My team and I geeked-out this weekend in analyzing balance sheet trends between different segments of the apparel and footwear supply chains. One trend that jumped right out at me was in the footwear space, and the direct transfer of value from the US to Asia. Over the past seven quarters, the cash cycle for the footwear brands went up by 30 days, or 25%, to 143 days. Over the same period, the Asian Manufacturers saw a 20% improvement in its cash cycle to 117 days.
Another notable trend on the chart below is that as the Brands became increasingly stressed from a cash standpoint, they passed it through to the retailers – or at least attempted to. There was never a quarter in the past seven where both the brands and the retailers improved their respective cash cycles simultaneously.
Given capacity closure in Asia – especially China – I remain convinced that the pendulum will swing further into the hands of the sourcing side of the equation. Will the cash cycle continue to erode for the brands? Yes, it should. .If not, then there is an equally unappealing option – paying higher prices for COGS (otherwise known as FOB). A worst case would be higher FOB and less favorable cash terms. We have not seen that yet, but there’s no reason why it can’t happen.