CEO delivers straight talk on China

By Don Hogsett -- Home Textiles Today, 2/2/2004 12:00:00 AM

NEW YORK —

Speaking bluntly on the scheduled removal of quotas, Paul Charron, the chairman and CEO of Liz Claiborne Inc., said, "We don't have the vaguest idea what's going to go on. It's going to be absolute chaos after 2005."

But despite all the confusion surrounding January 2005, there may still be considerable benefits from the removal of textile and apparel quotas, if indeed that happens, Charron told his audience of corporate executives last month at the Financo Chief Executives Seminar.

"Quotas force prices up. And as a result, you base your sourcing decisions on price. Now you can make more rational sourcing decisions."

In a quota-free environment, Charron said he expects prices to "drop anywhere between 5 and 20 percent, probably closer to 15 percent." That could pose its own set of challenges, he said. "If prices come down 15 percent, you have to manage what you give to your customers in terms of lower prices, what you give to retailers, and what you can keep for yourself, (while) keeping Wall Street happy."

Charron continued, "Consider the impact of deflation. Top-line growth of 10 percent used to be considered good. Now a top-line growth of 6 percent is going to look real good."

Like it or not, said Charron, China is the 1,000-pound gorilla and always will be. "China will become America's manufacturing arm. And, ultimately, they will anticipate our needs, not just follow specifications."

By the end of the decade, he forecast, "China will account for anywhere between 50 and 80 percent of all U.S. apparel. China already accounts for 95 percent of toys; (and) 95 percent of small electronics ... "

Dealing with China, Charron thinks, is preferable to some of the other apparel sourcing options. "In Southeast Asia, we have concerns about infrastructure and corruption. We don't have those concerns about China."

Striking a pragmatic note, Charron said, "You are looking at inexorable momentum. Even if the U.S. puts up safeguards, you're just pushing it back from one year to the next."

Whatever happens next year, he promised, it won't be boring. "Hang on to your hats, boys and girls. It's going to be one hell of a ride."