Shopping for new clothes this Eid Al Adha is expected to be dampened by the extraordinary increase in cotton yarn prices that is pushing up retail costs of readymade garments and clothes in the UAE.

Eid Al Adha is a major Islamic festival season when retail outlets get a considerable portion of their business.

UAE garment retailers have said due to an unreasonably high cotton yarn prices in the source countries, Pakistan and China, the landing cost of readymade clothes and retail prices of dresses are going up.

Cotton prices have skyrocketed to a 15-year high in the international market, threatening to end the era of cheap T-shirts and jeans. Higher cotton prices are expected to see retailers and manufacturers looking to switch to using more manmade fibres.

“There has been an unusually high demand for cotton yarn in India and China, as the production of cotton has been affected. The cotton yarn price has gone up by 60 per cent because cotton production in the US and China has been affected. The price of a kilogram of yarn has gone up from Indian Rs130 to Rs220 because it is in great demand from international companies, especially those dealing with 100 per cent cotton readymade garments,” said Ismail Rawther, Managing Director, Fine Fair group of companies.

The group runs a garment retail chain in the UAE with readymade production facility in India. Fine Fare sells cotton fabrics equating international brands at one-third of the price charged by major multinational brands and is developing its own brands in the GCC market.

Rawther said the landing cost of a normal cotton item especially designed for the Arab customer has gone up by $1 to $1.5 per piece and the weak dollar is also hitting garment importers in the UAE, who have started preparing stock for the big sale during the Eid season.

“Garment sales in October 2010 are down by about 20 per cent from October 2009. We have seen the fall in sales across our 15 shops in the UAE,” he added.

Rawther said recent floods in two of the world's major producers, Pakistan and China, have severely hit crops, pushing up wholesale prices. Due to the high laundry charges here, some customers used to buy children’s cotton dresses to use and throw away. But now such customers will think twice because cotton clothes are no more going to be cheap, he added.

“As sales in our existing outlets cannot be increased, we are expanding our network. We have opened a new showroom in Ajman, besides the newly opened Union Cooperative Market. As prices are high, consumers are searching to buy quality readymade garments at affordable prices,” he said.

Fine Fair has garment retail outlets in Abu Dhabi, Al Ain, Dubai, Sharjah, Fujairah and Ajman and plans to open more outlets to keep the company’s sales plan intact.

“Last year we did Dh100 million worth of business and our plan was to increase the sales to Dh150m, which is not possible with the existing retail network and market conditions. As we are getting more customers from Oman, we will be opening some new shops there too,” Rawther said.

“The average price of a fast moving item during Eid has gone up from $4 to $4.5 because the landing cost has gone up. Even big brands charging very high premium for their readymade garments are planning price hikes. Due to the current market situation, we are not in a position to jack up prices,” he said.

The steep appreciation of the Indian rupee against the dollar has also hit garment importers who have placed orders in advance to meet the demand during the festival season.

“Out of an Rs40 crore export order, the exchange rate loss alone would be Rs4 crore,” Rawther said.

A recent statement from the International Cotton Advisory Committee (ICAC) said prices rose more sharply during October.

“On October 11, the Cotlook A Index broke the previous record of 119.4 cents per pound established in April 1995, and continued to rise in the following weeks, reaching 147 cents per pound on October 27,” it said.

ICAC maintained that the Cotlook A Index averaged 127 cents per pound in October 2010, 89 per cent higher than in October 2009. Price volatility is also very high this season. It averaged 57 per cent from August to October 2010, compared to 11 per cent over the same period in 2009/10.

Global cotton stocks fell by 25 per cent in 2009-10 to 8.9 million tonnes, the smallest in seven seasons. In 2010-11, rising production and mill use are expected to keep global stocks tight.