THE WOVEN OUTERWEAR MARKET IN THE EU

THE WOVEN OUTERWEAR MARKET IN THE EU October 2009 CONTENTS REPORT SUMMARY... 2 INTRODUCTION... 4 1 CONSUMPTION... 5 2 PRODUCTION... 12 3 TRADE CHANNELS FOR MARKET ENTRY... 15 4 TRADE: IMPORTS AND EXPORTS... 21 5 PRICE DEVELOPMENTS... 30 6 MARKET ACCESS REQUIREMENTS... 32 7 OPPORTUNITY OR THREAT?... 37 APPENDIX A PRODUCT CHARACTERISTICS... 39 APPENDIX B INTRODUCTION TO THE EU MARKET... 48 APPENDIX C LIST OF DEVELOPING COUNTRIES... 49 This survey was compiled for CBI by Searce Disclaimer CBI market information tools: http://www.cbi.eu/disclaimer Page 1 of 50

Report summary This survey profiles the EU market for woven outerwear for men, women and children. Market size The EU market for woven outerwear achieved an annual growth of 1.7% during the period 2004-2008 and reached 143 billion in 2008, which was 55% of total outerwear consumption. Germany is still the most important country in woven outerwear consumption in the EU, despite a very small growth in the period 2004-2008. The difference between Germany and the UK and Italy has become smaller again. Five countries (Germany, UK, Italy, France and Spain) accounted for 74% of EU woven outerwear consumption. Consumers in Austria and the UK are the biggest spenders on outerwear in the EU, while per capita consumption in the new EU member states was far below the EU average of 290. The woven outerwear market is not insulated from the international financial and economic crisis and recession in several EU countries. In most of the EU countries (except in Poland and Romania) consumer spending on woven outerwear is forecasted to fall in 2009. Generally spoken, growth in volume of woven outerwear will be higher than growth in terms of value. Lower prices will be the result of increasing market shares of discounters, value chains, hyper- and supermarkets, but also of increased price competition and further expansion by specialized chains. Production According to Eurostat/Prodcom, output in the EU woven outerwear industry decreased by an average 1.4% per year in the period 2004-2008 and amounted to an estimated 18.2 billion in 2008. Italy is the dominant woven outerwear producer in the EU accounting for 46% of total EU turnover in 2008, followed by Spain, Romania, the UK and Portugal. 84% of the EU woven outerwear industry is concentrated in these five countries. Most of the EU manufacturers have developed an outsourcing policy. Trade structure Developments in the retail sector, such as a growing concentration at retail level, expansion by internationalisation and growing competition, lead to an increased demand for fashionable products against low prices. Growth of clothing multiple chains and franchised outlets and increased sales by nonspecialized retailers (hyper- and supermarkets etc.) led to the decline of the formerly strong independents sector. This trend will be continued in the coming years. The fast-changing demand in the clothing market is a significant factor. Because of the higher dynamics of the clothing markets in terms of more rapidly changing consumer preferences and more seasons per year, there is a general tendency in the clothing branch to demand shorter delivery times and smaller volumes of series and orders. The role of importing wholesalers and importers remains relatively important but will decline slightly, while the role of clothing multiples and, to a lesser degree, buying groups or franchise formula, will increase in the coming years. Parallel to the trend for suppliers to make their clothing abroad is a trend for retailers or wholesalers to bypass the local industry totally, by means of direct imports. Imports EU imports of woven outerwear increased on average 4.4% per annum during 2004-2008 and reached 48.0 billion in 2008. Imports decreased 0.9% in 2008 compared to 2007. This fall was mainly caused by diminished intra-eu trade. Page 2 of 50

Germany remained the leading importer with a share of 20% in imported value. Germany was followed by the UK and France (each country 14%), Italy (10%), Spain (9%) and Belgium (6%). The Netherlands ranked sixth, followed by Austria and Denmark. DCs accounted for 52% of total EU imports of woven outerwear in 2008 (49% in 2006). China remained by far the major woven outerwear supplier to the EU, 25% of total imports came from this country. China was followed by Germany, Italy, Turkey, Belgium and India. The imported value from China for woven outerwear was 9% higher in 2008 than in 2007. Of all DCs, accounting for substantial exports to the EU, only imports from Egypt (+33%), Mexico (+11%) and Vietnam (+10%) increased to a higher degree than China. Exports The EU exported 683 thousand tonnes of woven outerwear with a value of 34.7 billion in 2008, representing an annual increase in value of 3.1% in 2004-2008. The leading EU exporter of woven outerwear remained Italy (24% of total exported value), followed by Germany, France, Belgium, Spain, The Netherlands and Romania. A slightly decreasing share of 26% went to countries outside the EU, mainly Switzerland, Russia, the USA, Japan, Hong Kong and Norway. Opportunities for developing country exporters The decrease of production in the major EU countries has led to a further sourcing of products in low-cost countries and, probably, of products with a higher design content. Besides the traditional lower range market segment, the largest middle range market segment may also offer good opportunities for exporters in DCs. Importers in the major EU countries have built up a comparative advantage by specialising themselves in design and other functions, like preparation of samples, logistics, marketing etc., while simple production operations take place increasingly in other countries. As time goes by, even more of the first-mentioned functions are leaving these EU countries too. The focus on casual and leisurewear will be continued for the coming years, but to a much lesser degree. Besides this trend, there is a tendency to use more natural fibres, mainly cotton and blends with cotton, at the expense of man-made fibres. Caused by economic developments, many consumers on lower incomes will continue to seek low priced clothes. It should be noted that exporters in DCs will be faced with demands for high quality and environmentally friendly products. Page 3 of 50

Introduction This CBI market survey profiles the woven outerwear market in the EU. The emphasis of this survey lies on those products, which are of importance to developing country suppliers. The role of, and opportunities for, developing countries (DCs) are highlighted. The broad definition of woven outerwear means that, in addition to this report, the CBI market surveys Knitted Outerwear, 'Bodywear (covering underwear, nightwear, swimwear and hosiery), Leather garments and Personal Protective Equipment (including workwear) facilitate a complete view of all types of clothing. Product groups The survey covers the woven product groups: coats and raincoats; outdoor jackets; suits and ensembles; indoor jackets; dresses and skirts; trousers and shorts; shirts and blouses; sportswear; babies garments; and, clothing accessories (scarves, shawls, gloves, ties etc.). Besides this product classification, used for trade statistics, the classification (based on demographical criteria) woven outerwear for women, men and children is used for consumption statistics. For detailed information on the selected product groups please consult appendix A. More information about the EU can be found in appendix B. In this survey, EU means the EU-27 unless otherwise indicated. CBI market surveys covering the market in specific EU member states, specific product group (s) or documents on market access requirements can be downloaded from the CBI website. For information on how to make optimal use of the CBI market surveys and other CBI market information, please consult From survey to success - Guidelines for exporting woven outerwear to the EU. All information can be downloaded from http://www.cbi.eu/marketinfo, go to Search CBI database and select your market sector and the EU. Page 4 of 50

1 Consumption 1.1 Market size The global market for woven outerwear can be estimated at 460 billion in 2008, of which the EU accounted for 31%, North America (including the USA) 29%, Asia Pacific (including Japan) 28%, Latin America 7% and other regions 7%. Consumption of woven outerwear in the EU followed an annual growth of 1.7% during the period 2004-2008 and reached 143 billion in 2008, which was 55% of total outerwear consumption. Germany is still the most important country in woven outerwear consumption in the EU, despite a very small growth in the period 2004-2008. The difference between Germany and the UK and Italy has become smaller again. Five countries (Germany, UK, Italy, France and Spain) accounted for 74% of EU woven outerwear consumption. Table 1.1 Woven outerwear consumption in the EU countries, 2004-2009, in million 2004 2006 2008 Av. annual 2009 Per capita change forecasts 2008- in Germany 27,626 27,872 27,880 0.2% 26,100 339 UK 22,757 24,305 25,134 2.6% 24,370 412 Italy 21,901 22,152 22,717 0.9% 21,500 385 France 18,567 19,436 19,106 0.7% 18,350 309 Spain 10,093 10,795 10,969 2.2% 10,340 243 Netherlands 4,843 5,038 5,173 1.7% 5,100 316 Belgium 3,735 3,826 4,031 2.0% 3,890 380 Poland 3,011 3,190 3,727 5.9% 3,780 98 Austria 3,373 3,394 3,505 1.0% 3,340 420 Sweden 2,963 3,203 3,312 2.9% 3,200 362 Greece 2,943 3112 3,226 2.4% 3,190 267 Portugal 2,264 2,332 2,435 1.9% 2,350 229 Denmark 1,743 1,941 2,029 4.1% 1,955 371 Finland 1,433 1,546 1,683 4.4% 1,590 317 Romania 1,434 1,547 1,667 4.1% 1,680 78 Ireland 1,296 1,347 1,358 1.2% 1,210 316 Czech Rep. 1,023 1,156 1,306 6.9% 1,255 127 Hungary 823 885 929 3.2% 870 93 Slovakia 606 726 789 7.5% 755 146 Bulgaria 495 555 652 7.9% 630 86 Lithuania 265 404 469 19.2% 430 139 Slovenia 392 424 465 4.7% 460 231 Latvia 174 222 322 21.3% 300 142 Estonia 125 160 219 18.8% 200 164 Cyprus 189 209 210 2.8% 205 244 Luxembourg 187 190 195 1.1% 195 411 Malta 93 98 102 2.4% 100 251 EU 134,354 140,065 143,619 1.7% 137,345 290 Sources: Eurostat (2009), Euromonitor (2009) and trade estimates Consumers in Austria and the UK are the biggest spenders on woven outerwear in the EU. Looking at the other major EU countries, consumption per capita in Italy was the highest, followed by Belgium and Germany. Spanish consumption was less than the EU average consumption of woven outerwear. Per capita consumption in the ten EU member states, which joined the EU in 2004, was in the range of 98 (Poland) to 251 (Malta). The two most recent members of the EU, Romania and Bulgaria, accounted for 78 and 86 per capita. Page 5 of 50

There have been significant differences between the rates of growth of different member states. For example, the highest growth rates have been enjoyed by the three Baltic States, Latvia, Lithuania and Estonia. Conversely, below average growth has been experienced over the period by several of the major EU member states, especially in Germany. Forecasts Forecasts on consumer expenditure of woven outerwear are 137 billion for 2009, which would be 4.4% lower than in 2008. The woven outerwear market is not insulated from the international financial and economic crisis and recession in several EU countries. In most of the EU countries (except in Poland and Romania) consumer spending on woven outerwear is forecasted to fall in 2009, as mentioned in table 1.1 and discussed in the individual country surveys. Generally spoken growth in volume of woven outerwear will be higher than growth in terms of value. Lower prices will be the result of increasing market shares of discounters, value chains, hyper and super-markets but also of increased price-competition and further expansion by specialized chains. In terms of future potential, it is clear that the new EU member states, in particular Slovakia, the Czech Republic, Slovenia and Poland, offer greater scope for market growth as incomes and spending patterns approach European norms, although this may still be some years away. Also of interest are Spain, Portugal and Greece, which have surprisingly low levels of woven outerwear spending per capita. These forecasts are based on historic data and, therefore, must be viewed as no more than an indication of a broad trend. Type of product Women s woven outerwear is the leading sector in all individual EU markets surveyed. In 2008, the share of the total value of women s woven outerwear sales in the major EU countries exceeded 50%. Women are considered to be more sensitive to fashion and buy more impulsively, than men. In many EU countries, the demand for formal wear declined in favour of casual and leisurewear, which implies higher increasing sales in terms of volume, rather than in terms of value. Since the economic crisis for many EU countries started in September 2008, consumer expenditure on clothing, including woven outerwear, decreased considerably. Value market shares for woven outerwear in 2008 were trousers and shorts 35%; coats and outdoor jackets 16%; shirts and blouses 15%; dresses 9%; skirts 5%; indoor jackets 5% and other products 15%. Increased demand for woven products like jeans, other cotton trousers, shorts, sportswear, outdoor jackets etc. illustrates the popularity of casual wear, too. The dominating role of casual and leisure clothing can be derived from the high shares of: jeans (424 million units sold in 2008 against 34); other cotton trousers (711 million units at 25) and cotton shorts (127 million units at 17). These three products covered 70% of total sales in this product group. Bought by a population of 494 million, it indicates that on average 85% of all men, women and children living in the EU bought one pair of jeans in 2008. Total jeans consumption in the EU concerned for 45% men s jeans, 31% women s jeans and 24% children s jeans. Blue jeans are still an unchanged part of the leisure and casual wardrobe of the majority of the EU population. Even jeans in the classical function as work wear are still important. Cotton and man-made fibre outdoor jackets sales reached respectively 81 and 194 million units in 2008 against an average price of almost 42. An estimated 350 million cotton shirts for men at 21 and 255 million cotton blouses at 18 for women covered 60% of total sales in this product group. Page 6 of 50

1.2 Market segmentation Criteria for market segmentation of woven outerwear are: demographic factors, such as age (babies and children s wear and adults, the latter often being divided into age groups in several ways, for instance 15-24, 25-49, 50-64 and 65+) and gender (men/boys and women/girls); by type of activity resulting in specific clothing behaviour, like formal, casual, leisure and active sports dress; attitude of consumers towards fashion and developments in fashion; specific circumstances (like maternity wear) or special events (weddings, parties, first communion etc.); economic factors, such as income and spending power; geographic factors, climate and environment. Most of these criteria will be applied by trading partners in the EU. Segmentation by demographic factors The size and age structure of the population is one of the basic determinants of which products will be bought and how much will be spent on clothing. Although this may appear to be a rough method for categorising the market, it is interesting because: Generally speaking, different age categories have different clothing behaviour, and Developments within the various age categories can be followed, by comparing results with projections. The EU population increased 1.5% in the period 2004-2008 to reach 494.1 million people. The EU has an ageing population and the category below 15 years has decreased. The categories 50 and older have increased substantially. In 2004, 34.4% of the total population was older than 50 compared to 35.4% in 2008. The population growth is expected to slow down in the EU. Another important demographic development is the strong increase of one- and two-person households. The persons in such households do not have many household or family obligations, so they have a lot of leisure time. Besides that many of these households have rather high disposable incomes. Both factors are stimulating clothing consumption. Table 1.2 Population in the EU by age classes, 2004-2008 (in %) Age (years) 2004 2006 2008 0-14 16.3 15.9 15.7 15-24 12.8 12.7 12.5 25-49 36.5 36.5 36.4 50-65 18.0 18.2 18.4 65+ 16.4 16.7 17.0 Total 100.0 100.0 100.0 Source: Euromonitor (2009) Clothing buying process by age groups Children (0-15) The buyer of children s wear, certainly for the younger age groups, is an adult, mostly the mother. Her fashion consciousness and general buying behaviour have a long-lasting dominating influence on the purchase of clothes for the child. The social position of the child's family also plays a role in these decisions. The trend of more working women, smaller family sizes and older parenthood mean that, in many households, there is a higher level of per capita spending on children than in any previous period. This segment is helped by indulgent gift buying, especially for newborn babies, as clothes are a popular gift. As they grow up, boys and girls are increasingly vocal as to how they want to be dressed. This development takes place in phases, with varying influences from the outside. Fashion awareness of clothing is increasing among the younger children. Almost all designers and top fashion retailers launch their own children s couture. The main buying force comes from 9-14 Page 7 of 50

year-olds, who are more financially independent (i.e. they have a clothing allowance) and fashion-conscious, and are heavily influenced by pop celebrities and their favourite sport icons. Men (15+) In terms of consumer targeting, the market for men (15+) can be divided into two broad groups: younger buyers, who tend to be more concerned with image and fashion, and older buyers, who are concerned more with quality, value, practicality and durability. However, the dividing line between these two groups in terms of age is not easy to draw. Fashion is important to many consumers in their 30 to 40s and quality has become an increasingly important criterion for younger consumers. Women (15+) The women s clothing market is generally fast-moving and volatile, particularly so amongst the crucial younger age groups, for whom fashion is the key driver. The women s wear market is not only much larger than the men s wear market, but is also more dynamic and enjoys growth in most of the EU countries. Fundamentally, women spend far more on clothes than men do and they spend more consistently throughout their lives. The 15-24 age segment of the female population tends to be made up of fashionable consumers of woven outerwear. This segment spends a lot of money on their personal adornment and is likely to look for new style and designs. Female consumers in the 50-65 ages are modern in their thinking and demands. They are no longer associated with granny styling and seek stylish garments, quality and comfort. Segmentation by type of activity The outerwear market can be divided into several segments based on type of product combined with type of activity, resulting in a specific clothing behaviour. The following categories can be distinguished: formal clothing, casual wear, basic leisurewear and active sportswear. The active sports segment in the EU influences the leisure and casual segments. Smart casual will be further influenced by the workplace. Segmentation by attitude of consumers towards fashion Elements of fashion are: colour, design, fabric, exclusivity and style. The present consumer in Western Europe wants to be seen as an individual, who has his/her own life style. Especially in the higher priced fashion segment, clothing products have an individualising function. Therefore the demand by the consumer has become more specific. Another trend is that people buy different clothes for different activities and occasions. Consumer behaviour is unpredictable and influenced by short term demands. The consequence of the above is that the consumer expects retailers to present a clear image. In order to meet these consumer demands, many clothing stores and suppliers broadened their non-clothing product ranges, in particular by adding accessories, shoes, sunglasses and similar products. On the other side, value retailers and clothing discounters start or maintain their operating at a low-price level based on the principle that value for money is still a very important purchase criterion for most consumers, in particular when confronted with declining budgets. The major purchase criteria as based on segmentation by attitude towards fashion, value for money principle are given in the overviews below. The low-to-middle price segment, with a market share of 40%, continues to dominate. This and more information about the retail and other distribution channels will be discussed in more detail in chapter 3 Trade channels for market entry. High price luxury segment PRODUCT CRITERIA Limited collections, made with special care; sometimes handmade, high quality materials Designer/ brand name stands Examples of BRAND NAMES Dolce & Gabbana, Prada, Girbaud, Georgio Armani, Donna Karan FASHION CRITERIA High fashionable collections. Exclusively designed materials and artworks Trend-setting in fashion Page 8 of 50

PRODUCT CRITERIA for exclusivity and fashionable Market share 5% clothes Upper middle Collections are produced after price segment pre-sale; extra attention to fitting and accessories Brand-name goods; good quality materials; broad range Market share 15% in design Middle price Collections are produced after segment pre-sale; good to medium quality materials Trend-following or classic assortment; brand-name Market share 30% goods Low to middle Produced in larger quantities price segment to lower the price; basic styles, less changes to patterns, basic fitting Medium quality materials/lower fashionable element Produced in large quantities to lower the price; less attention to fitting and patterns Market share 40% Basic quality/high fashionable Low or very low Basic or low quality price segment Special sales/ offers Inexpensive products Market share 10% Produced in large quantities Source: Fashion & Vision (2008) Examples of BRAND NAMES Max Mara, Hugo Boss, Blumarine, Marni, Strenesse, Marc Cain French Connection, In-wear, Benetton, S. Oliver, Esprit, Mexx, Jackpot Private labels, like C&A, Promod, WE, Marks & Spencer, Hema, Etam, Vögele Private labels, like Hennes & Mauritz, Zara, Mango, Topshop No brands FASHION CRITERIA Large variety of styles and of materials Styling and fitting are vitally important Product in line with the latest fashion trends Good fitting is important Recognisable by brandname visible on outside Collections with a view to current fashions High fashionable, close to trends Standard products without particular fashion requirements More information about price levels and price structures will be discussed in chapters 3 and 5. Climate Generally spoken, weather has an impact on the timing of expenditure, which tends to be highly seasonal. Unexpected weather changes influence consumers in their purchasing decisions. Consumers in warm, dry climates tend to purchase less durable, cheaper clothing, which influences the share of clothing expenditure. Because of the warmer climate in Southern Europe, the difference in seasons is limited. Owing to its cold and wet winters, a comparatively high proportion in value is spent on heavy garments such as winter coats and jackets in Nordic countries (like Sweden and Finland), Germany and Austria. Companies intending to export clothes to these countries should be aware of the temperate climate, which requires casual garments which are comfortable, robust and preferably wind- and waterproof. Trends General trends Eco-fashion has become a segment in its own right within the clothing industry. This trend is increasingly significant in many markets, in particular the UK, Germany, The Netherlands and the Scandinavian countries. People tend to place more emphasis on this development. One of the consequences of eco-fashion is that consumers have to pay a higher price for a product. However, it should be noted that consumers are less concerned about ethical aspects when spending power decreases. A polarisation of brand leadership also appears likely in Europe. Retailers in Germany, UK, France and other EU countries are clearly aiming to replace manufacturer brands with their own identities in the middle market, leaving the upper market to designer brands. Value for money is still the most important purchase criterion for most consumers. Page 9 of 50

Younger people are more and more interested in brand name clothing, especially in casual and leisure wear (street wear). Influence by media such as Internet, (fashion-) magazines and TV inspires youth to follow fashion trends and they are willing to spend more for (mainly) European brands. Consumers also combine a high-priced luxury product with a cheap private label product to lower the costs. A stronger fashionability across the retail section will be achieved by a wider distribution and the appeal of designer labels and exclusive collections. Some well-known examples of this were Karl Lagerfeld and Stella Mc Cartney for H&M. In most of the major EU countries, people have become larger in length and width, which is valid for men and women, as well as in the younger age groups. Decreasing brand loyalty; consumers can combine a high-priced luxury product with a cheap private label product. Increasing individualisation; consumers are more difficult to influnce and also less predictable. The trends are changing at a greater speed and this makes segmentation of the market difficult. However, mass fashion will still exist within different subcultures. Fashion trends Women s wear follows the broad trend toward more casual and sporty garments. Several fashion forecasts announced that collections will be more feminine and will have fewer casual details. Other forecasts are: o a-symmetrical openings and several layers will become popular. Several lengths can be created in one garment or in a combination of several garments, like skirt with long tunic or blouse and short waistcoat or short jacket on a top. o Accents on the waist by large belts or accents on the neck by wide scarves in bright colours. o Skirts remain popular in all types and kind of lengths. In Southern European countries, the narrow knee-length skirt will be worn combined with a voluminous poplin blouse with puffed sleeves and voluminous collar. The children s wear market is increasingly driven by fashion, with children becoming older younger and with older girls tending to buy young adult designer wear. Several women s brands offer the same garments in smaller sizes for girls. Babies wear is still classic and follows the trends of adult clothing to a lesser degree. Newborn collections are mainly plain or have childlike decorations and are less influenced by the casual trends as seen in adult fashion. The following more detailed trends are signalized: o materials: linen-wool mixtures, blends of cotton and linen, the increasing use of elastic fibres (varying from 2% to 30-35% for super-stretch), light-weight and stretch polyamides and luxury looking fabrics. Tulle will be used in combination with woven fabrics, herewith volume can be created in a simple way and will give garments a theatrical effect. o finishing techniques: wax coatings for protection (outdoor jackets) or to achieve a shiny leather look (jeans). Destructive techniques are used to obtain a vintage look or ripped jeans. o prints: symmetrical and graphic; regular and irregular stripes; (inspired by the eighties) pied de poules and colour-blocking. Floral and animal prints remain popular although tone on tone with less contrast, just like lumberjacks: two tones in all sizes. For current and detailed fashion information on colours and styles, we refer to the CBI Fashion Forecasts. The same development or trend can be an opportunity for one exporter and a threat to another. Exporters should therefore analyse if the developments and trends discussed in this survey provide opportunities or threats. The outcome of this analysis depends on each exporter s specific circumstances. Page 10 of 50

1.4 Opportunities and threats + Expectations for consumer expenditure on outerwear for the period 2008-2010 are moderately optimistic in the major EU countries: o the number of garments purchased per capita will rise, while consumer prices will be under pressure; o continuing interest in more fashionable outerwear; o demographic developments, society has become more multi-ethnic and the average age is increasing. This will lead to new demands and consumer behaviour. The birth rate will decrease, which will moderate the growth of the babies wear market. + Experts forecast that clothing expenditure in several of the new EU member states will continue to see robust growth in the period to 2010: o boosted by the entry of more foreign, particularly European, formula (or fascia) into the market, consumers will become more aspiring and western in their outlook as prosperity increases and foreign investment in the country grows; o popularity of second-hand clothing declined in favour of buying clothing at hyper- and supermarkets and from home-shopping companies. + The focus on casual and leisurewear will be continued for the coming years, but to a much lesser degree. Besides this trend, there is a tendency to more natural fibres, mainly cotton and blends with cotton at the expense of man-made fibres. ± The fast changing demand in the clothing market is a significant factor. Because of the higher dynamics of the clothing markets in terms of more rapidly changing consumer preferences and more seasons per year, there is a general tendency in the clothing branch to demand shorter delivery times and smaller volumes of series and orders. ± Caused by economic developments, many consumers on lower incomes will continue to seek low-priced clothes. On the other hand, the size of the market and the polarisation in incomes offer huge markets for quality and convenience, designer labels, (global) sports brands etc. ± It should be noted that exporters in DCs will be faced with demands for high quality and environmentally friendly products. 1.5 Useful sources: Euratex (http://www.euratex.org) including links to national trade associations Trade fairs (for yarns, fabrics, colours etc.), like Expofil in Paris, France - http://www.expofil.com ; Pitti Filati in Florence, Italy http://www.pittimmagine.com ; Premiere Vision in Paris, France http://www.premierevision.com ; Munich Fabric Start in Munich Germany - http://munichfabricstart.de Outerwear fairs, like CPD Woman/Man in Dűsseldorf, Germany - http://www.cpd.de ; Bread and Butter in Berlin, Germany - http://www.breadandbutter.com ; Prêt-à-Porter in Paris, France (http://www.pretparis.com ; Intersélection in Paris, France - http://www.interselection.net and SIMM in Madrid, Spain - http://www.semanamoda.ifema.es. For other outerwear trade fairs we refer to the individual EU countries. Trend magazines, like Collezioni Trends http://www.logos.info ; View Textile http://www.view-publications.com ; Denimology - http://www.denimology.co.uk. Trade magazines, like Textil Wirtschaft - http://www.twnetwork.de ; Textiles Outlook International - http://www.textilesintelligence.com ; Journal du Textile - http://www.journaldutextile.com/intro_en.htm and Sportswear International magazine. http://www.sportswearnet.com. For other trade magazines we refer to the individual EU countries. Page 11 of 50

2 Production 2.1 Size of production According to Eurostat/Prodcom, output in the EU woven outerwear industry decreased by an average 1.4% per year in the period 2004-2008 and amounted to an estimated 18.2 billion in 2008. Two remarks should be made: Achieved turnover of the industry is much higher, because when an EU company lowers its production, it can still achieve a higher turnover through relocating some of its manufacturing to low-cost countries. The turnovers will then include the invoicing linked to the relocation units. Based on national statistics and export statistics, production in several countries should be much higher than recorded in Eurostat statistics. One of the reasons may be the very high share of SMEs in those countries. Their production is not recorded in the statistics, because it is lower than the minimum amount required for recording in statistics. Italy is the dominant woven outerwear producer in the EU accounting for 46% of total EU turnover in 2008, followed by Spain, Romania, the UK and Portugal. 84% of the EU woven outerwear industry is concentrated in these five countries. Table 2.1 Woven outerwear production in the EU countries, 2004-2008 in million 2004 2006 2008 estimates Av. annual change Share in % 2008 Italy 8,683 8,083 8,370-0.9% 45.9 Spain 3,512 3,193 2,815-5.0% 15.4 Romania 945 2,540 2,312 36.2% 12.7 UK 1,094 994 1,025-1.6% 5.6 Portugal 911 775 792-3.3% 4.3 Germany 1,286 749 640-12.6% 3.5 Poland 550 547 567 2.4% 3.1 France 544 482 440-4.8% 2.4 Slovakia 221 206 203-2.0% 1.1 Austria 253 199 188-6.4% 1.0 Bulgaria 102 120 152 12.2% 0.8 Hungary 241 159 147-9.8% 0.8 Baltic countries 209 173 134-9.0% 0.7 Greece 207 134 122-10.2% 0.7 Belgium 109 108 96-2.9% 0.5 Denmark 188 107 79-14.5% 0.4 Other countries (9) 282 192 157-11.1% 0.9 EU 19,337 18,761 18,239-1.4% 100.0 Source: Eurostat/Prodcom (2009) Forecasts for domestic woven outerwear production in the EU remained depressed. Several member states registered a two-digit decrease in production, sometimes from already very low production levels. The activity of the EU clothing sector will decrease furthermore due to the growing penetration rate of Asian imports and the exchange rate of the euro, which is unfavourable to EU exporters. Clothing manufacturers in the EU can be divided into: Manufacturers which have access to the end consumer, using own retail structures (vertically integrated companies), Manufacturers which are developing own design/brands, and Manufacturers which are working only as subcontractors (mostly on cut/make/trim or CMT basis). Most EU manufacturers have developed an outsourcing policy which may include: Small, rush-orders in their own factory using modern technologies; Page 12 of 50

Specialist products and products with a reasonable profit margin are subcontracted at short distance; Series of bulk products are sub-contracted in low-wage countries. Some small apparel sectors will remain in Western Europe to guarantee speed and flexibility. In some sub-sectors, which should be capable of automatisation or production of a relative high value added, there is room for production capacity. So the West European clothing sector will further specialise in market segments which offer a high added value. 2.2 Trends in production The restructuring policy of many manufacturing companies in the EU during the last two decades led to relocation of the clothing production, mainly based on labour cost comparisons. However, even though cost may play an important role in defining the ideal location, it is only one of the elements to take into account. For example: a well-organised, highly productive factory in country A can offer better prices than a poorly organised, low-efficient factory in country B, despite lower labour costs in country B. The foreign policy of clothing manufacturing companies takes many forms: Most of the largest companies have established their own factories abroad or entered into joint ventures in low-cost countries. Besides these forms of ownership structure, subcontracting forms an important part of the activities of the EU clothing industry. The basic concepts of subcontracting are Cut, Make and Trim (CMT) and Free on Board (FOB). Another possibility for manufacturing companies is sourcing abroad, mainly for additional products to their own product range. Under CMT, the entire manual production is relocated, although the material purchase is held on to for efficiency and quality reasons. The quality control is relocated, too, and is typically managed by travelling controllers. Under FOB, suppliers abroad receive complete specifications for the design, quality of the fabric or yarns, accessories and other materials etc. Subsequently, the suppliers manage the purchase of the materials themselves. This form is most usual for importers/wholesalers and importing retail organisations, but only for a minority of the manufacturing companies. The relocation policy of EU manufacturers gives them the possibility to maintain control over the management and quality of the outsourcing operations and to respond quickly to changing market demands. Other trends are: Price competition among suppliers has intensified, resulting in a slow growth in production prices. This is causing concern among EU producers, who are finding it increasingly difficult to match low import prices. Increasing internationalisation by EU manufacturing and/or retail companies through expanding their activities intensively, making their products available in many European countries and even outside Europe. High degree of vertical integration in the value chain; several producers opened their own chain(s) and many suppliers started a close and long-term co-operation with distribution channels, which increases the entry barriers to new suppliers. Increasing concentration; the number of suppliers decreased and many suppliers have merged or have taken over other suppliers. The growing complexity of sourcing is leading to an acceleration of the shift from CMT to FOB sourcing, according to a recent KSA report published in 2009. CSI (Corporate Sustainable Issues) are becoming more important. Page 13 of 50

2.3 Opportunities and threats + The further sourcing of products in low-cost countries has led to decrease in production in the major EU countries, including products with higher design content. Besides the traditional lower range market segment, the largest middle range market segment may also offer good opportunities for exporters in DCs. + Importers in the major EU countries have built up a comparative advantage by specialising themselves in design and other functions, like preparation of samples, logistics, marketing etc., while simple production operations take place increasingly in other countries. As time goes by, even the first-mentioned functions are leaving these EU countries too. + Advantages of the new EU states in terms of lower wages and shorter routes will largely be eroded, due to the alignment of the wage structure and the fact that the clothing industry will no longer be competitive there. This already happened in the regions of the old EU states. An entire sector will disappear in Eastern Europe and only niche suppliers or quality producers will be able to survive. ± To satisfy the requirements of importing companies in the EU, exporters in DCs will be faced with increased demands for higher quality and requirements concerning environment and sociability. 2.4 Useful sources: Euratex (http://www.euratex.org) including links to national trade associations. Eurostat (http://epp.eurostat.ec.europa.eu). Trade fairs (for yarns, colours etc.), like Expofil in Paris, France - http://www.expofil.com ; Pitti Filati in Florence, Italy http://www.pittimmagine.com ; Premiere Vision in Paris, France http://www.premierevision.com Trend magazines, like Collezioni Trends http://www.logos.info ; View Textile http://www.view-publications.com Trade magazines, like Textil Wirtschaft - http://www.twnetwork.de ; Textiles Outlook International - http://www.textilesintelligence.com and Journal du Textile - http://www.journaldutextile.com/intro_en.htm Outerwear trade fairs, like CPD Woman/Man in Dűsseldorf, Germany - http://www.cpd.de ; Bread and Butter in Berlin, Germany - http://www.breadandbutter.com ; Prêt-à-Porter in Paris, France (http://www.pretparis.com ; Intersélection in Paris, France - http://www.interselection.net and SIMM in Madrid, Spain - http://www.semanamoda.ifema.es. For other outerwear trade fairs we refer to the individual EU countries. Names and websites of interesting players on the woven outerwear market are given in the country surveys. Page 14 of 50

3 Trade channels for market entry 3.1 Trade channels Figure 3.1 shows the basic trade channels (exporting manufacturers and traders, agents, importing manufacturers, wholesalers and retailers). Depending on its position in the market, the functions of a particular channel will be linked with up- or downstream channels which have the same kind of specialisation. It is also possible for a given channel to take over (some of) the functions of the latter, in order to improve competitiveness (vertical integration). For instance, manufacturers, agents and retailers may also function as importers, while wholesalers may also be manufacturers (vertical integration). Each of these groups has a different approach to business and the market, with its own specific interpretation of the marketing mix. Theoretically, importing is a function which can be done by manufacturers, wholesalers or retailers as given in figure 3.1. However, in some countries and/or branches a distinction is made between importing wholesalers and importers. In that case, the importer purchases at his own risk, handles Customs clearance and sells mainly to retail organisations, like multiples, department stores and buying organisations and other wholesalers, while wholesalers purchase at own risk from local or EU manufacturers and from importers. Figure 3.1 Trade and distribution channels for outerwear in the EU Exporting manufacturers Importing wholesalers Importing manufacturers Agents I m p o r t i n g r e t a i l e r s Department Clothing Home Selling and/or Other and variety multiples shopping buying retailers stores companies organisations Non-importing retailers Trade channels Different sales intermediaries have their position between industry and retail, for instance: Importing wholesalers: by buying on his own account, the importer/wholesaler takes title to the goods and is responsible for their further sale and distribution in his country and/or in other EU markets. He is familiar with local markets and can supply considerable information and guidance to the exporter, in addition to the primary business of buying and selling, such as administration of import/export procedures and holding of stock. The development of a successful working relationship between exporting manufacturers in DCs and an importing/wholesaler or importer can lead to a high level of co-operation with regard to appropriate designs for the market, new trends, use of materials and quality requirements. Page 15 of 50

Most outerwear and/or sportswear wholesalers cater both to the specialist shops and to the department stores and multiple chains. Contrary to the agent, the wholesaler purchases from manufacturers and holds his stocks at own risk. The mark-up of a wholesaler is approximately 20-30%. An increasing number of importers/wholesalers today act as agents. The fact that many independent retailers, as well as purchasing combinations and multiple stores, are becoming more cautious about pre-ordering, preferring to sell from stock, is reinforcing the position of the wholesaler. On the other side, large retail companies are increasingly purchasing abroad, thereby passing the intermediaries. In the case of importers, the mark-up is approximately 40-50%, which covers a range of activities, such as design, stock-forming, distribution, marketing etc. as mentioned above.. Importing manufacturers: the many forms of production strategies of EU manufacturers are discussed in chapter 5 of this survey. Retailers are increasingly taking part in stages before them in the sector (vertical integration) and have their own designers to give their own collections a more unique look. Clothing manufacturers penetrate the retail business by operating through own shops or through franchising. This gives them control over their output and margins. Producers can also try to compete through a greater emphasis on their own product development. They can then offer exclusivity to the retailers and give the latter a competitive advantage. Agents: the sales agent is an independent intermediary between the (foreign) manufacturer and the retailer or retail organisation, receiving a commission from the former. The agent (or sales representative) covers a limited geographical area. The level of the commission depends on a number of factors, including the turnover rate of the product concerned, but it averages an estimated 8-12% of turnover. Most agents represent more than one manufacturer, although competition is avoided. More and more agents are starting to sell from stock, to meet their clients' short-term demands. Stock forming is often on a consignment basis. If the agent builds up his own stock, he is in fact functioning as an importer/wholesaler. The role of agent as described above is often indicated as selling agent. Another type of agency is the so-called buying agent. The buying agent is located in the supplying country and settles business on the instructions of his principals, which are mainly retail organisations, and works on commission basis, too. The development described above - an increasing number of importer/wholesalers acting as agent - is also true in reverse: many agents today act as importers/wholesalers. Capital requirements are limited because this cooperation is based upon commission; however, agents mainly work with brand names and are therefore less interesting for most exporters in DCs. Importing retailers: the bigger retail organisations (multiples with more than 20 outlets, department and variety stores, buying organisations, home-shopping companies) import through their own buyers. These buyers at clothing multiples, home shopping companies and variety stores, which have mainly or exclusively private labels in their assortment, divide their budgets between the purchase of finished products via direct imports (sourcing ready-made products) from low-wage countries and sourcing products made according to their own design. Home-shopping companies are keener than other retail distributors about the re-order facility. They will want to start with small orders to test the market and make a firm, but not final, bulk commitment a few months later. If an item sells well, they expect subsequent supply of maybe three times that number at short notice, simply because the catalogue cannot on any account disappoint the customer by saying sold out. Many major retail organisations use buying agents or set up their own buying organisations in low labour-cost countries. This means that retailers are able to bypass domestic wholesalers and/or manufacturers and can reduce costs. Page 16 of 50

A difference has to be made in the segments distinguished: super- and hypermarket chains, textile and other discounters operate mainly at the lower end of the market, so the lowest purchasing prices are the main buying criteria. Generally spoken, variety stores and clothing multiples are interested in more criteria than price, like service by the producer, technological capacity, quick response etc. Contacts with sales intermediaries can be made in several ways, such as consulting trade representatives associations, chambers of commerce, fashion centres, trade publications, trade directories etc. In this survey and in the surveys on specific EU countries, websites of potential trading partners are mentioned and otherwise websites of associations, including links to their members (manufacturers, wholesalers or retailers), lists of exhibitors on trade fairs etc. Retail trade Retailers constitute the final stage before products reach the consumer. In this survey and in the surveys covering individual countries, a distinction is made between specialised retailers (independent (clothing specialty) retailers and clothing multiple stores) and non-specialised retailers, like department and /or variety stores, textile supermarkets or discount stores, value retailers, home-shopping companies, sport speciality stores, (grocery) super- and hypermarkets, street markets, wholesalers (selling to consumers), factory outlets etc. A detailed overview of the retail structure and market shares of retailers which have clothing in their assortment are discussed in the surveys on specific EU countries. Distribution channels differ greatly across the EU member states. Some characteristics are: The UK has a high concentration of distribution, which is reflected in the relatively low market share of independent retailers. The southern and eastern EU member states have high market shares for independent retailers. These retailers buy mainly from manufacturers and wholesalers/importers. In Germany, The Netherlands and Scandinavian countries, many independent retailers are members of buying co-operations. In southern and eastern EU countries franchise formula are more popular. Unorganised independent retailers, which have decreasing but still important market shares in most of the EU countries, buy directly from local or near-by manufacturers or agents representing these manufacturers, as well as from wholesalers/importers. These retailers do not import by themselves and are therefore not interesting for developing country exporters. Franchise or selling formula and buying groups can be considered as multiple stores or chains, including their buying policy. The original function of the buying groups was reduction in costs by centralising of buying and logistics. More and more selling formula for the members have been developed and the successful ones have been exploited as franchising activities. The website of the European Association of National Organisations of textile retailers (AEDT): http://www.aedt.org gives information about independent retailers and links to national organisations. Trends in retail trade A high degree of integration in the value chain: more and more manufacturers open their own (international) brand stores. The EU market has witnessed the relentless growth of clothing multiple chains and franchised outlets, leading to the decline of the formerly strong independents sector. This trend will be continued in the coming years. The hypermarket format, with its strong non-food component and international character, plays an increasingly important role in outerwear sales in Western as well as in Eastern EU countries. Page 17 of 50