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. .
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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.” .
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“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. .
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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. .
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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. .
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Merrill Lynch also noted possible problems for companies exposed to mass channel and commodity categories, such as VF and Warnaco Group. .
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The research house also expressed concern about “companies that compete most directly with retailer private label programs,” such as Columbia Sportswear. .
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Source: fiber2fashion.com
Date:6/24/2004
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