Julian Hool, a partner at McKinsey, estimated that prices for basic clothing categories could eventually rise by between 10% and 20%, with the full impact potentially taking as long as a year to reach consumers as energy, shipping and raw-material costs rise because of the US war on Iran.
Consumers are expected to begin feeling the pressure in the autumn, with the biggest impact appearing in stores in the spring and summer of next year, as brands often place orders up to a year in advance.
Polyester and cotton prices rise together
Before the war, polyester traded at about half the price of cotton, but rising oil prices pushed its price in China close to a four-year high. Bloomy Fashions, which supplies Inditex brands including Zara and Pull&Bear, said polyester yarn prices had jumped by as much as 25% within weeks of the war breaking out.
Cotton rose to a two-year high as buyers sought alternatives and supplies tightened, while its futures contracts recently reached their highest level since March 2024. Hool said simultaneous price pressures on the main fibers deprived brands of the option to switch from a costly material to a cheaper one.
Costs at German fabric maker Kettelhack rose by between 5% and 8%, while India’s Indu Count Industries said the increases had spread from cotton and polyester to dyes, chemicals, oil and gas, amid concerns about the impact of El Niño on crops and fertilizer shortages.
Factory margins under pressure
Most of the pressure is currently being borne by manufacturers, as raw materials account for about 60% of the cost of a basic shirt, while factory profit margins typically range between 2% and 3%. With demand weak, Bloomy Fashions is absorbing the additional costs rather than passing them on to buyers, in a market where brands have a wide choice of suppliers and manufacturers have limited negotiating power.
One production hall at Bloomy Fashions’ factory near Dhaka has been idle for three months after a buyer suspended polyester orders in the hope that prices would fall. The company’s revenue has begun to decline as production costs rise and buyers refuse to pay more.
In India, which accounts for about 4% of global textile and clothing trade, ready-made garment exports fell 4.5% in July year on year and declined 10.5% in the first four months of the fiscal year. Bangladesh, which exports about $800 million worth of clothing annually to the Middle East, now has virtually no trade in this area.
Brand options and prices
Brands have more options than factories, including pressuring suppliers, changing materials and designs, or raising prices. Swedish company Asket chose to raise prices rather than reduce quality, while manufacturers and consultants say that sustained pressure could prompt companies to reduce fabric weights, simplify designs and change their material mix.
Inditex, the owner of Zara, said Middle East disruptions had raised transport costs and production inputs, and expected continued pressure on gross profit margins during the second half of the year. The company adjusted its transport methods and sourcing to limit the impact of the war.
Raising prices carries additional sales risks, as high food and energy costs reduce the money households have available to spend on clothing, leaving factories caught between rising production costs and weaker consumer spending power.
