The textile and fashion industries have been hit by the COVID-19 pandemic. Stakeholders in production, retail and procurement are facing the heat with grim exports, paucity of cash flow and zero footfall at mass retail and designer stores alike (keeping in mind these are closed).
India exported USD 28.36 billion worth of textiles from April 2019 till January 2020. A majority of domestic companies are facing massive order cancellations from the US and Europe, along with factory shutdowns, raw material shortage, delayed delivery of summer apparels.
Average exports during the first quarter typically stand at USD 8 billion to 10 billion, hence the industry is staring at an equivalent quantum of revenue loss from exports across the value chain because of the extended lockdown till May 3, which would take at least an additional month to resume. Furthermore, the full-fledged resumptions of exports would mainly depend on the containment of pandemic in key export geographies — the US and Europe which are India’s major markets for textile.
The sector is facing headwinds in the form of a flattening demand from key exporting countries, higher production leading to lower realisations and increasing competition from neighbouring countries such as Bangladesh, Pakistan and Vietnam.
The COVID-19 related demand disruptions could substantially impact companies with weaker balance sheets and limited scale, should the recovery stretch beyond one quarter. In such a situation, consolidation is expected within sub-segments such as yarn producers, spinning and dyeing, since the industry is largely fragmented due to limited entry barriers, say reports by India Ratings.
The fall of Summer fashion
With production coming to a halt, retail stores being closed, rising inventories, what’s in store for designers?
“Summer fashion usually starts in late February or early March, a lot of our designers have produced a certain collection and quantity for Summer, which were in the process of production and now have now come to a halt. We definitely have to reduce the quantity of merchandise that we are taking in. This is to ensure basically nothing goes into our storeroom, everything is on the rack so that it also helps the designer as in when the lockdown opens; they will not have to go full scale, they can work with smaller unit,” said Aparna Badlani, Atosa Mumbai at the #InThisTogether webinar by FDCI.
Adding, “One really has to see what happens when the lockdown is lifted. We don’t know whether there will be a panic buying situation like in China or it is going to be the fact that there has been absolutely no income in past one and half months. We don’t know if people are actually going to come out and shop or beacuse of the scare, whether people are going to come out at all.”
Path to recovery
The textiles industry being heavily concentrated in medium and small scale enterprises (MSME), compared to large scale producers across the value chain, MSME players are highly vulnerable to the business risks. Subsequently, the resumption of operations for MSME’s heavily hinges on working capital availability and orders from large scale companies as well as exports.
On April 17, The Reserve Bank of India announced a targetted long term repo operation (TLTRO) totalling ₹ 50,000 crore for small businesses in the domestic market facing liquidity crunch.