Inside Turkey’s Powerful Fashion Factories

Halit Gumuser is prone to speaking plainly and directly. “Challenging the innovation and [production] capacity of China is difficult,” concedes the chief executive of Turkish manufacturer Kipas Textiles, a supplier to online fashion giants like Asos and high-street brands with a large footprint in Europe. Although China’s manufacturing strengths are obvious, he suggests, Turkey’s competitive advantage is obscured further upstream. “Textiles are the country’s leading export product [and that makes them] a ‘core position’ for us.”

The local textile economy is both ancient and deeply rooted. Vast amounts of fibres, yarns and fabrics were traded across the Ottoman Empire, Turkey’s predecessor state, for nearly six centuries and the Hittites were avid weavers on Turkish soil thousands of years before that. Fast forward to the present day and Turkey’s share of the global textile market has almost doubled over the past two decades, according to International Trade Center (ITC) data, with textile exports topping $15 billion in 2022.

One of the largest players in that export trade is Kipas. Established in 1984 in the small city of Kahramanmaras deep in Turkey’s Anatolia region, the firm has grown from its humble origins as a single yarn spinning facility to a multitude of vertically integrated factories including weaving, dyeing, textile recycling and garment production facilities. Like many of its peers across the country, it benefits from being part of a sprawling conglomerate. Parent Kipas Holdings, owned by the Gumuser and Oksuz families, has holdings in multiple industries including logistics, retail, energy and agriculture.

The scale of the company is vast, with its facilities producing 330 tonnes of yarn per day, and 80 million metres of fabric per year. Yet Kipas is just one of 19 similarly large Turkish factory groups operating in the same cotton sub-sector: denim. With deep pockets and even deeper know-how, many of these vertically integrated giants look increasingly attractive to fashion brand and retail leaders who need to diversify some of their production away from the Far East.

How Turkey measures up

Only China and Turkey rank in the top five countries by value for both textile and garment exports, but the former is clearly in a league of its own. In 2022, China led the world’s textile and clothing exports, with 43.6 percent and 31.7 percent share of global markets respectively. Turkey’s comparative figures were 4.6 percent and 3.5 percent, placing it fourth for textiles (behind the European Union bloc, India and China) and fifth for clothing (behind Vietnam, Bangladesh, the EU, and then China, at number one).

Where Turkey struggles to compete with China — beyond production capacity — is on price, with a significant contributing factor being labour cost. The monthly minimum wage in Turkey is around $500 (17,002 liras), compared to $220-$324 (1620-2360 yuan) in China’s major garment production province, Guangdong.

“China is the destination for sourcing basic items with long lead times. We [in Turkey] are good at offering good service, plus design and fashion(-led) items, taking on the smaller portion [of brands’ product range],” said Selman Bilal, chairman of Bilsar, a Turkish garment manufacturing company established in Istanbul in 1947 that has grown to export more than three million shirts a year to Europe and the US.

Weighing in on the price premium of ‘made in Turkey’, Murat Arioz, sales and marketing group director at Kipas Textiles, explains that outsourcing arrangements with third countries can make for a more direct comparison to sourcing from China on a cost and capacity front.

“Most of the big suppliers, including Kipas, have their garment assembly facilities in Egypt, which is operating at a lower cost, so it’s Turkish fabric and Egyptian production for the mass volume business,” said Arioz, explaining that an additional advantage is that ex-Egypt exports to the US market are duty-free. By contrast, exports directly from China to the US are not.

Furthermore, producing in a country that is geographically within or nearer to markets in Europe, such as Turkey, usually means faster deliveries, lower shipping cost and lower or no tariffs, compared to similar fashion made in China. Consequently, even if Turkish or European-made products are significantly more expensive on a per-unit basis than Chinese products, the landed price difference tends to “even out”, according to a recent study by supplier database solution Productmkr.

Brands adopting such nearshoring strategies have noted opportunities for trimmed-down inventory, seasonal ‘trend-led’ production in smaller order quantities (compared to China), and vastly improved supply chain traceability and compliance.

Harnessing nearshoring opportunities

While the historic might of Turkey’s manufacturing sector is based on cotton products, across both woven fabrics and knitted jersey, it is now repositioning itself to meet the production opportunity created by the expansion of athleisure brands looking to source synthetic textiles nearer to market. The country’s thriving textile machinery manufacturing sector and robust textile engineering skill base are two other strengths in its ecosystem.

“Turkey is building the whole textile infrastructure,” said Stefan Hutter, textile engineer and founder of Singapore-based global trading company Saentis Textiles, describing Turkey as “the textile manufacturing base of Europe”.

Indeed, European affordable and high-street fashion giants with a global footprint rely heavily on sourcing from Turkey. Spain-based Zara-owner Inditex, Swedish group H&M and Belgium-based C&A are just a few that list multiple manufacturing partners in the country.

An annual sourcing survey conducted by supply chain compliance giant Qima revealed record levels of nearshoring intent in 2023, with one-quarter of Europe-based brand respondents listing Turkey alone as a crucial local sourcing partner. It also showed that European brands’ volume of apparel sourcing from Turkey surpassed that of Vietnam for the first time in several years.

According to Bilal, a key edge that Turkish companies like Bilsar have over Asian manufacturers is just-in-time production for high quality output and design, with lower minimum order quantities. “We have ten days [lead time] from order to fulfilment in Europe [for core products],” explains Bilsar’s chairman.

This demonstrates the advantage nearshoring gives to brands for restocking inventory in step with demand fluctuations in an era of intense global supply chain pressures and consumer volatility.

Speed to market was a critical factor for Asos to choose Turkey for some of its production. “The lead time is reduced from 150-170 days in the Far East to under 50 days in Turkey,” said Shaun Ghori, Asos’s head of fabric and trims. “[And] it’s [only] seven days on the truck from Turkey to the UK. Price is the only slight disadvantage at this stage, but [seasonal] fashion is style-driven, so for us we want to be relevant, and [therefore] have a relevant product for our customer [at the right time].”

Asos is willing to pay a premium for the design-led and quality-driven products that Ghori says only Turkey can produce with shorter lead times, supply chain traceability and textile innovation. “They have the right mindset to bring new developments and R&D [in denim, and] that is the unique point Kipas has,” he said, describing the company as a “one-stop-shop” for sourcing.

Tapping into enhanced transparency

“With Turkey, transparency is easier, but in China, you could buy a fabric through an agent who works with many fabric suppliers, then it is dyed somewhere else [making traceability difficult],” Ghori added.

Like many Western brands, Asos does not source cotton from China because of forced labour reported in the country’s Xinjiang region, where much of the fibre is grown. A United Nations report finding human rights violations urged international businesses to take additional measures across business activities, including enhanced due diligence, and to report on supply chains transparently.

In response to this significant compliance risk, fashion companies made swift withdrawals from cotton sourcing in China. “Big brands pulled out of China due to Xinjiang and this was to the benefit of Turkey,” said Hutter.

The fact that Turkey is the seventh largest grower of cotton globally, according to the International Cotton Advisory Committee (ICAC) means local companies have been able to build strong supply chain integration from tier 5 (raw materials) through to tier 1 (garment production). The country is also benefiting from the so-called ‘friendshoring’ movement, where brands reduce their exposure to disruptions caused by geopolitical tensions by moving supply chains to ‘friendlier’ sourcing hubs.

Even China-founded fast fashion giant Shein, which is under intense scrutiny ahead of a planned IPO, has expanded its sourcing from China to Turkey, following the establishment of supplier partners in India and Brazil. Talking to Reuters, Shein executive chairman Donald Tang said the volume of Shein products made in Turkey is currently insignificant compared to China but is growing fast.

“Politics, duties and what’s happening in the US [regarding trade restrictions] are factors, but [high] volume [orders], in my opinion, will always be sourced in Asia,” said Hutter. “Cost is always the [key] factor.”

Turkey’s record on human rights is also marred, including its unlawful deportation of Syrian refugees, many of whom were recruited for ‘informal’ work in the textile and apparel sector, sparking intervention by the Ethical Trading Initiative between 2014 and 2018. In 2018, a new agreement was established between the International Labour Organization (ILO) and the Istanbul Apparel Exporters’ Association (IHKIB) to establish formal and decent work for Syrian refugees (a population of 4 million at the time) in Turkey’s garment industry.

On the environmental sustainability front, Turkey has an impressive rate of renewable energy adoption, leaping ahead of China in 2015 and still outpacing it in 2023, according to the site Our World in Data. Adoption of renewable energy at supplier facilities in Turkey was cited by Cherie Nelson, senior head of buying and sourcing at Urban Outfitters, another brand that Kipas supplies, who says “expansion and investment in onsite renewable energy is becoming fairly standard for [Turkish] mills.”

China continues to use more coal, powering 53.9 percent of energy there, compared to 32.9 percent in Turkey, a figure firmly at odds with global climate targets. In terms of textile impacts, with traceability to cotton growers both in-country and overseas, Turkey provides end-to-end visibility for environmental data collection and social and environmental auditing due to its significant buying power and direct trading relationships, coupled with end-to-end vertically integrated production.

Adding value through innovation

Urban Outfitters’ Nelson believes that Turkey’s advantages “have really come to light recently”. Suppliers are “highly aware of the incoming expectation of supply chain due diligence [and they] believe in it, support it and are highly aligned with it,” she adds, noting that Turkey is particularly appealing since cotton traceability auditing now extends back to the gins where harvested cotton lint arrives from cotton farms for pre-processing “making fibre to finished product traceability easier.”

Recently, Kipas developed a new range of denim products with Asos containing regenerative cotton traced back to the farm in Brazil, combined with recycled cotton Kipas spun, weaved and dyed in-house, resulting in a significantly lower footprint across all facets of the product, according to Ghori. That integrated impact reduction does come at additional cost, though.

Textile engineer Hutter developed a novel mechanical cotton recycling machine now in use at Kipas. Interestingly, he built the first iterations in China in 2016, before exiting the country when brands withdrew due to Xinjiang human rights breaches. Kipas Textiles took on the nascent machine in 2018, commercialising it to create RCO100 yarns since used in products for brands including Tommy Hilfiger (through Tommy Jeans), Calvin Klein Jeans and Lacoste.

Next for Kipas Textiles, Gumuser is set on offering textile innovation for value-added materials and products, attracting startups that need to incubate and develop their solutions.

“When European brands use the Turkey supply chain, innovation between startups and the supply chain happens, because we can overcome problems and bottlenecks more easily [due to] our expertise and vertical integration”. As an example, Gumuser says “when Renewcell launched [their recycled textile fibre] Circulose we bought 4000 tonnes to hold in stock so brands were able to test it [without needing to commit to orders of the raw material themselves].”

Challenging macroeconomic environment

Despite this investment willingness, economic conditions in Turkey are challenging with record inflation of 75 percent in May this year, devaluing the Turkish lira and sending the cost of living surging.

The country’s economic crisis, which began in 2018, has impacted most industries including the local fashion manufacturing and retail sectors. Last year’s earthquake also hit factories in the affected region. Turkey’s inflation rate cooled for the first time in eight months last month, though it is too early to tell whether the finance minister’s recent claim on X that “the worst is behind us” is an accurate assessment of Ankara’s turnaround plan launched a year earlier.

According to Arioz, Kipas is well positioned to weather the turbulence, due to its integrated facilities allowing for flexible resource allocation and production, as well as being buoyed by parent company Kipas Holdings’ diversified and multi-sector interests. But it remains true that with local inflation rates, the company’s margins will inevitably be hit by holding firm on its unit prices for brands.

The road may not be so easy for Turkey’s SME’s, though, who without vertical integration cannot offer pricing stability for brands sourcing from Turkey. “For SMEs, if there’s a yarn price change [for them], they have to change the unit price [for their customer] immediately — we cannot immediately change the customer prices, but when there is a point where we can’t avoid price increases, the customer already knows this is coming [because] they have had it earlier from other [suppliers],” said Arioz.

According to the Turkish Statistical Institute, Turkey has 581 large scale textile and 395 large-scale apparel businesses. The Istanbul Textile and Raw Materials Exporters Association (ITHIB) lists companies including Kipas Holding, Sanko Holding, Zorlu Holding, Aksa and Sasa as prominent examples of these businesses. In contrast, most businesses in this sector in Turkey are SMEs (92,583 in total), employing fewer than 250 people and with net revenue or balance sheet not exceeding 250 million Turkish lira ($7.7 million).

The position that Turkish giants like Bilsar and Kipas Textiles have — expertise, integration, flexibility, traceability and sustainability investments — steer and solidify their ‘beyond-transactional’ relationships with brands. Gumuser says “mutual benefit” for suppliers and brands will continue to be key to Turkey’s offering as a sourcing hub, and Kipas for one appears well positioned to deliver that.