NOVEMBER 2023 “Some factories’ sales were down 50% or more, others were down from 20 to 30%. “Vietnam’s market has experienced a decline for the first time in around 20 to 30 years. No one had experienced it previously due to the country’s strong GDP and all sectors have been expanding rapidly over the previous 10 years." Ji Fei, vice GM of Xinlin Group THE SITUATION IN NOVEMBERWorldwide everyone is preparing for a somber holiday season. This year we did see it coming. Hence most brands and retailers have taken a conservative position on inventory. That will help to give them a clean slate as they start 2024. Download PDF To continue reading, please login Login Not yet a member? Find out about joining Join Inside Fashion Business might not be good, but at least few will be dragging tons of unsold stock into the next season.That will give brands a fresh start to the new year. In the U.S. inventories are declining but mainly for wholesalers whilst retailers’ inventories are still high. Hopefully, this is a sign that the market will soon turn back with positive demand, per Sea Intelligence.Suppliers are clearly under pressure as order sizes remain small. It’s come down to getting enough work to keep the factory running, never mind margins. That’s given brands more negotiating power so price pressure is worse than ever. As we’ve said before, the benefits to brands of getting a short term price reduction might backfire later if a valued supplier fails - or if they eventually find new customers who will pay more. Everything is cyclical. On the upside, currency devaluations are helping make export prices more competitive since most are still priced in US dollars.5 Signals We’re WatchingRising Freight Rates. Ocean carriers have been working overtime to prop up freight rates in the face of growing capacity and shrinking orders. In early November this worked. Most think it will not hold.Cautious Consumers. Will they spend? And if they do, what will they buy? Retailers are banking on early deals and more deals. Commodity Prices Paradox. The ‘$100/bbl’ oil that was going to drive up other materials prices hasn’t happened. It still remains worth watching. China Exports. China’s apparel exports have fallen, but not much further than total global exports. We’re watching for the talked about ‘leaving China’ to be reflected in import/export stats.Strong Dollar. The dollar has been strong for so long now that it's bound to retreat. Yet, analysts are still forecasting it will remain into early 2024.BANGLADESHCompeting for Higher End OrdersThe Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has called upon the National Board of Review (NBR) to support initiatives to streamline processes and add services that will help the nation’s manufacturers meet tighter lead times, which are critical in winning orders for higher value garments. Specifically, the BGMEA urged the NBR to streamline customs, bond, and tax procedures to enhance the industry's competitiveness.Minimum Wage Raised After escalating protests and violence, Bangladesh finally settled on a new minimum wage. The minimum wage for garment workers will be increased from 8,000 taka ($72.6) to 12,500 taka ($114) per month from Dec. 1, State Minister for Labour and Employment Monnujan Sufian said. There will also be a 5% annual increment. The declaration during an emergency meeting with labor union and federation officials at Shromo Bhavan to discuss the current situation in the industrial zones.The increase is well below the $160-$209 that labor was demanding.The last wage hike was in 2018.Diversifying RiskBrands are not the only ones looking to hedge risk. Bangladesh is now looking to reduce its reliance on exports to the US and EU. Exports to new markets surged by 24.93% in the first quarter of the fiscal year 2023-24, contrasting with sluggish growth in its major markets. Exports to Australia, Japan, India, China, South Korea, the United Arab Emirates and Brazil reached $2.24 billion in the Jul-Sep period, up 24.9% from a year ago. New markets now account for 19.3% of Bangladesh’s total apparel exports. Apparel Exports Show Strong Q1 PerformanceEarnings from apparel exports in Q1 of fiscal year 2024 (July-Sept) rose 13.07% year-on-year to $11.61 billion. This beat the nation’s total export earnings of all product categories, which rose 9.51%.Knitwear exports increased by 19.70% to $6.76 billion, compared to $5.65 billion in the same period of the past financial year.Woven garments grew by 4.97% to $4.85 billion from $4.62 billion in the same period of FY23.The BGMEA attributed the growth to manufacturers moving into higher value apparel. CAMBODIAInflation to Remain StableThere are concerns about the inflationary pressures caused by El Nino, high oil price and global economic uncertainties and how it will impact Cambodia’s economy. “Cambodia’s inflation will stand at 2.8 percent in the current year and it will grow to 3 percent in the next year as per our estimates. And this is one of the most stable inflation rates in the region," according to Asean+3 Macroeconomic Research Office (AMRO) Chief Economist, Hoe Ee Khor. “The country has a highly dollarised economy. The impact of commodity prices on regional inflation will be sharper if the strength of the US dollar relative to the region’s currencies continues.”Apparel Exports Fall 18% in Jan-SeptCambodia exported $8.14 billion worth of garment, footwear, and travel products to international markets in the first nine months of 2023, down 17.8% from last year, according to the Ministry of Commerce. This was attributed to weak demand from key export markets the EU and US.Regional Comprehensive Economic Partnership (RCEP) agreement has helped diversify Cambodia's economy and exports, reducing the country's reliance on exports to the United States and Europe.A report from the Ministry of Commerce showed that Cambodia exported $5.8 billion worth of goods to RCEP countries in the first nine months of this year, an increase of 23% compared to $4.7 billion in the same period last year.“Global economic slowdown, particularly in the eurozone, has led to a decline in our exports of garment, footwear, and travel products,” said Ministry of Commerce’s Secretary of State and spokesperson Penn Sovicheat."Cambodia is very exposed to the U.S. and European markets, and demand there is weaker," Shanaka Peiris, division chief of regional studies at the IMF's Asia and Pacific Department, said in an online press conference on the Regional Economic Outlook for Asia and Pacific. FTA with the UKThe Ministry of Commerce (MoC) issued a statement clarifying that the UK no longer applies only the Everything But Arms (EBA) under the European Union (EU) to provide duty-free and quota-free to LDCs after it withdrew from the EU during Brexit, but also its Generalized Scheme of Preference (GSP) on behalf of a member of the World Trade Organisation (WTO).The UK instead offers trade preferences to developing countries through the DCTS. That includes Cambodia. The DCTS has simpler rules of origins and requirements such as the permission for usage of local content - locally-supplied raw material - by 25 percent in terms of value and non-originating content - imported raw material - up to 75 percent.“This new arrangement makes it easier. For example, we were required to use raw materials imported from countries that they set, but now we are allowed to import materials from other countries more easily and use domestic ones less, but they still recognise that origins are in our country” - Penn Sovicheat, Cambodia Ministry of Commerce’s Secretary of StateCambodia Adds 4 More FactoriesThe Council for the Development of Cambodia (CDC) has approved four new apparel and bags factories.Sundly Clothing International Cambodia Co Ltd will set up a garment factory in Samrong Tong District in Kampong Speu Province. The project will bring an investment of $5.2 million alongside creating over 1,400 jobs.Haolida (Cambodia) Fashion Co Ltd will establish a garment factory in Ang Snoul District in Kandal Province at an investment of $5.2 million. The project is estimated to create over 1,780 jobs.Anyu Cambodia Bags Co Ltd will build a factory in Samrong Tong District in Kampong Speu Province. An investment of $5 million will see 1,750 jobs in the offering.SHCA Garment Cambodia Co Ltd will be establishing a garment factory in the Samrong Tong district in Kampong Speu province at an investment of $6 million. The project is capable of creating over 1,650 jobs, according to a release by the CDC.INWARD INVESTMENT The Council for the Development of Cambodia (CDC) said during the first nine months of the year, 191 new Foreign Direct Investment (FDI) projects have been approved. Many of them have been for the establishment of apparel, footwear or bag factories. FDI is up 27% from last year. CHINAUS Adds More Mfgs to Restricted ListThe United States has expanded import restrictions, targeting three additional Chinese companies implicated in using forced labor, particularly involving Uyghur minorities, in an effort to eliminate such goods from the U.S. supply chain.Xinjiang Tianmian Foundation Textile Co Ltd, Xinjiang Tianshan Wool Textile Co. Ltd, and Xinjiang Zhongtai Group Co. Ltd have been added to the Uyghur Forced Labour Prevention Act Entity List, now totaling 27 entities.These designations were made due to the companies' alleged involvement in practices concerning Uyghurs and other persecuted groups. U.S. officials have accused Chinese authorities of establishing labor camps in Xinjiang, a claim denied by Beijing.Despite enforcement efforts, there is frustration among some Uyghur groups and activists regarding the pace and effectiveness of the Uyghur Forced Labour Prevention Act.A Platform to Measure SustainabilityChina National Textile and Apparel Council has launched a platform, named LCAplus, to assess the lifecycle of textile products.It is expected to help achieve green traceability and value mining of products in the entire value chain from production to consumption.China has set goals of peaking carbon dioxide emissions before 2030 and realizing carbon neutrality before 2060.The carbon emissions of China's textile and apparel industry stand at about 230 million metric tons annually, accounting for 2.8% of the national industrial emissions, CNTAC said.INDIAIndia’s Garment Industry Poised for GrowthIndian garment manufacturers are likely to post an 8-10 percent increase in revenue on the back of growing domestic demand and a revival of exports, per Crisil Ratings. Behind this growth are lower cotton prices and easing supply-chain disruptions“Garment manufacturer makers will rely on domestic consumption (75 percent of the overall demand), which is expected to grow 6-8 percent in volume terms this fiscal year.” - Crisil Ratings.EXPORTS Garment exports are forecast to grow 4-6 percent in the current fiscal year on a low base. This will be led by global retailers restocking, lower cotton prices and slow increase in international markets.FIBER PRICES Prices of cotton are expected to fall 15-17 percent and man-made fiber prices are expected to fall 8-10 percent, respectively, per Crisil Ratings.CREDIT OUTLOOK The credit outlook for readymade garment manufacturers remains stable, driven by steady operating performance and healthier balance sheets amid low capital expenditure and stable working capital requirement, per Crisil Ratings.PAKISTANEU Extends Pakistan GSP+The European Parliament unanimously voted to extend the current generalized system of preferences (GSP) for another four years until 2027 for developing countries, including Pakistan, to enjoy duty-free or minimum duty on exports to the European market. VIETNAMVietnam Expects a Q4 ReboundVietnam's textile and garment industry expects to have a better performance in production and business in the fourth quarter of this year, creating momentum for recovery in 2024.In the fourth quarter of 2023, almost all of the Vietnam National Textile and Garment Group (Vinatex)'s businesses had fewer orders than in previous years, but there are signs of customers increasing orders.However, the fiber industry still does not have many signs of improvement. Mills face multiple challenges, including a high level in fiber production costs, electricity prices, high-interest rates, and raw material prices. One plus is that the price of cotton put into production in the third and fourth quarters of 2023 is currently approaching the market price and is lower than the first six months of the year.CHALLENGES Manufacturers face an increase in input costs, including a 3% increase in energy and electricity prices from May, and a 3% increase in exchange rates since the end of the second quarter. At the same time, they also face fierce competition in terms of price from rival countries. Challenges the country faces include a lack of highly skilled labor and the rising cost of living.There’s also the struggle to secure more orders from clients as competition with other traditional sourcing markets like Bangladesh and India intensifiesEXPORTS In the first eight months of this year, textile and garment export sales fell 16% year on year to $26.1 billion, per General Department of Customs data.“Some factories’ sales were down 50% or more, others were down from 20 to 30%,” said Ji Fei, vice GM of Xinlin Group. “Vietnam’s market has experienced a decline for the first time in around 20 to 30 years. No one had experienced it previously due to the country’s [strong] GDP and all sectors have been expanding rapidly over the previous 10 years.
