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Crisis in the textile industry: a 2021 with the fashion of a year ago

2021-03-01T06:50:34.627Z


The companies in the sector have between 140,000 and 160,000 million in unsold clothing and their profit is sinking, according to the consulting firm McKinsey


Workers at Fakhruddin Textile Mills in Gazipur, Bangladesh.MOHAMMAD PONIR HOSSAIN / REUTERS

The year 2020 undressed the textile industry around the world.

Confinements first and commercial and leisure restrictions later, as well as teleworking and poor economic prospects, left the desire to wear new clothes and the opportunities to do so to a minimum.

The result is that half the world spent a good part of the year at home in tracksuits.

Much was bought online, yes, but not nearly enough to offset the collapse, which globally took 30% of sales and 90% of the profit of companies in the sector, according to a calculation by the consulting firm McKinsey.

The arrival of vaccines at the end of the year restored hope to the sector, but their slow development may prolong the agony, at least until the summer.

Uncertainty is the most repeated word among managers and experts consulted about the progress of the business in 2021, when it will not yet be possible to recover lost ground.

The business will also experience changes: closer production, more flexible supplies, shorter, more basic and durable collections, probably less subject to the seasons and more to sustainability.

  • Inditex registers the first losses in its history due to the impact of the coronavirus

  • Retail sales plummet 7.1% in 2020, the biggest decline since 2012


The arrival of the pandemic a year ago blew up the textile industry in all its extremes.

The forced closure of the trade dried up the source of income and led many large European and American brands to protect their liquidity by canceling or delaying orders, even some already underway, or deferring payments.

“At the time when Europe was closed, we extended payments 30 days to all suppliers.

It had a lot of effect on them, but it was a matter of survival.

Until August, more or less, we put a lot of tension in the chain ”, admits a manager of a Spanish group who requests anonymity.

The shock reached the other side of the chain, that of manufacturers, many concentrated in Asia: a survey by the Workers Rights Consortium, an organization that watches over the rights of workers around the world, showed in 2020 that 38% of the employees of the textile factories (in a sample in nine countries) had lost their jobs and even denounced “generalized hunger” among these workers and their families.

Smallest drop in China

Although the first impact was mitigated and practices gradually returned to normal, successive waves of contagion added new trade and movement restrictions.

At the end of the year, globally, the textile lost between 20% and 25% of its sales, more in Europe (25% -30%) and the United States (20% -25%) than in China (5% -10%), according to data from McKinsey.

In Spain the fall was 39.8%, according to the Acotex textile trade association.

The beginning of the year has not been hopeful, with the third wave eating up the sales.

In the best scenario predicted by the consultancy, sales will fall another 5% in 2021 compared to 2019, up to 15% if things do not go so well.

Recovering the 2019 figures will not be possible until the end of 2022 or 2023, depending on the scenarios.

The uncertainty about the health and economic evolution and the amount of

accumulated

stock

condition the outlook.

Thus, companies start the year with "25% of their unsold inventory whose economic value is between 140,000 and 160,000 million euros worldwide," says Antonio Gonzalo, a McKinsey partner, even after a year with a promotional activity "Much higher than in previous years."

Among the large Spanish players, Inditex was able to reduce its inventory in 2020 by 11%, “due to its flexible model” (short, frequent productions and mostly produced in close proximity), but other distributors admit that it has increased.

"In

stock

management

, it has been the most difficult year in history," admits a supply chain manager for a Spanish group.

Solutions for unsold merchandise range from inclusion in the new seasons, sale at a discount in

outlets

or in other countries, and even recycling.

Either way, stocks mark new purchases.

"A first lever to regulate this excess has been to stop the purchase of new merchandise", up to 25% in the autumn-winter season, according to Gonzalo, from McKinsey.

All the brands consulted (Inditex, Mango, H&M or Tendam, the old Cortefiel) and experts consulted confirm this: prudence will mark the year in purchases and it is already being noticed in the face of the spring-summer collection.

“We are optimistic, but cautious in ordering.

We all have stores with closures or capacity restrictions, there are them in Europe and the rest of the world and that supposes a containment in the demand ”, describes Ignacio Sierra, corporate general director of Tendam.

"Until collective immunity is reached, the contingency plans will continue to be to keep companies in a standstill, lower structural expenses and try to change fixed expenses to variables", explains Ángel Asensio, president of the Spanish Federation of Clothing Companies, which calculates the reduction of orders in a range between 20% and 40%.

USA, at a different pace

"European brands in particular are reducing their purchases for spring-summer," says Dunja Hoejenbos, communication director of the International Textile Federation (IAF), by email.

He explains that the accumulated stocks after the confinements and restrictions of 2020 that can still be sold in 2021 “reduce demand”, in addition to the fact that the drop in sales reduces the ability to invest in new collections by 2021. Miran Ali, general director of the Association of Manufacturers and Textile Exporters of Bangladesh (BGMEA, in its acronym in English, which groups some 4,500 factories) clarifies that US brands are less altering their order rate, due to their more lax restrictions.

BGMEA estimates that January orders are between 0.8% (US) and 6.4% (Europe) below normal.

"The period until Easter will be key to see how the orders are going for the autumn-winter season.

It all depends on the vaccine, ”he says by phone from Dhaka.

It's not just the size.

The ups and downs of the pandemic have taught that agility and flexibility are rising values ​​in the world of fashion so as not to overload inventory and then have to get rid of discounted garments.

"Shorter lead times and fewer quantities reduce risk for the buyer," explains Hoejenbos.

In that bet, the closer the factories are, the better.

Source: elparis

All business articles on 2021-03-01

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