Manufacturers feel the pinch as consumers tighten belt

Walton Hi-Tech Industries, the country's leading electronics and technology company, was on an unstoppable rise. Its products were flying off the shelves and the company was looking for big time expansion overseas. 

Then the economic woes struck in the form of the Ukraine war and the increasingly costly dollar, the almost universal medium of international commerce.

The company's profits nose-dived, falling by 63.41% in the second quarter due to several factors, including a significant increase in the value of the dollar compared to the taka, an increase in the cost of raw materials and freight, and the impact of the ongoing global crisis.

From October to December 2022, the company's revenue was Tk1,108 crore, which was Tk1,432 crore in the same period of the previous year.

But misery loves company and Walton is not alone in this dire times.

From electronics to home appliances, construction materials, footwear, fashion, FMCG, cement, steel and furniture, all kinds of businesses are witnessing a dreaded slowdown in consumer spending, squeezing revenues and threatening the overall economic growth of the country.

GDP growth at risk

The downturn in personal spending of consumers amid decade-high inflation is increasingly posing a risk to GDP growth as Bangladesh's private consumption accounted for 72.77% of the country's nominal gross domestic product (GDP) in fiscal 2021-22.

A senior economist fears that if the trend is prolonged, businesses will lay off workers as they shave off their production capacity.

"There will be a serious impact on employment," said KAS Murshid, former director general of the Bangladesh Institute of Development Studies (BIDS). 

He said the government can avoid layoffs by ensuring gas and electricity to factories.

Most of the sectors were recovering and even growing after the pandemic until the Ukraine war sparked inflation and macroeconomic turbulence, including a soaring dollar, declining forex reserve and strict austerity measures.

Belts tighten, plans change

The crisis in the local economy began to unfold in the middle of the year with taka depreciation and aggravated by an energy crisis. An all-out dollar austerity followed, which made importing a challenge. 

Meanwhile, consumers hit by a decade-high inflation had to cut their spending sharply. No industry managed to stem the slowdown in this situation, other than essential foods.

Consumer discretionary items, which people would prefer to buy later, were the worst hit as the lower and middle class fought to stretch their wages and salaries.

Consumption slowed down 10-20% in almost all the sectors, while sales of some things like ICT products went down by 25-30% in the last six months.

For instance, sales of electronic appliances were down by 20% year-on-year in the second half of the year, according to Golam Murshed, the managing director and CEO of Walton Hi-Tech Industries, the largest white goods company in the country.

To keep pace in business, businesses also struggled to keep prices affordable fighting the increased costs of raw material imports and higher energy bills.  

Walton's revenue declined by 18% YoY in the second half of 2022, despite the 15-18% price hikes on average amid the soaring costs, said the MD.

Singer, the oldest name in the appliance market, having increased most of their product prices by around 20%, managed to secure some turnover growth in the first nine months of the year, but it incurred losses in the last six months.

Unilever Bangladesh, which dominates half of the personal care market, retained its turnover in nominal terms, but saw a decrease in volume.

A Unilever top official said inflation-hit consumers are switching to cheaper options and its smaller packs are selling more than the larger ones.

He said that sales of expensive detergents like Rin and Surf Excel have slowed down, while cheaper alternatives like Wheel have seen an uptick in sales.

A similar picture was presented by Dilip Kajury, deputy managing director of the country's top-tier footwear company Apex, who said buyers of the lower segment shoes are buying less, while the mid-segment buyers are filling the gap to keep cheaper shoes moving.

Meanwhile, sales of medium-range shoes dropped by 20% in the second half and the company is preparing for a worsening business period in 2023.

Two-wheeler unit sales dropped by 27% to 2.46 lakh in the second half compared to the first and 18% in the same period last year. 

A freefall

Entry-level segments are the worst hit as the target customers struggle with daily expenses.

Abdul Matlub Ahmad, president of the Bangladesh Automobile Assemblers and Manufacturers Association and Chairman of Nitol Niloy Group, said commercial vehicle sales almost halved in the last six months and the companies are suffering because of their inability to transfer the entire increased costs, such as the price of the dollar which had appreciated by 25% since April - on to customers.

Shamsul Huda, vice-president of the BCMEA (BANGLADESH CERAMIC MANUFACTURERS & EXPORTERS ASSOCIATION) and MD of Great Wall Ceramic Industries, said in the second half, volume dropped 20% YoY. Still, it's picking up now as dealers secure stock, anticipating a price hike. 

Berger's Director and Chief Financial Officer Sazzad Rahim Chowdhury estimates around 10% volume decline in paint market in 2022.

Steel in the second half had a 20% volume decline, and in 2022, steel consumption might have dropped by 10-15%, according to Bangladesh Steel Manufacturers Association Secretary General Md Shahidullah.

Shahidullah, also the vice president of Bangladesh Cement Manufacturers Association, said cement used to grow by 8-10% annually, but the 15% drop in the second half of 2022 resulted in a 1.5% annual decline in terms of volume.

Profits take backseat

Retail chains are working hard to retain their footfall by offering customers some breathing space in a hard time.

Sabbir Hasan Nasir, executive director of the largest supermarket chain, Shwapno, said consumers are much more frugal, hyper-price sensitive and less brand loyal nowadays.

Essential food items helped the supermarket business grow by double digits in 2022, he said, adding that personal care and hygiene items sales dropped by at least 10% in the challenging days of July-December, while sales of essential food items grew by 4-5% in terms of volume.

Also, generous offers and store expansions helped the supermarket industry to end the year with at least 15% in turnover, which was 35% for his company.

All the businesses informed they are sacrificing profit margins.

For instance, Singer posted losses in two consecutive quarters through December, while Walton, with its bottom line awareness, bounced back to some net profits in the October-December quarter from its first-ever loss in the previous quarter.  

RN Paul, the MD of RFL, said the volume in the second half had been 10-15% down, and a partial adjustment of prices helped topline retention, but profitability was hit as the price hike was insufficient to offset the soaring costs.

His group's food segment Pran also faced the same pinch of consumers' tightening belt. The sales of snacks, alongside beverages, have also seen a fall. 

"We are already conservative for the 2023 first half business planning and another double digit YoY volume decline is to come for the January-June period," he said.

AHM Hasinul Quddus (Rusho), chief corporate affairs officer, Daraz Bangladesh, said, "We are seeing a slower trend in the second-half of the year as the customers basket size has reduced from $10 - $11 per order to $7- $8 per order."

Shoppers stay away from high-value items

Online purchases of high-value items like electronics have dropped sharply. In contrast, those of low-ticket items such as daily essentials and lifestyle products such as health & beauty have increased.

"Customers who used to make repeat purchases are holding themselves for the campaigns for better deals and discounts," he added.

Chaldal, the leading online grocery, had over 60% growth in the first half and the second half was almost flat for the startup, according to its co-founder and CEO Waseem Alim.

Shahin Ahmed, the proprietor of the local fashion brand Anjans and president of the Bangladesh Fashion Designers Association, said sales of fashion items dropped by 20-30% in the second half of 2022.

Md Hadiuzzaman, marketing director of Yellow, a leading destination of the urban middle-class apparel buyers, said their sales dropped by 20% in the July-December period in volume terms.

Selim H Rahman, chairman of the Bangladesh Furniture Industries Owners Association, who founded Hatil Furniture, said mainly because of the government procurement halt, corporate austerity and consumers' deferrals, furniture sales dropped by nearly 30% in the second half.

Meanwhile, ICT products, which saw a 20-45% price hike in less than a year, slowed down by 25-30% in the second half. The growth, however, shrunk by nearly 35% YoY in the December quarter, according to Md Jahed Ali Bhuiyan, a director of Star Tech & Engineering Ltd, a top retailer and supplier of ICT products in the country.

Tax collection reflects downturn

The economic downturn has also been reflected in the import duty collections despite a significant price hike of materials in the international markets. 

Import duty collection rose only 9.23% in the July-December period compared to 22.44% for the same period a year ago.

Value-added tax (VAT) collection also witnessed a 10.58% growth in the first half of the current fiscal year, down from 13.48% during the corresponding period of the previous year.