Manoj Patodia, Chairman, Cotton Textiles Export Promotion Council (Texprocil) has hailed the new enhanced export credit risk insurance cover saying it will enable small exporters to explore new markets and buyers while diversifying their existing product portfolio. The new policy would also provide small exporters fund-based export credit working capital limit of up to Rs 20 crore.

The scheme was launched by export credit provider Export Credit Guarantee Corporation of India (ECGC) to insure up to 90 per cent of the credit risk in export finance and support small exporters by encouraging banks to provide more credit for export amid global economic uncertainty.

The risk cover will be provided by banks under the Export Credit Insurance for Banks Whole Turnover Packaging Credit and Post Shipment (ECIB-WTPC & PS). It would provide small object-oriented companies export credit at a lower rate from banks, besides other concessions. According to ECGC, the credit support extended for exports was Rs 6.18-lakh crore last fiscal with over 6,700 exporters benefitting from the direct cover issued while over 9,000 exporters benefited under the Export Credit Insurance for Banks as of March-end this year.

Increasing focus on sustainability is propelling the growth of global secondhand apparel market that is likely to expand at 11.2 per cent CAGR from 2021-2031. Sales through online channels are likely to grow at 17.9 per cent CAGR through the assessment period, says latest Future Markets Insights report.

Accounting for over 10 per cent of the world’s carbon footprint, the fashion industry is becoming more eco-conscious. With consumers expecting more transparent processes, the industry is championing the cause for a sustainable fashion movement while abandoning fast fashion that contributes to pollution, climate change and unethical labor practices.

One of the first to advocate for environment-friendly, cruelty-free, inclusive and ethical fashion, British fashion designer, Stella McCartney, is experimenting with new eco-friendly materials and technologies like organic cotton, ethically sourced wool, regenerated cashmere and recycled textiles. Other designers are also fusing high-quality natural and recycled materials to create a diverse range of adventure and outdoor apparel, including sustainable and ethical trousers and T-shirts.

Affordability driving second’s demand

The demand for secondhand apparels is being driven by affordability with consumers looking to buy low-cost disposable items. Sustainable fashion is emerging as one of the industry’s leading necessities with a large part of this change being driven by the pandemic. Used clothing market is also being driven by owning a pre-owned fashion product by local celebrities becoming a trend. Brands and manufacturers are launching several promotional activities to boost market for secondhand clothing.

One of the major exporters of used clothing in the US is expected to grow 2.7 per cent CAGR within North America region. Within the Oceania region, Australia will account for 72.6 per cent of the market Australia. Expansion of multinational secondhand apparel shops in the country will boost industry’s growth. Increased preference for designer clothes will also boost growth. These clothes are being rented rather than bought. They are also being leased by celebrities or fashion influencers driving up long term growth.

Growth trends

The shirts & T-shirts segment of the global secondhand apparel market is expected to grow at a 14.2 per cent CAGR during the forecast period. This will be driven by apparel companies’ increasing commitment towards sustainability. Online retailing is expected to grow at a CAGR of 18.7 per cent with retailers in the secondhand apparel market shifting focus to online used clothing platforms.

Maximum revenues in the seconds market will be by women consumers who will account for 45.2 per cent of the total share. During the pandemic, around 30-45 per cent women consumers purchased designer secondhand apparel online. The demand for secondhand clothing is also being driven by growing sales of luxury clothing in Europe.

To expand their business, secondhand apparel sellers are opting for strategic collaborations and marketing strategies. In July 2021, Madewell partnered ThredUp to sell secondhand clothes while in 2020, Tradesy, a designer reseller, acquired Fitz, a styling service, to compete with The RealReal.

Upgrading the retail sector’s outlook from negative to stable, credit rating agency ICRA projects a 13 per cent revenue growth for the sector in FY2023, with operating profit margins rising by 150 bps to 8.2 per cent Y-o-Y.

Retailers curb discounts as costs increase

Reduced sales compelled retailers to curb discounts during FY2021 and FY2022 as they attempted to protect gross margins. Improved vaccinations and resurgence in economic activities boosted sales recovery post second COVID-19 wave. Sales bounced back swiftly after being impacted by the third wave in January and February 2022, says Sakshi Suneja, Vice President & Sector Head, ICRA. ICRA projects, retailers’ revenues will surpass FY2020 pre-COVID levels by 5-6 per cent in FY2023 as they have recovered almost 90 per cent of pre-COVID levels in FY2022.

Store recovery driven by demographics, rising incomes

Revenues of retail entities analyzed by ICRA will grow 6 per cent in FY2023 as footfalls at stores have surged grown past the pre-pandemic levels in Q1 FY2023, adds Suneja. This will lead to a rise in discounting levels as retailers will compete to grab a higher share of consumers’ spending.

The industry’s prospects will be boosted by favorable demographics, rising disposable incomes, and low penetration of organized retail. In FY2022, most retailers deferred cuts in employee and advertising expenses. They undertook new rental negotiations during the year though the concessions offered to them were lower than 2021.

Expenses on advertisements, employees to surge

Expenditure on advertisements and employees is expected to increase in FY2023. This will boost retailer’s operational profit margins leading to healthy revenue growth. Most large listed companies raised funds in FY2021 to deleverage their balance sheets and boost liquidity. This strengthened their balance sheets despite lower-than-pre-COVID revenues and profits in FY2021.

Retailers also embarked on store expansion plans in FY2022, with companies surveyed by ICRA doubling their investments in new store additions in FY2022 compared to FY2021.

Store additions to increase 45%

Retailers will continue to expand stores in FY23, says the ICRA report. Most companies surveyed will boost investments in new store additions by 45 per cent. Most stores will open in Tier II-III towns. The share of online sales will increase to almost 14 per cent of revenues by 2024 from 8 per cent in 2022. However, they would not replace brick-and mortar sales, says Priyesh Ruparelia, Vice President and Co-Group Head.

Large, listed entities will be adequately supported by strong balance sheets, as indicated by liquidity infusion in them. Their debt coverage indicators will be supported by improved cash flows in FY2023 while debt-to-operating profit will improve to below 1 times as against 1.4 times as of March 2022, adds Ruparelia.

The USFIA (United States Fashion Industry Association) 2022 Fashion Industry Benchmarking Study, indicates, over 50 per cent of the US apparel executives plan to source more from Bangladesh than from Vietnam, Indonesia, China, Cambodia and other competitors in the course of next two years.

The report published by USFIA, shows a staggering 55 per cent of the US apparel executives have expressed interest to increase sourcing from Bangladesh till 2024, including 3 per cent who expected a strong increase.

The report further underlined India led countries or regions the US fashion companies planned to increase their sourcing value in the next two years, It was followed by CAFTA-DR region and Bangladesh while Mexico came in the fourth place in this regard, with Indonesia and Vietnam tied for the fifth position.

CAFTA-DR or Dominican Republic-Central America FTA is the first free trade agreement between the United States and a group of smaller developing economies, which includes Guatemala, Honduras, Nicaragua, Costa Rica, El Salvador and Dominican Republic.

Utilization Declaration (UD) permission taken by the Bangladesh exporters rose by 3.33 per cent to 14,083 during the January-June period of 2022,, as BGMEA. The permission is granted to exporters to import raw materials to execute work orders placed by an importer and it indicates flows of work orders. Among the six month it posted positive growth only in January by 150.57 per cent to 3037 as it recovered from Covid-19 pandemic.

However, the issuance of UD by the BGMEA declined by 12.77 per cent to 2178 in June, which was 2,497 in the same period of last year. It declined by 15.80 per cent to 1,907 in May, followed by9 per cent to 2,452 in April, 11.60 per cent to 2,269 in March, and 6.27 per cent to 2,240 in February. Continuous decline in the last five month made the exporters fearsome and they fear negative growth in the upcoming months.

As an export led growth economy, Bangladesh cannot escape the impacts of the global economic crisis. High inflation in the EU and US is a big concern for Bangladesh, says Professor MustafizurRahman, Distinguished Fellow, Centre for Policy Dialogue (CPD) said.

To avert the impact of the crisis, Bangladesh has to focus on non-traditional markets most in South Asia and East Asian markets, adds Rahman. On the other hand, intra RMG diversification is the key to remain safe amid the crisis. Meanwhile, exporters called for more policy support to overcome the crisis and retain the export growth. In FY22, export earnings from readymade garments rose by 35.47 per cent to $42.61 billion year-on-year.

China’s cotton yarn exports in June 2022 declined by 13.7 per cent Y-o-Y to 14kt. In the first half of 2022, the exports declined by 6.7 per cent to 80.7kt.

The product structure of the exports did not change much from 2021. It was concentrated in medium to high-count combed cotton yarn and low-count carded one.

In terms of the export volume, carded 8.2-25S rose by 53 per cent and combed 8.2-25S increased 18.9 per cent, while combed 8.2-25S plied yarn declined 25.7 per cent and combed 66S plied yarn moved down 23.7 per cent.

In terms of the destination, the largest destination of Chinese cotton yarn has changed from Pakistan to Bangladesh. The shares of Hong Kong sharply dropped to 4 per cent and that of Vietnam inched up.The export volume to Vietnam, Thailand, Iran and Bangladesh all saw big leaps.

The Netherlands-based brand The Sting plans to expand sourcing from India and Bangladesh. As per an Apparel Resources report, the company recently expanded its India operations besides opening an office in Dhaka, Bangladesh. With 150 stores at the moment Sting is looking to opening more outlets besides upgrading existing ones.

Subaash Dhananjayan, Managing Director, India & South Asia, The Sting Companies Sourcing and Productions says, the company aims to increase sourcing from India to €15 million in the current fiscal. It aims to source a mix of basic as well as fast fashion. The company has an office in Tirupur and Delhi, with a team of 17 people, while in Bangladesh it has hired six professionals to start with. The company sources circular knits for men and women alongwith soft woven category for women living outside India in collaboration with nearly 10 Indian vendors.

Bangladesh is a highly important sourcing destination for the company with growth in factories being impressive. The company focuses on circular knit, soft woven, woven shirts, flat knit, denim, non-denim, outerwear jackets from Bangladesh and aims to increase sourcing from the country under the leadership of Enamul Haque Bipul.

The recent US import ban on Xinjiang related products has made it difficult for the international fashion industry representatives to choose between cotton-related goods from China's Xinjiang region, a key global supplier, and elsewhere. Mamun Mridha, Joint Secretary General, Bangladesh China Chamber of Commerce and Industry (BCCCI), says, the country is well aware of the US ban and is monitoring the issue closely.

While Bangladesh does not import much cotton from Xinjiang, almost 60-70 per cent of the country's yarn and fabric comes from China, adds Mridha. Recently, the country passed the $52 billion mark for exports, and among that almost $42 billion came from exports of garments and textiles, according to the BCCCI.

The Uyghur Forced Labor Prevention Act (UFLPA), which came into force on June 21 after being signed into law by Biden on December 23, 2021, assumes that any product partly or wholly made in Xinjiang, is linked to the US hyped "forced labor" claim and subject to an import ban.

In the ninth annual Fashion Industry Benchmarking Study recently released by the US Fashion Industry Association (USFIA), it shows, Asia remains the dominant base of sources for US fashion companies; eight of the top 10 most-utilized sourcing destinations are in Asia, led by China, Vietnam, Bangladesh, and India.

The USFIA claimed that one-third of their surveyed respondents report sourcing less than 10 percent of their apparel products from China this year, but the association admitted that over 95 per cent of respondents said they expect the UFLPA to affect their sourcing.

Compared with finished garments, US fashion companies' textile raw material sourcing seems less diversified.

In the first six months of 2022, China’s supplies of textile, leather and footwear materials and accessories to Vietnam increased to 53 per cent of the total $14.71 total imports by the country. As per a report by the General Department of Customs, Vietnam’s import of raw materials and accessories declined over 16 per cent to $2.40 billion in June ’22, compared to the previous month.

China is the largest supplier of raw materials and accessories to Vietnam with exports increasing by 11.70 per cent to $7.80 billion compared to the previous year. Vietnam’s imports from Taiwan increased by 6 per cent during the period while those from South Korea surged by 2 per cent.

In the past six months, Vietnam’s imports of fabrics of all kinds increased by 9 per cent to $8 billion, while those of raw materials for textiles, leather and footwear surged by 5.5 per cent to $3.52 billion (up 5.5 per cent). Imports of cotton of all kinds increased by 15.5 per cent to $1.83 billion while those of textile fibres of all kinds surged by 6.4 per cent to $1.41 billion.

After a decline in the previous two fiscals, Bangladesh exported RMG products worth over $1 billion to Japan FY2021-22. Bangladesh’s RMG exports surged 16 per cent to $1.098 billion in FY22, shows data from the Bangladesh Garment Manufacturers and Exporters Association (BGMEA). In FY2020-21, Bangladesh had exported RMG products worth $944.82 million. Its RMG exports first crossed billion dollars with $1.091-billion earnings in FY19.

Local exporters highlight issues including buyers' zero-tolerance policy on quality, timely shipment and language as obstacles to exporting apparel items to Japan.

Fazlee Shamim Ehsan, Vice-President, Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) says, exports to Japan also declined due to the pandemic. He urges for an exclusive marketing policy there to boost exports. According to a recent UNCTAD report, preferential access to Japan for duty-free treatment of T&C (textile and clothing) products for the targeted LDCs largely depends on their membership to the Association of South East Asian Nations (ASEAN).

Bangladesh and Nepal will be subject to the GSP or MFN (most favoured nation) rate in their exports to Japan as they are not part of ASEAN and therefore, do not benefit from the ASEAN-Japan Comprehensive Economic Partnership Agreement (CEPA), it notes.

In this context, they will face tariffs on their exports ranging from 8.5-9.0 per cent. Ehsan urges the government to start lobbying for Bangladesh to enjoy the existing duty benefit even after its graduation. He also advises entrepreneurs to focus more on increasing efficiency, product diversification and reducing wastage to retain competitiveness during the post-LDC period.