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The exit of Great Britain from the European Union after a referendum will have marginal impact on the export of India’s fibres and yarns to that destination as it is now emerges to be a big buyer. While the entire West Europe accounted for less than 7 per cent of the total fibre and yarn exports in 2015-16, UK was just 0.2 per cent. Interestingly, Europe makes up for 46 per cent of apparel exports of which Britain's share is 40 per cent.
In the last financial year, UK imported $14.7 million worth of fibres (natural and manmade) and spun yarns including filaments. This included $8.13 million of spun yarns, $3.44 million of filament yarns and $3.15 million worth of fibres. During the year, it imported cotton yarn, polyester/wool, polyester yarn and acrylic yarn, each worth more than $1 million. As far as fibres is concerned, UK imported PSF and VSF during the year. Even International Textile Machinery Exhibitions (ITME) Society, the textile machinery manufacturers’ body of India does not see any immediate threat from Brexit.
According to Sanjiv Lathia, Chairman of the ITME, England is not a big buyer of textile machinery. Textile manufacturing moved away from England long ago to China. He also does not foresee much of an impact on Indian textile machinery manufacturing. However, garment exporters are a worried lot. Post separation, they want a trade treaty with Britain. EU is a major destination for readymade garments with the UK a leading market.
A free trade agreement (FTA) will be important to boost garment exports to the UK. Knitwear exporters, who are also pitching for FTA with the EU, also want a separate pact with Britain. India currently enjoys a 12.per cent tariff preference in the EU under its Generalised Scheme of Preferences programme. Although Europe is a large market for India, it is more or less saturated now. But high valued added products will, in all probability, be picked up in the coming years. Recently, with an aim to create 10 million textile jobs within three years, the government had approved a INR 6,000 crore special package for the textiles and apparel sectors.
India’s apparel exports are likely to decline by five per cent during the first quarter of the financial year due to the ongoing global economic slowdown and the uncertainty over recovery in the months to come. The peak summer demand season didn’t go as expected. For the first time in many years, sentiment for the domestic apparel sector also remained weak. So domestic sales are expected to see flat to marginal growth in the June quarter.
Britain's vote to exit the European Union is unlikely to affect India's apparel exports in the near term though there could be some impact in the long term. There are two years to go for the actual exit from the date of formal announcement and that may give time for things to settle.
Europe took 37 per cent of India’s $16.5 billion apparel exports, with the UK taking 42 per cent of Europe’s contribution. The Rs 2,50,000 crores domestic apparel industry in India, in addition to the Rs 1,11,500 crores exports, is dominated by the unorganised sector, which has nearly 70 per cent contribution. Apparel exports were $4 billion in the June quarter of 2015. For all of 2015-16, it was $16.5 billion.
Less than a week after the Central government announced radical changes in the labour laws and offered a Rs 6,000 crores package to the garments sector as many as 38 garment exporters including 13 small and medium enterprises with a turnover of under Rs 5 crore each have pledged to hire 37,720 more people and invest Rs 710 crores over one to three years, according to a list prepared by the Apparel Export Promotion Council (AEPC) and exporters.
Sudhir Dhingra, Chairman, Orient Craft, has said his company will add 4,000 jobs to its existing workforce of 32,000 over the next three years. He also added that apart from replacing a small unit in Noida with a bigger one, his outfit will set up one more facility in the city. Another exporter Richa Global said that the company will add 3,000 people within a year to its existing employee base of 11,000 people. Texport chairman, Virender Uppal says his company intends to hire 4,500 people over the next three years. This, he said would result in a sharp increase over the current workforce of 1,000 people.
The number of exporters willing to create jobs is rising, as many of them are waiting to go through fine prints of the policy so as to get to the bottom of the package announced, according says Ashok G Rajani, the chairman of AEPC. Also the chairman of Midas Touch Exports, Rajani has pledged to invest Rs 75 crores and hire 650 people in response to the package. This is important, as roughly 80 per cent of the labour-intensive garment sector is dominated by small-scale industries. Overall, the companies have pledged to hire people in the range of 50-4,500.
At present, close to 32 million people are employed in the textiles and garments sector which is the largest job provider after agriculture and accounts for roughly 15 per cent of the country’s exports. The country’s textile and garment exports stood almost flat at $40 billion in the last fiscal with clothing accounting for $17 billion.
"Brexit decision sent stocks tumbling the next day. It led to a fall of 3.6 per cent in the S&P 500 and a drop of 3.4 per cent in the Dow Jones index on June 24. The S&P 500 Apparel and Accessories Index, which is a seven-company index based on Ralph Lauren, Hanesbrands, VF, Coach, PVH, Michael Kors, and Under Armour, erased YTD (year-to-date) gains and fell 5.4 per cent on the day following the Brexit announcement."
Brexit decision sent stocks tumbling the next day. It led to a fall of 3.6 per cent in the S&P 500 and a drop of 3.4 per cent in the Dow Jones index on June 24. The S&P 500 Apparel and Accessories Index, which is a seven-company index based on Ralph Lauren, Hanesbrands, VF, Coach, PVH, Michael Kors, and Under Armour, erased YTD (year-to-date) gains and fell 5.4 per cent on the day following the Brexit announcement.
Meanwhile, the Consumer Discretionary Select Sector SPDR Fund, which invests 6.7 per cent of its portfolio in apparel stocks, fell 3.7 per cent as compared to the previous closing price.
Apparel and accessory stocks slammed
Brexit led to a tumble in apparel and accessories stocks. PVH was clearly the worst hit, while most apparel and fashion stocks were in the red after the Brexit vote. The stock fell 8.9 per cent after the company reported that it generated 3 per cent of its revenues from the UK markets. Other major losers in the apparel sector were: Ralph Lauren (-7.9 per cent), Michael Kors (-6.3 per cent), VF (-5.7 per cent), and Coach (-4.8 per cent).
Brexit resulted in the S&P 500 Apparel and Accessories Index falling 5.4 per cent the next day. All seven companies included in the index, viz. PVH, Ralph Lauren, Hanesbrands, VF, Coach, Michael Kors, and Under Armour registered a fall in their stock prices.
PVH stocks saw a fall after the company announced their UK revenues constitute 3 per cent of total revenues. PVH derives around 45 per cent of its revenues from international markets (i.e., outside North America). The company has the highest international exposure of its peer group. Its competitors VFC, Ralph Lauren, Kate Spade, and Michael Kors derived 37 per cent, 34 per cent, 19 per cent, and 22 per cent of their respective revenues from international markets in their last fiscal years. PVH’s top line has been bearing the brunt of a stronger dollar for some time now. Brexit might further strengthen the US dollar and add to the company’s woes. However, since only 3 per cent of the company’s revenues are derived from the UK, the impact might be limited and short-lived.
PVH outshines peers
PVH has been one of the best performers in the apparel and fashion segment. The stock had gained 40 per cent in value YTD (year-to-date), as of June 23, prior to the Brexit vote. This is an incredible performance, particularly when compared to competitors Ralph Lauren, Hanesbrands, and Under Armour, which have fallen 10 per cent, 13 per cent, and 7 per cent, respectively, on an YTD basis.
The company’s solid financial performance has driven its stock price in the past. PVH has topped Wall Street earnings estimates for eight consecutive quarters. It registered a 33 per cent increase in EPS (earnings per share) on a constant-currency basis in its last reported quarter. Including the exchange rate impact, EPS remained flat during the quarter. While PVH’s stock plummeted after the Brexit announcement, in comparison, the S&P 500 Apparel and Accessories Index has risen just 0.3 per cent YTD as of June 24.
Analysts feel UK’s decision to leave the EU is unlikely to have a significant impact on US markets. As a UBS analysts feels the ‘Leave’ vote may weigh on sentiment in the near term, it is unlikely to result in a change in the fundamental outlook for US equities. They say, Brexit will be short-term noise amid improving intermediate indicators which signal the risk remains to the upside for US stocks. Some, Wall Street analysts are positive about PVH Corp and see potential for the stock to return to its pre-Brexit level.
"Though the Trans-Pacific Partnership (TPP) Agreement has come into effect having been signed on 4 February this year, few Vietnamese businesses have plans to switch from subcontracting to direct exports or reduce their heavy reliance on feedstock imports or increase exports of processed goods to improve value addition. This has caused fears that Vietnam is unlikely to derive the maximum benefit from the trade pact. "
Though the Trans-Pacific Partnership (TPP) Agreement has come into effect having been signed on 4 February this year, few Vietnamese businesses have plans to switch from subcontracting to direct exports or reduce their heavy reliance on feedstock imports or increase exports of processed goods to improve value addition. This has caused fears that Vietnam is unlikely to derive the maximum benefit from the trade pact.
Survey finds few willing to change production mode
A survey of 1,500 enterprises by the Vietnam Chamber of Commerce and Industry (VCCI) in April last found that only 11.6 per cent plan to change their production mode in the next three years to improve value addition, Nguyen Thi Thu Trang, head of the VCCI’s WTO Center, is reported to have said.
Vietnamese firms are not involved in the value chains of many products and merely do outsourcing for foreign partners. They import most feedstock for production for exports and now the TPP’s strict rules on origin will be a hurdle.
Yarn-forward rule coming
Import taxes, in many large economies like the US, Canada, Australia and Japan, the biggest buyers of Vietnamese textiles, will be cut from 17-32 per cent to zero. But there will be a "yarn-forward rule" stating that every piece of thread, button and zipper in a garment will have to come from TPP signatories to qualify for the tariff exemptions.
But most of Vietnam's yarn and components are sourced from China and South Korea, both non-TPP countries, making much of Vietnam's products ineligible for the exemptions. “I do not think there will be many changes to us after the TPP comes into effect; we will continue to implement outsourcing contracts,” Luong Van Thu, director of a garment firm in the northern Hung Yen Province, reportedly observed.
However, Vietnamese garment manufacturers can do little since they lack the financial strength to invest in their own yarn and textile facilities. A garment company requires an investment of millions of dollars which increases to billions of dollars for a textile and dying firm, industry insiders felt.
The European Union may withdraw the GSP Plus benefits granted to Philippines because of that country’s violent crackdown on journalists. The withdrawal will weaken Philippines’ textile and garment exports. With GSP Plus conditional on good governance and a solid human rights record, 6,274 Philippine export products, including textiles, garments and footwear, stand to lose their current duty-free access status to the EU.
An instructive indicator in this regard has been the GSP Plus withdrawal from Sri Lanka in 2009. The EU also withdrew the regular GSP scheme from Belarus and Myanmar over violation of labor rights in 2007 and 1997 respectively. Even though GSP Plus utilisation is relatively low among Philippines’ textile and garment makers, the prospect of a withdrawal is undoubtedly unwelcome news in times that are already challenging. In the first four months of the year, textile and garment exports decreased by 46.7 per cent and 27.2 per cent respectively, compared to the year-earlier period, making the sectors among the country’s worst export performers.
Even with GSP it was mainly machinery and agricultural food exports that the Philippines benefited from. Textile and garment makers have struggled with the scheme’s rules of origins as well as with the fact that the Philippines’ wage levels are high relative to its regional peers.
Australian Wool Innovation’s marketing subsidiary The Woolmark Company has set an ambitious target to absorb three per cent of Vietnam’s $27 billion dollar textile export market within four years. Biting off a larger slice of the textile market will be achieved through education. A dozen traditionally acrylic spinners are being taught how to manufacture wool and wool blended yarns. Several of the 12 companies trained in the dyeing, knitting and finishing processes have already started with commercial orders.
The next goal is to encourage early stage processing of top making and scouring in Vietnam’s garment-focused industry. This would act as an alternative to Australia’s heavy reliance on China as the major buyer of greasy wool. The 2014-15 financial year saw Vietnamese textile market acquire 8,00,000 kg of Australian wool - predominantly via early stage processing mills in China.
In 2014, in an effort to increase competition with China for Australian wool, AWI reignited the market with Russia and had another bid at generating a new market in Vietnam. Last year, a Vietnamese company experimented using wool/acrylic blends in sweaters. Last week it began the commercial processing of wool. Although Australia will never be the powerhouse China is, it expects to see significant growth in Australian wool clip in Vietnam.
Zalando has revealed the future plans for their acquired Bread & Butter format, whilst the current Berlin trade shows are still running. The first ‘Bread & Butter by Zalando’ will run off the classic trade show schedule for September 2 to 4, 2016 at Arena Berlin, the home of Berlin trade shows Seek and Bright.
The three-day event will focus on exhibitions about the latest fashion innovations, interactive fashion shows, concerts and a conference discussing the digital future of fashion. The offered collections will not be ‘next season,’ but available immediately, which is reflected in the headline of the first edition: ‘Bread & Butter NOW.’
As Zalando founder David Schneider says they believe in the future of Berlin as a fashion hot spot. With this strong and consumer-oriented event concept, they have created something new and inspiring for Berlin and the fashion industry. They enable their customers and brands to get in touch directly – online and offline - and experience the best of fashion in the digital age. The e-commerce giant became a stakeholder in Bread & Butter in June 2015.
In May 2016, spun yarn exports declined by 4.6 per cent in volume terms and 12.1 per cent in value terms. Total shipments were at 101.5 million kg worth $276.5 million or Rs 1,830 crores, implying per unit realisation of $2.72 per kg which was up US cents 6 from previous month and down US cents 24 as compared to May 2015. In rupee term, the FOB values per kg of yarn export were Rs 180 per kg. Fiber wise the FOB realization for cotton yarn was Rs 179 per kg, viscose yarn Rs 203 per kg, polyester yarn Rs 146 per kg, PC yarn Rs 177 per kg and PV yarn Rs 178 per kg.
Meanwhile, over the past two years, FOB realisation averaged Rs 189 per kg in 2014-15 and Rs 181 a kg for 2015-16. The first two months of 2016-17, they averaged Rs 178 a kg. While there is marginal reduction in rupee realization over the observed period, the same in dollar terms has fallen from $3.16 a kg in 2014-15 to $2.79 a kg in 2015-16 and further to $2.69 a kg during April-May 2016-17. This implies that FOB realisation has fallen 6 per cent in rupee terms and a whopping 15 per cent in dollar terms. A large part of this fall has come from currency depreciation. In April 2014 the rupee was pegged at Rs 59.8 per dollar and the same stood at Rs 66.8 in May 2016, a depreciation of close to 12 per cent between the two points. The other fall has come from falling raw material cost.
Shabir Ahmed, Patron-in-chief Pakistan Bedwear Exporters Association has asked for a comprehensive textile package from the Federal government to facilitate the domestic industry, attract more investment and also compete in global market.
Ahmed said the Indian government approved Rs 60 billion special package for textiles & apparel sector to create 10 million new jobs in three years. As per estimates, Indian textile package will attract investments of $11 billion, besides generating $30 billion in exports. In addition, these measures also include additional incentives for duty drawback scheme for garments, flexibility in labour laws to increase productivity as well as tax and production incentives for job creation in garment manufacturing.
India has taken this step to facilitate the domestic industry and attract more investment in the textile sector, as over the last few years, apparel manufacturing had shifted to countries like China which had cost advantages. Ahmad feels, India already has advantages of economies of scale and Pakistan is facing tough competition. They believe that this package is a threat to Pakistan's textile industry as well as exports as these measures will help Indian exporters to capture the foreign markets.
Ahmed, India is confident of overtaking Vietnam and Bangladesh in garment exports within next three years if the package is properly implemented.
