Falling prices cut into RMG makers' profits
Increasing pressure from international buyers to lower prices, together with escalating production costs, is squeezing the readymade garment manufacturers' profit margins already dogged by Europe's debt crisis and sluggish recovery of the US economy.
To lessen the pressure on profit margins readymade garment (RMG) manufacturers are increasing the volume of production, industry insiders said.
“The cost of production has been increasing by 8 percent to 12 percent a year, but the prices, in comparison, did not increase,” said an insider. “And in some cases, it even fell.”
Inconsistent gas and power supply, hike in yarn prices, implementation of minimum wage for workers, higher freight charges, transport costs and prices of capital machinery have been held responsible for the increase in production costs.
In contrast, the export price of garments remained more or less constant in the last three fiscal years.
RMG export takes place in dozens, and the prices of a dozen of garment recorded by the Export Promotion Bureau (EPB) in fiscal 2008-09, 2009-10 and 2010-11 are $26.81, $26.84 and $26.02 respectively.
“A T-shirt which sold at $5 in 2010 is now selling at $3.50,” said Ahsan Kabir Khan, managing director of Gzipur-based Interfab Shirts Manufacturing Ltd, adding that buyers have lowered the unit price of garments.
In fact, the price of a dozen of garment fell in fiscal 2010-11, by 3.06 percent, as the abovementioned data from EPB showed.
Owing to the dire state of the economy retailers in Europe are selling at a discounted rate.
“The knock-on effects of discount selling in Europe are being felt in our factory prices now,” he said.
Although buyers have been shifting their orders from China to Bangladesh of late, the RMG manufacturers insist that if the prices slide any further it would eat into the competitiveness of Bangladeshi wares.
“The erosion of profit is not felt in the day-to-day running of the business due to rolling-in of bank loans. But if you sit down and analyse the figures, the effect is evident,” said Fazlul Hoque, former president of Bangladesh Knitwear Manufacturers and Exporters Association.
He added that manufacturers have resorted to enhanced efficiency and cost-cutting measures to offset the losses.
“Our market share has increased in global garment trade and we became more competitive,” said Ahsan H Mansur, executive director of Policy Research Institute. “Now need to increase our productivity.”
Escalating prices in China, the world's largest apparel manufacturer, has presented a golden opportunity to Bangladesh.
“Grabbing even a fraction of the Chinese orders would do wonders to our export figures and our sector by and large. We must seize the opportunity,” he added.
Buyers are becoming ever more demanding of labour rights and factory conditions, and yet they would not increase the unit price to garments to accommodate their cost-intensive conditions, industry people said.
Bangladesh's woven garment exports in fiscal 2011-12 stood at $9.60 billion, a 13.89 percent rise from the previous fiscal year.
While the knitwear exports, at $9.49 billion, did not experience as big a jump in the fiscal year, a mere 0.05 percent.