Finding the right fit
However, although EU accession opened up markets for the industry, the end of a WTO agreement has left the country's rag trade vulnerable to a sea of cheaper products flooding in from China.
For centuries Poland has remained a major force in the world of flax production. The close community of small- and medium-sized manufacturers has carefully woven its high-quality cloth for generations with little change of course as the political climates and economic revolutions around them. However, last year's EU accession brought the trade a welcome boost by providing new markets in which they could compete with the cards dealt in their favor - the end of trade barriers, high-quality products and low-cost labor. But the boost that Poland's linen trade was offered is now under threat because of the expiry of a World Trade Organization (WTO) agreement on textiles and clothing that gives China unrestricted access to European and North American markets.
Since the end of the agreement on January 1, 2005, Chinese textile imports to the EU have rocketed by a staggering 534 percent - and homespun products are feeling the pinch.
Flax fix
The Gdynia Cotton Association (GCA) is one of the many local trade groups across the country that has voiced its concerns. The association claims that Polish textile producers have reported a significant decrease in turnover, ranging from 25 to 30 percent, since the end of the WTO deal.
The GCA's spokeswoman, Katarzyna Święcicka, fears sustained exposure to China's products could wipe out some of her members. "The flood of cheap Chinese products is going to adversely impact the exporting companies, e.g. those that export linen, as the EU market will get a much cheaper offer we won't be able to compete with," said Święcicka.
However, the plight of the linen trade is shared by Poland's entire textile industry and it is now facing the dilemma of how to adapt to the threat from the Far Eastern giant - and that threat is immense.
Seeing red
China is the world's largest producer and exporter of textiles and clothing, and the industry is one of its traditional economic mainstays. Over the past decade China's export of textiles and clothing has multiplied by 130 percent.
Chinese companies are able to sell their goods at a highly competitive rate because of their low labor costs and more liberal regulations - particularly in respect to environmental protection. China has quickly become the number-one textiles and clothing exporter to the EU, sending 29 times the value of materials to the EU25 than it imports from them.
What threat?
However, some of the country's biggest clothing companies, including some of those listed on the Warsaw Stock Exchange, are not so daunted by the end of the WTO quotas, because their activity is not concentrated on apparel production, but rather on the promotion of brands and distribution.
The Polish textile market was privatized at the very beginning of systemic transformation in the early 1990s, with companies including Bytom, Próchnik, Vistula and Wólczanka among the first to be listed.
Initially, these were relatively successful, but by the end of 2001, more than half of the 13 clothing producers on the stock exchange were registering a net loss. Historically they produced clothing for Poles and other Eastern bloc buyers, but by the turn of the millennium they were taking hits from Western competition.
It was not a question of quality that posed a problem; on the contrary, Polish companies are contracted by style icons such as Hugo Boss and Pierre Cardin to produce their suits. In fact, around 80 percent of Poland's production is sold under foreign labels. This, though, is not enough to revive the Polish textile sector as this form of production generates low margins.
Big team
The fragmentation of the Polish textile sector is yet another difficulty. There are around 44,000 active textile plants in Poland with the majority of them employing up to a dozen workers and only around 1,000 firms employing more than 20. Suffice it to say, the biggest players account for just a few percent of the total textile market.
Active firms are pursuing strategies to combat the changing market - either focusing on brand promotion and ordering their production abroad, or offering limited collections and designer clothes. This is often the case with smaller companies, such as Hexeline, Joanna Klimas, Odzieżowe Pole, and Dom Mody Antkowiaka.
Ready to rumble
The most successful firms such as Redan, LPP and KAN, have already moved production into lower-cost labor markets. They will, for example, design their collections in Poland and order their fabrication in factories situated in China, India, Bangladesh or Turkey.
Redan SA's CEO, Piotr Kulawiński, is blunt about the threat. "Let's not create artificial problems - in Poland the quotas were only valid for the last eight months, from the day of our EU accession. As far as Redan is concerned, it was more difficult to adjust to the existence of the limitations and EU procedures than getting rid of them. In Europe nowadays, it is only profitable to produce luxury goods - those with high added value. It is the brand that counts really."
In vogue
Redan itself is a multibrand company - its clothes are known under the labels of Top Secret, Troll, Textilmarket and Adesso, and are sold in separate shops. Its no-name apparel is also directed to super- and hypermarkets. According to Kulawiński, this policy of diversification helps Redan to protect itself in less favorable times.
Winter wear
KAN similarly depends on producers from countries such as China, India, and Turkey. But it still sources leather accessories and heavier, winter clothing from Poland because the quality of these products corresponds with the company's aspirations.
Firms who have maintained production in Poland - such as Vistula - are now turning to brand promotion, while those who do not or cannot change their strategy for different reasons strongly advocate the imposition of new restrictions.
The EUTC, Peter Mandelson, has been spurred into action by complaints from Germany, Spain, Italy, and France, whose local textile and clothing industries are reeling under the massive influx of cheap Chinese products.
Mandelson the minder
"[Commissioner] Mandelson took important measures in this area concerning the entirety of common market. The EU is likely to implement special safeguard measures for nine products. The garments in question are T-shirts, pullovers, men's trousers, blouses, stockings and socks, women's overcoats, bras and flax yarn," said Mirosław Zieliński, Undersecretary of State in the Ministry for Economic Affairs and Labour.
Chinese whispers
In order to soothe the textile crisis, China promised to increase its export duties on 74 categories of products from July 1, 2005, at the same time refusing any further concessions. The duty was to rise by as much as thirteen-fold on the most popular garments.
However, according to KAN's Podołek, the increase in export duties would exert minimum influence on the price of products offered by his company. "We sell apparel in medium prices that are least likely to change in such circumstances. Besides, the key to success is diversification - that is why we cooperate with producers from so many different countries. Just in case."
Fueling the dragon
Katarzyna Święcicka, from the GCA, points to the fact that in the long run higher export duties would only benefit the Chinese economy, as it will be possible for China to invest money earned by these means into the development of their local industry.
Dariusz Pachla, a spokesperson for LPP, which owns the Reserved label, warns that clothing companies must adapt soon, or otherwise pay the ultimate price for this stubborness.
"In 1994 a contract was signed assuring the protection of the EU market from the cheaper Chinese textile products. As it was widely known that international free trade is closely linked to moving the production of simple items to countries offering cheap labor force, all specialists were of the opinion that a transitional, adaptation period of 10 years is needed in order for the EU clothing companies to have enough time for adaptation.
"The attempts at introducing new restrictions prove that not all apparel producers bore that in mind. The representatives of the states and firms that did not make full use of the 1995-2004 period now feel threatened while there are no signs of discontent in the UK or Scandinavian countries," concludes Pachla.
Whatever the measures taken by the EU or international organisations, after 2008 there will be no way out for any of the clothing companies, and they will have to come to terms with Chinese competition.
Dedicated followers of fashion
According to a report released by market research company Pentor in April, the average Pole spends zł.400-500 on clothes annually. City-dwelling, young, educated people are more likely to indulge in a shopping spree and invest a larger share of their budget in a new outfit.
Two thirds of the above 15-year-olds prefer modest, comfy togs and tend to avoid flashy colors. Their favorites are youthful or 'weekend' styles, although they like to dress up a bit for special occasions and opt for a more elegant image while at work.
The report shows that there are four groups of Poles when it comes to apparel preferences: Thirty-nine percent are indifferent customers, 23 percent are connoisseurs, 21 percent are elegant traditionalists and 18 percent are sensible individualists. The differences between the categories are in their attitude towards fashion trends, frequency of shopping, the amount of money they spend and factors that influence their outfit-related decisions.
The offer of the most successful Polish apparel producers seems to fit in nicely with the preferences and trends reigning among the consumers. They also tend to target younger customers. Redan's Top Secret, LPP's Reserved and KAN's Tatuum are all casual brands. Troll and Cropp Town are aimed at the youngest and most fashion-conscious shoppers, while their parents prefer the classy Vistula, Wólczanka or Próchnik. There's hope for other producers though as Poles are not loyal to a particular brand. Very often, for financial reasons, they choose to buy no-name apparel at bazaars rather than in the shops where the margin is much higher.
The popularity of Avanti, Poland's first shopping magazine for women launched by Agora in March 2004, proves that the apparel sector is still a young and buoyant market. Currently, the magazine's circulation is 275,000 copies. Every month it presents new fashion collections together with prices and addresses of shops as well as discount coupons.
For centuries Poland has remained a major force in the world of flax production. The close community of small- and medium-sized manufacturers has carefully woven its high-quality cloth for generations with little change of course as the political climates and economic revolutions around them. However, last year's EU accession brought the trade a welcome boost by providing new markets in which they could compete with the cards dealt in their favor - the end of trade barriers, high-quality products and low-cost labor. But the boost that Poland's linen trade was offered is now under threat because of the expiry of a World Trade Organization (WTO) agreement on textiles and clothing that gives China unrestricted access to European and North American markets.
Since the end of the agreement on January 1, 2005, Chinese textile imports to the EU have rocketed by a staggering 534 percent - and homespun products are feeling the pinch.
Flax fix
The Gdynia Cotton Association (GCA) is one of the many local trade groups across the country that has voiced its concerns. The association claims that Polish textile producers have reported a significant decrease in turnover, ranging from 25 to 30 percent, since the end of the WTO deal.
The GCA's spokeswoman, Katarzyna Święcicka, fears sustained exposure to China's products could wipe out some of her members. "The flood of cheap Chinese products is going to adversely impact the exporting companies, e.g. those that export linen, as the EU market will get a much cheaper offer we won't be able to compete with," said Święcicka.
However, the plight of the linen trade is shared by Poland's entire textile industry and it is now facing the dilemma of how to adapt to the threat from the Far Eastern giant - and that threat is immense.
Seeing red
China is the world's largest producer and exporter of textiles and clothing, and the industry is one of its traditional economic mainstays. Over the past decade China's export of textiles and clothing has multiplied by 130 percent.
Chinese companies are able to sell their goods at a highly competitive rate because of their low labor costs and more liberal regulations - particularly in respect to environmental protection. China has quickly become the number-one textiles and clothing exporter to the EU, sending 29 times the value of materials to the EU25 than it imports from them.
What threat?
However, some of the country's biggest clothing companies, including some of those listed on the Warsaw Stock Exchange, are not so daunted by the end of the WTO quotas, because their activity is not concentrated on apparel production, but rather on the promotion of brands and distribution.
The Polish textile market was privatized at the very beginning of systemic transformation in the early 1990s, with companies including Bytom, Próchnik, Vistula and Wólczanka among the first to be listed.
Initially, these were relatively successful, but by the end of 2001, more than half of the 13 clothing producers on the stock exchange were registering a net loss. Historically they produced clothing for Poles and other Eastern bloc buyers, but by the turn of the millennium they were taking hits from Western competition.
It was not a question of quality that posed a problem; on the contrary, Polish companies are contracted by style icons such as Hugo Boss and Pierre Cardin to produce their suits. In fact, around 80 percent of Poland's production is sold under foreign labels. This, though, is not enough to revive the Polish textile sector as this form of production generates low margins.
Big team
The fragmentation of the Polish textile sector is yet another difficulty. There are around 44,000 active textile plants in Poland with the majority of them employing up to a dozen workers and only around 1,000 firms employing more than 20. Suffice it to say, the biggest players account for just a few percent of the total textile market.
Active firms are pursuing strategies to combat the changing market - either focusing on brand promotion and ordering their production abroad, or offering limited collections and designer clothes. This is often the case with smaller companies, such as Hexeline, Joanna Klimas, Odzieżowe Pole, and Dom Mody Antkowiaka.
Ready to rumble
The most successful firms such as Redan, LPP and KAN, have already moved production into lower-cost labor markets. They will, for example, design their collections in Poland and order their fabrication in factories situated in China, India, Bangladesh or Turkey.
Redan SA's CEO, Piotr Kulawiński, is blunt about the threat. "Let's not create artificial problems - in Poland the quotas were only valid for the last eight months, from the day of our EU accession. As far as Redan is concerned, it was more difficult to adjust to the existence of the limitations and EU procedures than getting rid of them. In Europe nowadays, it is only profitable to produce luxury goods - those with high added value. It is the brand that counts really."
In vogue
Redan itself is a multibrand company - its clothes are known under the labels of Top Secret, Troll, Textilmarket and Adesso, and are sold in separate shops. Its no-name apparel is also directed to super- and hypermarkets. According to Kulawiński, this policy of diversification helps Redan to protect itself in less favorable times.
Winter wear
KAN similarly depends on producers from countries such as China, India, and Turkey. But it still sources leather accessories and heavier, winter clothing from Poland because the quality of these products corresponds with the company's aspirations.
Firms who have maintained production in Poland - such as Vistula - are now turning to brand promotion, while those who do not or cannot change their strategy for different reasons strongly advocate the imposition of new restrictions.
The EUTC, Peter Mandelson, has been spurred into action by complaints from Germany, Spain, Italy, and France, whose local textile and clothing industries are reeling under the massive influx of cheap Chinese products.
Mandelson the minder
"[Commissioner] Mandelson took important measures in this area concerning the entirety of common market. The EU is likely to implement special safeguard measures for nine products. The garments in question are T-shirts, pullovers, men's trousers, blouses, stockings and socks, women's overcoats, bras and flax yarn," said Mirosław Zieliński, Undersecretary of State in the Ministry for Economic Affairs and Labour.
Chinese whispers
In order to soothe the textile crisis, China promised to increase its export duties on 74 categories of products from July 1, 2005, at the same time refusing any further concessions. The duty was to rise by as much as thirteen-fold on the most popular garments.
However, according to KAN's Podołek, the increase in export duties would exert minimum influence on the price of products offered by his company. "We sell apparel in medium prices that are least likely to change in such circumstances. Besides, the key to success is diversification - that is why we cooperate with producers from so many different countries. Just in case."
Fueling the dragon
Katarzyna Święcicka, from the GCA, points to the fact that in the long run higher export duties would only benefit the Chinese economy, as it will be possible for China to invest money earned by these means into the development of their local industry.
Dariusz Pachla, a spokesperson for LPP, which owns the Reserved label, warns that clothing companies must adapt soon, or otherwise pay the ultimate price for this stubborness.
"In 1994 a contract was signed assuring the protection of the EU market from the cheaper Chinese textile products. As it was widely known that international free trade is closely linked to moving the production of simple items to countries offering cheap labor force, all specialists were of the opinion that a transitional, adaptation period of 10 years is needed in order for the EU clothing companies to have enough time for adaptation.
"The attempts at introducing new restrictions prove that not all apparel producers bore that in mind. The representatives of the states and firms that did not make full use of the 1995-2004 period now feel threatened while there are no signs of discontent in the UK or Scandinavian countries," concludes Pachla.
Whatever the measures taken by the EU or international organisations, after 2008 there will be no way out for any of the clothing companies, and they will have to come to terms with Chinese competition.
Dedicated followers of fashion
According to a report released by market research company Pentor in April, the average Pole spends zł.400-500 on clothes annually. City-dwelling, young, educated people are more likely to indulge in a shopping spree and invest a larger share of their budget in a new outfit.
Two thirds of the above 15-year-olds prefer modest, comfy togs and tend to avoid flashy colors. Their favorites are youthful or 'weekend' styles, although they like to dress up a bit for special occasions and opt for a more elegant image while at work.
The report shows that there are four groups of Poles when it comes to apparel preferences: Thirty-nine percent are indifferent customers, 23 percent are connoisseurs, 21 percent are elegant traditionalists and 18 percent are sensible individualists. The differences between the categories are in their attitude towards fashion trends, frequency of shopping, the amount of money they spend and factors that influence their outfit-related decisions.
The offer of the most successful Polish apparel producers seems to fit in nicely with the preferences and trends reigning among the consumers. They also tend to target younger customers. Redan's Top Secret, LPP's Reserved and KAN's Tatuum are all casual brands. Troll and Cropp Town are aimed at the youngest and most fashion-conscious shoppers, while their parents prefer the classy Vistula, Wólczanka or Próchnik. There's hope for other producers though as Poles are not loyal to a particular brand. Very often, for financial reasons, they choose to buy no-name apparel at bazaars rather than in the shops where the margin is much higher.
The popularity of Avanti, Poland's first shopping magazine for women launched by Agora in March 2004, proves that the apparel sector is still a young and buoyant market. Currently, the magazine's circulation is 275,000 copies. Every month it presents new fashion collections together with prices and addresses of shops as well as discount coupons.
