FW
India has launched schemes for knitwear cluster at Ludhiana, Kolkata and Tirupur which will be developed. The Amended Technology Upgradation Fund Scheme (ATUFS) is being implemented for the textile industry. This is expected to incentivize production, attract investments and generate employment in the textile sector. Production linked additional incentive of 10 per cent is provided under this scheme. A special package is aimed at boosting investment, employment and exports in the garmenting and made-ups sector. Full refund is provided under the Remission of State Levies to exporters for state level taxes. Power Tex India is a comprehensive scheme for the powerloom sector. Silk Samagra is an integrated scheme for development of silk. Jute ICARE increases the income of farmers through different interventions. And there is the North East Region Textile Promotion Scheme (NERTPS).
The textile industry is facing problems like technological obsolescence, high input costs of power and capital, poor access to credit, fragmented units, absence of fiber neutrality etc. These schemes are expected to address these issues/problems. India in addition is formulating a new textile policy. This will cover cotton, silk, jute, wool, manmade fiber, handloom, handicrafts, powerloom, technical textiles, technology and machinery upgradation, infrastructure (spinning, weaving and processing) and human resource development.
India has put forth a mechanism for reimbursement of all taxes or duties or levies that are currently not being refunded under any other mechanism, but which are incurred in the process of manufacture and distribution of exported products.
The scheme called Remission of Duties and Taxes on Exported Products (RoDTEP) aims to boost the domestic industry and provide a level playing field for Indian producers in the international market. Refunds, in the form of transferable duty credit/electronic scrip, will be issued to exporters and will be maintained in an electronic ledger. The scheme will be implemented with end-to-end digitization and is a step toward zero-rating of exports, along with refunds such as drawback and the integrated goods and services tax. This is expected to lead to cost competitiveness of exported products in international markets and better employment opportunities in export-oriented manufacturing industries. A monitoring and audit mechanism, with a risk management system, would be put in to physically verify records of the exporters. As and when rates under the RoDTEP scheme are announced for a tariff line/ item, the Merchandise Exports from India Scheme benefits on such tariff line/item will be discontinued.
The introduction of the scheme across sectors, prioritisation of the sectors to be covered and the degree of benefit to be given on various items will be decided.
Goods are piling up in Bangladesh’s readymade garment factories. Buyers from European countries have asked their suppliers to delay product shipment due to the global COVID-19 outbreak. This means that the factories will incur huge losses for putting shipments on hold and might face a shortage of working capital as payment from buyers would be deferred till delivery of products. So they are facing difficulties including shortage of space in warehouses and scarcity of running capital due to the shipment delay. Manufacturers produce products taking bank loans against back-to-back letters of credit and now bank loans taken by factory owners might be classified due to non-payment.
Buyers want shipments to be delayed for a few weeks as stores in buyers’ countries face a dwindling number of shoppers due to the coronavirus outbreak. Some buyers in Europe especially from Italy, Spain and Ireland have cancelled orders and some have downsized their requirements.
The pandemic broke out in China in December last year and has now spread to over 115 countries. Three people were tested positive for coronavirus for the first time in Bangladesh on March 8 and two more cases were detected recently.
The buyers of Ludhiana garment exporters in European countries, particularly those based in Italy, Spain and France, have put on hold the orders in view of COCID-19 outbreak. Therefore, garment exporters have either curtailed or halted production. As an industrialists says, if the situation does not improve soon, they will suffer unprecedented losses in coming days.
Italy, a big market for garments, there is complete shutdown of malls and shops in view of spread of Coronavirus. A number of importers have cancelled their orders. If the situation remains same in April, Ludhiana exporters will suffer losses worth crore of rupees. Buyers based in European countries like Spain and France have put their existing orders on hold. They are seeking more time to make payment of the already dispatched shipments due to the current situation.
American luxury goods makers are proving particularly vulnerable as the Coronavirus pandemic erodes spending on non-essential goods and keeps shoppers away from fashion boutiques. Amid historic market decline, a host of luxury companies have seen sharp plunges that have outpaced the general market: Capri Holdings., owner of Michael Kors and Versace, is down more than 40 per cent this week, while Coach and Kate Spade owner Tapestry Inc. has fallen by about 31 per cent and Ralph Lauren Corp. has declined 27 percent. PVH Corp., the owner of Calvin Klein and Tommy Hilfiger, has lost almost 40 per cent.
Data is piling up that US shoppers are stocking up on food and health items as they prepare for an extended period of working from home and social distancing. Luxury retailers, meanwhile, are joining apparel chains and department stores as net losers from the outbreak.
Reflecting the broadening pessimism, Deutsche Bank downgraded seven apparel and footwear stocks including Ralph Lauren, Tapestry and Capri. The bank also lowered its investment rating on Tommy Hilfiger and Calvin Klein owner PVH. Deutsche Bank cited concerns about supply chain disruptions, falling tourism and the potential that slower demand for luxury goods is sustained.
Luxury companies in particular could see their earnings hurt. These companies could also see a more limited recovery upon market stabilisation. Citigroup Inc. also downgraded a long list of apparel and luxury companies, including Tapestry, Capri, PVH, Ralph Lauren, Signet Jewelers, Abercrombie & Fitch Co. and Steve Madden, citing a weaker demand environment.
In 2019, for example, China’s volume of polyethylene imports was up 18.83 per cent year-on-year. China imports polyethylene mainly from the Middle East and Asia. Among them, Saudi Arabia, Iran, the United Arab Emirates, South Korea and India are at the top of the list. Imports from Iran account for 15.34 per cent of total imports. Imports from South Korea account for 7.25 per cent of total imports.
COVID-19 outbreak has triggered panic in various industries. Crude oil has plunged and most chemical products have entered a downward trend. If the coronavirus is controlled, it is good news for the polyethylene market. Supply may return to normal levels and downstream demand can recover. Market sentiment and the market fundamentals can also improve. Most China's polyethylene downstream plastic products still rely on exports, and the development of the overseas coronavirus has a greater impact on the digestion of downstream products. In addition, there would be more new startups in China in the next few years, and the overall supply would not be significantly reduced.
Polyethylene is the most popular plastic in the world. This is the polymer that makes grocery bags, shampoo bottles, children's toys, and even bullet proof vests. For such a versatile material, it has a very simple structure, the simplest of all commercial polymers.
In spite of COVID-19, major clothing brands have no plans to reduce their sourcing targets from Bangladesh. In fact, one company has placed five per cent more work orders in Bangladesh compared to last year. Besides, the timing of the spread of the virus is an opportune in a way: stores have started to put out their spring/summer collections, so Bangladesh’s apparel manufacturers have already shipped out a big chunk of their work orders. Most international clothing retailers and brands have extended the period of execution of work orders for two weeks due to the virus. Bangladesh stands to benefit from the fallout of the Coronavirus. The reason being most of the globally renowned companies are planning to shift their work orders from China to other Asian countries, including Bangladesh.
As of now, Italy is in lockdown, and Spain, the second most affected country, is considering following suit. China, where the virus originated from and the apparel sector's source for 46 per cent of the raw materials, has got the novel virus under control and is on course to restarting production. Things are improving in the supply chain with China. Bangladesh imports machinery, cotton, dyes, chemicals and other industrial raw materials from China.
"Though Coronavirus (COVID-19) has led to some designers cancelling Milan Fashion Week shows, the fashion industry is yet to feel the full brunt of the repercussions of the global pandemic. So far, the outbreak has led to cancellation of some presentations in Paris. It has also resulted in an increase in the sale of face masks including ones being custom-designed for the fall ’20 Chanel show."
Though Coronavirus (COVID-19) has led to some designers cancelling Milan Fashion Week shows, the fashion industry is yet to feel the full brunt of the repercussions of the global pandemic. So far, the outbreak has led to cancellation of some presentations in Paris. It has also resulted in an increase in the sale of face masks including ones being custom-designed for the fall ’20 Chanel show.
American fashion editors have been advised to self-quarantine for two weeks. Most local fashion houses in New York have declared a work-from-home policy for employees. They are either cancelling or postponing their shoots, press previews, dinners, and work-related travels.
Impact on small, direct to consumer brands
Not just large, publicly owned companies but also small, direct to consumer brands are suffering. Traffic at Le
Point, a San Francisco-based multi-brand concept store has slowed as people have been told to avoid large groups and stay indoors. Similarly, the epidemic has delayed the restock of China-based brand Yan Yan by a few weeks, thus affecting its ability to supply to demand. As a health and safety requirement, the brand is monitoring the temperatures of its factory workers daily besides compelling them to wear masks. Employees also have to sanitise their shoes before entering office besides washing their hands before handling product and packages.
Government orders compel brands to shut stores
Fashion brands in Italy and China have begun to close their stores as governments in both countries have advised their residents to avoid public spaces. Italy has also forbidden its citizens to gather in public. Capri Holdings, which owns Michael Kors, Versace, and Jimmy Choo, has closed 150 stores in China.
As most Chinese workers have been advised to stay at home, production at all brand factories has stopped. This is likely to delay order inventories of factories in China. As Gary A Wassner, CEO of Hildun Corporation and Chairman of Interluxe told Time magazine recently, companies selling private labels or brands sold specifically to one store, are likely to face a major hit due to their quick turnarounds.
Unsold inventory to impact sales till mid-2021
Confindustria Moda president Claudio Marenzi predicts a tough year for the industry. The slowdown will also affect the first semester of 2021. Though the spring 2020 season will be most dramatically hit by this crisis, there will be a few repercussions on the fall 2020 and spring 2021 seasons too. Though the virus could be quelled by then, sales will continue to be affected till June 2021 as brands will be saddled by a lot of unsold inventory.
ICRA expects Indian apparel exporters to report moderate profits in FY20, with pressures likely to sustain at least in the near term, and turnover growth to be subdued, except for a few larger players with an established client base. The industry is facing numerous challenges like increased bargaining power of buyers amid intense competition, cost-side pressures emanating from disruptions in procurement of raw materials and consumables (such as colours, chemicals, accessories/trims etc) from China and write-backs of export incentives booked previously – all of which are expected to adversely impact profitability.
Exporters facing internal, external pressures
As per Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA, “In addition to sustained pressures on liquidity owing to delays witnessed in clearance of the government dues, we expect a correction of around 100-150 bps in the operating profitability of Indian apparel exporters in FY2020, which is expected to result in a moderation in debt coverage metrics. The impact is likely to be more pronounced for leveraged and smaller companies, with limited bargaining power with customers, modest liquidity cushion and/or less financial flexibility to absorb the impact.”
Indian apparel exporters are passing through testing times, with several internal and external challenges. External issues primarily stem from an unfavourable demand-supply scenario. Demand in key markets remained subdued, with impact heightened by the rapid spread of COVID-19 across regions in recent weeks. While demand from the EU remained weak, recent trends in the US apparel imports have also been discouraging, corroborated by a volumetric decline of 12 per cent Y-o-Y in apparel imports by the US in Q3 FY20 and an overall decline of 0. per cent Y-o-Y in nine months FY20. This follows an 17 per cent and 5 per cent Y-o-Y decline in domestic retail sales of clothing and clothing accessories (in value terms) in the US in Q3 FY20 and nine moths FY2020 respectively. Besides affecting order flows, this could potentially result in renegotiation of realisations as well as an elongated receivables cycle for the exporters. Further, competition from peer nations is intensifying with increasing penetration of free trade agreements (for instance, Bangladesh has duty-free access to the EU markets under the Everything but Arms scheme, while the EU-Vietnam Free Trade Agreement is in advanced stages of execution, tilting the market in their favour.
While external challenges are proving to be growth headwinds for companies, internal challenges are constraining profitability and liquidity of players across the spectrum. These pertain to recent retrospective revision in and continued uncertainty on structure of export incentives as well as delays in clearance of previous dues and input credit refunds.
In the first quarter 2020, H&M group’s net sales increased by 8 percent to SEK 54,948 m (51,015). In local currencies, the company’s net sales increased by 5 percent. Its sales development in the second half of the quarter was negatively impacted by the outbreak of the COVID-19 virus, particularly in China. From 1 December 2019 to 23 January 2020 sales in China increased by 27 percent in local currency.
However, demand then decreased significantly as a result of the rapid development of the virus and therefore H&M group’s sales in China decreased by 24 percent in the quarter as a whole. At its peak, 334 of the group’s 518 stores in China were closed in February.
Excluding China, Hong Kong, Singapore, Macau, Japan and Taiwan the H&M group’s sales in the quarter increased by 7 percent in local currencies.
So far in March sales have been negatively affected mainly in Europe as a consequence of the continued spread of the virus. The situation in every country is changing rapidly. Following decisions by the authorities, all of the group’s stores are temporarily closed in Italy since the past few days and during the weekend all stores were also closed temporarily in Poland, Spain, the Czech Republic, Bulgaria, Belgium, France and partly in Greece. All of the group’s stores in Austria, Luxembourg, Bosnia-Herzegovina, Slovenia and Kazakhstan are closing from Monday. The online store remains open. In China sales have gradually started to recover as the situation in the country has improved.
The H&M group is working extensively to manage the COVID-19 situation, the highest priority being the safety of employees and customers. While the H&M group’s transformation work continues at full speed, all activities in the company are now being carefully evaluated – including from a cost and risk perspective – so as to be able to mitigate the negative effects associated with the virus as far as possible. Further information will be provided when the interim report for Q1 is published on 3 April.
