Despite available orders, lower prices pressure RMG factories
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February 08, 2023

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WEDNESDAY, FEBRUARY 08, 2023
Despite available orders, lower prices pressure RMG factories

RMG

Jasim Uddin
07 August, 2020, 11:05 pm
Last modified: 08 August, 2020, 11:00 am

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Despite available orders, lower prices pressure RMG factories

Apparel exporters said currently almost all the buyers are offering orders but at very low prices – sometimes five to 15 percent lower than the price normally offered

Jasim Uddin
07 August, 2020, 11:05 pm
Last modified: 08 August, 2020, 11:00 am
Experts and industry insiders expressed hope that the RMG sector would be able to overcome the challenges posed by the novel coronavirus outbreak 
 Photo: Mumit M/TBS
Experts and industry insiders expressed hope that the RMG sector would be able to overcome the challenges posed by the novel coronavirus outbreak Photo: Mumit M/TBS

Although apparel manufacturers are receiving orders from buyers, as lockdowns in most western cities have been relaxed, the low prices offered for their products are barring them from respite.

During March to May this year, almost every buyer cancelled their orders, except a few well-reputed retailers like the Swedish company H&M. Now, shrinking prices are worsening their situation while they are receiving orders.

Talking with The Business Standard at least two dozen apparel exporters said currently almost all the buyers are offering orders but the prices are very low – sometimes 5-15 percent lower than the price offered in normal times. In some cases the offered price is lower than the production cost.

Despite this, the garments manufacturers have accepted such orders to run their units with the hope of surviving with their workers during the pandemic.

The Business Standard has found that apparel exporters had orders for about 75-80 percent of their capacity for July.

For August and September, known as the lean period, they have orders between about 50 and 60 percent of their production capacity.

From September onwards, these factories have orders for about 50 percent of their capacity, but they are hopeful that the situation will improve with time as most buyers do not place orders a long time before they want the products. Additionally, the Covid-19 situation is improving in major export destinations. 

A denim pants exporter group's top official said they had projected 15 percent growth in the recently-finished fiscal year, but the pandemic washed out their calculations.

He also mentioned that they have almost the same amount of orders compared to that of the last fiscal year, but they are not expecting any growth in the next two quarters. The denim exporter hopes that his business will remain on a positive trend from the third quarter of this fiscal year if the pandemic situation improves.

"I have booked an order of 3.5 lakh units of t-shirts from a US buyer at price $1.21 per piece, which I supplied at $1.7 before the pandemic," said Mohammad Hatem, managing director of MB Knit Fashion Ltd.

A Chattogram-based technical garment exporter said his factory has orders to full capacity till October and after that they have orders of about 30 percent of their factory's capacity.

A denim textile miller said nobody can blame the buyers for offering lower prices as the exporters are in a race to cut prices in uneven competition among themselves.

The apparel exporter said that setting a "segment-wise minimum price" during this pandemic is necessary, otherwise the sector will suffer. 

"India and Cambodia have already set a minimum price per product segment," he added.

The exporter said he got a Tk21 crore loan from the government stimulus package to pay the workers' wages for the last three months. Now he applied for a Tk25 crore loan to run his factory as he is not making any profit.

He mentioned that during the pandemic his factories' liabilities are increasing due to wage hikes, order cancellations and soaring product prices.

The pandemic hit apparel makers because buyers committed to hike product prices as workers' wages were increased 51 percent in December 2018. Manufacturers hoped buyers would pay sustainable prices as they are always pressured to comply with regulations.

"We have taken some orders on at a lower rate considering the current situation. Following a negotiation with buyers, we also asked our fabric supplier to reduce its prices. The buyers have also committed to paying the regular price once the pandemic situation improves," said a manager of a marketing and merchandising section of a denim garment exporting company.

Elaborating on their way of coping with the pandemic, which is affecting everyone from retailers to suppliers, the garment exporter said they agreed to produce jean pants at a reduction of $0.80 per item, on a product that cost $6 in normal times.

Then they persuaded their fabric supplier to reduce each yard of fabric by $0.10-$0.15,for a product which usually costs $1.8 per yard. The jeans manufacturer mitigated their losses by dividing them in the same way among some other suppliers – like button makers.

In a recent survey the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) found that the readymade garments exporters have orders that would occupy only 35 percent of their production capacity for the August-December period, and the price trend has been showing a 14 percent decline on average.

The association prepared the report based on responses from their member factories last week. Only 100 out of about 2,000 operational factories responded to the survey.

"Based on that, we have projected the current market scenario for the second half (July-December) of 2020," said Khan Monirul Alam Shuvo, chairman, media and public relations standing committee of BGMEA.

He explained that factories have been using 100 percent of their production capacity for the last 10 years, but it may fluctuate as per peak season and off season.

Shuvo said apparel makers considered October to February as the super peak season as they produce apparel for summer at that time.

Usually, August to September is the lean period for factories as they have shortages of orders, he added.

Shuvo hopes that order bookings will be better by September if the global pandemic situation improves.

A number of top apparel brands have already announced that they will provide support to the garments suppliers during the pandemic by placing new orders, taking their ready goods and paying without discounts.

However, manufacturers said almost all the buyers are offering lower prices and placing orders rapidly.

Economy / Top News

RMG Sector of Bangladesh

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