Fashion industry cancels millions of orders worldwide

26/03/2020

Like Primark, the fashion industry's leading giants, from Inditex to New Look, have begun to halt their purchases in order to contain stock in the face of the evolution of the Covid-19 pandemic. Employers in emerging countries around the world, on which the global fashion industry bases its supply, are beginning to ask the large groups not to undo their positions in the face of the impact on their economies.

Worldwide fashion industry suspends millions of orders
Worldwide fashion industry suspends millions of orders

With the citizenry confined and the factories closed, India is asking retailers to take over the productions already ready for collection. The Apparel Export Promotion Council (Aepc), which represents the interests of the garment industry in India, has sent a letter to the main operators in Europe and the United States urging them not to cancel orders at the present time, while at the same time opening itself up to seeking flexibility measures.

"We hope and pray that the situation will return to normal in the coming weeks," the letter says. "As an important partner who shares responsibility for the importance of this sector with those involved in the supply chain, we hope for your kind understanding and pray that you will consider our request.

"We have large quantities of stock in our stores, warehouses and in transit, which is paid for, and if we don't take this action now we would be assuming the arrival of stock that we simply cannot sell," said Paul Marchant, Primark's CEO, when he announced last week the cancellation of all his orders.

In addition to Primark, several companies have communicated to their investors over the last few days that their adjustment plans to deal with the pandemic include adjusting their purchases. The British group Superdry, for example, will introduce "potential changes in the timing and structure of stock purchases for the next collection".

Indian factories have asked retailers not to cancel

The giants will have to accompany their orders to the progressive opening of the commerce in the different countries affected by the closing of stores. Italy and Spain were among the first major fashion markets to embrace this measure, later joined by France, Germany and now the United Kingdom and the United States.

In early March, the United Nations (UN) made a first approach to the impact of the pandemic on the fashion industry worldwide. The organization estimated losses in the textile and apparel industry at US$1.5 billion, mainly due to a lack of raw materials.

In this sense, the UN indicated that the most affected market will be Europe, with losses of US$538 million; Vietnam, with US$207 million; Turkey, with US$164.2 million; Hong Kong, with US$107 million; Taiwan, with US$102 million, and the United States, with estimated losses of US$80 million.

The entity chaired by António Guterres did not, however, contemplate the cancellation of orders that is already taking place: in recent weeks, 490 factories in Bangladesh, one of the world's largest hubs, had received order cancellations with an impact of US$1.44 billion on the country's exports.

"The factories are registering new cases every hour," explains Rubana Huq, president of the Bangladesh Garment Manufacturers and Exporters Association (Bgmea), in statements collected by the Sourcing Journal.

The impact of the cancellations is not limited to Asian markets, but also extends to nearby sourcing. In Turkey, where large groups have displaced their production with the stoppage of China, order cancellations are beginning to be registered, a situation that is repeated in Morocco.

The main fashion hubs

China continues to be the world's largest factory, accounting for 31.3% of total clothing exports and 37.6% of textile exports, according to data from the World Trade Organization (WTO). In 2018 alone, the country exported clothing worth US$158 billion and textiles worth US$119 billion.

In China, clothing companies employ nearly five million, according to IBISWorld. Though the country has diversified its economy in recent years, moving from an industrial country to one focused more on services, textiles continue to account for 7.1% of its gross domestic product (GDP), according to Fibre2Fashion.

Vietnam is the fourth largest clothing exporter in the world, behind China and the European Union. Before being one of the industrial hubs of low-cost textiles, the country was one of the manufacturing epicenters of sports footwear, which continues to be a strategic sector in the country.

According to the latest available data, Vietnam produced 1.1 billion pairs of shoes in 2017, 4.7% of total production, according to the World Footwear Yearbook. In total, fashion accounts for 15% of GDP, 18% of the country's exports and employs 2.5 million people.

Textile is India's oldest industry, with an estimated turnover of $250 billion by 2019, according to data from India Brand Equity Foundation. The sector represents 2% of India's GDP, 7% of industrial production and 15% of exports.

Clothing is the country's largest employer after agriculture, with 13.9 million workers. It is also one of the main entry points for women into the workforce, with 65-70% of the sector's workforce being women, according to the country's Apparel Export Promotion Council (Aepc).

India is the third largest textile exporter in the world, with US$18 billion last year, 5.8% of the total. In apparel, the sector has lost weight in recent years, ranking as the fifth largest exporter, to US$17 billion.

Unlike other apparel hubs, India is a major producer of raw materials, particularly cotton, and has clusters dedicated to spinning, weaving, and footwear as well.

Morocco is one of the main hubs of fashion production in the vicinity, especially for Spain. The textile and clothing industry is one of the pillars of the Moroccan economy, taking up 15% of its GDP, according to data from the local association Amith.

The sector brings together 1,200 companies and is the main employer in the country, with 190,000 workers. In addition, it takes a quarter of its total exports and produces a billion garments annually.

The other main pole of supply in proximity to European fashion is Turkey. The textile and clothing industry generates 7% of Turkey's GDP and contributes 10.3% of its exports. Turkey is the seventh-largest producer of cotton in the world and the fourth largest consumer of this raw material, as well as being the third-largest producer of organic cotton after India and China.

Cambodia is another of the emerging countries with a high dependence on the textile sector. Around 40% of the country's GDP is generated by the fashion industry, a sector that employs over 800,000 people, 86% of total industrial employment, and which generates 80% of exports.

There are some 1,600 textile factories in the country with a turnover of around US$10.8 billion a year, according to data collected in the study Cambodian place in the International trade of Textile and Clothing, by the University of Lyon.

Source: Estrategia y Negocios