Bangladesh's ready made garments industry is now bracing for another battle for survival as most factories are getting orders less than 30% of their capacity as record inflation rates across Europe and the US make consumers less willing to loosen their purse strings for new outfits and fashion accessories.
It is a bleak situation from the heady days of just a few months back.
In the end of the fiscal year 21-22, the fears of a prolonged recovery period following the Covid-19 pandemic had not only almost receded for the Bangladesh apparel industry, but had been replaced by hope.
The pandemic had led to cancellations of orders worth over $3 billion from almost every brand, except H&M. The readymade garments sector was in tatters, experiencing a fallout faced by every major industry. Textile exports had fallen at this time from $34.13 billion to $27.95 billion.
Apart from the fall in demand, freight cost rose by almost four times and price of raw materials also increased by 15-20%, along with other inputs.
But by this fiscal year, the industry had strongly rebounded, registering a record high volume of exports worth $42.61 billion, surpassing the previous high by almost $8 billion.
A flash in the pan
The uptick proved to be short-lived as the global economy was thrust into another crisis which began insistently tugging at the very fabric of the apparel industry.
The woes began with the Russian invasion of Ukraine. As sanctions were meted out to rein in Russia and an energy crisis tightened the screws of the European economy, inflation rates started to climb sending jitters into the market and soon to hit headlines as historic numbers in the European Union and the US economy.
The heat is being felt by the RMG sector at home. Starting from July to next February, RMG factories are reporting booking orders for less than 30% of their production capacity.
Just recently, most of the factories had been operating at overcapacity, with many increasing their size or starting double-shifts.
Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Vice President Fazlee Shamim Ehsan expressed worries over the global economy saying the record inflation was hurting apparel orders for upcoming months.
"My factory is getting 16% lower orders for the coming months," he said, adding that the fear of recession had affected the global apparel demand.
He, however, hoped that banking on the pandemic experience, the industry could overcome the uncertainty.
Md Khosru Chowdhury, director of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and managing director (MD) of Nipa Group, said his company produces 30 lakh pieces of outerwear every month. But from next November to February, only 50% of his capacity has been booked.
"I am getting enquiries for further orders, but I cannot meet those as the quoted price is less than my costs. It is 10-12% lower than what I had received six months ago. I won't go into half-capacity, but I will have to make some loss and am negotiating with buyers so we can split the loss," he said.
"Right now, my profit margin is 2-5%. The freight-on-board (FOB) price is $5-$14 per piece for outerwears, and the manufacturing cost is $2-5. Now, I have to bear 5-7% loss but hope business will rebound once again after February, new shipment period for spring and summer, given the pandemic experience."
A question of costs and fall in orders
On the increase in costs, he said, "We are seeing a fall in cotton prices. But the cost of petrochemicals has increased due to the war. For this, the total price of raw materials has increased by up to 15%. On the other hand, the brands are negotiating for lower prices."
Chairman of Chattogram-based RDM Group Rakibul Alam Chowdhury said he had 13 lakh per month capacity, but for July and August, he had orders for only 6-7 lakh, whereas, even a month ago he had to run operations for 14 hours instead of eight to meet the pressure of production demand.
Confirming the fall in orders, BKMEA Executive President Mohammad Hatem said utilisation declarations (UD) had decreased by 20% for the coming spring and summer seasons.
"Enquiries have also fallen up to 30% compared to four months ago," he said, saying a similar situation could be seen a month later.
He said many factories would be unable to pay wages from December onwards as they would face a liquidity crisis.
Echoing this, Shovon Islam, MD of the Sparrow Group of Industries, said high-value brands had decreased orders by 10% and for those focusing on basic products the decline was 30%.
He said there would be a shortage of orders in August-February.
"The fear that is working now is due to the inflation and recession and to overcome this we might have to wait 6-8 months," he added.
Fazlul Hoque, MD Plummy Fashion Ltd and former president of BKMEA, said the current situation was a result of the over-ordering experienced last year being corrected.
As value of euro falls so does demand for apparel
"But we also are seeing a new dimension amid this correction. Due to the recession, the value of the euro and the dollar is now nearly the same, meaning, the demand for our product will fall in major European markets as people's purchasing power erodes. To adjust this, brands may force us to decrease our prices."
In regards to remedial steps, he said there was currently no recourse. "The big question now is of our survival," he said.
Kutubuddin Ahmed, chairman of Envoy textile ltd, also said consumers had changed their priorities due to the recession. "They are spending on food and essential commodities instead of clothing and we can see its reflection in the number of orders."
Sheikh HM Mustafiz, MD, Cute Dress Industry Ltd, said the only way out was the end of the war. Otherwise no certain solution could be found at the moment.
Rakibul Alam Chowdhury, BGMEA vice-president, said members had said that Target and WalMart had cancelled confirmed orders.
Both the retailers have ample unsold stocks and, according to a Bloomberg report, are now turning away from the previous Just-in-Time method of procurement.
Inventories for major American retailers sprung to $44.8 billion, meaning many may be cooling off on future purchases for the time being.
Amid this, there are also whispers of requests for deferred shipments by up to two months, meaning capital would be tied up, while bank liabilities will increase.
An RMG owner, under the condition of anonymity, said the shipment of three lakh pieces of high-value had been deferred. "The brands are now using my factory as a warehouse," he said.
The head of a buying house, under the condition of anonymity, said the order placement for Japan and South Korean markets had so far maintained the same pace of growth, adding that in a recent visit to Korea he observed that all products prices had been pushed up by inflation, except for apparels.
South Korea's inflation hit a nearly 14-year high in May due to high energy and food costs due to the ongoing war between Russia and Ukraine. According to the data of the state-run Statistics Korea, consumer prices jumped 5.4% last month from a year earlier, accelerating from a 4.8% year-on-year spike in April.
Faruque Hassan, president of BGMEA, said they had seen a 20% UD fall. He added that exporters were reporting deferred shipment. But no one had formally reported any order cancellation yet.