The Impact Of The New Outbreak On The Global Textile And Clothing Industry

Impact on the clothing industry

1. Offline revenue plummets

The sudden outbreak of the new crown on the clothing market demand caused an unprecedented huge impact. Sales fell by 100% as governments ordered stores to close to avoid crowds. In areas where closure of clothing stores is not mandatory, the government is urging people to keep a social distance and stay at home. McKinsey reports that sales at bricks-and-mortar clothing stores in Europe are down 30-40 per cent. In the worst-affected areas, turnover fell by as much as 80%. Online sales cannot make up for such a huge loss in offline sales. Online sales have remained stable, and some e-commerce platforms have seen declines of 5-20%.

2. Profit of small and medium-sized brands is narrowed

The negative impact of the new outbreak on the clothing industry is more obvious than other industries, possibly because the decline in clothing sales began to show up before the outbreak. Combined with the non-essential nature of clothing consumption, a slump in sales is inevitable. Consumers in Europe and North America are more likely to stock up on food and DIY products than clothes. It is worth noting that this consumer repression may give the market a signal of consumption saturation. Big online retailers have started to boost sales by offering steep discounts. At a time when the weather is getting warmer and the winter and spring season is changing in Europe and North America, there should be greater consumer demand. This behavior of large online retailers will disrupt the market order and further squeeze the market share of small and medium-sized brands. In this particular period, we are seeing some trade associations consider asking the government to issue a decree limiting the time period during which discounts can be offered. The alliance for European freedoms and democracies has formally proposed the policy to the European commission in the eu market.

3. The industrial chain needs to unite to face the crisis

Faced with a sudden drop in sales, many brands and retailers canceled orders. In Bangladesh alone, as of 17:00 on March 29, a total of 1,025 factories reported 864 million units, cancelling orders worth $2.81 billion, affecting about 2.06 million workers. The negative impact of zero sales quickly spread throughout the industry chain. Dishonest purchasing also became common, and brands either abandoned suppliers directly or tried to face the crisis through deeper cooperation. The international garment federation has publicly condemned unethical procurement practices in the wake of the new epidemic and called on the industry to unite in the face of the crisis. In fact, what is needed in a crisis is for buyers/retailers and their manufacturers, as well as manufacturers and their suppliers, to take a more creative approach to the negative impact of the downturn on the entire industry.

Price pressures are unpredictable

The offline retail industry has been completely shut down, and sales can only be expected to resume after the quarantine period. The return to retail sales depends entirely on how well the outbreak is controlled and whether a second outbreak can be avoided. However, when stores reopen, brands also face tricky situations, such as high inventories and weak demand due to the recession. This would require holding down prices to encourage consumption, leading to a prolonged period of low unit prices and a difficult recovery for industry.

5. Digitization may ease the industry crisis

The new outbreak is not without its positive impact on the clothing industry. The bottlenecks in the development of the whole industry began to be revealed before the outbreak, and the direction for the industry to improve was clear. The outbreak came at this time, which prompted the industry to make changes more quickly. In November 2019, the theme of the international fashion federation's 36th world fashion congress held in Antwerp is "the transition and transformation of the international fashion industry". The international garment union had identified the subject long before the outbreak, and the industry needed to change. One area that needs strengthening is the digitisation of the industry. Developing digital products can greatly reduce costs and improve market response. The extra money can also cut costs on transportation. The new epidemic has once again demonstrated that digitalization is a major and urgent challenge for the entire clothing and textile supply chain, and therefore needs to focus on its cooperation with the clothing and textile industries.

Impact on textile industry

Output and orders both fell

So far, there is little information on the specific impact of the outbreak on the global textile industry, with broad industry indicators providing only insight into market trends. IHS Markit's purchasing managers' index article published on March 6, entitled "opportunities for new epidemics in February impact all sectors", may also be representative of the textile sector. The report includes the textile industry in the "household and personal products" category, where production and new orders have plunged in recent months.

(credit: ITMF)

2. The sudden decline in turnover will turn into a longer-term downturn

The only source of specific information on the impact of the new pandemic on the global textile industry is the international federation of textile manufacturers' newsletter issue 46 of 26 March, which contains the association's first survey of the impact of the new pandemic on the global textile industry. As of March 25, 25 per cent of companies had received additional orders, about 50 per cent had been delayed or cancelled (10 per cent) and about 33 per cent had been delayed or cancelled by more than 10 per cent, according to the survey. In addition, 20 per cent of companies expect their turnover to increase compared to 2019, 40 per cent expect it to fall by 10 per cent and 40 per cent expect it to fall by more than 10 per cent (even a drop of 20-60 per cent). The current difficulties in the industry mainly include the safety and health of workers and employees, supply chain disruptions, supply shortages or delays in the clothing industry, weak or significant declines in market demand, and a shortage of cash flow. However, some companies say the outbreak could become more powerful by helping to streamline their internal processes. There will be further growth in the production of finished and semi-finished products related to medical and epidemic diseases.

(credit: ITMF)

Only three weeks ago, parts of the country had not been fully affected by the new outbreak; But the sharp changes in orders and turnover reflect a blow to overall demand for the global clothing industry. The persistence of the outbreak will be an important factor in the direction of the industry.

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