Market Survey Textile Germany en

The European Unions Tacis Programme for Moldova
Support to Export Promotion and Investment Attraction in the Republic of Moldova
Export Marketing Survey: German Market for Textile and Clothing

June, 2010 Author: Jens Hauser
This project is funded by the European Union
A project implemented by GFA Consulting Group in consortium with IDI

This Project is financed by the European Union
EuropeAid/126810/C/SER/MD
This Project is implemented by a Consortium led by GFA Consulting Group
TableofContents
1 2 3 3.1 3.2 3.3 3.4 4 4.1 4.2 4.3 5
INTRODUCTION AND METHODOLOGY MAIN FINDINGS EXECUTIVE SUMMARY OVERVIEW OF THE GERMAN TEXTILE AND CLOTHING MARKET PRODUCTION CONSUMPTION PRICES TRADE - EXPORT and IMPORT MARKET ACTORS AND ENTRY Trade Channels and Market Actors Retail Structure and Trends MARKET ACCESS REQUIREMENTS EXPORT OPPORTUNITIES AND OBSTACLES
I III V v iii v vi IX ix x xi XIII

INTRODUCTION AND METHODOLOGY
The following market survey has been produced within the framework of the European Commission project Support to Export Promotion and Investment Attraction in the Republic of Moldova. The project is implemented by a GFA ConsultingGroupledconsortium.Theprojectinterventionareasare:
Component1 Component2 SupporttoMinistryofEconomyandTradeand Support to Ministry of Agriculture and Food its agencies in coordinating and improving Industries in enhancing its system of testing Moldovas export and investment promotion laboratories systems Component3 Component4 Support to Moldovan enterprises in accessing Exportpromotion exportdevelopmentfinancing Component5 InvestmentPromotion
The market survey provides Moldovan producers of textile products (clothing, outwear) with an overview on the German market for the respective products. Furthermoretradechannelsandmarketaccessrequirementsareoutlinedaswell as major market actors in Germany. In addition, the market survey findings are matched to the Moldovan production and export capacity in order to give recommendationsonexportopportunitiesandobstacles. The survey starts with a general description of the German apparel market, outlining production and consumption of outerwear, as well as trends. The market description intends to provide a sectoral overview. At the end of the descriptionthepricingandtradeintheapparelsectorwillbehighlighted. In the following trade channels and practice, as well as market access requirementswillbepresented.ThischapteraimstoprovideMoldovanclothing producers with information on the common trade practice and logistical requirementsofimporters,aswellaslegalandtechnicalrequirementsformulated byEUandGermanpolicymakers. Finally, using the information presented in the previous chapters, as well as information on the Moldovan garment sector, opportunities and obstacles for Moldovanproducerswillbeformulated. Methodology The information presented in this market study is based on quantitative and qualitative data, attained via desk research and interviews. Quantitative data sources include CBI (Centre for Promoting Imports from Developing Countries), Statistisches Bundesamt, EUROSTAT, as well as data from the German apparel associations.InterviewswithGermanmarketactorshavebeenthesourceforthe qualitativedata.


MAIN FINDINGS EXECUTIVE SUMMARY
Production
Consumption
Import and Export
Germany is the largest clothing and outerwear market in the EU with a total consumption of about 51 billion in 2009. The German clothing industry is the second largest consumer industry, only excelled by the food and beverage industry. Germanyisthe3rdlargestproducerofclothingintheEU.Formorethan30years theGermanclothingsectorisfacingafarreachingstructuralchange,mostlydue tolowcostcompetitionfromAsia.AsaconsequencemostGermanmanufactures havedevelopedanoutsourcing policyaspartoftheirrestructuringprocess.The clothingproductionhasbeenrelocatetocountrieswithlowoverallmanufacturing costs, while central functions like design, procurement and marketing are still basedinGermany.BasicallyallGermanclothingmanufactureshavemoreorless turned into creative and flexible trading enterprises with external job order production. At the same time the German clothing companies orientated more towardsforeignmarkets,nowadayshavinganexportshareofabout40%. The trend in production goes towards the purchase of finished goods, while in houseandjoborderproductionabroadisgettingless.TheconceptofFastFashion isacleartrendin theproductionofhigherquality clothing.Theconceptimplies shorter intervals between collections / fashion lines, which in turn means that smaller,quicklychanginglotsofclothesareproduced. Germansspentlessthan5%oftheirdisposableincomeonclothing.Germanyhas an average price level for clothing in comparison with other EU countries. The marketforclothingisbecomingmorematureandsaturated,withabundanceof producersandretailersofferingfashionableclothes. German consumers are price sensitive and are mindful of a good pricequality ratio. Furthermore there is a clear tendency towards individualisation of consumption,leadingtodifferentiatedcustomerrequest. Theoveralldevelopmentofthemarketreflectsthegrowingdisparitybetweenthe differenteconomicstrataofGermansociety,andtheincreasingnumberofpoor andrelativelypoorGermanresidents.ThusmanyGermanconsumerswithlower incomesseeklowpriceclothesinasteadilygrowingdiscountsector.Ontheother hand, quality and convenience will become more important, and the youthful outlookoftheolderconsumerswillstrengthendesignerandsportslabels. Themenswearmarketisexpectedtobecomethemostdynamic,drivenbythe increasingnumberofmenwhoarefashionconscious. GermanyisthelargestimporterofclothingintheEU,importingouterwearworth 18billionin2007.Importsaccountfor90%ofallouterwearsoldinGermany. 67% of all imports derive from countries outside the EU. Leading exporters to Germany are China and Turkey. Import prices are under pressure and declined from2005to2007.Afurtherdecreaseisexpected. Germany is 4th largest exporter in the world, which derives from the fact that German apparel producers, due to their strong brands in the upper market and premium segments, successfully penetrated foreign markets. This internationalisation (see also chapter on production) is documented by the fact 3

Market actors and retail
Market access requirements
Moldovan export opportunities and constraints
thattheclothingexportquotahasincreasedfrom10%in1970to44%nowadays. German apparel brands, in particular, have a strong potential in the growing markets such as Asia or Eastern Europe. Exports by Germany include to a big extends so called reexports imported products, which are exported to other countries,mainlyEU.Itisestimatedthatabout35%ofGermanclothingimports arereexported. Thetraditionalfunctionsofthedifferentmarketactorsarechanging.Thereisthe generaltrendofintegrationinthevaluechain,whichmeans: Forward Integration:moreandmoremanufacturesopentheirownbrand stores(monolabel)inordertocontrolthepointofsale(highermargins, betterknowledgeofconsumerdemand) Backward Integration: retailers setup their own design departments and sourcesupplywithownbuyingdepartmentsoragents With regard to the retail business textile discounters and the nonspecialists (hypermarkets with strong nonfood component) as well as monolabel stores haveshownaremarkablegrowth.Alsogloballyoperatingapparelretailchainslike H&M or Zara have enlarged their market share. In turn the formerly strong independentretailersaswellasthedepartmentstoreshavedeclinedstrongly. Therearelegislative(setbytheEUandnationalgovernment)andnonlegislative (set by the trading partner) market access requirements. With regard to outerweartheserequirementsarebasedonenvironmental,consumerhealthand safety,aswellasonsocialconcerns.Thereisnoqualitystandardforclothing. OpportunitiesforMoldovainclude: ProximitytoEUmarketwhichallowstobenefitfromtheFastFashiontrend Upgradingwithinthetextilevaluechain,usingincomeandcontactsgained fromcontractwork:fromCMTtovalueaddedproduction Explorenichemarkets,e.g.workwithownagentsoncommission ObstaclesMoldovaface: Limitedinvestmentcapacitytoupgradeproduction Limitationoflabourforceandabsenceofdesigncapacity Missing business skills and contacts (e.g. sourcing) to upgrade within the valuechain Lack of sector support structure: efficient association, fashion centre and competencecentre

OVERVIEW OF THE GERMAN TEXTILE AND CLOTHING MARKET
The following pages provide an overview of the German market for textile and apparel, focussing on clothing. The pattern and trends in consumption are outlined,aswellasthebusinessandstrategiesoftheGermanclothingcompanies.
3.1
Outline of the textile and clothing sector
PRODUCTION
TheGermantextileandclothingindustry,characterisedbymidsizedcompanies, is the second largest consumer goods industry only excelled by the food and beverageindustry.Theturnoveramountedto19.2billionin2008,withtextile productionaccountingforapproximately58%,andclothingfor42%ofthetotal.
BasicDataoftheGermanTextile&ClothingIndustry Turnover (inMio.) Production (inMio.) Imports (inMio.) Exports (inMio.) Employees (number) Source:GermanMinistryofEconomy,BranchenfokusTextilundBekleidung,2010 185.195 104.299 102.020 97.026 4,9% 18.943 21.395 22.618 21.833 3,5% 31.730 30.864 31.721 30.398 4,2% 16.375 12.820 12.863 12.213 5,1% 2000 26.409 2006 19.742 2007 19.949 2008 19.169 Change 2007to2008 3,9%
In 2008 both, the textile and the clothing industry, recorded a decrease in production,turnover,employmentandnumberofcompanies:
Decreaseinproduction,turnover,employmentandnumberofcompanies 2007 Textileindustry Production(inbillion) Turnover(inbillion) Employees Numberofcompanies Production(inbillion) Turnover(inbillion) Employees Numberofcompanies 11.2 11.6 68.152 496 Clothingindustry 1.63 8.35 33.624 207 1.4 8.1 31.871 201 16,5% 3,1% 5,5% 2,9% 10.8 11.1 65.155 481 3,4% 4,5% 4,6% 3,2% 2008 Change 2007to2008
Source:GermanMinistryofEconomy,BranchenfokusTextilundBekleidung,2010

Structure of the German textile and clothing industry
Thefollowingdiagramshighlightthestructureoftheindustryaccordingtogroup ofproducts
Others Spinning Weaving Finishing/Processing TechnicalTextiles Nonwoven Readymadeproducts 0 5 10 15 13 15 20 25 9 8 20 18
Others Workwear Warp andweft Hosiery 2
4 4
7 13 69 0 10 20 30 40 50 60 70 80
17
Underwear Outerwear
Clothing manufacturers
Structural change and business strategies
rd Germanyisthe3 largestproducerofclothing the EU after Italy and France. The turnover of Germanys leading OPT in EU Germany is theleading EU country theGermanclothingindustryamountedto8.1 with regard to OPT, accounting for billionin2008.Thenumberofmanufactures 42%ofthetotalvalueofOPTinthe and employees in the clothing sector is in EU. In 2007 the three main OPT decline from 1995 to 2006 minus 61% importcountriesforGermanywere Ukraine (141 Mo. ), Macedonia employees and minus 67% companies. The (128Mio.)andBulgaria(100Mio. clothing business is geographically ). It has to be noted though, that concentratedwith80%ofallcompaniesbeing the proportion of OPT, compared situated in BadenWrttemberg, Bavaria and to normal imports of clothing, is low NorthRhineWestphalia. BasicallyallGermanclothingmanufactureshavemoreorlessturnedintocreative and flexible trading enterprises with external job order production. At the same time the German clothing companies orientated more towards foreign markets, nowadayshavinganexportshareofabout40%. Productionandprocurementstrategyofclothingcompaniesare: 1) InhouseorjoborderproductioninGermany 2) Inhouse production abroad establishing own factories abroad or enter intojointventuresinlowcostcountries 3) Job order production abroad Subcontracting, on basis of the following concepts: Outward Processing Trade (OPT): most labourintensive work is relocated Cut,MakeandTrim(CMT):entiremanualproductionisrelocated, materialpurchaseisheldontoforefficiencyandqualityreasons FreeonBoard(FOB):suppliersreceiveonlyproductspecifications (e.g.design,fabric),andthenmanagestheproductionthemselves 4) Importspurchaseoffinishedgoods For more than 30 years the German clothing sector is facing a farreaching structural change, mostly due to lowcost competition from Asia. As a consequence most German manufactures have developed an outsourcing policy aspartoftheirrestructuringprocess.Theclothingproductionhasbeenrelocate 6

to countries with low overall manufacturing costs, while central functions like design,procurementandmarketingarestillbasedinGermany. Besidesoutsourcingthefollowingbusinessstrategiesareapplied:
Branding&Quality MostGermancompaniesturntowardstheupmarket/higher quality/premiumsegment Intheupmarketsegmentbrandingisliterallynecessity:brand affinity and product quality are the most important factors whenshoppingforclothing Astrongbrandhelpsacompanytoprotectitselfagainstlow costcompetition,andallowstowithstandthemarginpressure fromtheretailers optimisation of production and procurement, balancing betweencostsandreliability globalsourcingsystemsthatsearchforcosteffectiveplacefor production, which are then integrated in the valuechain management Entry to and development of foreign markets, especially in EasternEuropeandAsia Marketentryoftenviaownretailoutlets(verticalisation)
Internationalisation Withregardtoproduction:
Withregardtosalesandmarketing:
VerticalIntegration New trade channels: clothing companies establish own retail outlets Broadeningofthevaluechain,thushighermargins Own experience at the Point of Sale allows companies to adjustcollectionsclosertotheconsumersdemand
Production trends
There is a constant pressure for adjustment on the clothing business. A further decrease in the number of manufacturing companies is expected. At the same time there is a clear movement towards the purchase of finish goods, while in houseandjoborderproductionabroadisgettingless. The concept of Fast Fashion is a clear trend in the production of higher quality clothing.Theconceptimpliesshorterintervalsbetweencollections/fashionlines, whichinturnmeansthatsmaller,quicklychanginglotsofclothesareproduced. According to the association textile + mode the German clothing industry is preparedforcompetitionduetoitsstrongbrandsandinnovativedesign.

3.2
CONSUMPTION
Germany is the largest clothing and outwear market in the EU with a total consumptionofabout51 billionin2009.Thus Germanyaccountedfor19%of thetotalEUclothingandouterwearmarket,worth268billion.
ConsumptionofoutwearinGermany,20032009,inmillion Totaloutwear ofwhich: Clothing accessories Leathergarments Totalclothing 1.56 487 58.05 1.68 442 57.39 1.73 455 58.38 +2,8% 1,1% +0,1% 1.80 500 59.00 2003 50.54 2005 49.91 2007 50.86 Change 2003 2009 to2007in% (estimated) +0,2% 51.10
Source:CBIMarketSurveyOutwearMarketGermany
The average per capita spending for outwear in 2007 was 618. Every German household1spent in average 888 for outwear, whereas a family with 2 kids on averagepurchasedoutwearworth1.452.Germans,however,spentlessthan5% oftheirdisposableincomeonclothing.
Germanoutwearconsumptionbygender,20032009,inmillion Totaloutwear Womensoutwear Mensoutwear Childrensoutwear(<15) 2003 50.54 28.79 15.01 6.74 2005 49.91 28.375 15.11 6.42 2007 50.86 28.875 15.35 6.63 Change 2003 2009 to2007in% (estimated) +0,2% +0,1% +0,6% 0,4% 51.10 28,90 15.00 6.70
Thetrendtowardscasualclothingfoundexpressioninmenswearintheformof jeans,othercottontrousersandoutdoorjackets.Suitsforyoungmenwerealsoin demandinthefashionsector.Womentookouttheirpursesforcottontrousers, dressesandskirts,lightknittedfashion,fashionableblousesandaccessories.

Salesofoutwearbytypeofclothingbehaviour,20032007 Formal Casual Leisure ActiveSports Women 2003 43% 32% 21% 4% 2007 42% 33% 21% 4% 2003 40% 33% 21% 6% Men 2007 38% 34% 21% 7% 4% 73% 18% 5% Children 2003 2007 4% 73% 18% 5%
1 average houshold size in Germany is 2,15 persons

Consumption trends The market for clothing is becoming more mature and saturated, with abundanceofproducersandretailersofferingfashionableclothes. German consumers are price sensitive and are mindful of a good pricequality ratio. The consumer behaviour also tends towards crossshopping, meaning that the customer makes use of various sales channels (e.g. onlineshopping, discounter,singlebrandstore). Furthermorethereisacleartendencytowardsindividualisationofconsumption, leading to differentiated customer request. Especially the sale of clothing accessories benefit from this trend, as many consumers rely on fashion accessoriestoembellishanoutfittodistinguishthemfromothers. The market saturation and trend individualisation of consumption is leading to fastfashionarapidchangeoffashioncollections.Forinstance,theaverage numberofcollectionsonsalein2007was4,7whereasin2010manufacturesand retailerswillpresentupto6,8collections(ofwhich80%areupmarketarticles). Theoutwearmarketinwidespread,reachingfromhigh price luxury and upper middle price segment (together approx. 20% market share) to low middle and verylowpricesegment(approx.50%marketshare).Theoveralldevelopmentof themarketreflectsthegrowingdisparitybetweenthedifferenteconomicstrata ofGermansociety,andtheincreasingnumberofpoorandrelativelypoorGerman residents. Thus many German consumers with lower incomes will continue to seeklowpriceclothesinasteadilygrowingdiscountsector.Ontheotherhand, qualityandconveniencewillbecomemoreimportant,andtheyouthfuloutlookof theolderconsumerswillstrengthendesignerandsportslabels. Themenswearmarketisexpectedtobecomethemostdynamic,drivenbythe increasing number of men who are fashionconscious. This is one of the major factors, besides also demographic changes, to boost the growth of sports and leisurewear. Furthermorethedemandforplussize/oversizeclothingisexpectedtoincrease inthecomingyears.
Price-quality ration
Individualisation of consumption
Fast fashion
Growing low-price segment
Dynamic mens wear market
Increasing demand for plus size

3.3
PRICES
ThediagrambelowindicatesthedevelopmentofGermanysconsumerpriceindex forclothingandshoesduringthelastdecade.
104 103 102 101 100 99 98 97 2000 2001 2002
Margins under constant pressure
Import prices
Germany has an average price level for clothing in comparison with other EU member states. Above the EU average are for instance the Scandinavian countries,theBalticstates,AustriaandItaly.WhereasIreland,UK,CzechRepublic andFrancearebelowtheaverage. Themarginsatvariouslevelsofdistributionareinfluencedbyseveralfactors(e.g. volume of order, competition, product/market combination), therefore it is almost impossible to draw up a schedule of margins. Nonetheless, fact is that marginsatalllevelsofthedistributionchainareunderconstantpressure,dueto increasingcompetition,integrationandconsumerdemandforlowerprices. The development of the average import prices for selected apparel products showninthefollowingdiagramindicatesthenegativepricingdevelopmentfor producers.Infactimportpriceswere4,6%lowerin2007thanin2005.Afurther decrease is expected, which will force German apparel companies to look for furtherlowpricesourcingopportunitiesabroad.
2003 2004 2005 2006 2007 Source:Statistisches Bundesamt
2008
2009

10,00 9,50 9,00 8,50 8,00 7,50 7,00 6,50 6,00 5,50 5,00 4,50 4,00 3,50 2005 2006 2007
Cottonshirts (men) Cottonshirts (women) Lightweighttops (women) Cottontrousers (men) Cottontrousers (women) Cottonskirts
3.4
TRADE- EXPORT and IMPORT
GermanyisthelargestimporterofclothingintheEU,importingouterwearworth 18billionin2007.From2005to2007importsonaverageincreasedby7%,with a particular strong increase of knitted outerwear (+9%). There has also been a strongincreaseincottonproducts,ratherthanmanmadefibers.Basicallyimports accountfor90%ofallouterwearsoldinGermany.
ImportsofouterwearintoGermany,20032007inmillion Totalouterwear Knittedouterwear Wovenouterwear Leathergarments 2003 16,880 6,795 9,444 441 2005 16,814 6,981 9,497 336 2007 17,984 7,608 10,037 339
Source:CBI,TheouterwearmarketinGermany,2008
67% of all imports derive from countries outside the EU. In particular imports fromAsiagrewbymorethan20%,withChinaaccountingformorethan60%of the growth. But also countries like India, Vietnam, Bangladesh, Pakistan and Sri Lankaincreasedtheirshare.LeadingexporterstoGermanyareChinaandTurkey.
LeadingsuppliersofouterweartoGermany2007 Totalouterwear 1. China,23% 2. Turkey,13% 3. Bangladesh,7% 4. Italy,5% Wovenouterwear 1. China,28% 2. Turkey,8% 3. Bangladesh,5% 4. Romania,5% Knittedouterwear 1. Turkey,20% 2. China,16% 3. Bangladesh,10% 4. India,4%
Source:CBI,TheouterwearmarketinGermany,2008
German exports

Internationalisation of German apparel producers
Germany is the 2nd largest export of clothing in the EU, after Italy. In 2007 its exportsamountedto9.9billion,whichmakesGermanythe4thlargestexporter intheWorld(afterChina,HongKong,Italy). Exports by Germany include to a big extends so called reexports imported products, which are exported to other countries, mainly EU. It is estimated that about35%ofGermanclothingimportsarereexported. Germanypositionsas4thlargestexporterintheworldderivesfromthefactthat German apparel producers, due to their strong brands in the upper market and premium segments, successfully penetrated foreign markets. This internationalisation (see also chapter on production) is documented by the fact thattheclothingexportquotahasincreasedfrom10%in1970to44%nowadays. Also German exports have increased by 17% between 2005 and 2007. German apparelbrands,inparticular,haveastrongpotentialinthegrowingmarketssuch asAsiaorEasternEurope. At present German exports mainly go to EU countries and about 25% of the productsaresenttodestinationsoutsidetheEU.


MARKET ACTORS AND ENTRY
The following section provides an overview of the functions of the relevant market actors in the clothing retail. Also the market access requirements legislativeandnonlegislativearedescribed.AlistofimportantGermanmarket actorscanbefoundintheannexes.
4.1
Trade Channels and Market Actors
Thefollowingdiagramshowsthetradechannelstructurewiththedifferentsales intermediaries. It is possible for a sales intermediary (e.g. importing manufacturer) to take over the functions of others, in order to improve competitivenessandsalesmargin(verticalintegration).
Outerwear Tradeand DistributionChannels Exporting Manufacturers insideandoutsideEU
Importing Wholesalers
Importing Manufacturers
Agents
Importing Retailers
Department Store
Clothing Multiples
Home Shopping
Buying Organisations
NonimportingRetailers
The functions of the different sales intermediaries between industry and retails are:
Importing Wholesalers Buyingonhisownaccount,thewholesalertakestitletothegoodsandis responsiblefortheirfurthersaleanddistribution Development of a successful working relationship between exporting manufacturersandawholesalerorimportercanleadtoahighlevelofco operationwithregardtoappropriatedesignsforthemarket,newtrends, useofmaterialsandqualityrequirements Wholesalers cater both to the specialist shops and to the department storesandmultiplechains The trend of retailers to avoid preordering andrather sell from stock, is
Source:CBIOuterwear Marketinthe EU

reinforcingthewholesalersposition Importing Manufacturers Agents (sales representatives) Have their own designers, apply various production and procurement strategies(seechapteronproduction) Penetratetheretailbusinessbyopeningownshops(verticalintegration) Anindependentintermediarybetweenmanufacturerandretail Ingeneraltheagentreceivesacommissionfromthemanufacturer Moreandmoreagentssellfromstock,tomeetshorttermdemands.Stock formingoccursonconsignmentbasis Agentsmainlyworkwithbrands Differing from the sales agent is the buying agent. The buying agent is locatedinsupplyingcountriesandactsoninstructionsofhisclient,mainly retailorganisations Importing Retailers Bigger retail organizations import via their own buying / sourcing departments,andthuscutoutintermediaries They purchase finished products via direct imports (sourcing readymade products)fromlowwagecountriesandsourcingproductsmadeaccording totheirowndesign(backwardintegration)
Thereisthegeneraltrendofintegrationinthevaluechain,whichmeans: Forward Integration:moreandmoremanufacturesopentheirownbrand stores(monolabel)inordertocontrolthepointofsale(highermargins, betterknowledgeofconsumerdemand) Backward Integration: retailers setup their own design departments and sourcesupplywithownbuyingdepartmentsoragents
4.2
Retail Structure and Trends
The following diagram illustrates the development of the market share of the differentactorsintheGermanapparelretail:
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 15% 10% 18% 6% 1999 14% 9% 16% 9% 2003 14% 9% 16% 10% 2005 Clothingmutiples Verticals Homeshopping 39% 34% 32% Departmentstores 12% 18% Textilediscounters&non specialists Independentretailers
19%
Remarkable is the growth of textile discounters and the nonspecialists (hypermarkets with strong nonfood component) as well as the rise of verticals (monolabelstores).AlsogloballyoperatingapparelretailchainslikeH&MorZara have enlarged their market share. In turn the formerly strong independent 10

Quick response to consumer demand
retailersaswellasthedepartmentstoreshavedeclinedstrongly,withtheshare ofindependentretailsbeingonlyaround23%in2007. Themarketconditionsareingeneralinfavourofthoseretailerswhocanrespond toconsumerdemandmorequicklyandatlowercost.Thesecompanies(verticals andglobalretailchains)areparticularlyadeptatunderstandingwhatconsumers buyinrealtimeandrespondingquicklytosalestrendsandcustomerfeedback. Theriseoftheretailchainshasconsequencesformanufacturesasthechainstry tolimittheirnumberofsuppliers,andhaveastrongpositioninpricenegotiations anddeliveryconditions. Thereisthetrendtowardmorecollectionsperyear(fastfashion),whichimplies formanufacturesthattheyhavetobeabletorespondquickly.
4.3
MARKET ACCESS REQUIREMENTS
Legislative requirements
Market access requirements are set by the EU and national government (legislative requirements), and by the trading partner (nonlegislative requirements). With regard to outerwear these requirements are based on environmental,consumerhealthandsafety,aswellasonsocialconcerns.Thereis noqualitystandardforclothing. ApparelmanufacturesexportingtoGermanyandtheEUhavetocomplytoafew mandatory, legislative requirements. The mandatory requirements for Germany aresetinthe:
Textilkennzeichnungsgesetzt (textilelabelinglaw) Manufactures and traders of textile products have to indicate the fibre used, as well as the percentageofthefibre(inrelationtotheweight ofthefinalproduct) Theconsumerhastobeabletoidentifytheraw materialsthefinalproductismadeof The official language of the importing country hastobeused Bedarfsgegenstndeverordnung2 (consumergoodsregulation) The consumer goods regulation are in parts relevantforclothing Certaindyestuff,flameretardants,formaldehyde and otherchemicals arenot allowed inclothing products
Carelabeling and washing instructions, as well as the country of origin marking arenotmandatory. AnotherrelevantEUrulingisREACH,theRegulationonRegistration,Evaluation, Authorisation and Restriction of Chemicals. REACH applies to most chemical substances,whetherontheirown,inmixturesorusedinproducts(e.g.clothing), thataremanufacturedorusedin,orimportedinto,theEUinquantitiesofover onetonperannum. Companies and manufactures based outside the EU do not have direct legal obligations under REACH. But as their first tier customer (e.g. importer) may do
2 Link to download the regulation: http://www.gesetze-im-internet.de/bedggstv/index.html.
11

Non-legislative requirements
have obligations, exporting companies might be required to be compliant to REACH(e.g.documentationofchemicalsused,etc.). Besides the legal regulations, literally all of the potential business partners in Germany have their own, individual specifications and requirements, which should be met by the suppliers / clothing manufacture. These individual specifications focus on quality and business procedures, labeling, packaging, consumersafety,aswellasenvironmentalandsocialsustainability.Thebusiness requirementsmayincludethefollowing:
Technicalrequirements The technical specification outline the product and production related demands of the business partner, andcanincludethefollowing: Productspecification(design,fibretobeused,etc.) Qualityrequirements Productionvolumeanddeliverytime Paymentproceduresandcommunication CodeofConduct(CoC) (processrelated) ACoCisasetofrulesoutliningtheresponsibilitiesof orproperpracticesforanindividualorganization CoC are individual and voluntary, and vary between organisations CoC are based on internationally conventions (e.g. International Labour Organisation), implementation accordinglocallegislation Labelsandcertification (productrelated) Labels certify that goods are produced according certainstandards(e.g.koTex100,EUEcolabel) Labels are getting more and more popular among consumers as they are seen as an evidence that the product s are harmless to personal health, the environment
Tariffs and quotas
MoldovabenefitsfromhavingAutonomoustradepreferences(ATPs)forimports intotheEU.TheATPsallowforunlimitedanddutyfreeaccesstotheEUmarketto all products originating in Moldova, except for certain specific agricultural products.
12

EXPORT OPPORTUNITIES AND OBSTACLES
In the following possible opportunities and obstacles for Moldovan apparel producerstoexporttoGermanyarepresented.Theopportunitiesandobstacles have been formulated on the basis of the information provided in the previous chapters. Opportunities
Proximity to EU Market
EU Trade Preference
Opportunities
Explore niche market
Upgrading in the value chain
Local Market?
Being the second largest export industry after wine, the clothing industry is of high importance to the Moldovan economy. Moldovan clothing producers are alreadylinkedtoEUandGermanapparelcompanies,mainlyworkingoncontract andOPTbasis.Theseexistingbusinesslinkagescanprovidethebasisforafurther development of the sector. The following opportunities and steps are seen as importantto,firstofall,secureandfurtherdevelopthepositionoftheMoldovan clothingsector:
ProximitytoEUmarket FastFashiontheclosenesstotheEUmarketallowto serveforquickandflexibledemand Short travel distance for business partners (e.g. quality controlvisitors) No time difference to business partner, and common culturalbackground Upgrade within the textile value chain, without neglecting the contract work / using the income and contactsfromcontractwork Developthecapacitytofabricatevalueaddedproducts Move up from CMT to FoB according importers specifications Establishing of Moldovan brands and retail chains to targetdomesticmarket Targetsmallerchainstoresorbuyingorganisations Workwithagentsoncommission(seechapter4Market Actors) Work for high quality apparel segment (using the advantageofmarketproximity)
Upgradingthevaluechain
Explorenichemarket
13

Constraints
Limited investment capacity
Currency rate
Laws and regulations
Constraints
Business Skills & Contacts Skilled labour force
Despite its importance for the Moldovan economy the clothing sector seems to lackthenecessarysupporttoexploreopportunitiesandtomoveupfromcontract worktovalueaddedproduction.Inpartsthisrelatestolawsandregulations(e.g. taxation of cutting remnants), but also to the level of selforganisation of the clothingsector. For instance an efficiently organized industry association which can lobby the Governmentinpolicyissues,improvetheimageoftheindustryandofferservices (e.g.marketinformation,channeldonorsupport,etc.)isnotinplace. Furtherconstrainsare:
Limitedinvestment capacity Skilledlabourforce Lowmarginsincontractworklimitthecapacitytoinvest invalueaddedproductionschemes Vocational training system does not target the work skillsneedforvalueaddedproduction Skilledlabourforceismovingtobetterpaidjobs Lackofdesigncapacity Knowledge and contacts for sourcing and supply is missing(asitisnotneededforcontractwork) Market information and marketing skills are not developed A Fashion Centre, providing the apparel industry with fashion trends collected from various sources is not in place Competence Centre, which offers technical services for improving technology and management skills in the industry,doesnotexist
Businessskillsandcontacts
14

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The European Unions Tacis Programme for Moldova

Support to Export Promotion and Investment Attraction in the Republic of Moldova

Export Marketing Survey: German Market for Textile and Clothing

This project is funded by the European Union

A project implemented by GFA Consulting Group in consortium with IDI

Support to Export Promotion and Investment Attraction in the Republic of Moldova

This Project is implemented by a Consortium led by GFA Consulting Group

1 2 3 3.1 3.2 3.3 3.4 4 4.1 4.2 4.3 5

I III V v iii v vi IX ix x xi XIII

Support to Export Promotion and Investment Attraction in the Republic of Moldova

This Project is implemented by a Consortium led by GFA Consulting Group

INTRODUCTION AND METHODOLOGY

Support to Export Promotion and Investment Attraction in the Republic of Moldova

This Project is implemented by a Consortium led by GFA Consulting Group

Support to Export Promotion and Investment Attraction in the Republic of Moldova

This Project is implemented by a Consortium led by GFA Consulting Group

MAIN FINDINGS EXECUTIVE SUMMARY

Import and Export

Support to Export Promotion and Investment Attraction in the Republic of Moldova

This Project is implemented by a Consortium led by GFA Consulting Group

Market actors and retail

Market access requirements

Moldovan export opportunities and constraints

Support to Export Promotion and Investment Attraction in the Republic of Moldova

This Project is implemented by a Consortium led by GFA Consulting Group

OVERVIEW OF THE GERMAN TEXTILE AND CLOTHING MARKET

Support to Export Promotion and Investment Attraction in the Republic of Moldova

This Project is implemented by a Consortium led by GFA Consulting Group

Structure of the German textile and clothing industry

Others Workwear Warp andweft Hosiery 2

Structural change and business strategies

Support to Export Promotion and Investment Attraction in the Republic of Moldova

This Project is implemented by a Consortium led by GFA Consulting Group

Support to Export Promotion and Investment Attraction in the Republic of Moldova

This Project is implemented by a Consortium led by GFA Consulting Group

Thetrendtowardscasualclothingfoundexpressioninmenswearintheformof jeans,othercottontrousersandoutdoorjackets.Suitsforyoungmenwerealsoin demandinthefashionsector.Womentookouttheirpursesforcottontrousers, dressesandskirts,lightknittedfashion,fashionableblousesandaccessories.

Support to Export Promotion and Investment Attraction in the Republic of Moldova

This Project is implemented by a Consortium led by GFA Consulting Group

Growing low-price segment

Dynamic mens wear market

Increasing demand for plus size

Support to Export Promotion and Investment Attraction in the Republic of Moldova

This Project is implemented by a Consortium led by GFA Consulting Group

Margins under constant pressure

2003 2004 2005 2006 2007 Source:Statistisches Bundesamt

Support to Export Promotion and Investment Attraction in the Republic of Moldova

This Project is implemented by a Consortium led by GFA Consulting Group

TRADE- EXPORT and IMPORT

Support to Export Promotion and Investment Attraction in the Republic of Moldova

This Project is implemented by a Consortium led by GFA Consulting Group

Internationalisation of German apparel producers

Support to Export Promotion and Investment Attraction in the Republic of Moldova

This Project is implemented by a Consortium led by GFA Consulting Group

Support to Export Promotion and Investment Attraction in the Republic of Moldova

This Project is implemented by a Consortium led by GFA Consulting Group

MARKET ACTORS AND ENTRY

Trade Channels and Market Actors

Outerwear Tradeand DistributionChannels Exporting Manufacturers insideandoutsideEU

Support to Export Promotion and Investment Attraction in the Republic of Moldova

This Project is implemented by a Consortium led by GFA Consulting Group

Retail Structure and Trends

Support to Export Promotion and Investment Attraction in the Republic of Moldova