A few days ago, I had a discussion with former colleagues. They had just finished walking the Canton Fair and were on their way back to France.

They told me it was the first time they noticed so much stock on sale on the trade show. Exhibitors approached them constantly, saying “we have stock garments, would you like to buy this?”. They are not opportunity buyers, so they weren’t interested.

The question is, where do these stock lots come from? Certainly from orders that were canceled by buyers, but why?

It’s not a return of the quotas, like in 2005-2006. It’s not the bankruptcies of retailers and wholesalers, like in 2008.

The only thing I can think of is the fall of the dollar. Some importers negotiate a price one year in advance and develop the style slowly for their season. By how much did the RMB appreciate over the USD over the last 12 months? About 5%.

And this mechanical 5% price hike happens in conjunction with cost increases (raw materials, labor…). Overall, it often translates to 10% or 15% increases.

That’s way above the margin of many manufacturers and many importers. In these conditions, it’s often better to cancel the order, if a 30% deposit hasn’t been wired yet.

In other industries, it is totally painless because every importer is affected in the same way and there is no powerful retailer saying “I don’t care, I won’t buy above 80 cents”…