Garment exporters hit by shrinking profits
The garment exporters' profitability has hit a rock-bottom thanks to the continued downward price pressure by the international retailers amid rising production costs.
“In fact we are just keeping our businesses afloat,” said a garment manufacturer who exports apparel items worth nearly $500 million a year.
The price of garment items has been falling 5-8 percent every year whereas the cost of production is increasing 15-18 percent, he said.
For instance, in 2015, a pair of denim trousers fetched him $8; the same pair is now bringing him $7.75.
The production cost and the buying price of a pair of denim trousers are almost the same, the exporter added.
Although the export of garment items grew 10 percent in volume in fiscal 2016-17, the value remained almost the same as in the previous year, according to commerce ministry data.
In fiscal 2016-17, the growth of garment exports, which account for 82 percent of the total national exports, was also the lowest in the past 15 years.
Garment exports increased 0.20 percent year-on-year to $28.14 billion in last fiscal year, 7.34 percent below the target of $30.37 billion for the year.
The sector witnessed on average 16 percent year-on-year growth since 1990 up to fiscal 2015-16, according to the Policy Research Institute of Bangladesh.
Industry insiders identified some major reasons that are affecting the price levels of apparel items in Bangladesh.
Primarily, the demand for apparel items is declining in the Western world as customers progressively become more environment-minded. They are making more conscientious buying decisions: purchasing less and focusing on quality.
In 2015, the demand for apparel items worldwide declined 8 percent to $445 billion, according to data from the World Trade Organisation.
Too many products for too few consumers are the greatest challenge facing the fashion industry, according to the Massachusetts Institute of Technology's Centre for Collective Intelligence and Materials System Laboratory.
The global garment industry manufactures more than 150 billion pieces of garments each year, but there are roughly 7.5 billion people on Earth, it said.
The garment industry is producing 50 garments for each of the roughly three billion people who have the means to consume them.
Moreover, the profitability from the sales of basic garment items that Bangladesh specialises in is also low.
Since more than 70 percent of the exported garment items from Bangladesh are basic items, the manufacturers also receive low price offers from retailers.
Mostafiz Uddin, managing director of Denim Expert, a Chittagong-based denim exporter, echoed the same as the MIT study. “Too many countries are producing too many apparel items for customers.”
The existing companies in the countries like India, Vietnam and China are increasing their capacity every year to grab more market share, Mostafiz said.
“We are in a fierce competition now. There are too many manufacturers in Bangladesh.”
As a result, the small and medium scale factories have the threat of closure looming over them, Mostafiz said.
Garment exporters are surviving thanks to value-added items, lower bank interest rate, and higher efficiency in the use of water, power and workforce, said Siddiqur Rahman, president of Bangladesh Garment Manufacturers and Exporters Association. “The bigger factories are automating their whole production to reduce costs and cope with the falling prices,” Rahman said.
The government's stimulus package for exporting to new markets has also been of great assistance, he said.