RMG makers fear losses as Walmart cancels orders globally

Walmart, one of the major buyers of Bangladesh's readymade garments (RMG), 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 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, reports FreightWaves.

They said the company is making progress redesigning its inventories but it will take at least a couple more quarters to wring the imbalances out of its network.

The Walmart step has already started affecting the apparel sector in Bangladesh.

Talking with The Business Standard, Kutubuddin Ahmed, chairman of Envoy Textiles Limited, the world's first LEED platinum certified denim textile facility, said, "We have observed that Walmart has been reducing its orders in terms of both number and volume in garment factories for the last few weeks."

Those textile millers are supplying fabrics for that brand, they also face a shortage of orders, he added.

Bangladesh Garment Manufacturers and Exporters Association (BGMEA) Vice-President Rakibul Alam Chowdhury said that the industry is suffering as the American multinational retailer had already cancelled some orders.

It has suspended shipments of some orders ready for delivery and halted those in process, he added.

Rakibul Alam said that although none of the factory owners informed BGMEA about order cancellations, the organisation contacted its member factories on its own.

Member factories have been asked to formally report the order cancellations to the association, he added.

Walmart's seasonally adjusted days to turn inventory declined to 44 days in the second quarter from 46 in the prior quarter, according to data from Michigan State University. That signals that sales are starting to outpace order arrivals, according to Jason Miller, associate professor of logistics at the university's Eli Broad College of Business.

Walmart's gross margins took a hit as a result of its actions, said Miller. He said, however, that the gross margin drop was not as severe as at rival Target Corp. Target, which faces the same inventory challenges as Walmart, has also been reducing inventories as quickly as possible.

Walmart's seasonally adjusted product arrivals, not adjusted for inflation, increased by just 0.1% in the second quarter from the first, said Miller. At the same time, seasonally adjusted sales, again not adjusted for inflation, rose 4.1% over the same period, he said.

"This is why inventories were drawn down," Miller said in an e-mail.

Most of Walmart's inventory inflation occurred in the fourth quarter when arrivals far outpaced sales, he also said.

Walmart's comments came as it reported fiscal second-quarter results that were more palatable than the fiscal first-quarter disaster. Adjusted earnings per share of $1.77 were well ahead of the $1.60-per-share consensus. Revenue of $152.9 billion was an 8.4% year-over-year increase adjusted for currency fluctuations. Operating income of $6.9 billion was 6.8% below the same period a year ago.

For the fiscal third quarter, Walmart projected a 5% year-on-year increase in net sales. It also projected an 8% to 10% year-on-year decline in operating income and a 9% to 11% drop in adjusted earnings per share.

Shares rose more than 5% on the trading day to close at $139.37 a share.