Entering the European market for knitwear

Photo by Valerie Elash on Unsplash

Communication

Smooth communication is an implicit requirement of all buyers. Always reply to every email within 24 hours, even if it is just to confirm that you have received the email and will send a more complete reply later. If you have a problem with a production order, immediately notify the customer and try to offer a solution. Another good tip is to create a time and arrival (T&A) for every order and share it with your buyer. This file will help you to manage expectations and monitor progress and is the best guarantee of on-time delivery.

Flexibility

If you want to start a business relationship with a European buyer, be prepared to accept complicated orders first. Buyers will want to test your factory before giving you large, easy orders. Make sure at the start that a buyer will not continue to place only difficult orders with you and convenient orders elsewhere.

Expect a European buyer to require in their first order:

• High material quality and impeccable workmanship;
• Order quantities below your normal minimum order quantity (MOQ);
• A price level that is lower than you would normally accept for small quantity orders.

Niche requirements

The following niche categories offer opportunities for knitwear manufacturers. The required qualities, styles and quantities may differ from mainstream production. This means you need to adjust your manufacturing and sourcing setup if you want to be profitable.

Sustainable knitwear

European buyers that offer ”sustainable” styles focus on different topics, ranging from supply chain transparency and animal welfare to organic production and recycled yarns. Animal welfare can be guaranteed, for instance, by the Global Animal Partnership standards. For wool, the TextileExchange offers the responsible wool standard (RWS).

Another niche is the use of recycled fibres. Knitwear is the only product group that can be made from 100% recycled post-consumer waste (cotton and wool). Styles made from wool and cashmere are recycled, for example, by Filpucci or Reverso. There are challenges. Recycled yarns can nap, which creates a (potentially undesirable) casual look and feel. The finest possible gauge for such yarns is 12 gauge. Determining the content (and the chemicals used) is also difficult when using post-consumer waste, so testing is needed.

Home wear/loungewear

Due to coronavirus restrictions, many Europeans have been forced to stay at home. This has increased demand for comfortable, casual styles. Home wear or loungewear is made from comfortable materials that have a soft hand-feel and do not wrinkle, including knitted items, especially with lower 1.5 and 3 gauge.

Mixed media

Luxurious styles that combine knitting techniques and materials (mixed media) are a growing niche in the European market. Combining techniques such as intarsia with high-quality blends like cotton, silk and cashmere can make a pullover look almost like a piece of art. Other mixed media styles combine knitted panels with woven panels (for instance, silk and cashmere for the luxury market or acrylic and polyester for lower markets).

2. Through what channels can you get knitwear on the European market?

For many European fashion brands and retailers, knitwear is a basic product group. This does not mean you should randomly approach potential buyers. First, you need to determine what market segment fits your company best and through what channel(s) you want to sell your product. The market is segmented by price and quality.

How is the end-market segmented?

European knitwear buyers can best be classified by price/quality level.

Table 1: Knitwear market segmentation

Consumer type	Price level	Fashionability	Material use	Order quantities
Luxury consumer	Very high retail prices	Highly fashionable, unique designs	Luxury materials like wool and cashmere. Complex patterns	Low order quantities
Fashion-conscious consumer	High retail prices	Styles in line with latest trends	High-quality, natural fibres and blends	Low to medium order quantities
Practical consumer	Medium retail prices	Practical, fashion-conscious designs	Medium-quality, machine washable materials like acrylic, wool and cotton	High order quantities
Price-conscious consumer	Low or extremely low retail prices	Basic and functional styles	Medium to low- quality, machine washable synthetic materials and cotton	High order quantities

Luxury consumers

High fashion consumers shop at luxury brands and retailers such as Galeries Lafayette and brands such as Missoni or Moschino. These consumers expect their knitwear to represent an exclusive brand image and the latest fashion trends. Knitwear brands in the luxury market require top-quality materials and manufacturing, the latest technical innovations and highly comfortable designs. This market is growing.

Fashion-conscious consumers

In the upper-middle market, lifestyle brands such as Marc Cain and Paul Smith cater to fashion-conscious consumers. These companies sell collections created around a brand image and natural materials and offer a good-quality product for a mid-to-high-level price. Products must have the technical look of a high-end product, but retail prices are substantially lower than in the luxury consumer market. This market is growing.

The middle market: practical consumers

Practical consumers shop in the middle market, where brands and retailers such as Minimum and Marc O’Polo sell functional and fashionable items. The focus is on washability, durability, fit and medium-quality materials. Buyers may require sustainable fabrics. Order quantities are high, retail prices low to medium. This segment is under pressure.

Price-conscious consumers

The budget market includes companies such as Primark and River Island, which cater to the price-conscious knitwear consumers. Design and technical innovation are less important, but the apparel item needs to give the impression that it is fit for its purpose and in line with the latest fashion trends. Prices are low and competition is heavy in this market segment, both in retail and manufacturing. This market is consolidating.

Through what channels does the product end up on the end-market?

Their place up the value chain determines how buyers will do business with you. Within each part of the value chain, you will find buyers of different market sizes, with different requirements regarding MOQs and price levels. Always try to find out in what part of the value chain your buyer is operating, what challenges they face in the market and how you can contribute to their sales strategy.

• If you want to target European end consumers, try selling via platforms such as Alibaba, Wish, Amazon or Wolf & Badger for small independent brands. Most online consumers can be found in countries in Europe’s northwest. You will need to invest in a web shop, stock, order management and customer service. Your biggest challenges will be return policies and a lack of brand awareness.
• Online multi-brand retailers such as Zalando, Asos and Yoox sell existing knitwear and other brands and often develop their own private collections, mostly value brands. They can detect market interest very fast and will immediately react upon sales data. Usually, such companies will place a small test order first. If the item is selling well, they will place the actual production order. Fast delivery is a must.
• If you want to sell to retailers, the biggest names in knitwear are retailers such as Inditex and H&M. Next to big chains, most knitwear is sold in boutique shops that can be found in almost every European city. These shops sell existing brands, but some also order products specially developed and manufactured for them. This market level is less competitive and relatively easy to enter.
• Apparel brands typically develop a collection 6-9 months in advance. You will need a large sample room, as brands require salesman samples (SMS) of each collection style. Every salesman sample needs to be current: meaning it must look exactly like the product will in the shop, with branded hangtags and accessories. It may take many months before orders are placed.
• Intermediaries such as agents, traders, importers and private label companies will sell your product on to buyers up the value chain. They are extremely price focused and require flexibility in quantities and qualities. Some are located near or in the production countries and primarily do sourcing and logistics, such as Li & Fung. Others, such as Fully Fashion, work from Europe and also do market research, design and stock keeping. Their service level determines the commission rate they charge.

Figure 2: Apparel market value chain

What is the most interesting channel for you?

As you move higher up the value chain, your margin will increase, but so will the service level that your buyer will require from you. When you have little experience with exporting to Europe, intermediaries and brands are likely the best starting point.

Intermediaries

Agents or traders/importers/private label companies are the most adventurous type of buyer and are usually the first to investigate new sourcing destinations and factories. By working for this type of buyer, you will have access to many different buyers up the value chain, and you can learn how to service them by following their instructions.

Brands

Few European fashion brands specialise in knitwear (because it is a seasonal product), but for many brands, knitwear is a basic product group. There is usually more room for price negotiation with brands (especially in the higher market segments), but your service level also needs to be higher than what intermediaries would require from you.

Retail

Most large European fashion retailers sell knitwear collections and are used to doing business with manufacturers in developing countries. It can be very difficult to start a business relationship if you do not comply with all the mandatory requirements such buyers have. Besides delivering a good-quality product for a competitive price, your service level needs to be very high. Retailers may lack professional expertise on knitwear, so advice on product quality and development is highly appreciated.

3. What competition do you face on the European knitwear market?

Knitwear is manufactured worldwide, so you will likely face stiff competition in this market. The most important ways to create a competitive advantage over manufacturers in other countries are: yarn sourcing, technical knowledge, product development, service level, flexibility, efficiency and beneficial trade agreements.

Which countries are you competing with?

Country	Strengths	Challenges
China	Technical innovation, high efficiency, excellent customer service, high flexibility and the local availability of yarns and trims.	Increasing labour, transport and production costs, human rights concerns and no General Scheme of Preferences (GSP) that removes import duties to the EU.
Bangladesh	Factories with fully automated knitting machines, specialised in cotton and wool. The country is increasingly developing added value products including cashmere. Bangladesh benefits from the GSP.	Less flexibility than in China. Although yarns are increasingly spun locally, Bangladesh still imports many materials.
Turkey	Close to Europe, which results in very short lead times. The country produces high-quality knitwear in small quantities, and it has a European business culture. Turkish manufacturers will accept payment in euros.	Turkish prices are relatively high compared to Asia. Unauthorised sub-contracting may occur.
Cambodia	Cambodia supplies good-quality products at a competitive price level. Many factories in Cambodia have been set up by foreign investors, who also supply their expertise.	An inexperienced and relatively small workforce works against Cambodia. Social compliance concerns and political repression caused Cambodia to lose its duty-free GSP status in 2020.
India	India grows its own cotton and has a large industry of yarn and fabric making. India is focused on manufacturing knitwear items made from cotton and cotton blends and is highly flexible on quality, MOQ and design.	Human rights concerns in cotton, yarn and fabric production. Some dye houses may not comply with EU standards.
Vietnam	Vietnam’s apparel industry has developed a large capacity and a high efficiency level, thanks to investments from mainly Chinese factory owners looking to benefit from the low production costs and a new upcoming free trade agreement with the EU.	High MOQs, a lack of local spinning, accessories and trims and in general a lack of capacity (especially in the factories that operate in the north and south of the country exporting to the US).

Which companies are you competing with?

Neo-Concept is a Hong Kong-based company with a reputation of being a design-driven knitwear apparel manufacturer. The company started doing business with buyers in France such as Joseph and Agnes B and developed a reputation of being exceptional in innovation and product development. Its current manufacturing setup has expanded to Cambodia and Vietnam, enabling them to service buyers in every part of the value chain and price/quality segment.

Cobalt is a knitwear manufacturer with international offices on several continents. Inhouse spinning and manufacturing has made Cobalt 1 of the largest knitwear manufacturers in Hong Kong. The company can service a large variety of buyers.

Norban Group is 1 of the largest flat-knit manufacturers in Bangladesh with a vertical setup that includes spinning and knitting and a manufacturing capacity of 45,000 pieces per day. Its export focus is on both the United States and the EU.

Which products are you competing with?

Knitwear items such as pullovers and cardigans are a staple in many European fashion brands’ collections and end consumers’ wardrobes. This product category is growing (at the expense of woven styles) and only faces (some) competition from sweatshirts and from within the category.

Sweatshirts

Flat-knit styles are represented in the collections of almost every European fashion brand. Within this style, heavy-knit sweaters face some competition from sweatshirts (in line with the rise of comfortable loungewear and sporty styles).

Jersey T-shirts

Fine knits (gauges 14 and 16) are hard to manufacture, delicate and trend driven. They can face competition from T-shirts (including long-sleeves). A company that has a well-developed collection in basic knitwear including fine gauges is Massimo Dutti.

4. What are the prices for knitwear?

The price of your product, in fashion jargon often indicated as the free on board (FOB) price, is influenced by many factors, such as the cost of materials, the efficiency of your employees and your overhead and profit margin.

The following figure shows the average cost breakdown of a typical FOB price:

Note that these percentages may vary per factory and per order. Some factories accept lower profit margins during off-season periods or when order volumes are high. In addition, the percentages for labour versus yarns may differ, depending on the efficiency and wage level of the workforce and the price of the materials. Efficiency goes up and material prices go down when producing large volume orders.

Retail pricing

The retail price of a knitwear item is 4 to 8 times the FOB price on average, which is called retail markup. It follows that the FOB price is 12.5%–25% of the retail price of the product on average. Exceptions do exist. Retailers mark the FOB price up 4 to 8 times because they need to account for import duties, transport, rent, marketing, overhead, stock keeping, markdowns and value added tax (VAT) (15%–27% in EU countries), among other costs.

According to Eurostat’s 2019 comparison of retail prices for apparel, of the top 6 European importers of apparel and footwear, France has the highest price level at 107.7 points compared to the European average of 100, followed by the Netherlands (105.6), Italy (99.1), Germany (98.8), Spain (91.4) and the UK (90.7). Note that brands and retailers that sell in multiple European countries usually keep prices equal or deviate only slightly from the standard retail price.

Online commerce and a strong budget segment have made consumers in Europe accustomed to low prices. A focus on sustainability and higher production costs have, at the same time, put manufacturers, suppliers and buyers under enormous price pressure. Prices are expected to remain stable in the next 3 years thanks to increased efficiency, automation and production shifting to low-wage countries.

This study has been carried out on behalf of CBI by Frans Tilstra and Giovanni Beatrice for FT Journalistiek

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