German sports giant Adidas expects to bounce back to profitability in the third quarter after it plunged to a big loss in the second quarter when the majority of its stores were closed due to coronavirus lockdowns.

Adidas expects a material improvement in third-quarter sales assuming there are no new major lockdowns, but still down on 2019 by a mid-to-high single-digit rate.

It sees an operating profit of between €600 million and €700 million in the period. Adidas reported a second-quarter operating loss of €333 million (£301.16 million) worse than the €290 million expected by analysts on sales down 35% to €3.579 billion, ahead of analyst consensus for €3.3 billion.

The brand’s sales were flat for the second quarter in China, where it saw double-digit growth in May and June.

The quarterly loss included coronavirus-related charges of around €250 million, mainly due to an increase in inventory and bad debt allowances, as well as the impairment of retail stores and the trademark of its struggling Reebok brand.

The ‘2020 Fashion Industry Benchmarking Study’ says despite the changing business environment due to COVID-19, Asia's position as the dominant sourcing base for US fashion companies remained unshakeable. The study found the top 10 most-utilized sourcing destinations for US companies in 2020 remained the same as last year and eight Asian countries, including Bangladesh, saw a higher utilization rate this year than 2019.

Fifty-five per cent of fashion brands in the United States expressed their interest to expand sourcing from Bangladesh in the next two years while around half of the companies plan to modestly increase procurement from Indonesia, Vietnam, and India.

Benefiting from US fashion companies’ reduced sourcing from China, Vietnam and Bangladesh are expected to play a more significant role as primary apparel suppliers for the US market, the survey said. This benchmarking study was based on a survey of nearly 25 executives working at leading US fashion companies from April to June in 2020.

Around 29 per cent respondents indicated they would source more from Vietnam than China in 2020. Bangladesh became the third top sourcing destination for US fashion companies with an 85.7-per cent usage rate among respondents, up from 60 per cent in 2019, identified the benchmark study of the US Fashion Industry Association.

Executives from four Turkish denim mills discussed their strategies for navigating through the pandemic, sustainability investments and how the denim industry may change as a result of COVID-19 at a recent webinar.

Hurriyet Ozturk, Product Development Manager, Kipas believes the importance of Turkish denim mills is likely to grow post COVID-19. These mills can offer smaller runs, allowing brands with the flexibility to adopt a just-in-time manufacturing model that limits overstock risks. Their flexibility can also be extended to their dealing with clients. For instance, after closing temporarily in March, Bossa and Calik Denim were back in business offering extended payment terms to their clients.

These mills are innovating in the midst of a crisis. They are using this break in production as an opportunity to rethink products and marketing. They are adjusting to a blend of physical and digital interactions and moving towards seasonless collections, said Dr Sedef Uncu Aki, Executive Director, Orta.

Taking consumers’ needs into account, these mills are working on a number of concepts including denims made from more durable materials. They are using comfortable and CBD-infused fabrics alongwith biodegradable and recycled materials. Their investments in solar power and technology can reduce the amount of water needed in processing, he added.

Pinar Demirel, Marketing Communications Manager, Calik Denim said the lockdown period has helped the brand to analyze consumer needs and trends deeply.

According to the seventh edition of the survey report, conducted jointly by the United States Fashion Industry Association (USFIA) and the University of Delaware, Bangladesh became the third largest sourcing country for the US-based apparel and fashion companies in 2020, advancing from its last year's sixth position despite the COVID-19 pandemic, according to a latest study. Bangladesh's position improved mainly due to the 'most competitive price' it offers and exports similar products over the years, the study revealed.

Around half of the respondents revealed plans to modestly increase sourcing from a few Asian countries in the next two years including Bangladesh, Indonesia, Vietnam, and India. Bangladesh accounted for 9.4 per cent of US apparel imports in the first five months of 2020, which was a record high and up from 7.1 per cent in 2019.

The report indicated Bangladesh exported similar products to the United States from 2015 to 2019, its export to the US increased despite the COVID-19 and the US-China tariff war. The report also found Bangladesh offers the most competitive price, followed by Vietnam, Indonesia, Cambodia, India, and Sri Lanka. Other than the factor of labor cost, the strong capacity in cotton yarn and fabric production locally contributed to the cost advantage of ‘Made in Bangladesh’ products, it said.

However, respondents still regard sourcing from Bangladesh involving relatively higher compliance risks in general, with the rating score for the country at 2.0, the same as last year. Some respondents explicitly expressed their concerns about the dissolution of the Alliance and the Accord, a move that is widely viewed as not helpful with building more confidence in Bangladesh's social responsibility practices.

Columbia Sportswear Company will continue to invest in strategic priorities besides focusing on cost cutting. Second quarter sales, that ended on June 30, 2020, declined by 40 per cent to $316.6 million. The company incurred a net loss of $50.7 million compared to net income of $23.0 million in Q2 FY19. The company’s gross profit during Q2 FY20 declined to $146.2 million while its selling, general and administrative expenses declined to $217.6 million. Its loss from operations declined to $70.3 million.

The company’s sales in all its geographical regions reported a decline. While sales in the US fell by 42 per cent to $183.2 million, those in the LAAP region slipped by 34 per cent to $67.4 million. Sales in the EMEA region dropped by 36 per cent to $58.3 million while those in Canada decreased to $7.7 million.

Sale of Columbia’s brands declined 42 per cent to $265.8 million. The sales of Sorel brand declined to $13.3 million while those of Prana brand declined to $27.7 million. Apparel, accessories and equipment sales during the quarter plunged by 44 per cent to $243.8 million whereas footwear sales came down to $72.8 million.

A webinar organized by Lectra India – a leading fashion, textile, technical textile and automotive technology company – focused on the need for fabric optimization in factories by apparel industry stakeholders. The webinar was moderated by Suraj Niranjan, Marketing Head along with Rajeev Sharma, Solution Consultant, Lectra India. The webinar focused on how product development and production teams often struggle to bring innovative and cost-effective apparel products to the market quickly.

As around 40-60 per cent of the garment making cost is spent on fabrics, it is very important to save every square inch of fabric in order to secure profit margins and stay ahead of the competition, it said. Rajeev Sharma shed light on Lectra’s cloud-based software Diamino which helps apparel companies get the maximum output of their fabric by accurately estimating their fabric consumption. It also allows cutting room to automatically process markers to further create the most cost-efficient fabric layouts through its cloud application Quick Nest.

Inditex, the leading multinational garment company owners of Zara and other high street brands, and IndustriALL Global Union have signed a joint declaration on August 4 to support the recovery of the global garment industry from the coronavirus pandemic.

The agreement commits to stabilize stable payment terms and financing support to suppliers’ cash flow. It pledges to respect freedom of association and collective bargaining rights, giving workers the right to join a union to advance their interests. It promotes social dialogue at all levels, and commits both organizations to working with governments and business organizations in source countries.

The agreement reinforces commitments to other multistakeholder initiatives, including the ILO Call to Action in the Global Garment Industry and the ACT initiative. It will ensure the health and safety of workers. Supplier companies will implement protective measures, and provide personal protective equipment.

According to the World Trade Statistical Review 2020, published by the World Trade Organization (WTO), Bangladesh’s share in global apparel exports increased by 0.4 percentage point to 6.8 per cent in 2019 after a slight fall in the previous year. The country performed better than previous year due to opportunity presented by the US-China trade war. The fall in global market also boosted its market share, says Faruque Hassan, Former Vice President, BGMEA.

Economists also think China shifting helped Bangladesh to gain more in the export market. The country currently holds a 7 per cent share in the global apparel market and continues to grow. It helps the country to reduce the gap with China, the largest exporters of clothing goods, affirms Khondaker Golam Moazzem, Research Director, Centre for Policy Dialogue (CPD).

However, Bangladesh’s success in retaining its market share will depend on how much the country can benefit from the China relocation. Moazzem suggests focusing on producing products, which are being produced by China that are currently withdrawn by manufacturers due to relocation of investment.

Manufacturers have demanded policy support to retain the market share as the COVID pandemic has hit the sector badly. If the government continues provides financial support as working capital and in other forms, the industry will be able to retain the growth momentum, adds Abdus Salam Murshedy, President, Exporters Association of Bangladesh (EAB).

A resurgence of the pandemic in the US, Australia and some European countries has led to governments tapering off support for fashion businesses in these countries. Compounded by the stress of intermittent reopening and reclosing of stores, fashion retailers in these countries are planning to declare bankruptcy by the end of this year.

Despite US fashion retailers being allowed to operate during the crisis, they recorded a 7.3 per cent decline in merchandise revenues in the week ending July 19, reveals Affinity Solutions figures. Revenue of retailers in California, Texas and Arizona also declined. Revenues of California retailers declined by 19.9 per cent while those of Texas dropped 13.2 per cent and Arizona 18 per cent, states data from Opportunity Insights, a team of economists based at Harvard University.

Germany retailers, who closed down most of their nonfood shops for two months, also expects a 30 per cent decline in revenues, particularly in the fashion industry, says Neil McMillan, Director-Advocacy and Political Affairs, EuroCommerce, the association for retail and wholesale in Europe.

Second wave to hit retailers harder

Both European and Australian retail associations expect the effect of second round of shutdowns to hit harder incase governments withdraw support schemes introduced during the pandemic’s first wave. The Australian government recently announced plans to reduce funds provided for unemployed workers via its job keeper support scheme by around three-quarters. UK also plans to end its equivalent employee support scheme in the coming months. In the US, support is still on its way as the two main political parties continue to debate over the stimulus packages. It may be too late before this support actually comes as many retailers like JC Penney, Neiman Marcus, Lucky Brand, Brooks Brothers and Ascena have already filed for bankruptcy.

Besides uncertain government support, retailers also have to deal with sporadic changes in restrictions. UK forced all its non-essential stores to close only two weeks after opening. Though these stores have started to reopen, they are facing a 42 per cent decline in footfalls. Retailers need a clear communication on closures and reopening to help them secure premises, plan furloughs and manage stock levels to minimize waste, says Simon Jenner, Director, Leicester Business Improvement District.

Drastic impact on small retailers

Rising virus cases often compels retailers to shutter stores even without government mandates. As US considers shopping to be a safer activity than going to gyms, bars or restaurants, it has directed only Californian stores enclosed within indoor malls to close, says Jason Brewer, EVP-Communications and State Affairs, Retail Industry Leaders Association. Hence, the country directed only

The country reopened about 14,000 shopping and retail firms on March 1. However, they were soon closed again, says data from business directory website Yelp. Some of the other stores in affected areas also plan to close soon. However, this constant shutting and opening process may take a huge toll on small businesses who are already struggling to secure their future.

Global economic slowdown and US-China trade war caused the world merchandise trade to fall for the first time in 2019 since the 2008 global financial crisis. According to newly released World Trade Statistical Review 2020 report by WTO, world merchandise trade fell by 3 per cent in value and 0.1 per cent in volume during 2018-2019 as compared to the positive growth of 2.8 per cent witnessed during 2017-2018. The report estimates the value of world textiles and apparel exports to have decreased by 2.4 per and 0.4 per cent to $305 billion and $492 billion respectively in 2019.

Textile imports pattern remains stable

However, the pattern of world textile exports remained stable during the year with China, European Union (EU28), and India retaining their positions as the world’s top three textile exporters. Exports by these three economies accounted for 66.9 per cent of the value of world textile exports in 2019. Textile exports by Vietnam noted a positive growth of 8.3 during the year with the country surpassing Taiwan to rank the world’s seventh-largest textile exporter in 2019.

Reduced China share leads to 71.4 per cent decline in apparel exports

Though China, the European Union (EU28), Bangladesh, and Vietnam remained the world’s top four apparel exporters in 2019, their share in the world apparel export market declined from 74 per cent in 2018 to 71.4 per cent in 2019.

This was primarily owing to the reduced market shares of China in world apparel exports. Since 2014, China has been exporting less apparel and more textiles to the world. The country’s share in world apparel exports declined to 30.8 per cent in 2019. Apparel exports by Vietnam and Bangladesh grew but their share in the world market was limited.

Vietnam remains largest textile importer

The global textile import market is being increasingly driven by apparel-exporting countries in the developing world. In 2019, Vietnam was one of the world’s top three largest textile importers. In contrast, the market shares of the US and the EU declined from 40 per cent in 2010 to only 31.2 per cent in 2019.

US and the EU imported more finished textile products such as home furnishings and carpets as well as highly specialized technical textiles. Their demand for import of intermediary textile raw materials weakened during the year.

Emerging economies drive apparel imports

Most of the global apparel import demand is coming from emerging economies with a booming middle class. During the year, the European Union (EU28), US, and Japan emerged as the world’s top three importers of apparel. They absorbed 58.1 per cent of world apparel demand in 2019. However, their imports dropped by almost 84 per cent since 2005. This was a result of emerging economies becoming the world largest apparel consumption markets during the year. For example China’s apparel imports grew by 8.1 per cent to $8.9 billion. From 2010 to 2019, the country imported apparels at the rate of 15 per cent annually against 1.9 per cent imports by the traditional top three importers.

This story is taken from the blog by Dr. Sheng Lu, Associate Professor, Department of Fashion & Apparel Studies, University of Delaware, where he has analysed WTO report in details