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Industry Opinion
Apparel May See Fewer Orders as Brands are Stuck with Excess Inventory
- By Akhil Duggar Jain, Executive Director of Jain Amar Clothing Pvt. Ltd. that owns western wear brand, Madame
- The global economic recovery from the Covid pandemic has been repeatedly hit by various events, which shows how interconnected economies around the world are. We have not yet officially come out of the pandemic. The readymade garment (RMG) and textile sectors have not fully recovered from the onslaughts caused by the Covid pandemic. Rising freight costs globally and a looming recession coupled with changes in consumers' spending habits have all contributed to this situation.
- Last year, brands placed orders to help offset any supply chain stoppages and disruptions from any new wave of Covid. Their decision seemed to have paid off as we saw China going into a lockdown, and yet shelves in their shops were full of merchandise.
- However, the conflict in Ukraine has brought forward many issues, most importantly the looming recession likely to take effect in the major US and Europe markets. Inflation caused by soaring fuel, energy, and food prices along with a sharp rise in housing costs and mortgages has already begun to affect consumer spending patterns as they are left with dwindling disposable income.
- The strengthening of the US dollar has also taken a toll on brands' profits in their home countries. For example, H&M in Sweden and Inditex in Spain have faced such fates. Also, major brands are stuck with excess inventory that will slow down their future orders.
- The RMG and textiles sectors need to be careful in the coming days. First of all, the fact that major brands are stuck with excess orders is worrying. This will mean fewer orders at lower prices as everyone will try to fulfill capacity in their factories to make sure bank repayments and workers' salaries are paid in time.
- Pandemic-induced supply chain disruption in the fashion world
- The pandemic affected a complete dissociation in the supply chain in the textile and apparel industry. The greatest impact of the Covid 19 virus, undoubtedly, was on the health and wellbeing of people all over the world. The consequent lockdowns that were imposed had a rippling effect on every aspect of the social and economic fabric of communities. All sectors of the economy spiraled downwards like never before and are still recovering from the onslaught. The world has lost over US$4 trillion.
- The fashion industry is one vertical that has never seen a dull day over the past several decades. The industry is so versatile and inclusive, running consistently with a hundred percent market share, that it thrives no matter what. The first-ever experience of heading south was during the pandemic that jolted the fashion industry out of its complacency. Most other sectors have witnessed fluctuations of some sort or the other, but this perhaps was the first big setback for this industry.
- The travel-tourism industry, as well as the logistics industry, were perhaps the worst hit in recent times. With logistics coming to a grinding halt, the fashion industry invariably buckled. The demand side of the business as well as the supply side of the apparel and accessories vertical took a huge beating. Demand hit rock bottom with lockdowns which led to social distancing, closure of retail business outlets, customer thrift, saving, and prioritizing essentials, among other factors. On the supply side, shut down of production, breakdown of logistics, import restrictions, non-availability of raw materials, and acute escalation in the price of raw materials and logistics, all of these had a consolidated impact on the supply chain, affecting production.
- Break down in the supply chain
- India makes up about 16 percent of textile imports to the US and about 5 percent of apparel and accessories, according to Peterson Institute for International Economics.
- India is the world’s second-largest exporter of textiles and apparel with a massive raw material and manufacturing base. The textiles industry is a significant contributor to the economy, both in terms of its domestic share and exports. It contributes about 7 percent to industrial output, 2 percent to the GDP, and 15 percent to the country’s total export earnings.
- The pandemic affected a complete dissociation in the supply chain in this industry. The shutdown of China, a major exporter of raw material, followed by India, Bangladesh, Vietnam, and Thailand left the global fashion industry in a lurch, particularly in the Western markets. Textile and apparel manufacturing units, the next link in the chain, too shut down. Of course, with cargo ships and airlines remaining anchored and hangered, international logistics were stalled. Domestic logistics, majorly trucks, remained stationary, hitting the local movement of raw material and finished products.
- Economic crisis
- As a result, major apparel retailers and brands postponed or canceled orders worth billions of dollars, which included those that were already manufactured and stood ready to be shipped, in a scramble to minimize losses and keep shareholders happy.
- The fashion industry is always in a state of flux. Trends change at a very rapid pace. Hence, design, procurement, and production are executed several months before the finished product hits the retail market. Payment for the garments is not given until they have been shipped, which is standard practice. The consequence of this present payment process places the suppliers and their workers in a highly perilous and vulnerable position. It is estimated that western brands, for instance, canceled around US$2.8 billion of existing orders in the wake of the pandemic.
- Cotton, silk, and denim from India are highly popular abroad so are the raw gems, and Indian design talent has found success across fashion centers around the world. With the cancellation of orders by the western brands, the Indian fashion and apparel market thus incurred huge losses.
- While India constitutes a smaller fraction of imports as compared to China, it still plays a significant role in certain sectors, which makes it difficult to shift the supply chains outside the country.
- Loss of livelihood
- This industry is one of the largest job creators in the country, employing about 45 million people directly. However, it was those at the bottom of the supply chain that was most affected, as the pandemic forced many suppliers to suspend or lay off millions of factory workers, often without severance and pay. They have pushed an already threatened group into hardships and greater poverty. Such an unfair system has been exposed during the pandemic.
- At least 1.2 million garment workers in Bangladesh alone have been furloughed, as reported by the Bangladeshi and Garment Manufacturers Exporters Association (BGMEA). Manufacturing associations, exporters, and labor groups were urging the brands to not cancel the orders to mitigate the devastating impact on the 60 million garment workers across the world.
- The recovery path
- Unlike other industries, a smooth and robust supply chain is essential for the fashion industry to survive and thrive. In a rapidly metamorphosing industry, failure to cater to the demands and changing tastes of customers is the surest route to backlash and setback. With the links of the supply chain being restored, business is slowly picking up. Policy modifications to protect the interest of the grassroots of the industry, in consonance with technology innovation and out-of-the-box thinking will help restore the industry and bring livelihoods back to the deprived millions.