T&C refers to two distinct segments: textiles – from spinning fibers to fabric – and clothing – from pattern cutting, assembly to retailing ready to wear apparel. The German structural trade deficit, EUR -10 bn in 2013,merits further examination. Germany is indeed a net importer of T&C products, but this deficit arises exclusively from the Clothing sector. Germany is the 4th world exporter of textiles, but above all a net importer; hiding the two-geared reality of the sector. Germany is the world largest technical textile exporter with an estimated EUR 7.1 bn of exports in 2015.

The main renowned import partners are China, Italy and the Netherlands. China, for their cheap and rapid production: Italy and the Netherlands for their quality and luxury products. German exports are principally destined to neighboring countries (the Netherlands, Switzerland and Poland).

The divergent situation of textile and clothing trade accounts emerged among the 1980-1990’s globalization and accelerated in the 2000’s, following the boom of the Chinese economy. Germany's Textile and Clothing sector experienced difficulties in adjusting their business models in this context.

Already in a tough situation, difficulties were aggravated by the termination of the Multi-Fiber Agreement in 2005. Between 2005 and 2011, imports of T&C products from China skyrocketed by +126% of which +167% for yarns fabrics. 2012 reported a decline of imports, but should be considered an anomaly, penalized by a sudden drop of GDP growth rates for China (-1.6ppt) and Germany (-2.6ppt at 0.7%). While global manufacturing production grew by +10% between 2005 and 2013, reflecting GDP growth over the same period, fabric related output declined by -20% and clothing by half. The unassailable competition from China compelled German manufacturers to upgrade their positioning. Compared to the Clothing sector, the damages on Textiles were limited thanks to the manufacturers bet on value-added products.

Output cost structure and competition from Asia naturally pushed manufacturers to rethink their long-term strategy and positioning, in line with the German industrial policy. Manufacturers have focused their efforts over two goals: energy efficiency and upgrading production outputs.

(i) Among the determinant factors of textile manufacturers’ competitiveness, energy is a decisive issue and is ranked as major European concern by the European T&C Industry Association Euratex. Germany has one of the most expensive electricity prices in the EU costing +7.8% more than the European average.

(ii) The other main cost driver is raw materials. There is such a disparity in price volatility between cotton and man-made fibers, the shift of manufacturers production to synthetic outputs is unsurprising. Because Asian countries also position themselves on this segment, with much cheaper prices, German manufacturers ventured towards technical fabrics. Thus, textile weaving production declined by -49% during 2003-2013, while non-woven and technical fabrics grew 30% over the same period. Now, intelligent or technical textiles represent 50% of textile revenues and 40% of the T&C production. Germans have an undoubtle competitive advantage on the technical textile segment, as the world largest exporter of technical textiles. Euler Hermes estimates 2015 exports to amount to 7,1 Billion Euro.

Manufacturers primarily focus on automotive applications; but end markets are as varied as the innovations possibilities. For example, steering wheels able to monitor heart rates or detect tiredness signals; clothing with integrated USB ports which recharge cell phone batteries; or clothing which transmits medication.

The German textile industry has successfully reinvented its business model while the clothing segment is facing difficulties in reshaping its organization and offer to meet perpetually changing consumption behaviors.

Unlike manufacturing, revenues of retail companies were up +26% between 2008 and 2012, especially for e-retail and catalogues (+55% over the period), and EBITDA should report a steady +16% in 2014. The number of enterprises has doubled since 2008 and employed persons increased by +22% to comply with new consumption habits.

Clothing brands must multi-channel the smart way, to find the right mix. Counting 81 million inhabitants, of which 85% have Internet access Germany has a great potential for E-commerce. This sales channel today comprises 9% of total retail industry. On-line sales in Germany are expected to expand by +50% between 2012 and 2017. The clothing and shoes segment has recorded the strongest growth rate since 2011. Traditional retail is thus shaken up by pure on-line players (multi products like Amazon, Otto; or specialized like Zalando, Asos) and is forced to multichannel. However, not all brands can pine all hopes on it. This process must be dosed out accurately according to customer segmentation and related consuming habits. In-store retail for clothing remains the preferred channel (49% preferred in-store vs. 36% on-line; source GTAI) and must be considered as a solid basis for multichanneling.

[ www.eulerhermes.com]