According to India Ratings and Research (Ind-Ra), the nationwide lockdown in India is likely to impact the textiles sector both in terms of demand and supply and the EBITDA might drop by least 15 per cent in 2020-21 across the industry portfolio, a report said.

While India's dependency on imports is limited, it is dependent on exports and hence, the return of demand from the key markets including the US, the UK, the UAE and China is critical. The EBITDA (earnings before interest, taxes, depreciation and amortisation) will drop at least 15 per cent in FY21 across its textile portfolio, the report said.

Further, the COVID-19 pandemic is likely to continue to impact the global textile production and supply chains and thereby textile product prices. The Indian textiles industry has taken a major hit because most of Indian yarn exports are to China, it added.

The agency estimates India's exports will be substantially hit till the first half of FY21, which had already reduced by more than 40 per cent till January 2020 due to the US-China trade war. Meanwhile, it revealed that cotton prices continued to soften in February 2020, due to lower export demand and squeezed domestic consumption. They fell to Rs 111 per kg in February 2020, compared to Rs 118 in the same month in 2019, on account of reduced offtake by mill owners, which are facing the heat of excess production and supply disruptions amid the spread of COVID-19.

However, the Cotton Corporation of India continues to hold up the stock (40 per cent of total arrivals) and would maintain the current prices over the short term. While in the long term, a higher uncertainty regarding the duration of lockdown would be negative for the prices and pressure the liquidity of cotton spinners who are holding a cotton inventory of three to four months.

Primark has established a fund to cover the wages component of orders that have been cancelled. The company asked suppliers to stop production as it already had some £1.6 billion of paid-for stock in stores, depots, and in transit. All of this stock has been paid for under its normal 30-day payment terms.

On top of that, extended payment terms have been offered to suppliers to enable Primark to take and pay for further stock ready for shipment. This is despite the fact that nothing can be sold while the stores remain closed. In addition, Primark is concerned about the impact of workers engaged in production on further orders that Primark will now not be taking – that is, goods in production that were due for shipment in the month following cancellation of orders.

Accordingly, Primark has announced that it will fund payment of the wages that relate to this product, taking into account adjustments for government support packages provided in each country. This action will cover orders from Bangladesh, Cambodia, India, Myanmar, Pakistan, Sri Lanka, and Vietnam.

In consultation with external stakeholders, the Primark ethical trade team will explore mechanisms to ensure that this money reaches workers. Additionally, over the past two weeks, Primark has been working closely with the United Nation’s International Labour Organisation (ILO) in order to collaborate with governments, international financial institutions, development banks and others in a position to make available medium and longer-term financing to pay the wages and benefits of workers along with economic support to the garment industry.

Eurovet, the organizer of shows such as Interfilière Paris, has rescheduled its summer events to September due to the disruption of the COVID-19 pandemic. The company has also decided to postpone The Paris Fashion Week, in present exceptional circumstances.

Interfilière Paris and Riviera will be held alongside Who’s Next in early September to support the relaunch of the industry. In these events, suppliers of materials and textile accessories for Lingerie, Swim and Sport will come together while swimwear and lingerie brands will present their new collections at the Riviera show, the event for late-season orders.

Through this, Eurovet aims to allow international industry stakeholders to meet, exchange ideas and build the future. The organiser is committed to working with all players involved in order to accelerate this reboot together, once the industry emerges from this crisis.

Even though China has returned to relative normalcy while others are still reeling but conditions in the country’s manufacturing sector aren’t entirely rosy. Daily confirmed infections had dropped as the country employed dramatic actions to staunch the spread, but China’s National Health Commission reported 39 new cases of COVID-19 on Sunday, up from 19 on Saturday. Thirty-eight of the cases reported on Sunday means China hasn’t been able to stop new people from coming in and infecting its populous.

Guangdong, the center of China’s export-led manufacturing industries, reported six locally transmitted infections over the weekend, which means the spread there could be harder to slow. The continued dispersion of the pandemic, slowed or not, is posing problems for China’s production orders, which are shrinking and dragging the country’s exports down.

In a report, the China National Textile and Apparel Council (CNTAC), said the country is being hit with similar order cancellations from Western brands whose businesses have screeched to a sudden halt. But the decline in production orders means just 9 percent of manufacturers are reaching 80 percent of their normal export capacity, and more than 61 percent say their export orders are less than half of what they’d typically have.

According to weekly reports and cluster survey data, 80 per cent of enterprises reported that there were insufficient orders this week, which was 23 percentage points higher than a week ago. The entire export industry chain is facing greater operating pressure, and the starting load has shown a downward trend.

Covid-19 has led to exporters bleeding with upwards of 15-20 per cent of the orders getting cancelled and a major amount of funds being locked up, owing to non-payment of dues by large buyers in the US, Europe and West Asia, prompting them to seek a bailout from the government.

Food and farm products seemed to be the sole exception is robust demand for essential products. However, there are challenges in availability of containers and packaging material and machinery, along with certification required for products such as spices that are to be shipped to Europe.

According to Engineering Export Promotion Council president Ravi Sehga, if the lockdown doesn’t end soon, exporters could be staring at losing around 80 per cent of their orders. In a study, Gems & Jewellery Export Promotion Council has warned of an additional $2.7-billion impact in 2019-20 as shipments in March are projected to fall by 12 per cent compared to the average decline of 5.5 per cent seen during the previous months of the last year.

AEPC said close to Rs 15,000 crore (around $2 billion) worth of orders in the pipeline have been cancelled, while payments to the tune of Rs 10,000 crore are held up.

The Cotton Association of India (CAI) has retained its cotton crop forecast for the 2019-20 season, beginning from October 1, 2019, at 354.50 lakh bales of 170 kg each as in the previous estimate. The total cotton supply estimated by the CAI during October 2019 to March 2020 is 327.53 lakh bales (170 kg each) which consists of the arrivals of 283.03 lakh bales up to March 31, imports of 12.50 lakh bales and the opening stock estimated by the CAI at 32 lakh bales.

Further, the CAI estimates cotton consumption during October 2019 to March 2020 at 154 lakh bales, while the exports have been estimated at 31 lakh bales up to March 31.

Stock by the end of March is estimated to reach 142.53 lakh bales, including 34 lakh bales with textile mills and the remaining 108.53 lakh bales with Cotton Corporation of India (CCI) and others (MNCs, traders, ginners, among others).

Cotton supply up to September 30, 2020 was estimated at 411.50 lakh bales (the same level as estimated in the previous month). Domestic consumption for the entire crop stood at 331 lakh bales, the same level as estimated by the Cotton Advisory Board in their meeting held on November 28, 2019. The CAI estimated exports for the season to have been 42 lakh bales, the same level as estimated in the previous year. The carryover stock estimated at the end of the season stood at 38.50 lakh bales.

UK-based suppliers fear being wiped out as retailers are extending payment terms and cancelling orders. As the UK Fashion and Textile Association revealed, retailers are extending payment terms from 60 to 120 or even 150 days. Suppliers to New Look, a fashion chain with more than 400 stores in the UK, last week received a letter informing them that they would not be paid for orders in production. The firm has temporarily postponed outstanding supplier payments until the Paragon Clothing, which designs, sources and supplies fabrics and clothes for fashion retailers, is also witnessing effective cancellation of an entire season.

Retail chains including Next, have suspended all operations. Arcadia, the fashion empire controlled by Philip Green and his family, is likely to permanently close dozens more of its UK stores. Suppliers fear that financially distressed retailers could go out of business before invoices are settled, leaving them in a long queue of creditors.

Longer payment terms are also causing acute cash flow problems because many smaller suppliers are reporting delays in accessing the government’s coronavirus business interruption loan scheme. Parker Lane Group, which redistributes items that have not sold even after markdowns to regions such as eastern Europe and the Middle East, expects a sharp increase in unsold stock.

XR Fashion Action, a global climate advocacy group has voiced the social injustices that garment workers are facing from fast fashion giants during the COVID-19 pandemic. In an Instagram post, the group highlighted the “humanitarian crisis” that is now unfolding in the industry that has long been laden with environmental and workers rights issues, and named the brands that have cancelled or held orders without payment to already vulnerable groups working in the exploitative garment sector located primarily in Bangladesh and across Southeast Asia.

In an impassioned Instagram post, XR Fashion Action is calling on a number of fashion giants to pay their supply chain workers amidst cancelled orders due to the Coronavirus pandemic. The group referenced a recent Forbes article that revealed the human cost of a number of brands that are now refusing to pay for their cancelled or held-back orders due to a nosedive in demand as daily life comes to a standstill across the world. Many of these orders are already completed or are in production.

Some of these brands include Primark, C&A, Mothercare, Bestseller, Tesco’s F&F Clothing, Marks & Spencer, Kohl’s, Walmart, LLP and JC Penney. Among these, the worst offenders are Primark and C&A, who have cancelled or held orders that are already in production or completed without payment in Bangladesh worth US$273 million and US$166 million respectively.

So far, the brands that have committed to pay what workers in their supply chain are owed include H&M, Inditex (the owner of Zara, Massimo Dutti, Pull & Bear and Bershka among others), Kiabi, PVH, Target and the Nike-owning group VF Corp.

Some smaller independent brands are doing their part too. Ethical custom apparel brand To The Market, for instance, recently made the point to not cancel any orders it has already placed in order to avoid the devastating impacts for the livelihoods of workers down its supply chain. A number of eco-brands have followed these footsteps, including zero-waste brand Tonlé and ethical shopping platform Wearwell.

Thomas Verghese, Former-Chairman, CII Marketing, Retail and Textile Councils

“Lack of credibility and trust will lead to many large brands looking for alternative sourcing to China but I do not think any country is equipped to replace China including India.  India does not have that kind of capacity to feed global demand and are not in a position for bulk manufacturing of normal commodity items. We do more of customized exports. We don’t do manufacturing of bulk items. We don’t have that capacity and infrastructure at the moment. It will take two to four years minimum even if everyone is aligned and the government gives supporting fiscal and tariff benefits. Given the reality of Indian industry and government’s policy support measures, it seems an unrealistic expectation.”

What is your observation and understanding of the current turmoil facing the textile industry?

The textile industry has come to a standstill. No activity other than a limited scope of manufacturing masks is on among garmenting. Moreover the textile industry after agriculture is the largest employer and a large number of people in the unorganized sector, don’t have a social security. So a lot of them will be rendered jobless depending upon how proprietor deals with recovery after post lockdown. There will be significant shakedown in the industry after restarting. One can expect a lot of unemployment in the short and medium term. Secondly demand for the textile industry, a discretionary item of purchase will take longer to recover. Both industry and individuals will focus on conserving cash. Therefore, savings will go up while discretionary items will go down in the short to medium term. Short to medium term in conjecturing means at least a year for recovery maybe longer and this has been more or less confirmed by big four consultants like McKinsey, BCG, ATK and APMG all their forecast speak about long term recovery for the industry and definitely textile will not be a priority unless the government provides certain sops to kick-start employment because for the government also large scale unemployment will be a big a challenge. 

Thirdly, the impasse between the US and China had already thrown the textile industry in disarray because China is the largest producer of a lot textiles, accounting for almost 25 to 30 per cent of global trade. Already the textile industry over the last year and a half has been experiencing turmoil because of a trade slowdown. China has suffered a lot because of this. It rolled a much lower export income and revenue and that would impact their overall manufacturing operations. It will take some time because now there will be an issue of trust. A lot of people will now have reservations about dealing with China. Unfortunately, China’s place in global community, as a large reliable supplier of textiles cannot be taken up by any country. Weather it is India, Turkey, Vietnam etc, no one is in a position to take on this so called lack of credibility and therefore ,the consequent loss of business for China in a short to medium term basis. Some countries can plan to build capacities but that is a two to four year project. Indian textile industry will see a ripple effect of this. 

Will this be an eye opener for India and the rest of the world that they should not be depend on just one country for sourcing. Also, can India emerge a strong alternative sourcing destination? 

Lack of credibility and trust will lead to many large brands looking for alternative sourcing to China but I do not think any country is equipped to replace China including India.  India does not have that kind of capacity to feed global demand and are not in a position for bulk manufacturing of normal commodity items. We do more of customized exports. We don’t do manufacturing of bulk items. We don’t have that capacity and infrastructure at the moment. It will take two to four years minimum even if everyone is aligned and the government gives supporting fiscal and tariff benefits. Given the reality of Indian industry and government’s policy support measures, it seems an unrealistic expectation. The only country that can gear up in the short term is probably Vietnam because there has been a lot of FDI in textile in the last 5 to 10 years. They are looking at Trans Pacific agreement as the opening a new textile manufacturing hub. 

How can the government help in overcoming this challenge?

The government is not playing an active role other than providing new initiatives for technical textiles and India is not really highly placed in the supply chain of technical textile but it is expanding its horizon. That is the main support from this Union Budget. There are a lot of statements about creating global hubs, none of which happened on the scale that it was envisaged, like in China or other countries. The government will need to provide solid support maybe even amend the Amended Technical Upgradation Scheme to include spinning, to cap the limits among other things.

What is your advice to small manufacturers and the industry at large?

Because of demand compression it is more sensible to conserve cash and importantly work on re-development of markets. That will be my first advice to all manufacturers big and small. It has to be across the board we will have to improve quality, improve our propositions and become more competitive. 

China‘s initial experience with COVID-19 highlights some important lessons in supply-chain management. Some of key lessons included sources of supply related to materials, having contingency plans for interruption supply, and understanding the capabilities and vulnerabilities of critical elements within the value chain.

Crisis to most affect apparel value chain

In future, the global pandemic will have devastating financial implications for entities around the world, with the apparel value chain being one of the most dramatically impacted. The tight-margin, just in time world will present significant risks and challenges to everyone from retail employees to over 40 million factory workers

Business failures and closures will negatively impact individuals at all levels and leave those at the lowest levels of the value chain most at risk, due to the financial structures of developing-world factories and the limited or non-existent social safety nets in those environments.

Companies to focus on self-preservations

Unlike 2008, the post-pandemic supply chain landscape will not look the same as a significant number of factories will fail, with their workers and capabilities eliminated from the available sources of supply. Companies in the US and Europe will focus on self-preservation by cancelling their orders and delaying shipments and payments.

Hence, there is a need to ensure that companies take into consideration the performance of their factories and suppliers beyond simply price. Ultimately, some of the best partners in the supply chain have invested in critical elements to support the values of their partners be it fire safety, wages or environmental programs.

This is also the time for brands to evaluate the choices they have. They also need to reexamine their choice of partners. Their focus key should be on creating an environment rather than a landfill with creatures in it.