For the RMG sector, a virtual marketplace is the future
To save our RMG sector and stay competitive against countries like China, Vietnam, Cambodia and others, we need to set up a virtual marketplace to make our mark on the global stage
In its 40 years of history, Bangladesh's ready-made garment sector has never been hit harder than in the year 2020. With Covid-19 introducing unprecedented challenges to the global fashion industry, the concept of 'Virtual Marketplace' has never been more pertinent than now.
Unprofessional and unethical behaviours of buyers in the form of asking for discounts as high as 20%-50% and delayed payments for already shipped goods amid this crisis have made this unprecedented situation worse.
Enormous amounts of order cancellations have threatened the very existence of factories in terms of piled up goods, liabilities, profitability, a sharp increase in the production costs due to supply chain shakiness, forced loans and cash flow instability.
Gradual fall in the prices has been a long-drawn syndrome in the RMG sector even before Covid-19 struck. Bangladesh's RMG sector has lost 2.87%-unit value in 2020, and during September-December, the decline was recorded at 4.82%.
One of the root causes behind this declined price is the tendency among the factories to undercut each other, which, at the end of the day, weakens the negotiation process between suppliers and buyers. Setting up shop fronts under the umbrella of a virtual marketplace can be in sync with our efforts to brand Bangladesh as a Fashion Destination, ensuring the right price as well.
So far, Bangladesh has been a global manufacturing hub only. We were unable to develop ourselves as brand owners and were only acting as custom makers for international brands. The virtual marketplace can finally open up an opportunity for us to make our mark on the global stage.
The boom in Online Sales
Covid-19 has exposed many wounds of the RMG sector which were somewhat managed up until now. They need to be taken care of immediately and carefully if the RMG sector is to be saved. To fight back and stay competitive against competing countries, i.e., China, Vietnam, Cambodia etc., we need to deal with the "new normal" in the post-Covid world.
In a post-pandemic world, online retail businesses will most likely boom and economies will move towards 'digital transformation'. Online platforms are already being preferred by people as they ensure physical distancing and provide customers with the comfort of being able to shop from home.
If we look at the statistics from giant brands and retailers regarding online and offline sales, we will see a significant rise in the online sales figure, compared to the in-store one. Even before the pandemic hit us, the annual report published by giant brands also portrayed a similar picture that showed customers' preference for online shopping. This only further inflated during the Covid period.
USA fashion giant GAP reported an 18% decline in total sales in the latest quarter of 2020. Whereas, in-store sales dropped by 48% and e-commerce revenue surged a whopping 95% from a year ago. A 50% (in local currencies) increase in H&M's net online sale was also seen in the fourth quarter of 2020. In a Y-o-Y comparison, Inditex, the owner of Zara, reported that online sales were 76% up in the third quarter of last year as more shoppers preferred online shopping during the coronavirus lockdown. Retail giant Walmart reports higher-than-expected earnings with a 79% growth in online sales for its fiscal year 2021 (which ended in January 2021).
Though primarily opened up for RMG items, with the option of gradually adding up other items, the virtual marketplace can follow the same path as Amazon, Alibaba or eBay. Individual factories (who will own brands) will open up 'shop front' on the virtual site and operate their sales through 'Business to Consumer' mode.
A fixed percentage of the sales will be set aside for the workers who are the fuel of the industry. The collections will be developed taking things such as the season, country and demand into account. Here, a few things have to be kept in mind before steering the wheel of this project. World-class, top-rated web developers will be needed to compete with the market leaders who have been in the game for a long time now.
To handle the delivery, a state-of-the-art distribution centre, located strategically, will be required. The overall marketplace led by skilled and sophisticated people will make the delivery arrangements, help with the development of the 'shopfront' for the brands and other logistics support. In this manner, all the brands will be able to stay afloat in the marketplace regardless of their capability to cope up with new tech.
The existing policy of BB and EPB doesn't support the concept of a virtual marketplace at all. To facilitate opportunities for B2C businesses, the formulation of a new national policy is required.
There might be a need to store the goods near shore for faster delivery to the customers. Also, we need to consider that the product may be offered at a discounted price, and proceeds may be realised after-sales. According to the prevailing rules, if the whole amount mentioned in the L/C doesn't get injected into the owner's account, he will get accused of money laundering. This mismatch has to be harmonized.
NOC or appropriate legal recourse will be required so that the stocked/cancelled goods can be sold to other customers/individuals.
Technology is one of the few great forces which is going to reshape the RMG sector and its supply chain in the near future through numerous developments, be it digital payment of wages or pursuing new paths towards innovation. The increasing share of online sales vis-à-vis brick and mortars has gained further momentum due to COVID-led germophobia, which may significantly change the buying behaviour of the consumers. So it's high time the RMG sector of Bangladesh went global and marked its footsteps in the post-pandemic era.
Fahmida Haq Majumder is a Senior Assistant Secretary at the Bangladesh Garment Manufacturers and Exporters Association (BGMEA)
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.