Early Brexit impact on garment exports to UK
Bangladesh has already started feeling the pinch of Brexit, as major British apparel retailer Next Plc slashed its work order volume for the country, said a senior official of a sourcing company.
Next, which is the largest clothing retailer by sales in the UK, had planned to buy about $260 million worth of apparel items from Bangladesh in 2016.
But in the end, the clothing, footwear and home products retailer took about $180 million of garment items, the senior merchandiser who works for Next told The Daily Star by phone, asking not to be named.
“Next usually purchases $10-$20 million more than its annual target. Last year was an exception.”
Next takes clothing items worth more than $500 million from Bangladesh in two ways: it directly purchases from garment factories and indirectly through sourcing companies.
The purchase volume of Next through third party vendor agencies might have shrunk too last year, the merchandiser said.
Following Britain's shock decision to withdraw from the European Union in June last year, the value of the pound tumbled, making its imports costlier. Inflation in Britain is the highest in more than two years.
“The year ahead looks set to be another challenging year. Therefore, we are preparing the company for tougher times and have set our full price sales budget accordingly,” Next said in a statement on January 4.
“The fact that sales continued to decline in quarter four, beyond the anniversary of the start of the slowdown in November 2015, means that we expect the cyclical slowdown in spending on clothing and footwear to continue into next year.”
In addition to this effect, there are two further factors that may depress sales.
“We may see a further squeeze in general spending as inflation begins to erode real earnings growth.”
The company expects prices on like-for-like garments to rise, but by no more than 5 percent. “We expect that this will depress sales revenue by around 0.5 percent.”
In this backdrop, Simon Wolfson, chief executive officer of Next, held a meeting with suppliers in Bangladesh on December 22 last year to inform them about the challenging landscape it was staring at, said Abdus Salam Murshedy, managing director of Envoy Group, a longstanding supplier.
“Next sought a sustainable business partnership as I have been doing business with this brand for a long time. But, the company did not ask me to lower the prices of garment units or slash the purchasing volume.”
However, it is true that Brexit and the sliding of pound pushed the British consumers into a tight corner, Murshedy said.
Established in 1982, Next has around 750 stores, of which 550 are in the UK and Ireland. In 2016, its total sales stood at £4.1 billion, up slightly from the previous year.
The UK is the third largest garment export destination for Bangladesh after the US and Germany.
In fiscal 2015-16, Bangladesh's garment exports to the UK soared 21.37 percent to $3.52 billion, according to data from the Export Promotion Bureau.