Clothing may see fewer orders as brands are stuck with excess inventory
The global economic recovery from the Covid pandemic has been repeatedly hit by various events, showing how interconnected the world’s economies are. We are not officially out of the pandemic yet. In fact, we can see that the fourth wave of infections is gradually taking shape.
The ready-to-wear and textile sectors have not fully recovered from the onslaught caused by the pandemic. Rising transportation costs globally, the strengthening of the local currency against the US dollar, and a looming recession coupled with changes in consumer spending habits have all contributed to this situation.
Last year, brands placed orders to help offset supply chain shutdowns and disruptions from any new wave of Covid. Their decision seemed to have paid off as we saw China go into lockdown, and yet their store shelves were full of merchandise.
However, the conflict in Ukraine has raised many issues, the most important being the impending recession that may affect major markets, namely the United States and Europe. Inflation caused by soaring energy and food prices, as well as a sharp increase in housing and mortgage costs, has already started to affect consumers’ spending habits as they find themselves with a decrease in disposable income.
The strengthening dollar also weighed on brands’ earnings in their home countries. For example, H&M in Sweden and Inditex in Spain have experienced such fates. In addition, major brands are struggling with excess inventory which will slow down their future orders.
In Bangladesh, the RMG and textile sectors should exercise caution in the coming days. First, the fact that big brands are stuck with overorders is worrying. This will mean fewer orders at lower prices as everyone tries to fill their factories’ capacity to ensure that bank refunds and worker wages are paid on time.
If the withholding tax hike proposed in the FY23 national budget is implemented during these difficult times, it will have a long-term effect on this industry. The current management of BGMEA has already written to the Ministry of Finance about this.
Additionally, buyers will want a longer settlement time for their orders as there may be a further downturn. This means that there will be pressure on EDF’s installations. Additionally, rising energy prices as well as rising costs of doing business will create new challenges for all manufacturers.
In a welcome change, however, the Bangladesh Bank is slowly devaluing the taka against the greenback. Unfortunately, in our competitor countries like Turkey, Pakistan and India, the devaluation happened more aggressively, making their products more competitive.
The current government has always given its full support to the country’s main currency-generating sectors. We have made great strides thanks to this symbiotic relationship between entrepreneurs, government policies and banking institutions.
I sincerely hope that the government takes the coming global scenario and lays the groundwork for the calling industry in Bangladesh to emerge from the impending storm on a stronger footing ready to meet the challenges after the country exits. LDC status and become the world leader. in this sector.
Shams Mahmud is the former president of DCCI
Shams Mahmud spoke by phone with TBS Senior Correspondent Jasim Uddin.