US retail clothing sales surge 188% in May, but suppliers still unprepared

US retail sales surged in May and showed signs of recovery with shops having more and more foot traffic, but major Asian and African dressmakers are not yet ready for full-scale operation after lifting of Covid-19 lockdown.

From Sri Lanka to Ethiopia, the apparel industry has cut export projections drastically and is struggling to return to business amid strict health guidelines in factories and governments' cautious reopening of economies.

Sales at US clothing retailers almost tripled in May from the month prior as businesses closed by the coronavirus pandemic began to reopen but remained well below spending levels seen during the same period a year ago, reports just-style, a London-based online news portal for the apparel industry.

Sales at clothing stores in May were up an unheard-of 188 percent from April but were down 63.3 percent unadjusted year-over- year.

Overall retail sales during the month were up 17.7 percent seasonally adjusted from April but were down 6.1 percent year-over-year, it says, quoting US Census Bureau figures.

"A combination of pent up demand/cabin fever coupled with stimulus checks and store re-openings fuelled much better than expected May results," Ken Perkins, president of research firm Retail Metrics, says.

But the year-on-year picture is not at all rosy.

"Apparel sales plummeted almost 64 percent year-over-year after tumbling 75 percent year-over-year in April and 50 percent in March," Perkins adds, pointing to massive sales declines that started prior to the pandemic.

The National Retail Federation's (NRF) calculations show every category of retail saw month-over-month gains in the USA.

The economy kicked off in May as retailers and other businesses reopened and both stimulus money and supplemental unemployment checks fuelled spending, NBF chief economist Jack Kleinhenz says.

"But full recovery is still a long way off….Spending has improved considerably but it's still far below where it was a year ago," he cautions.

Whatever improvement is seen in US retail sales, apparel exporting countries are still far away from catching up with it.

Covid-19 has taken its toll on Sri Lanka's textile and clothing sector, with exports forecast to plummet 30 percent in fiscal 2021.

The country's national clothing industry has revised its estimate from a target of $5.6bn for the financial year ending March, to $3.9bn – a drop of $1.7bn year-on- year for April 2020 to March 2021.

The coronavirus hit both the supply of materials and export orders of Sri Lanka, which went into lockdown on March 19. Starting early May most factories reopened, but with just 10-15 percent of employees due to strict health restrictions imposed by the government. The industry will see roughly 100,000 job cuts.

"Factories can operate at up to 50 percent of their usual strength now," says Tuly Cooray, secretary general of Sri Lanka's Joint Apparel Association Forum (JAAF). The country's apparel industry faced cancellation of orders and refusals of shipments in a crushing blow to cash flows.

Whilst Sri Lanka's clothing factories remained shut, plants in Cambodia and Vietnam – key outsourcing competitors – continued to operate. During this time, clothing buyers continued to place new orders with these competitors, hurting Sri Lanka's industry even more, the industry leader says.

For a short-term boost, the apparel industry is lobbying for delaying compulsory payments for employment provident and trust funds as well as moratorium on interest payments.

To expedite the recovery, Sri Lanka is talking about long-term measures like developing a raw material base of its own and bringing in Japanese companies which are relocating out of China.

Bangladesh's apparel exports showed declines even before the pandemic and posted a 19 percent decline in the July-May period, prompting apparel makers to expect $6bn to 7bn less earnings than the last fiscal year's $34bn.

In May, apparel shipments fell 62 percent to $1.4 billion from the period a year ago.

The Bangladesh Garment Manufacturers and Exporters Association's rough calculations suggest business loss of nearly $3 billion in order cancellations and refusal of shipments since the pandemic hit the US and the EU, two key destinations of Bangladesh's apparels.

Knitwear industry leader Mohammad Hatem says a surge in US retail sales is a positive sign at a time when orders have almost dried up and there is no demand from the European market. "At least there are some inquiries from the US now, but bargaining for price discount has gone even tougher," said the leading exporter, giving his feedback to The Business Standard yesterday.

"They started from $0.99 and stopped at $1.05 per piece, still ¢9 away from my cut-off rate," he said from his own experience with a US buyer.

Higher amount of incentives is needed to overcome such pressures for discount and stay in business until the overall situation improves, said Hatem, first vice-president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).

Due to health guidelines, factories are running at 25-40 percent below their capacity, but they are prepared to get back to full swing if orders surge, he added.

Another apparel exporter had a different view, as he said a big jump month-on-month is not significant if compared to the year-on-year scenario.

"Generally, when retailers see good sales in their stores, they increase the volume of order placement. We are yet to see a surge in booking orders," said the exporter, who did not want to be named.

Unions vocal for workers' safety

US and European groups have written to Indian Prime Minister Narendra Modi, urging him to reject proposals that would relax or suspend some of the country's state labour laws.

The pending legislation in some Indian states is aimed at helping Indian employers cope with the effects of the Covid-19 pandemic and boost investment in manufacturing industries.

But groups representing more than 2,000 brands and retailers from over 30 countries, primarily in North America and Europe, say the measures "would have immediate and grave consequences for workers."

Several Indian states have unilaterally made the changes through the promulgation of state executive orders. Among the changes to the labour laws and regulations is an increase in working hours to 72 hours a week in some Indian states.

"In short, the proposed changes would seriously jeopardise the safety, security, and well-being of workers in India," reads the letter of the group that represents $9bn export orders for goods including apparel and footwear.

In the Philippines, over 20,000 workers in textile, garment and leather goods sector have been laid-off with unions fearing more job losses in next six months.

On June 10, the clothing and textile industry tripartite council met to assess the impact of the Covid-19 pandemic on the textile and garment sector in the Philippines.

"We cannot afford to keep our workers out of job….We need a roadmap for the textile and garment industry," says Eva Arcos of Associated Labor Unions.

Labour unions in Ethiopia are concerned by the slow pace at which some apparel factories are reacting to the pandemic.

IndustriAll Global Union is carrying out Covid-19 awareness campaigns in factories, while The Confederation of Ethiopian Trade Unions signed a Covid-19 workplace response protocol with the government and employers outlining how factories should respond to the pandemic.