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How Mexico’s Textile Chief Is Planning for Surging Demand

MEXICO CITY – Mexico’s new textiles head Emilio Penhos has a four-pronged strategy to boost the industry’s fortunes as the country continues to lose export share to the U.S.

“I want to increase exports, improve commercial relations between retailers and suppliers, boost local demand for our products and team with the footwear and textiles chambers to fight illegality such as contraband and piracy,” Penhos told Sourcing Journal in an exclusive interview, four months into his three-year term at top apparel trade lobby Canaive.

First on the agenda is revving up shipments north of the border, which slipped more than 8 percent to roughly $4.2 billion last year as Covid-19 stalled global commerce including demand for the jeans, T-shirts and suits Mexico makes for U.S. labels.

As buyers increase orders amid a rebounding American economy, “our exports surged 80 percent in May and there is growing consensus they will increase sharply this year,” including for flagship categories such as denim, T-shirts, suits, wool coats, sportswear and lingerie, Penhos said. “We are working with the textiles industry chamber [Canaintex] to jointly promote our full-package capabilities as well as our fabric and clothing products,” he added.

Elevating U.S. sales is pivotal as Mexico now accounts for just 3.5 percent of U.S. textiles and apparel imports—down from as high as 12 percent a decade ago, according to industry consultant Miguel Angel Andreu.

‘Not ready’

Meanwhile, Mexican factories are struggling to cope with a “very quick” and sudden surge in apparel demand from U.S. customers as many were forced to downsize during the pandemic, Penhos said. Readying manufacturers to handle this influx of orders from American brands has become a key priority for his Mexico City-based team.

“Not all the factories are ready to receive a $1 million contract,” Penhos, who owns outerwear label Shyla, noted. “Many factories had problems in the pandemic and there is also a dearth of raw materials and rises in thread prices” that are undermining output. Some of the lacking feedstocks include viscose, cotton fiber and polyester, Andreu added.

Another headache stems from a flood of sub-valued and contraband garment imports, which Mexico has been fighting to curb for years, albeit with little success.

“We are working with customs authorities to fight this illegal trade and are making progress, at least with technical contraband,” said Penhos, adding that Canaive has begun scheduling weekly meetings to train customs agents on detecting and seizing illicit merchandise.

Fairer practices

Streamlining contracts between clothing suppliers and retailers, such as the country’s largest department stores Liverpool and El Palacio de Hierro, is key to boosting the fortunes of the local fashion market, which moves $15 billion to $20 billion annually but saw sales plunge up to 70 percent amid Covid-19 lockdowns.

“We need better commercial agreements to avoid abuses in returns or sales discounts, as well as better delivery timelines for distributors and terms that promote demand for our product catalogue [‘Made in Mexico’ garments instead of imported ones],” Penhos said.

During the pandemic, “there was a lot of ill treatment and retailers have to understand that if we want the market to grow, we need fairer conditions,” he added.

Contracts must be revised to more specifically detail key terms such as early payment discounts or invoice factoring, Penhos said, adding that all of these accounting methods were bent during the crisis when many retailers refused to pay manufacturers, draining their working capital.

“Many stores failed to pay or delayed payments throughout the entire second half of 2020,” leaving suppliers at the brink of collapse, Andreu said. He added that new laws are needed to more effectively govern supplier/merchant relations (which are often struck more as quasi gentlemen’s agreements instead of as legally-binding contracts) to avoid these problems from re-emerging.

According to sources, El Palacio de Hierro declined to provide advance payments while Sears de Mexico canceled them altogether.

Boost local demand

Penhos will also work to bolster demand for local apparel to slow Asian imports, which have become more expensive amid China and Asian bottlenecks and higher freight and travel costs.

“We are going to hold meetings with all the top retail executives to remind them that the local industry can meet all of their needs and that they should look for local purveyors,” Penhos said.

Knits, he added, have become harder and more expensive to bring to Mexico, boosting the need for domestic alternatives for which manufacturers are now rushing to make alternatives and meet local demand.