Factories cut production to keep working capital free

Unlike last year's shutdown, the government has allowed all factories to run during the ongoing lockdown, regardless of their status as exporters or manufacturers for the local market.

Factories that produce for the domestic market are in a tight situation as retail outlets have been shuttered since 14 April, when the lockdown came into force, resulting in a significant drop in demand.

From construction materials to furniture, from electronics to automobiles and attires, everything is facing a drop in production and shipment.

Even fast-moving consumer goods are being shipped at almost half the volume from Pran-RFL factories because grocery shops are running on short schedules, according to the conglomerate's Marketing Director Kamruzzaman Kamal.

Like Pran-RFL, consumer goods giant City Group's daily shipment to distribution points has nearly halved amid the lockdown and that has led to production cut down in its facilities too, according to City Group's Director (Brand) Bishwajit Shaha.

Essential stores are open until 3 pm, while non-essential product retailers have remained shut for the last one week.

Online sales are continuing but the share of e-commerce in the Bangladesh retail landscape is yet to grow considerably to offset the lost retail sales during the lockdown.

A number of entrepreneurs and corporate bosses told The Business Standard that as consumer goods were not moving enough or at all, most manufacturers have cut production to avoid unsold stock in their hands and keep working capital as free as possible.

Besides, shipment of all orders to retailers is also getting harder as working hours have been cut.

Other than the export-oriented industries, virtually no factory has managed to continue with their usual production capacities. Running at reduced capacity is not viable to most, said Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry (DCCI).

"It [lockdown] is in the middle of nowhere, it has kept the doors open for supply amid a lack of demand," said Rizwan. "If it is a lockdown, then it should be applicable to both shops and factories. Otherwise, let both run."

Businesses say factories owned by big corporates can afford partial production as they have stronger finance, supply chain and also bigger warehouses. On the other hand, small and medium factories, which are harder hit during setbacks, mostly turned their switches off and are counting the days for reopening of malls and shops.

Over 3,000 large and medium scale textile mills and thousands of small and medium enterprises that serve the domestic market, employ several lakh workers. Mills and factories are in for another disaster as they have lost the peak business seasons of the Eid-ul-Fitr and the Bangla New Year to the second wave of the pandemic once again, said Mohammad Ali Khokon, president of the Bangladesh Textile Mills Association.

"The factories run 24 hours a day before Eid. But we have been hit again for the second consecutive year, as neither the wholesale nor the retail markets are open," Khokon said.

"Large mills are running mainly to keep their workers employed, while smaller factories cannot afford it and have already stopped production," he added.

 "If the malls and shops do not reopen immediately, large mills will shut down too."

A similar situation prevails in the footwear industry too. Except for a few dozen big brands, which are already online for sales, almost all of the 500 manufacturing companies have halted production, while thousands of SME manufacturers across the footwear hubs in Bangladesh are sitting idle with no shipment.

Bangladesh Tanners Association President Shahin Ahmed said old inventories are yet to ship out in most factories and they are expecting to recover last year's lost sales this season.

Bata, a leading global shoe brand, has transformed itself with online presence already. The company has gigantic warehouses as well. Still, its sales have been hit, says a company official. Since the chain shoe retailer is running with 10-12% sales online, the company's production has been cut down, said Hashim Reza, company secretary of Bata Shoe Company (Bangladesh).

The furniture and home appliances industry, which meets almost the entire local market demand, is in the same situation with no retail outlet open. Carpenters in small and medium factories put their tools down and large branded factories are running in reduced capacity in the hope for normalcy soon, said Selim H Rahman, president of Bangladesh Furniture Industry Owners Association.

Around 80,000 small furniture makers have already closed production, said Selim, who founded Hatil, the largest furniture brand in the country.

SK Masudul Hoque, president of the Bangladesh Steel Furniture Manufacturers Association, said they are facing a shortage of steel materials amid the lockdown and there are no sales. 

As a result, more than 50,000 of their small and medium steel furniture makers remain closed, leaving a few lakh workers idle.

Mega construction is going on amid the lockdown and that is helping construction material industries like cement and steel to keep their production going. But retail market sales by dealers, which is around one-third of the annual sales, remained almost  closed over the last one week, said Md Shahidullah, vice-president of the Bangladesh Cement Manufacturers Association and also a director of the Bangladesh Steel Manufacturers Association.

The fall in total sales forced many companies to cut production to some extent, he added.

Amirul Hoque, managing director of Premier Cement Mills, said his company is manufacturing enough as its infrastructure and housing project customers buy a greater portion of its product. However, the lost retail sales are a problem for his company too.