A cold winter for the global apparel industry
According to a report released last week by the Workers’ Rights Consortium (WRC) and the Center for Global Workers’ Rights at Pennsylvania State University, buyers in the United States and the European Union canceled April At least $16.2 billion in orders were placed with apparel manufacturers through June.
According to WRC estimates, in the early weeks of the COVID-19 outbreak, clothing purchases in the United States and Europe The company canceled $40 billion in orders.
Analysis shows that the quantity and unit price of clothing exports to the United States are declining. The direct consequence is that the business of clothing suppliers has been significantly reduced, suspended, or even bankrupt. Since the global apparel manufacturing centers are in Southeast Asia and South Asia, these countries have suffered huge losses.
A blow to the global clothing industry
When European and American When demand began to drop in March, apparel buyers were quick to cancel orders and refuse to accept orders that had been placed, a behavior that raised concerns about personnel and physical manufacturing in apparel-producing countries.
From April to June, U.S. buyers purchased $9.7 billion less clothing than the same period a year ago, a year-on-year decrease of 49%.
Throughout the epidemic, Sears, Kohl’s, Oscar de la Renta and many other brands have not made any promises. Urban Outfitters in the United States even declared force majeure in March, sending a letter to suppliers stating that it would not accept or pay for undelivered orders, and would give a 30% discount on orders in transit. For suppliers who have already suffered losses, It’s just that the house leaks and it rains all night.
From April to June, global apparel exports to the United States fell by 49%, mainly consisting of finished products or in-process products. Clothing suppliers have prepaid material and labor costs. The livelihoods of garment workers in garment production and supplier bases in countries such as Indonesia, India, Vietnam and Bangladesh have been affected. For example, Vietnam’s garment exports are the country’s pillar industry, and its exports to the United States have been cut in half, severely hitting Vietnam’s garment industry.
In the current global apparel industry, the common practice is that suppliers bear the upfront costs of production, while buyers do not pay any fees until weeks or months after the factory ships. Less developed countries originally earn a small amount of clothing processing fees, but most of them go to European and American brands. A large amount of money was advanced, but in the end nothing was received.
Future prospects
Fashion industry analysts said that companies need Undertake a radical overhaul of supplier relationships to stop the bullwhip effect. Whenever there is an unexpected drop in demand, it jeopardizes the livelihoods of garment workers, who already earn low monthly wages and struggle to make ends meet if they lose their jobs. In addition to the dismissal of garment workers and loss of wages, when manufacturers go bankrupt, European and American garment companies also lose these suppliers. When the market recovers, it is difficult for them to quickly find suitable suppliers. It can be said to be a lose-lose situation. ending.
According to industry experts, the 2008 global financial crisis led to a significant decline in manufacturing production capacity in China, Indonesia and other countries, after demand fell by 10%. The coronavirus demand decline and resulting bullwhip effect is and will continue to be more severe.
More collaborations and new ordering and payment structures are one solution. McKinsey recommends shortening order cycles and batch sizes, and increasing the frequency of replenishment orders to provide more assurance that orders placed will be fulfilled and paid for. The company also recommends involving suppliers in the ordering process in the spirit of partnership, rather than transaction.
The fragile apparel industry has been hit hard by the COVID-19 epidemic, and the short-sighted approach of buyers in European and American countries will make the road to industry recovery even more bumpy.
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