Apparel exporters fear big fall in US market

Apparel exporters fear a slump in shipments to the United States, their largest destination, as retailers in the market are witnessing low footfalls with consumers turning more cautious about discretionary spending on clothing amid a record high inflation.

US clothing stores have already suffered significant sales drops in the second quarter (April-June) of 2022 owing to the ongoing economic slowdown.

Industry people say the major US buyers, such as Walmart, Target, The Children's Place, Costco, TJX and Kohl's are cancelling orders in the face of falling clothing demand in the US.

Other buyers are also cutting down on orders or requesting a halt to production that is in the process.

Talking to The Business Standard, Shahidullah Azim, vice-president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said almost all buyers are now requesting deferred shipments, while a few are also cancelling orders.

"This situation is unavoidable but we are aware of how to tackle this shock," he added.

He added that buyers are now focusing on reducing dependence on the US and EU markets.

Asian countries would be alternative markets for Bangladesh, he said, noting that apparel-makers have had good growth in Indian, Japanese and Korean markets in the last fiscal year.

"Now, we are planning to increase market share in those destinations," he said.

The BGMEA has plans to arrange a single-country expo to find out new buyers, he added. 

Mentioning that Gulf countries also have the same potential, Shahidullah Azim said buyers are also planning to participate in two expos in Saudi Arabia and Dubai this year.

Fazlul Hoque, managing director of Plummy Fashions Ltd – the world's highest rated green knitwear factory, said, "To reduce dependence on two large markets is very important for the industry's survival.

"We are looking for a new market to diversify the export destinations. We have confirmed a new buyer in Brazil."

But not just in Brazil, there is also scope to gain a foothold in the South American market, said Fazlul Hoque, a former president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).

BKMEA Executive President Mohammad Hatem said the whole situation is getting worse due to global high inflation.

"Buyers are not placing new orders, but despite that we are hopeful about going back to business after Christmas, as knitwear apparel is a mandatory item at any time," he noted.

Kutubuddin Ahmed, chairman of Envoy Textiles Limited, the world's first LEED platinum certified denim textile facility, said, "It will be a big shock from our major destination, and we have no option but to wait and see the consequences."

He also said the industry now has to invest more in research and development to produce more low-cost fabric as people's buying capacity is going down due to inflation; on the other hand, raw material prices have hiked at least 30% in the last one year.

"As we are not a cotton producing country, we have no control over it but we have to find out how to reduce apparel making prices," he added.

The ongoing downturn may continue for six months. So apparel exporters have to somehow survive this lean period, added Kutubuddin Ahmed, who is also a former president of BGMEA.

The upcoming Christmas sales may help retailers clear their large volume of inventory, he said, adding that Bangladesh's apparel market is controlled by buyers and exporters have nothing to do when it comes to bringing them into business.

US retailers grapple with poor sales

According to the Markets Insider, Children's Place Inc, a pure-play children's specialty apparel retailer, reported that its second-quarter net loss was $13.30 million.

For the first time, Bangladesh exports to a single country – the USA – crossed $10 billion in FY22. Of this $10 billion, $9 billion came from the RMG sector, according to the EPB.

According to CNBC, US buyer Target's earnings have taken a huge hit as the retailer sold off unwanted inventory.

Target said its quarterly profit fell nearly 90% from a year ago, as the retailer followed through on its warning that steep markdowns on unwanted merchandise to clear out a glut of unwanted inventory would weigh on its bottom line, CNBC reported.

Walmart, one of the major US buyers of Bangladesh's readymade garments, officially announced that they will procure 30% less for the spring season as they have huge unsold inventory.

Walmart has cancelled billions of dollars in orders as part of a continued effort to align inventory levels and pursue the demands of budget-conscious consumers.

The company's executives said the US retailer has cleared out most of its summer collections ahead of the back-to-school season – which has begun in large parts of the South – and the upcoming holiday period.

As per Yahoo Finance, the TJX Companies reported second-quarter fiscal 2023 results, with the bottom line beating the Zacks Consensus Estimate. The company reported net sales of $11,843 million, down 2% from $12,077 million.

 Total US comparable-store sales declined 5% in the second quarter of fiscal 2023, compared with a 21% increase in US open-only comp store sales in Q2 of last year.

The top line declined and missed the consensus mark as US comp sales were dented by escalated inflation, which affected consumer discretionary spending.

The company raised its fiscal 2023 pretax profit margin. However, the company lowered its full-year adjusted earnings and US comp store sales guidance range.