2023 will be a year where consumers will be unpredictable and fickle and buyers will be extremely cautious, constantly factoring in the changing shopping behaviors of the consumers, global risks, and uncertainties. Global inflation due to higher interest rates, the economic slowdown at the brink of recession in the West, and unusually high oil, gas, and food prices have raised havoc in the global financial world. Bangladesh’s export-oriented garments sector, which depends on the global market, has been directly impacted by this global market crisis, along with the country’s own internal economic instability.
But in the midst of this huge storm, the RMG sector of Bangladesh is standing strong and showing tremendous resilience. This is primarily due to the diversification of product categories and growth in the production of high-value-added goods. To sustain the growth target, navigate through the global economic storm, and capture a broader global apparel market share, the RMG sector needs to undertake a planned initiative to broaden the number of categories of products it manufactures, such as women’s dresses, tops and sportswear, jackets, suits and blazers, dress pants and higher value-added products. This expansion has to happen with both cotton-based raw materials, as well as with man-made fiber.
Bangladesh needs to make adjustments due to the global fashion industry’s challenge to weather the inflation storm and find new opportunities in shifting customer purchase patterns, channels, and digital marketing strategies. Customers are changing their purchase patterns from the pre-Covid-19 and Covid-19 phases; sometimes the changes are fairly drastic. The fashion industry has globally experienced robust growth for the last 18 months (early 2021 through mid-2022). But now, the industry is facing a sudden slowdown in demand across all categories of clothing products. But the drastic slowdown is in categories like denim, crew neck t-shirts, and a few other generic categories. This has created an overstocking with all major global buyers in these categories that Bangladesh traditionally manufactures. This slowdown in demand and sales will continue throughout 2023, according to the latest McKinsey report on the apparel sector.
The fashion and apparel market, excluding the luxury sector, will struggle to deliver growth in 2023, both McKinsey and KPMG say. According to McKinsey, the global apparel sector will exhibit slow to negative growth of negative 2% to 3% in 2023. The European market will have less growth than the US and other markets, forecasted to shrink between negative 1% to negative 4%. The US market will remain relatively strong with a forecast of small growth between 1-6%. We can already see this trend in Bangladesh’s RMG export data where European exports are slowing down, and US exports are showing strength, relatively. But since Bangladesh exports more garments to Europe than the US, there are chances of missing the export target for the year as a whole.
But due to the BGMEA’s efforts of elevating Bangladesh’s brand image, and the smart move of the RMG entrepreneurs in the diversification of products from basic to fashion and higher value products, Bangladesh is being able to navigate through this challenging market condition. More adjustments in manufacturing categories can be and should be, done based on the global shifts in fashion.
To make smart and prudent adjustments in shifting product categories, the shifts in buying patterns should be carefully followed. Two tracks of buying patterns are being observed and predicted by market experts: depending on the factors such as the disposable income of the consumer, some will postpone or curtail discretionary purchases while others will seek out bargains. But even in the case of bargains, consumers are looking for more formal attire and fashionable products.
The other very interesting scenario is that the consumer with higher disposable income is growing rapidly all over the world and particularly in the US due to the demand for high-paying jobs. This is creating higher demand for high-fashion garments for mid to high-luxury brands.
So, overall, there is demand for the products on sale and those available at discount stores, as well as demand for elevated fashion, higher price range garments that are fashionable, and high-quality apparel produced with high-quality raw materials.
These opposing trends have created a challenge for the buyers as well as the manufacturers. Most of the buyers’ top executives are making very careful and conservative order placements due to these shifting buying patterns, inflation, and geopolitical uncertainties. So, Bangladesh’s manufacturing companies have to also adapt to faster lead time in manufacturing and adjust to much smaller order quantities.
Advanced booking of capacities for large production space will not be very common throughout 2023. All manufacturers are facing late order placement where buyers are demanding very sharp prices and quick turnaround time for manufacturing. To make things worse, the buyers are also delaying taking the goods, which is causing a cash flow issue for most of the RMG manufacturers in the country.
Given all the global challenges in the apparel sector, Bangladesh remains the preferred destination for global buyers to produce garments. Due to challenges faced in China for the cotton embargo and worsening Covid-19 uncertainties, there is a continuous outflow of orders from China, and Bangladesh is the biggest beneficiary of that outflow.
Manufacturers are bravely entering into new categories like suits and high fashion luxury women’s dresses and attire. The per unit garments prices are on the rise, but this shift takes time. On one hand, the basic products for which manufacturers have large capacities are going unfilled in recent months, and on the other hand, manufacturers who have moved early to diversify their product categories and moved into multi-product fashion categories are having their products fully sold out. Many manufacturers are in the process of shifting to adjust to the market demand, but proper market analysis and guidance are missing. Also, the Bangladesh Bank has tightened its monetary policy due to tremendous mismanagement and ill-motivated junk loans in the financial sector for the last few years and thereby is now pushing the entire financial sector of the country into a vulnerable position.
So, the weak banking sector is showing no interest or the banks are incapable of funding the investment required for the RMG factories to transform and adopt the very necessary diversification. The government is giving lots of assistance to the RMG sector, but it is not taking any significant initiatives to retool the factories and invest more in the transformation of the factories for elevated products.
In order to meet the export targets and exceed the target, some low-interest funds should be allocated by the central bank for purchasing new sophisticated machines and technologies in cutting and digitization. To add to this already difficult financial crisis faced by the RMG sector, the Bangladesh Bank has totally mismanaged the exchange rate and decided to create the largest difference between the exchange rate of export vs remittance in the history of Bangladesh. Under normal circumstances, the difference between the export and remittance rate difference remains less than Tk1. But now the difference is more than Tk6 to Tk7 and the Bangladesh Bank is using brute force to keep such a rate difference, which is not possible unless the central bank is willing to pump in USD from its reserves.
Despite repeated requests from the BGMEA to narrow the difference and give some breathing room to RMG manufacturers, the central bank is guiding its monetary policy with force and not by open market supply and demand. RMG export is the only bright spot in the current economic environment of the country and if given priority, there are opportunities where the export can get Bangladesh out of the current reserve and balance of payment crisis.
But a collaborative effort has to be taken by the Bangladesh Bank, NBR, and other government agencies to promote RMG export and give RMG the highest priority.
Still, the abuse from NBR continues towards the RMG sector and little has been done to relieve the sector from the constant obstacles created by the inconsistent ad-hoc attitude of the bond, port, and VAT authorities, which are all under NBR.
Electricity and gas supply still remain major issues for the RMG manufacturers. To grow manufacturing and to be competitive in this global market, the factories need quality and consistency in energy supply.
The government needs to make a course correction on the energy policy which was focused mostly on outside resources. Given the global energy price hike, the government’s energy policies and the sector’s mismanagement has been exposed and the RMG sector has faced a tremendous blow due to the crisis. The need of the hour is to ensure uninterrupted electricity and gas to the industrial sector and provide both mid-term and long-term guidance on how the sector should plan its growth.
In a nutshell, the year 2023 will be a year where consumers will be unpredictable and fickle, and buyers will be extremely cautious, constantly factoring in the changing shopping behaviors of consumers, global risks, and uncertainties. Inflation and uncertainty topped the list of 71% of apparel buyers’ executives surveyed by KPMG. The RMG sector in Bangladesh has shown resilience for the last 40 years and faced many challenging years like 2023.
However, the sector is stronger and more mature than ever before. With proper support from the government and by adapting to changing fashion product demand and diversification, the RMG industry can emerge stronger and actually gain a bigger global apparel market share.
The author is the managing director of Sparrow Group of Industries.