Time of Change in Turkish Apparel

Tariffs imposed on textile imports by the Turkish government in late 2011 mean Turkey’s apparel industry is changing – and this change brings both risk and opportunity. Euromonitor International looks at what might be in store for Turkish apparel manufacturers.

As a bridge between East and West, Turkey has a privileged position geographically that has meant its apparel industry has flourished, and textile and apparel manufacturing has long been considered as a signature industrial activity in Turkey.

Exports rise year on year

Although labour costs are traditionally higher in Turkey than in the Asian countries with which it is largely competing, the central location of Turkey means turnaround times are fast, and high street fast-fashion manufacturers who opt for Turkey as a supplier can keep up with ever-changing trends. As a rule, fast turnaround in production means on-trend garments and leads to less stock left on the sale racks. Add in to that the better quality of Turkish products and the rising cost of raw materials and labour in Asia, and for Western European apparel brands in particular the country has plenty of appeal.

In 2005, the head of the UK’s Arcadia Group Sir Philip Green stated that he wanted to move production away from China and closer to home to Turkey. Reflecting this increased interest in the country, Turkey’s textile and apparel exports were worth $25 billion in 2011, up 29% from 2006, and now accounting for 19% of the country’s US$135 billion total export market.

Supporting this growth in textile exports, Turkey’s economy is also currently in a positive phase, recording growth of 8.5% in 2011 – much healthier figures than have been achieved by the vast majority of its European neighbours. However, this growth is predicted to slow in 2012 in part because of knock-on effects from the eurozone crisis.

Tariffs intended to safeguard local industry

In September 2011 the Turkish government implemented tariffs on the import of textiles and apparel. The move was designed to protect local textile and apparel manufacturing. The additional tax rate is as high as 20% in several textile products and 30% for apparel. In January 2012, the tariffs expanded to include imported yarns with a 10% additional tariff. These measures will affect all origins, except countries with duty-free agreements with Turkey and the European Union.

Running alongside the increased tariff, the Government has also introduced new subsidies to boost less developed areas. These extra incentives mean domestic fabric and apparel manufacturers that have previously moved overseas may well be tempted to move their production facilities back to Turkey. Akyigit Tesktil Konfeksiyon Pazarlama AS, for example, has done just that and decided to move its production facilities back to Turkey.

ITKIB (Istanbul Textile and Apparel Exporters Association) stated that as a result of the subsidies, Turkish domestic manufacturers have received more than 4.5 billion lira in investment, creating more than 6,000 jobs in the industry.

Extra costs bring criticism

While it is clear to see the intention behind the tariffs in safeguarding Turkey’s domestic fabric and apparel production, the move has attracted some criticism.

Many domestic companies work as apparel and textile suppliers to international brands such as Tommy Hilfiger, Gap, and Marks & Spencer, and manufacturers are worried that the increased production costs will hinder demand from these international brands, impacting on the apparel and textile export market as these global brands seek better deals in Asia. In particular manufacturing for cheaper, fast fashion brands where cost is of primary concern is expected to decline.

In the short term at least, it is likely the tariff will serve to exert increased pressure on Turkish apparel manufacturers. Because not all demand for fabric can yet be met solely from domestic supply, manufacturing costs will rise as manufacturers are forced to pay extra for imported raw material. Given that the Turkish apparel market relies heavily on discounts to attract value conscious Turkish consumers, manufacturers could well be squeezed on both sides and left in an uncomfortable situation.

Bridging a quality gap

Clearly, the tariffs will bring changes in Turkey, but how can apparel manufacturers react to minimize any potential damage from the changes?

Firstly, Turkish apparel manufacturers must emphasise their strong points that have always stood them in good stead with brands based in Europe – namely that quality items can be quickly delivered so fashions haven’t changed by the time apparel hits the shelves. Taking smaller orders would also provide a point of difference.

Another option for Turkish manufacturers would be to concentrate their efforts on supplying more premium high street branded apparel. While fast fashion retailers may well take their custom to the cheapest bidder, compromising on quality for cost is not an option for more premium brands. Turkish manufacturers have the expertise to meet the needs of demanding clients and the country’s fabric and apparel manufacturing industry is ideally place to bridge a gap that exists between the fast fashion products where price outweighs quality and the high end, luxury items made in Italy or the US.

Multinationals have the upper hand on the high street

Although the majority of Turkish clothing manufacturing is destined for export, the industry also supplies apparel to an emerging domestic retail market. The Turkish apparel market grew by 5% to reach US$21 billion in 2011, registering positive growth throughout all the categories. Not only will the tariff affect Turkey’s export market, but its implications will also be felt on the high street.

As the country’s retail environment develops, Turkish consumers are becoming increasingly brand orientated and the exported products of local companies are often imported back to the country to be sold under a foreign brand name. While local companies currently dominate the Turkish market, competition from foreign brand names is increasingly fierce.

Given that multinational brands have more leeway to absorb increased production costs, or simply move manufacturing to another country altogether, foreign branded products are unlikely to rise in price significantly because of the tariffs. However, certainly in the short term when manufacturers must still rely on imports, local brands may well see prices rise. Likewise, cheap imported clothes from Asia are also likely to be subject to price rises as sales of cheaper Asian textiles and clothing to Turkey dip as a result of the tariffs.

Despite the increased appetite for brands, Turkish consumers are still very value conscious, however if non-branded apparel rises in price while foreign brands see no increase it can only further drive the appeal of foreign brands in Turkey, as pricings shifts mean they seem more attainable.

Change on the horizon

While the shape of the Turkish apparel industry in the years to come remains to be seen, what is certain is that there are changes ahead for all involved in the apparel production and retailing process. Given the multitude of possible outcomes for both manufacturers and retailers alike, it is clear that the Turkish government’s tariff represents something of a double-edged sword.