What recovery? Clothes retailers cut orders while factories fight to survive

Clothes retailers in Europe and America sit on excess inventory and cut back on spring orders. Sourcing agents face late payments. Garment factories in Bangladesh are on the rack.Garment employees work in a sewing section of the Fakhruddin Textile Mills Limited in Gazipur, Bangladesh, February 7, 2021.

The global apparel industry, reeling from a punishing 2020, is seeing its hopes of recovery punctured by a new wave of COVID-19 lockdowns and patchy national vaccine rollouts. 

Some major retailers are still nursing last year’s clothes, which would have been sold off in clearance sales in normal times. British chain Primark, for example, told Reuters it was housing around 150 million pounds ($205 million) worth of 2020 spring/summer stock and 200 million pounds from autumn/winter.

In an indication of the scale of the backlog, consultancy McKinsey says the value of unsold clothing worldwide, in stores and warehouses, ranges from 140-160 billion euros ($168-192 billion) – more than double normal levels.

Britain’s Marks & Spencer and Germany’s Hugo Boss  said they had placed smaller orders than usual for this year’s spring collection.

Retailers are keeping volumes small and lead times tight, according to Ron Frasch, former president at Saks Fifth Avenue who is now operating partner at private equity firm Castanea Partners, which works with a number of apparel brands.

“Most of the brands now are pretty tight on shipping and the factors are very tight. I think everyone was very conservative with their purchasing,” he said. “I know many have been slow paying. That is for sure.”

Indeed, Hong Kong-based sourcing agent Li & Fung, which manages more than 10,000 factories in 50 countries for retailers including global players, told Reuters that some retailers had requested later payment terms, but declined to provide specifics.

FACTORIES FEEL THE PAIN

The pain is consequently flowing to  major garment manufacturing centres like Bangladesh, whose economies rely on textile exports. Factories are struggling to stay open.

Fifty factories surveyed by the Bangladesh Garment Manufacturers and Exporters  Association said they had received 30% fewer orders than usual this season, as pre-Christmas lockdowns in much of Europe followed by another clampdown in January hit their businesses hard.

“Orders usually arrive three months in advance. But there are no orders for March,” said Dhaka-based factory owner Shahidullah Azim, whose clients include North American and European retailers.

“We are operating at 25% of capacity. I have some orders to run the factory till February. After that, I don’t know what future holds for us. It’s difficult to say how we will survive.” 

Miran Ali, who represents the Star Network, an alliance of manufacturers in six Asian countries, and himself owns four factories in Bangladesh, faces similar problems.

“At this point in time, I should have been entirely full until March at least, and looking at a healthy quantity for autumn/winter coming in already. Across the board, that is coming slow,” he told Reuters from the capital Dhaka.

“Brands are buying less from fewer people.”

Asif Ashraf, another factory owner in Dhaka who makes clothes for global retailers, said it was tough to adjust. “We’ve produced the fabric and we’re ready to stitch the garments, but then they say the order is on hold.”

‘PUBLIC WEARING PJs AGAIN’

With store closures threatening to carry into summer, some retailers are attempting to sell off as much of their excess stock as possible before placing new orders, textile recycling firm Parker Lane Group told Reuters.

CEO Raffy Kassadjian said his business went from processing an average of 1.5 million items of excess apparel per month to over 4 million in January, its busiest month ever.

Last year was dire for the clothing industry, which saw sales slide by about 17% versus 2019, according to Euromonitor. And the future is uncertain.

Estimates for 2021 range from pessimistic forecasts of a 15% sales drop from McKinsey, to an 11% recovery from Euromonitor.

So are there bright spots? Well, a lockdown pyjama boom is offering some minor relief.

“If you want to know what the Great British public is doing – it’s wearing pyjamas again,” Marks & Spencer CEO Steve Rowe said last month, while Hugo Boss alluded to the same phenomenon, saying it had “streamlined our range of classic business clothing and expanded the range of casual wear”.

But that’s cold comfort for some factory owners.

“Demand for pyjamas is at a life-time high,” Ali in Dhaka acknowledged. “But not everyone can make pyjamas!”

($1 = 0.7325 pounds; $1 = 0.8315 euros)

UK: Clothes and food price rises push inflation higher

Rises in the cost of clothing and food helped to push UK inflation higher-than-expected last month.

The UK’s inflation rate, which tracks the prices of goods and services, jumped to 0.7% in October from 0.5% in September, official figures show.

Second-hand cars and computer games also saw price rises, but these were partially offset by falls in the cost of energy and holidays.

Analysts had expected the rate to remain flat at 0.5%.

“The rate of inflation increased slightly as clothing prices grew, returning to their normal seasonal pattern after the disruption this year,” said Office for National Statistics deputy statistician Jonathan Athow.

Normally prices for clothes and shoes fall each year between June and July in summer sales before autumn ranges come in, and then rise before sales towards the end of the year, the ONS said.

Throughout 2020 this pattern has been different, with increased discounting in March and April, probably as a response to lockdown, it said. After a small increase in July and August, prices rose by more than a year ago.

What is inflation?

woman shopping

Inflation is the rate at which the prices for goods and services increase.

It affects everything from mortgages to the cost of our shopping and the price of train tickets.

It’s one of the key measures of financial well-being, because it affects what consumers can buy for their money. If there is inflation, money doesn’t go as far.

Food prices rose between September and October, with most of the increase coming in fruit and vegetables, the ONS said.

Analyst firm Capital Economics said food price inflation could continue to rise in November as supermarket demand continues to increase during the Covid-19 lockdown.

cpi inflation

Second-hand car prices also rose in October as people tried to reduce their reliance on public transport.

However, car prices may stabilise and fall back in the middle of 2021 should a vaccine become widely available, according to Samuel Tombs, chief UK economist for Pantheon Macroeconomics.

The largest downward pressure on inflation was caused by a fall in household energy prices.

Gas prices dropped by 12.3% and electricity prices fell 3.2% between September and October.

This was mainly due to energy regulator Ofgem’s latest six month energy price cap, which came into effect on 1 October, the ONS said.