WTO changes may upset apparel makers of U.S

According to Merrill Lynch, as a result of the elimination of the quotas, U.S. apparel vendors anticipate price reductions ranging from 8% to 30% over the course of 2005 and 2006 on some products sourced from Asia.

Merrill Lynch said, "We see the elimination of apparel quota, and the deflation likely to result, as a longer term negative for our branded apparel stocks."

"Lower sourcing costs will eventually be passed onto consumers, we think, depressing organic growth and sector multiples." However, the research house said that for a few seasons next year, it expects the gross margin boost from lower cost sourcing will outpace retail deflation.

In Merrill Lynch view, exactly how much of the sourcing savings is passed through to retailers and consumers will be largely a function of competitive dynamics and channel inventories.

The firm said that stocks which may be impacted negatively by eliminating the quotas include makers of cotton pants and cotton knit shirts such as Haggar and Tropical Sportswear International.

Merrill Lynch also noted possible problems for companies exposed to mass channel and commodity categories, such as VF and Warnaco Group.

The research house also expressed concern about “companies that compete most directly with retailer private label programs," such as Columbia Sportswear.

Source: fiber2fashion.com