US clothing sales are dropping. Should RMG exporters be worried?

Due to record high inflation, American consumers are taking conservative measures when it comes to buying clothes. This has a domino effect in Bangladesh. 

Bangladesh's apparel exporters now fear a slump in shipments to the United States, their largest destination; and this means trouble. According to BGMEA, almost all buyers are now requesting deferred shipments, while a few are also cancelling orders. 

The Business Standard reached out to apparel industry leaders to understand how our apparel export market will be impacted, what to expect in the near future; and more importantly, the ways forward.  

'This is short-term. Volumes previously committed to China will soon shift to Bangladesh'

Illustration: TBS

Shams Mahmud

Managing director, Shasha Denims Ltd and former president of Dhaka Chamber of Commerce and Industry (DCCI) 

Over the last few months, the RMG industry has experienced a slowdown in orders. This happened due to a few reasons, including excess inventory caused by logistical problems in the United States. There was a delay in clearing goods from the US ports and disruptions in market conditions caused by the Ukraine-Russia war, which have left the US brands with excessive inventory at present. 

Also, at the beginning of the year, when cotton prices were reaching historic high, buyers placed advanced orders, fearing further rise in future raw materials. 

The war caused inflation across the globe which, coupled by the strong US dollar, caused a global recession. 

Consequently, orders were cut down and European brands in particular were affected more, because they incurred profit reductions because of conversions against a strong US dollar. 

These scenarios hit our RMG industry hard, that too, at a time when we are also facing increasing energy costs, frequent power cuts and increased cost of doing business.

Buyers are also pushing back orders after raw materials have been purchased. All these have put us in a tight spot. 

However, I think this is a short-term problem. Even if orders decrease, there will be new buyers. The projections for the next season have been good, with increased volumes. 

There is an increase in enquiries from US brands such as Calvin Klein, Abercrombie and Fitch and American Eagle; all these used to previously source their lion's share of goods from China. 

So, the volumes previously committed to China from the US brands will soon be shifting to Bangladesh. Even if we can shift one third of the orders, it will have a positive impact on the industry.

Bangladesh is also the only country in the world at the moment with a very strong backward linkage support industry with a transparent supply chain. 

Having said that, we are of course taking new initiatives such as product diversification and exploring new markets to adjust with the current situation. 

For example, our garment company was making only denim trousers. But now, we have been taking orders and shipping out new products like shirts, shorts, work wear etc. 

We will soon be including jacket manufacturing for export. Also on the textile side, we are now competing directly with Turkish mills and have started to export fabrics to markets in Asia as well as those in Central and South America.

Middle-eastern markets also seem to have a lot of potential. The thing with emerging markets is that they have high demand even if the quantities are small.  

We will only understand the real situation in September - when orders will start coming in.

Shams Mahmud spoke to The Business Standard's Promila Kanya. 

'Different US brands are in different states in terms of how their business is faring' 

Sharif Zahir, Managing Director, Ananta Group. Chairman, UCB PLC. Illustration: TBS

Sharif Zahir 

Managing Director, Ananta Group

Since we develop multiple products, different products are now in different states. For example, the orders for our formal or outer wear are in a fairly good state, as orders from the US market are not decreasing on that front. 

In the US market, different brands are in different states in terms of how their business is faring. Levi's business, for example, is still going strong. Basically, discounters like Walmart and Ross have excess stock. Hence Walmart has stopped purchase to take care of its stock.  

Here, as a result, we have to hold on to some stock, some shipments are getting delayed and in some cases, we are holding on to ready products without shipping them out. 

For now, to handle the temporary crisis we are in, we perhaps have to readjust the working time – instead of 10 hours, we may have to curtail it down to eight hours. We have to carry out aggressive marketing. If we worked with two buyers before, we have to work with four buyers now. 

However, we are hopeful that the American recession won't last long. We may have to suffer one season, though. But it should pick up by November-December, or by January. And when it picks up, we will have the opportunity to turn around, because in comparison to Vietnam and other countries, Bangladesh is still competitive. We still have the scope to increase business in the American market. 

We have to advance in the American market strategically. We are not doing much in that regard. Vietnam has aggressively marketed itself in the US as an alternative to China and gained a lot. We could perhaps tie up with US cotton, for example. Our spinners or those who are making fabrics could use more of US cotton [to enhance marketing in the United States]. We could work with more American associations, like their textile association. 

Levi's is now one of our strong buyers. The incident that happened with their [former] country manager [Muhammad Zubair Aslam, now vice-president of the company for South Asia] is silly. Such incidents affect business [though]. [After his arrival in Dhaka airport, Zubair, a Pakistani national, was denied entry into Bangladesh by the immigration on the grounds that his visa was cancelled, while his passport was shown in the block list. Levi's termed the behaviour of the Bangladesh High Commission in Islamabad 'unprofessional' and asked the trade body to prevent such a situation from occurring in future once again.] 

Also, American brands couldn't join the RSC [RMG Sustainability Council] after Nirapon's departure. They are still using third parties on safety issues. That has also not been handled well. Since the US is a big market for us, this should have been handled properly. 

Before making any decision, we have to think about what our bigger markets are. We have to think about how much of my trading is with Russia, for example, and how much with America. Overall, we couldn't penetrate the American market like Vietnam or China did. But that could happen for us if we adopt America-friendly policies.

Sharif Zahir spoke to The Business Standard's Masum Billah. 

'We have got one option now- potential reduction of workforce'

Illustration: TBS

Mostafiz Uddin

Managing Director, Denim Expert Limited

We are currently in an extremely critical situation due to rising inflation and reduction of orders in the international market. So at this critical hour, what actions the government and others take now matters more than ever, because these actions will determine whether we will sustain in the future. Wrong actions now can lead to disaster for the industry. 

I think it's important that the message that goes out to the world market is extremely strong and highlights the critical situation we are about to enter. If anything, it needs exaggeration to ensure that the point is heard. 

If I think realistically, unfortunately we have got one option now- potential reduction of workforce.

I know this is unacceptable but reality says that those at the bottom of the huge chain are the ones that will suffer the most.

And we have another problem - we are highly dependent on imports. China will manage by accelerating the switch in manufacturing to cater to domestic needs. Unfortunately, Bangladesh doesn't have its own brands that can compete in the international retail market.  

There is another option, which I am sure our government won't agree with, which is to subsidise the trade to prevent a serious contraction, or subsidise and support the workers who won't have work to do.

Either way, it's not going to be easy.  

Mostafiz Uddin spoke to The Business Standard's Kamrun Naher.