How Covid-19 Lockdown has Impacted the Garment Industry?

The novel coronavirus has caused an unexpected health emergency throughout the world. The crisis will also have a long-lasting impact on the global economy.

Covid-A Devastating Effect on the Global Apparel Trade

The clothing industry is severely affected all over the world. Europe and the United States started going into lockdown in March 2020. Consumers are staying at home, stores are closed, and almost all buyers are postponing or cancelling orders. Most fashion retail chains are sitting on big inventories. They may not place new orders in 2021 as well.

In the initial phase of the pandemic when China was badly affected, many Indian companies were expecting that the orders intended for China would come their way. But, with the Western economy badly affected, that did not happen.

According to a recent survey by the International Textile Manufacturers Federation (ITMF), an average of 8% of garment orders has dropped globally. The expected turnover this financial year is expected to drop by over 10% from 2019’s level. Transportation restrictions, restriction on movement of workers, and lack of raw materials-these are considered the main factors hindering the activities of garment manufacturers.

What makes this situation particularly disruptive is that both the demand and supply sides have been affected. In Asia, where most of the big garment factories are located, manufacturers have either closed down or downsized considerably. Most manufacturers in Asia source their raw materials including trims and accessories from China. As China closed down both its upstream and downstream facilities, the supply of fabric, yarns, and other components to other apparel producers in the continent were impacted badly.

Due to these reasons, India’s $ 15 billion apparel export sector is taking a big hit. Karnataka accounts for almost 20% of the value of apparel exported from India. The state has gone into a total lockdown from May 10 till May 24.

The Situation in India

1. Job Losses

The business community is scared because of supply chain disruptions, cash crunch, and labour-related issues. The domestic clothing manufacturers had suffered the most last year due to Covid-19. But it was slowly recovering. However, it is once again facing a great challenge due to the fresh outbreak and the imposition of lockdown by several state governments.

Textiles is the second biggest employer in India after agriculture, employing around 45 million people. The apparel industry in India employs around 12 million people. A big chunk of it, around 1.3 million live in Maharashtra-a state badly hit by the pandemic.  According to Rajesh Masand, President of the Clothing Manufacturers Association of India (CMAI), around 20% to 25% of jobs were lost last year due to the nationwide lockdown. A survey by CMAI says that 77 per cent of MSMEs engaged in garment manufacturing plans to reduce their staff by 25 per cent. Over a million jobs are at stake.

2. Migrant Workers

Since the national lockdown, factories have been shut and migrant workers homeward bound. They were hit especially hard by the Covid-19 outbreak in March 2020. Due to the lockdown, all sorts of apparel-related units are closed, and no one really knows when those will reopen. There is a lot of confusion and trepidation in the minds of the workers.

Many workers have reported not receiving their wages during the period their units were shut. It would have been difficult for them to survive in the big cities. So, they trudged back to their native villages in Bihar, Uttar Pradesh, and Odisha. As per a report, around 64% of the apparel factories have seen half their workforce leave. So, after the lockdown is over, a labour shortage is another issue that the garment manufacturers have to face.

3. Sales

Working from home and quarantining had a big effect on how consumers purchased clothing. The domestic sales of garments and the demand abroad have come down to almost nil due to the panic situation.  The closure of apparel retail stores and malls has dealt a heavy blow.

According to a report by the Boston Consulting Group, India’s apparel market went down by 27%, from Rs 4129 billion in 2019 to Rs 3022 billion in 2020.

4. Cash Flow

The CMAI survey also tells that the clothing industry was just recovering from a disastrous last year, and had achieved close to 80% pre-Covid sales at the beginning of 2021. Estimates of direct losses are difficult to predict. But, 55 per cent of garment producers achieved less than 25% of their sales in April 2021. 72% of respondents have seen half of their orders being cancelled by the clients. This will cause a huge problem of dead stock in the coming months.

72% of the apparel businesses interviewed in the survey reported receiving less than 25% of their due payment in April this year. So, the situation is very grim on the cash flow front.

Garment machinery manufacturers have also stopped operations. Neither are they in a position to produce machines nor are customers ready to accept them. Even if they resume working, there will be hardly any demand from customers this financial year.

However, those clothing manufacturers in India that have manufacturing spread across different locations, are better able to withstand the pandemic’s effect. Those who have a strong online presence, and can quickly move their merchandise will be in an advantageous position.  Some of the new challenges are lack of supply and demand, safety, in addition to liquidity crunch.

5. Coronavirus and the luxury brands

The fashion industry in India is faring no better. Due to the second wave of the pandemic currently taking place in India, the workshops that the global luxury brands used to outsource, currently stand closed. Even desi designers are reporting very little sales.

What garment manufacturers should do to address the Covid-19 pandemic…

…But all is not gloom and doom

Some local garment manufacturers, like those producing knitwear in Ludhiana and Tirupur, are expecting a good demand from the export market this summer. This is because the import from China and Vietnam has been hit by the pandemic. The government has given a boost to ‘Make in India’ in this year’s budget, giving special provisions for textiles. Comfort wear categories like athleisure will witness good demand due to the trend of ‘work from home. Medical textiles also present a new opportunity for the garment producers in India.

The industry takes a long time to recover from the lockdown. Many feel that businesses will take four to six months to get back to normal. Financially strong businesses are expected to recover faster.

Indian apparel manufacturers should start to prepare themselves for these challenges without expecting much support from the government. It is tough to forecast the issues that may come in the future. The government, at the most, can offer only limited relief.

An important lesson to learn is not to depend on a single country for raw material supplies and move towards localisation and variable-cost models. Many global buyers would shift purchasing clothing from China, and shift to other countries including India and Bangladesh. As for clothing, along with food, will continue to be a key purchase for consumers, there is still hope for the garment manufacturers.

Also read:

1) The impact of Covid-19 on Small Businesses. How bad this has been?
2) Best COVID-19 Lessons For Small Business Sectors of India
3) How To Manage Investment During Covid-19 Pandemic?
4) Best investment ideas during the COVID-19 pandemic
5) OkCredit: Simple, Paperless & Secure solution for businesses

Stay updated with new business ideas & business tips with OkCredit blogs in English, Hindi, Malayalam, Marathi & more!
Download OkCredit now & get rid of your bookkeeping hassles.
OkCredit is 100% Made in India.

FAQs

Q. What is the estimated number of migrant workers employed in the apparel trade in India?

Ans. About 6 million migrant workers are employed by India’s garment factories.

Q. When do the garment traders expect the market to revive?

Ans. A survey by CMAI reveals that the traders expect the sales to pick up during the festive season like Diwali.

Q. What are the 3 main effects of the pandemic on the garment supply chain?

Ans. The chief influence of Covid-19 can be seen in the brand’s design and product development, manufacturing and sourcing, and retailing.

Q. In Bangladesh, garments account for what percentage of its export earnings?

Ans. Bangladesh is very much dependent on clothing exports. It accounts for a staggering 85% of its export earnings.

Q. What is the percentage of garment manufacturing units working for the domestic market, shut down due to the pandemic?

Ans. 60 to 70 per cent of garment manufacturing factories have closed down due to lack of orders.