing up employment in clothing manufacturing, Perspectives on labour and Income, Spring 1997, Statistics Canada, Catalogue no. 75-001-XPE

This article was written by Yasmin Sheikh. Yasmin 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-XCB), available annually for $430 per issue in Canada and for $430 U.S. outside Canada. Order these products 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.