H&M is looking to Ethiopia as a new low-cost country in which it will produce clothing, as the apparel retailer races to keep shelves stocked at a growing number of stores world-wide.
The Swedish company relies heavily on Bangladesh for clothes production, and a move to Africa would expand its sourcing footprint but not replace its commitment to production in Asia. One supplier says H&M is looking to source one million garments a month from Ethiopia.
A spokeswoman said the fashion company has placed test orders with Ethiopian suppliers and that large-scale production could begin as early as this fall. H&M is adding stores in a number of markets, a move needed to help offset stagnant same-store sales in some regions.
“As a growing global company we have to look at how we guarantee that we have the capacity to deliver products to all our stores where we have a rapid pace of expansion,” H&M spokeswoman Camilla Emilsson-Falk said. “We are doing that by increasing production in our existing production areas and also by looking at new ones.”
H&M joins a host of rivals looking for alternatives to areas such as southern China, where costs are rising. The Sanford C. Bernstein investment-research firm estimates costs per unit manufactured in Ethiopia were more than half the cost in China as of 2011, which is the latest data available.
But rising costs in Ethiopia could be a problem in the future. Bernstein analyst Anthony Sleeman said costs rose 18% in Ethiopia in 2011 versus 2010, compared with a 7.7% spike in China. At that rate, Sleeman expects Ethiopia’s costs per unit to exceed China’s by 2019.
Read more at The Wall Street Journal.
