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How to capitalize on this situation and what is the way forward to ensure maximum profit out of it?

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Industry Correspondent:  Textile Industry is the main foreign remittance earning sector for Bangladesh. This industry suffered a lot during the COVID -19 pandemic. Now the industry is trying to recover the gaps. According to many sources it is evident that most of the export-oriented garments factories are packed with business orders up to April 2022. Team Textile Focus talked with different factory owners regarding how to capitalize on this situation and what is the way forward to ensure maximum profit out of it.

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Barrister Shehrin Salam Oishee, Director, BGMEA & Envoy Group: 

It’s true that business is turning around globally, as global demand for clothing is rising sharply, reflected by sharp rebound in clothing retail sales in USA and EU.We don’t have any centralized database to track future orders likewise, to validate the fact that factories are booked till April 2022, although the UD in September and October has seen around 20% growth.

However based on the export growth in September and the projected growth in October, which may see a similar growth like September, it may be said that the upcoming few months may see a stronger rebound in exports. The other factor behind the growth is the inflated cost of raw materials.

Navidul Huq Director, BGMEA & Managing Director, MG Knit Flair Ltd :

Because of the demand post covid worldwide Bangladesh is blessed with an influx of orders. Power and energy shortage issue in China is also a worrying situation for buyers so they are looking at Bangladesh. But the reality is that raw material price increases have wiped out our nonexistent margins even more.

Most factories are losing money doing orders in the current scenario. It’s time as an industry we work on pushing prices up so that we can sustain. Retailers all around the world have increased their selling prices for clothing. It’s time factories also increase their selling prices so that they can also sustain.

Syed M Tanvir, Director of Pacific Jeans Ltd and former Director, BGMEA:

I would say it’s an opportunity and threat at the same time. It’s Opportunity because a lot of orders have been shifted to Bangladesh from other sourcing countries and all the factories who’ve been suffering from Covid crisis can finally have enough orders to recover their losses. However, it’s a threat because it has created a crisis of skilled resources which might eventually lead to unwanted delay and quality failures. That’s why we should take a long term strategic approach towards business sustainability rather than short term business growth.

Khan Monirul Alam (Shuvo), MD & CEO, Fashion. Com Ltd and Alps Apparels Group :

I don’t prefer to look at it as an opportunity for “profit maximization “. Rather I believe it’s a great opportunity to bring much needed stability in the sector- something which was missing a long time and was heavily tilted towards buyers. So, under the circumstances what I’m telling myself is –

  1. Know your true cost and learn to say NO if the prices are below your cost.
  1. Don’t overbook yourself, the way materials and Freight’s are now- taking more than your capacity can have negative consequences.
  1. Try to diversify a part of your capacity. Don’t only fight for the five basic product categories. Do some value addition – make it interesting. It is not a race to the bottom.

Mostafa Quamrus Sobhan, Chairman, Dragon sweater and spinning : 

In Fact, it is true that a huge volume of orders is coming into Bangladesh. This is due to the fact that markets are opening up worldwide post lockdown and with easing of travel restrictions by various governments are boosting up consumer confidence to purchase goods and services. Confidence is also boosted due to the fact that almost half the world’s population is now vaccinated  against covid 19 and it seems like that this disease is on track to become an endemic and may soon be regarded as a seasonal flu of a different kind.

However the market dynamics has changed and continues to change as more and more people switch to online portals for shopping due to its convenience , easy navigation options and real time stock data and selections which are available with just a few clicks or by swiping the screen. Globally we are seeing the rise of new name on the online scenarios who are becoming global or local online giants with extremely fast delivery mechanisms.

As orders move into Bangladesh, we need to be extremely careful about two factors-

1. Shortage of raw materials production in China due to energy crisis, global shortages of containers and vessels, high local Chinese internal demand will pose threats to the supply chain process and will result in high prices of yarns and fabrics, shortages and delivery disruptions.
2. The garments and sweater manufacturers must be careful with their costings and must keep room for unseen price movements and potential supply disruptions.  They should cost in such a way so that at least 40% gross profit margins are maintained in each order. Failing to keep such may result in serious losses and will certainly lead to commercial unviability.
During my trips abroad I have noticed that Bangladeshi products are sold at the lowest price spectrums whereas similar products with same fabrics/yarns imported from Vietnam, Cambodia or elsewhere are being sold at a higher price spectrum.
This is a result of our internal rat race where we have expanded our capacities beyond reasonable measures. And seeing the influx supply opportunities as most buyers took full advantage of this situation by reducing the prices year after year to an undesirable level.
Therefore now the time is right to mend these mistakes and we must bargain with our existing buyers or hunt for new buyers who will pay reasonable prices which will sustain our long-term production viability as a company and help us to support the country with valuable export earnings.

Md. Jasim Uddin, Managing Director, Texture BD:

Yes, most of the factories are currently overbooked for AW22 and SS22 orders. We are passing very critical moments; as you know, nowadays, cotton yarn prices hike historically—the trend of the cotton share price on markets showing more strong positions. My idea 30/1 Ne cotton yarn price will hit USD 5 plus shortly.

If anyone already took the orders and didn’t in-house the raw material, they will be in big trouble executing the orders. Many factories are suffering to get the yarn on time from the spinning mill. It usually takes 15 days to get the yarn, but currently, it hits 45 days. This delay sometimes causes air shipment, discounts as well as cancellation of products. The cost of knitting and dying has already increased by 15%. The overall raw materials cost increased 60-70%, which impacts a big difference on profit margin.

The vital points are raw materials price and how you calculated CM to maximize the product’s profit. As we have an overflow of orders, there is a possibility of negotiating the prices with buyers and pushing them for an up-charge. We should offer better prices to customers and keep patience to get the response from them.

Sometimes we hurry to book the orders to secure the factory space, but we should change our selling behavior. There is no alternative to increase product prices to get the profit margin, and this is the high time to set a new benchmark of prices with buyers, which might run for the long way.

We need to improve our product selection knowledge and cost parameters and increase production efficiency to maximize profits. In addition, everyone should analyse the risk parameters before taking any orders, which might increase profitability.

I am very much concerned about the SS22 orders because of cotton prices ,claming  higher container cost. We might face orders shortage because of unstable market conditions. Everyone should take the necessary steps to make sure sustainable orders grow.

Ehsan Haq, Director, Knittex Industries Ltd: 

Because of the demand post covid worldwide Bangladesh is blessed with an influx of orders. Power and energy shortage issue in China is also a worrying situation for buyers so they are looking at Bangladesh. But the reality is that raw material price increases have wiped out our nonexistent margins even more. Most factories are losing money doing orders in the current scenario. It’s time as an industry we work on pushing prices up so that we can sustain. Retailers all around the world have increased their selling prices for clothing. It’s time factories also increase their selling prices so that they can also sustain.

The recent influx of orders into Bangladesh have been an absolute sign of recovery for the RMG sector. We still remain the most competitive in terms of price globally and right now with the present China situation, it works mostly in our favor which has resulted in this flow of business into the country.
However with this comes the main question of profits. How to sustainability make and retain profits, especially at a time when global costs have gone up significantly. If you assess general costs such as gas, electricity, logistics, water, human resource, cotton and other raw materials etc, you will notice that everything has gone up in terms of cost. The best way to offset this is to genuinely account for these costs and incorporate them into our prices.

If we charge the same prices and CM as a year back even, we would not retain healthy profits, nor can we reap the benefits of economies of scale. At the same time, simply raising the price to an illogical level is also counterproductive. As our current BGMEA president Mr. Faruque Hassan pointed out in our latest BAYLA roundtable discussion, our main strength is our competitive prices. So, we must retain that edge in Bangladesh at all times. This means that we must stay vigilant and aware of other RMG prices globally in our rival nations such as Vietnam, Cambodia, India, Turkey, Egypt and so on. We need to ideally find a new “sweet spot” for pricing where we can get a higher price than previous years but remain ahead of our competition as well. Cost saving and production efficiency are both important as well as better mod management training. But it’s increasingly difficult to lower costs when globally all costs have risen.
One thing is for sure, Bangladeshi RMG factories need to share a unified vision about demanding a higher price from our customers that is both reasonable and equally sustainable.

Rakibul Islam Khan, Managing Director, Pakiza Knit Group : 

Actually, our biggest challenge is to manage the unstable yarn prices. To maximize profit, we have to be intelligent when procuring the yarn. Also due to competitive prices we have to be efficient in production by adopting new and efficient technology and techniques.  Although this might sound a generic response but in reality, we have to do this in order to get the maximum profit in this situation as price of all raw materials have increased by 15 to 20 percent but our buyers have not increased their garment prices.

Mahbubul Arefin Chowdhury Abir, DMD, AJ Group: 

This is a welcome change for our businesses. However, we must be wary of our factories being overbooked and rely heavily on proper planning. We also have to consider potential lockdowns in China and how it may affect our supply chain. Many customers are now coming out of China and Vietnam to Bangladesh. It is up to us to be a reliable sourcing destination and to nurture good strategic relationships with them for the long term.

Mijanur Rahman, Managing Director, Teximco BD Ltd:  

Yes, due to yarn, transportation, China issues may customers can’t place the order. Lots of challenges are coming in next session. Still order is good and manufacturer need to focus on product diversification .Day by day product price is decreasing so we need a smooth supply chain for sustainable raw material sourcing. Bangladesh needs to pick a strong position in the global apparel market, we should focus more on innovation and value addition in the industries with a short lead time that can be the lifeline of the apparel industry.