Cotton Prices are Hard on Garment Makers

SUSIE GHARIB: There`s another major worry for retailers -- surging cotton prices. The cost of that raw material has more than doubled in the past year to an all-time high. That`s making it more expensive to manufacture everything from clothing to sheets and towels. Erika Miller visited one garment maker for a closer look at cotton`s price jump and what it means for consumers.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Clothing manufacturer Dalia Sabari has been feeling the pinch of rising cotton prices for months. Her firm, Scrub Ink, makes scrubs and other uniforms with customized details. The garments are sold through a web site. At first, the company absorbed the higher costs, but a few weeks ago, Sabari raised prices by about 10 percent. How much does it cost?

DALIA SABARI, PRESIDENT, SCRUB INK: This item costs $26.99

MILLER: And what would it have cost a few months ago?

SABARI: It cost, a few months ago, $24.99

MILLER: So, it went up $2.

SABARI: It went up $2, yes.

MILLER: Cotton prices have skyrocketed in the past year to more than $2 a pound. That`s the highest price since reconstruction. Analyst Jeffery Klinefelter says it`s a classic case of high demand and low supply.

JEFFREY KLINEFELTER, RETAIL ANALYST, PIPER JAFFRAY: The combination of extreme volatility, both down and up, in demand for cotton, combined with some changes in weather patterns in some key planting regions in the far east and Middle East really all came together at the same time to create a supply problem.

MILLER: The rising price of cotton is encouraging many designers to look for lower-cost alternatives. But the increase in demand for rayon and other synthetics is pushing up the price of those fabrics, too. Brooks Brothers, Levi Strauss, Nike and Polo Ralph Lauren are a few companies that have announced price increases. Already, some shoppers are changing their purchases.

UNIDENTIFIED FEMALE: For me, I definitely want my tee shirts to be cotton. But they are probably going to be more blends.

MILLER: But others don`t care.

UNIDENTIFIED MALE: I`m not going to stop wearing jeans or tee shirts, so I`ll have to go with it, unless it`s outrageous. You have to take it, right?

MILLER: Analysts predict clothing prices will rise between 5 and 30 percent this year, depending on the item. If the increases stick, it could actually be good news for retailers and their stocks.

KLINEFELTER: Clearly, the trade off here is going to be how much less product consumers buy if prices go higher. But if it`s done carefully, strategically, we think in the end, a slight inflationary environment for apparel is actually a good thing.

MILLER: Scrub Ink is already bracing for the possibility of another price hike, because the alternative is cutting quality.

SABARI: What we haven`t done is we haven`t tried to blend other fabrics together or stop using cotton. It`s essential for the scrubs to be comfortable and soft.

MILLER: She`s hoping customers won`t mind paying a little more for extra touches. Erika Miller, NIGHTLY BUSINESS REPORT, New York.

(Source: http://www.pbs.org/nbr/site/onair/transcripts/cotton_prices_and_garment_workers_110303/)