Not so long ago, the scenario for apparel retail sales in the US and EU was nothing short of extraordinary. The United States saw apparel retail sales rise 13.76% to $81 billion between January and April, with apparel imports rising 40.55% to $32.43 billion.
It was no different in the EU, where apparel imports grew by around 30% to €21.70 billion over the same period.
However, things haven’t been so rosy over the past two months, whether in a department store, specialty store or hypermarket.
On May 22, in terms of volume, the United States imported 2,772.93 million SME apparel, compared to 2,763.30 million SME on June 22, a decrease of 0 .35% on a monthly bill. In terms of value, imports were US$8.64 billion, up 1.52% from May ’22.
It’s distinct enough to indicate that US buyers reduced their supply on June 22 for low-priced commodities from May 22 to avoid stockpiling.
The fact is, however, that inflation is very high in the United States and Europe – due to the political and economic crisis – and shoppers are spending more on food and fuel. Simply put, consumers are spending less on clothes, especially over the past two months. Less purchase is enough to accumulate inventory in each store, whether it is a shelf, a specialty store or a hypermarket.
In fact, the hoarding of inventory has actually added to the miseries of retailers even as the holiday season is just around the corner. While placing too many orders may leave them with no choice but to offer steep post-holiday discounts, fewer orders will obviously push shoppers to rival retailers – not to mention the monetary losses businesses will face.
The situation is so delicate today that any aggressive stance on inventory could hit retailers significantly.
Clothing sales have been dismal at big-box retailers walmart and Target which announced in July 2022 a drop in the prices of certain products to scroll stocks, in particular clothing. Target saw its Q2 23 (May 1-July 31) earnings hit hard after cutting prices to eliminate a glut of unwanted inventory.
According National Retail Federation (NRF)After a record spring, imports into major U.S. container ports are expected to slow significantly for the remainder of the year, but 2022 is still expected to see a net gain over 2021.
“Retail sales (collectively of all products) continue to grow, but the economy is slowing and this is reflected in cargo imports. Lower volumes may help ease congestion at some ports, but others are seeing still back-ups and global supply chain challenges are far from resolved,” commented Jonathan Gold, NRF Vice President for Supply Chain and Customs Policy.
Target also decides in some cases to package goods to resell them at full price in the future and in other cases to promote them.
Yes, rather than trying to sell all excess products immediately at lower prices, some retailers package items to sell at a later date. This strategy was once used by the famous department store chain TJ Maxxand is now adopted by many others. Kohls Corp.another department store chain that currently has 40% more stock than a year ago is also shelving late-arriving pajamas and fleeces in hopes of selling them in the fall.
It hasn’t been easy for specialty retailers either! Capri Holdings took an aggressive take on holiday inventory. According to its Q1 ’23 (April 2-July 2) report, net inventory was US$1.265 billion on July 2, 2022, a 66% increase over the previous year. Compared to pre-Covid levels, Q1 inventory was up 25%.
Higher inventories were expected, reflecting the company’s new programs to receive seasonal merchandise earlier and hold more base inventory. Management expects inventory levels to be lower than the prior year by the end of FY23; however, the company anticipates that any larger (and ongoing) supply chain disruptions could further extend inventory delays or cause inventory levels to rise due to lower market purchases.
The same story continues in the UK too! Although UK businesses have seen falling freight rates and fewer supply chain issues, consumer demand has also declined.
Sainsbury’s, the UK’s second-largest hypermarket, revealed that sales at established stores fell 4% year-on-year in the 16 weeks to June 25, 2022. This includes a 10% drop in clothing sales . Many Sainsbury’s shoppers tried to offset inflation by ditching big name brands rather than buying far fewer items.
In its drive to cut costs, Sainsbury’s is now investing £500m and doing all it can to bring prices down – especially on the products customers buy most often. Another hypermarket Asda said a fifth of UK households had negative income in June 2022 and so it offered numerous discounts on clothes to eliminate store stocks before cautiously opting for festive season supply.
Inflation eats away at clothing orders in Asian hubs!
Even as inflation tightens its grip in the US and Europe, some major apparel hubs like Bangladesh and India are feeling the heat! Bangladesh’s textile industry is currently facing major challenges due to the global recession and inflation, as retailers in European and American markets are postponing shipments of finished products or delaying orders.
Here, it is important to state that the European Union accounts for nearly 60% of Bangladeshi clothing sales, while the United States accounts for around 20%. Both economies are on the brink of a recession that would dampen any post-pandemic situation revenge spending.
Although Walmart’s reduced profit outlook raised alarm bells for Bangladesh, which is heavily dependent on apparel for 80% of its exports, the warning signs were already there, said Faruque Hassan, President, Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
It is no different for India too! Indian textile producers have also witnessed the first signs of slowing demand as high energy and food prices have weakened demand for products such as curtains and bedspreads in major U.S. and European export markets, said Indian Textiles Secretary Upendra Prasad Singh. While clothing was affected to some extent, the situation was worse for home textiles, as the latter are more price sensitive than the former.
On May 22, shipments from Bangladesh to the United States stood at 280.86 million SMEs, which increased slightly to reach 282.49 million SMEs on June 22, noting a meager growth of 0.58% on a monthly basis. On the other hand, India’s shipments to the United States in terms of volume were reduced to 138 million SME on June 22 from 163.89 million SME on May 22. The numbers are alarming as one can see a clear decline and fluctuation in India’s export volumes, while Bangladesh, which had seen double-digit growth through April, experienced a level of growth that was halted from May 22.
But every cloud has a silver lining! Supply chain issues are slowly easing, which could benefit everyone one way or another. Moreover, with several countries adopting the China plus one strategy and many more free trade agreements to come, there is hope. However, much will now depend on how the political and economic situation develops across the world in the months to come.