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The pandemic has caused disruption to manufacturing across the world

The pandemic has caused disruption to manufacturing across the world



Covid-19 tangles the textile industry

Small and medium-sized enterprises (SME), a vital source of employment and growth in the industry, are likely to suffer the greatest impact of this global crisis, warns a latest report

August 2020

The emergence of the novel Coronavirus disease (Covid-19) has brought the world to a standstill. The heath crisis has had an immense impact on all economic sectors, including the global textile industry whose supply chains span several continents.

While lockdowns and salary reductions have suppressed consumer demand, at the same time, this highly globalised sector is also struggling with severe supply-side disruption. The shortage in supply of raw materials from Chinese manufacturers has resulted in a severe demand-supply gap. The manufacturers are further expected to be stranded on raw material orders owing to the logistics industry being significantly impacted due to lockdown amid Covid-19.

Sales slump

The short-term impact of the Covid-19 crisis has been reflected in a sharp drop in the product sales: In the European Union, the textile and apparel sector is forecast to face a potential 50 per cent drop in sales for 2020, according to a latest report by the International Labour Organisation (ILO).

Textile industry: hit by Covid-19

Textile industry: hit by Covid-19

Small and medium-sized enterprises (SME), a vital source of employment and growth in the industry, are likely to suffer the greatest impact of this global crisis,” warned the ILO Sectoral Brief of the textiles, clothing, leather and footwear (TCLF) industries.

Major brands have been forced to close stores in several countries and have subsequently already faced substantial drops in sales worldwide, a situation which is expected to continue to worsen over coming weeks, it said. For instance:

  • Adidas sales in China fell by 80 per cent between January and February 2020, with the sportswear giant forecasting a sales drop for China of $1.13 billion for the first quarter of 2020;
  • Ralph Lauren warned that global sales could drop by as much as $70 million;
  • Gap expects to experience a first quarter global sales hit of around US$ 100 million; and
  • Inditex has closed 3,785 stores in 39 markets – over 50 per cent of its stores – with combined store and online sales falling by 24.1 per cent in the first half of March 2020.

Global stock markets have reacted strongly to the crisis in the face of a potential global recession. Almost all major brands, including Adidas, Gap, H&M and Inditex have suffered dwindling stock prices over the past months.

The extent to which online retail can compensate in terms of overall sales during the period of store closures is yet to be seen. Retailers have employed tactics such as free shipping and heavily discounted products to encourage consumers to shop online. Nevertheless, while online shopping remains a viable option, rising unemployment, falling incomes and growing uncertainty mean that purchasing new clothing may no longer be priority for many consumers.

 

Production disruption

At the peak of the outbreak in China, shortages of raw materials and inputs were the primary concern for garment and footwear producers, causing disruption to manufacturing across the world, and particularly in TCLF-producing countries in South-East Asia.

As the epicentre of the pandemic shifted, first to Europe, then to the US and the rest of the world, and the economic impact has escalated, factories in many countries have been forced to close. In Mexico, for instance, the maquila industries, which include textile manufacturing, halted production following a federal order to close all non-essential economic activities for at least a month. The sector employs over 2.1 million workers.

In China, while garment factories are slowly resuming operations, companies are facing challenges to ramping up production, such as higher costs and continuing shortfalls of raw materials.

The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has reported a series of order cancelations, even for garments already in production or completed, which has caused the majority of affected factories to shut down operations. According to BGMEA, this amounts to lost revenue of around $3 billion and affects some 2.17 million workers.

These effects have been felt throughout the supply chain. Cotton prices have hit their lowest since the 2008 financial crisis.

 

Tradeaffected

While supply of inputs from China is improving, the decrease in demand from major economies has emerged as the major limiting factor for trade. In Central America, Nicaragua has forecasted a full-year of export decline, and Guatemala has announced that its shipments will face delays, the ILO report said.

The medium-term impact of the pandemic will remain to be seen as major importing countries in key markets across the world emerge from the worst of the crisis. In the longer-term, however, the pandemic could affect the composition of global textile, clothing, leather and footwear supply chains and trade, and accelerate the re- or nearshoring of production, it noted.

 

working conditions

Falling production and sales have had a significant knock-on effect on workers, both in terms of employment and working conditions:

  • An estimated 200 factories in Cambodia have either suspended or reduced production and at least 5,000 workers have lost their jobs.
  • In Myanmar, a lack of raw materials from China has led to the closure of at least 20 factories and the loss of 10,000 jobs.11 At the same time, the number of orders has plummeted.
  • In Viet Nam, an estimated 440,000 to 880,000 workers could face reduced hours or unemployment. In the worst-case scenario, this figure could increase to as many as 1.3 million.
  • In Bangladesh, as many as 2.17 million workers have been affected by the crisis, with many facing unemployment as orders are cancelled and production declines steeply. It is estimated that less than 20 per cent of firms are able to continue paying staff wages for more than 30 days under these circumstances, and over a million workers have already been dismissed or furloughed.

 

Responses

The report said that the severity of the Covid-19 crisis has necessitated a wave of emergency responses from governments, employers and workers in the TCLF industries. These include measures to stimulate the economy and labour demand, support enterprises jobs and incomes, and protect workers in the workplace; relying on collective bargaining and social dialogue for solutions.

While governments worldwide are implementing economic responses to limit the economic impact of the Covid-19 pandemic, many companies are repurposing garment and textiles production for the production of face masks and other personal protective equipment (PPE).  




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