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Outdoorwear pushes fine wool into new age

By Hugh Stringleman

Friday 7th February 2003

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Greatly increased consumer demand for wool-based active outdoor clothing has boosted the New Zealand fine wool market, helping insulate merino sheepfarmers against the effects of the rising dollar.

Led by the Icebreaker phenomenon in export sales and strong domestic sales for brands such as Swanndri, Line 7, Rodd & Gunn and Untouched World, more than 1000 tonnes of premium merino wool is now processed domestically.

Much of this is contracted through the New Zealand Merino Co between growers and processors, bypassing the auction system.

Although the volume processed here is only an eighth of total merino wool production, and fine wool is only 5% of total New Zealand wool production, the recent lift in market demand is exciting, industry insiders say.

The fastest-growing segment is "active outdoors," a $NZ5 billion apparel market in the US alone, until now filled by polypropylene, polyester and cotton.

Local knitting mills were crippled by tariff reforms in the 1980s, which led to the New Zealand fabric and clothing markets being flooded with cheap cotton and synthetic fibre products.

But the resurgence of fine wool usage however, has given local mills a new lease on life.

Listed Designer Textiles (NZ) of Otara is New Zealand's biggest processor of merino knitted fabrics, after a chequered history in the past decade.

Murray Clarke, managing director of Designer Textiles' international division, said most of the growth in fine wool fabrics occurred initially because of local market demand for a small number of well-publicised brands and fashion designers.

Now the export demand is really taking off, spearheaded by Jeremy Moon's Icebreaker range of activewear.

"It is amazing what Icebreaker has achieved in the European and North American outdoor clothing markets. Its name is now the standard for quality," Mr Clarke said.

From just a few tonnes of merino wool seven years ago, Icebreaker has now built garment sales up to 300 tonnes of fibre equivalent in 2002, leading to a 1450-tonne, three-year forward contract through the New Zealand Merino Co.

Icebreaker takes the clips of 30 high country growers, among them Tekapo's Glenmore Station, which also sells Icebreaker clothing online and in store under the trading name of Run 79.

Five Icebreaker garments come from one (3-5kg) merino fleece.

The range is innovatively marketed to eco-friendly sportspeople and outdoor enthusiasts through top-end retailers as itch-free, breathing and odour-reducing.

Once contracted and delivered from the grower, the 18.5 and 21-micron fine wool is scoured and made into tops in Timaru and Australia and sent to Korea for spinning into yarn.

Designer Textiles then dyes the yarn and knits the fabrics.

In recent times it has taken on garment make-up for the brand owners by subcontracting out to small clothing firms around Auckland.

Higher labour costs in New Zealand than Asia and the Pacific are not an issue because of the high value of the end products.

Mr Clarke is a passionate supporter of the New Zealand Merino vertically integrated approach, which brings consistency of product and certainty of price to all participants.

"Clothing companies work in a three-to-five-year time frame and growers need to be able to bank on returns for sheepbreeding in the annual clip."

At present 21-micron merino, used for outerwear, is at a 50-year price high and in short supply because of Australia's drought. Designer Textiles would be in trouble if it had to rely on spot market or auction purchasing.

Mr Clarke speaks to groups of growers and takes foreign buyers on tours of the South Island high country, complete with homestays and woolshed experiences.

Among Designer Textiles' customers for merino knits is SmartWool US, which switched its huge sock business to the New Zealand Merino Co two years ago and is now expanding into apparel lines.

Designer Textiles has 30 knitting machines and makes two million metres of fabric a year, including $10 million of merino garment sales.

"Whereas a polyester sports vest might retail for $US30-40, the New Zealand Merino version is twice that price," Mr Clarke said.

"We now have customers looking to promote the whole New Zealand story, where the fibre is grown and how it is processed into something you are going to feel good about wearing."

George Gould, of Gould Corporation and Pyne Gould Guinness, the rural servicing company, is Designer Textiles' chairman and majority shareholder.

Designer Textiles made a profit of $3.26 million on a turnover of $63 million in the year to June 30 and its share price has doubled to around $1.10 in the past year.

A share buyback of 15% of the market capitalisation of Designer Textiles, foreshadowed this week, should either return a big chunk of Mr Gould's investment to him or increase his 25% stake in the company.

Swanndri clothing company, a division of the Peter Spencer-owned Alliance Textiles, reports steadily growing demand for merino clothing.

Its Smartwear range of lifestyle apparel, described as casual clothing for those on the land, was crossing over into urban wear, marketing manager Julian Bowden said.

Swanndri also exports to Japan and Australia and is opening up in the US and UK.

Speaking from a large outdoor retail trade fair in Utah, Mr Bowden said wool was making significant inroads into the dominance of the synthetic fibres in active outdoors.

"New Zealand Merino has told the story of naturalness, superior qualities and a renewable resource," he said.

The New Zealand Merino Co is part-owned by Wrightson, and acts like a traditional wool broker and exporter with added R&D and marketing functions.

Early success came from New Zealand branding and the marketing of the superfine end of the merino clip to the cream of men's suit makers, such as Loro Piana of Italy.

Under pressure to do more for growers when merino prices fell in 2000/01, the grower-owned company was restructured and promotes longer-term supply contracts.

It now handles more than 75% of the national merino clip.

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