Case Study


Cashmere traditionally comes from the soft underhair beneath the thick coats of goats from China and Mongolia and is the main source of supply for the Scottish cashmere knitwear industry. It takes the underhair of at least three goats to make one sweater. The Scottish cashmere business, which originated in the 1870s, employs 4,000 people, mainly in the Borders, and has annual sales in excess of £100m (US$179m), 70 per cent of which is exported. However, it is facing increasing competition from low-cost producers, so much so that the Scottish textile industry’s work force has halved over the past ten years as former customers such as M&S have increasingly sourced their products from low-cost countries such as Turkey. It is fighting back by investing heavily in improving its production methods to meet competition, e.g. by introducing expensive whole-garment machines that eliminate side, shoulder and underarm seams to ensure its goods are of the highest quality and design. The industry has to face the challenge of producing new designs within a tight time frame.
Chinese companies will buy our latest designs and can copy them within three to six months, so we have a maximum of a year’s lead. But we have a palette of colours that is world-beating. Partly it’s because of the softness and cleanness of the water . . . In China, colours don’t have that sparkle. Most of our customers know what they are buying and appreciate such differences, they are not [low-price] Tesco customers.
Regarding price competition, since 2003, Tesco, the supermarket chain, has been selling cashmere sweaters for £25 to £30 (US$45 to US$ 54), challenging to Scotland’s traditional cashmere knitwear manufacturers, who produce haute couture garments that retail for ten or twenty times that price. According to James Sugden, chairman of the Scottish Textile Manufacturers’ Association, ‘It has polarized the industry. We cannot compete at that level and would not want to’ (Bolger, 2005). Instead the Scottish industry has consolidated and focused on brand quality design to defend its niche as a supplier to the world’s best–known fashion houses and luxury goods groups.
Tesco’s sales of cashmere sweaters for men and women have proved popular, so much so that it has been difficult to meet demand. According to a Tesco’s representative, ‘It is similar
to what we’ve done with champagne, where we introduced our own brand. Traditionally, champagne was seen as a very aspirational product, out of the range of a lot of customers. However, they quickly took it up, and we have grown the market’ (Bolger, 2005).
Tesco makes little or no profit on the cashmere sales, which are being used as a lossleader to encourage customers into its stores. Tesco has benefited from the easing of restrictions on Chinese imports through the ending of the Multi-Fibre Agreement at the beginning of 2005. Tesco said, ‘We would defend our quality. Our supplier has been manufacturing cashmere for twenty-five years and uses the same process for other customers it supplies, such as Whistles, Karen Millen and Next’ (Bolger, 2005).
It remains to be seen whether demand will allow the wide divergence in price and quality for cashmere products and whether it will be possible to maintain distinctive branding with market segmentation targeting and positioning to meet the needs of the luxury and mass markets.

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