‘Polycrisis’

And The
Textile
Industry
A Policy Perspective
Navdeep S. Sodhi
Robert P. Antoshak
Gherzi Textil Organisation
We live in the world of ‘polycrisis’. This Greek term refers to a series of shocks. It was rekindled by According to the WTO, exports of textiles, and clothing rose by 7.3 per cent and 19.6 per cent
Jean-Claude Juncker, a former President of the European Commission, in the context of the Europe- respectively in 2021. The analysis of the Top 10 textile and garment exporting countries reveals
an crises of the past decade. It also captures the zeitgeist of our times when the world in general and the strides made by emerging countries in the league of the Top 10 players.
our industry is confronted with multiple crises manifested in slump in demand, stagflation, geopo-
litical tensions, the war, and climate change. Top 10 Exporters of Clothing (2021) Top 10 Exporters of Textiles (2021)

$ Bn $ Bn
The current market situation faces headwinds manifested in key macroeconomic trends such as
inflation, soaring energy prices, continued effects of the coronavirus and the prolonged war in 1 China 176 1 China 146
Ukraine. In a recent blog the IMF’s Kristalina Georgieva, Gita Gopinath and Ceyle Pazarbasioglu 2 EU-25 43 2 EU-25 25
spoke of a “confluence of calamities”: including Ukraine and the pandemic which pose a grave risk
3 Bangladesh 34 3 India 22
to the world economy. The world economic growth has slowed and accordingly to the latest fore-
casts, the world economic growth in 2022 and 2023 will halve compared to 2021. The UNCTAD has 4 Viet Nam 31 4 Turkey 15
predicted a grim outlook for world trade in 2023 “mirroring the expected deceleration of the eco-
5 Turkey 19 5 USA 13
nomic growth”.
6 India 16 6 Viet Nam 11
History is witness however that disruptions from wars, pandemics and economic crises create not
7 Malaysia 15 7 Pakistan 9
just terrible costs but opportunities too. The word disruption has its origin in Latin meaning: to
“break apart”. This article captures a snapshot of the current state of the textile economy and offers 8 Indonesia 9 8 South Korea 9
policy perspectives to navigate through the polycrisis. 9 Hong Kong 8 9 Taiwan 9

CEO Speak 10 Pakistan 8 10 Japan 6

Source: WTO Source: WTO
In an era characterized by disruption, we are creating an increasingly agile, digitally led, and
resilient business. We are investing in technology and integrating newly acquired artificial The Inventory Conundrum
intelligence capabilities to drive efficiencies across our operations. Through a focus on end- International fashion retailers have reported rise in inventory and pressure on their margins since
to-end supply chain and inventory management transformation, we are improving pro- summer of 2022. This is also reflected in the slump in their offtake from supplying countries. The
cesses that both enhance product quality and increase speed to market—while cutting costs problem was compounded by supply chain disruptions and change in consumer buying
and eliminating waste. behaviour the pandemic and the post-pandemic and resulting in a mismatch between demand
and supply. According to figures compiled by the Sourcing Journal, the problem was rampant
Sonia Syngal across the industry: VF Corporation (85 percent increase in inventory), Lululemon (81 percent
Chief Execuľive Officer, Gap Inc
increase), Abercrombie & Fitch (43 percent increase), Adidas (66 percent increase), Levi Strauss &
World Trade & Clothing Retail Sales Co (43 percent increase), Gap Inc (37 percent increase), Ralph Lauren (36 percent increase), Under
Armour (29 percent increase). To clear the glut most retailers are resorting to promotion which will
Textiles and apparel demand staged a recovery in 2021 as pent-up demand surfaced and retailers further squeeze the margins and have a cascading effect on the entire supply chain. 2023 will
replenished their depleted inventory. The revenue of the Top 11 fashion brands and retailers hopefully see a recalibration of the demand and supply (Ceteris Paribus).
reached $ 107 billion, a 20 per cent increase from the nadir in 2020 yet below the 2019 sales. The
global trade in textiles and clothing in 2021 was $785 billion, yet below the previous peak of 2019
($807 billion). The annual revenue figures of the Top 5 fashion brands and retailers reveal that Impact On The Textile Economy
while demand recovered in 2022, it remained below the pre-pandemic levels except for Inditex
Raw Material
which posted a significant growth in revenue.
The prices of most textile raw materials have declined in the recent months in response to the
Sales Revenue (Top 5 Retailers) Billion weak market sentiment and reduced offtake by spinners and downstream industry. Cotton prices
continue to be volatile. The prices of feedstock and man-made fibres were also not immune to the
Currency 2022 2021 2020 2019 trend in 2022 but are slowly recovering (see Table below on raw material price trend).
Inditex EUR 23.0 (30.7) * 27.7 20.4 28.2
Cotton prices on international and domestic markets have been declining significantly since
H&M SEK 223 199 187 233
August 2022 as a reflection of the market sentiment. The A-index fell 25 per cent however it
Fast Retailing JPY 2,300 2,100 2,000 2,290 was the Indian cotton prices that plummeted 35 per cent. The USDA January 2023 report has cut
the forecast for world cotton consumption to 24.1 million tons – the lowest in the last five years
Gap US$ 11.3 (15.0) 16.7 13.8 16.4
(barring the pandemic year 2020/21)- leading to high closing stocks in 2022/23 season. The forecast
Next GBP 4.8 3.6 4.3 4.2 for world trade in cotton was also cut.
Source: Company financials (Parenľheses denoľe annualized figures based on 9 monľhs’ resulľs)

2 3
Prices of man-made fibres have also dropped significantly. PSF prices in India declined from a peak
of $ 1.47/kg in Aug to $ 1.19/kg in December 2022 (19 per cent); Chinese PSF prices too fell by 11 per
Sourcing Shifts
cent The prices of feedstock have also declined in the last three months in tandem with fall in crude
International trade in textiles and apparel is characterized by sourcing shifts. While the gradual
oil prices. The price of PTA declined from a peak of $1082/ton in June to $771/ton in December long-term shifts are consistent with the nature of our itinerant industry, the trends have accelerated
2022; MEG price in the spot market dropped from $700 to $480/ton in the same period.
in recent years. Buyers are extremely concerned about geo-political factors, risks of over-depen-
dence on a single country and high cost of logistics. A closer look at the sourcing of apparel by the
Price of VSF in China and India declined significantly. The price of DWP (dissolved wood pulp) -the US and EU manifests these trends.
raw material for VSF- dropped from $1200/ton in July to $1045/ton in December.
During the eleven-month period (Jan-Nov ’22), the US imports of textiles and apparel were $93.3
billion, a 26 per cent increase over the corresponding period in 2021 (volume wise growth was 17%
Raw Material Price Trend (Aug 2022 - Jan 2023)
only). However, US imports have been declining since September 2022. China remained the largest
Unit Aug 2022 Dec 2022 Jan 2023 supplier however Viet Nam and Bangladesh increased their penetration of the US apparel market in
2022.
Cotlook (A Index) $/lb. 1.25 1.00 1.00

Cotton (S-6) Rs/Candy 95,000 64,000 62,000 US Imports of T&A – Major Shippers (Jan - Nov 2022) $ Billion
PSF (China) $/kg 1.10 0.99 1.06
2021 (Jan-Nov) $ bn 2022 (Jan-Nov) $ bn % Change YoY Market Share (%) 2022
PSF (India) $/Kg 1.47 1.19 1.23
China 28.8 30.7 6.5% 33%
VSF (China) $/kg 2.10 1.83 1.89
Viet Nam 14.2 18.3 29% 20%
VSF (India) $/kg 2.33 2.00 2.07
India 8.9 10.3 16% 11%
Source: Emerging Texľiles/CCF/CCFEI

Bangladesh 6.3 9.0 43% 10%

Trade
Turkey 2.6 2.6 0% 2.7%
The US imports of Textile and Apparel (T&A) had started their descent since September 2022
Pakistan 3.8 4.4 16% 4.7%
although value wise the decline was less due to high unit prices. Home textile categories registered
a negative growth. The EU imports continued to grow in the first three quarters of the year. World 74.2 93.3 26% 100%
Source: OTEXA

China’s exports of T&A at US$ 323 bn rose by a

EU imports of apparel increased by 21 percent in volume terms and 40 percent in value terms to
modest 2.6 per cent during Jan-Dec 2022
€85 billion for the period Jan-Oct although the growth rate declined in the recent months. Imports
although a declining trend has been visible since
from Bangladesh surged to the detriment of China.
September 2022. Viet Nam’s T&A exports for the
period Jan-Nov 2022 reached US$ 42 bn
Viet Nam has been building up spinning capacity reaching 10 million ring spindles in 2021 and
(including Yarn exports of $ 4.3 billion)
annual cotton consumption steady at 1.5 million tons. Viet Nam is also attracting FDI in the down-
recording an 8 per centrise YoY although since
stream industry, especially circular knitting, to bridge the gaps in the midstream chain.
September 2022, monthly exports have been
declining. Bangladesh has continued its
Central American region has experienced growth in trade and investment to leverage the preferen-
blockbuster performance with RMG exports
tial market access to the US under CAFTA-DR FTA. The US imports of textiles and apparel from the
reaching $ 45.7 billion in 2022 signifying a 27 per
trade bloc increased from $8.7 billion (2019) to $9.9 billion (Jan-Nov ’23). The primary textile
cent growth YoY. Knits represent about 54 per
industry in the region is attracting investment in yarn and fabric mills.
cent of the total exports although wovens
show a higher growth. According to the BGMEA
Central Asian region, rich in cotton (1.2 million tons 2021/22 ICAC) with Uzbekistan in the vanguard,
boss Faruque Hassan “As a single month, $4.38
too has been attracting investments along the value chain, including production of chemical fibres.
billion worth of export(in Nov ’22) is momentous. Our industry has the capacity to supply more, and
we are exploring new growth opportunities including product and market diversification”. Bangla-
Africa’s exports of textiles & apparel in 2021 reached $ 17 billion growing at 3 percent CAGR. Although
desh is targeting RMG exports of $ 60 bn by 2025.
traditionally the Maghreb region has been the hub of apparel manufacturing, of late the spotlight
has been on Sub-Saharan Africa’s Francophone cotton belt in West Africa where mega industrial
parks are being set up by the regional SEZ developer Arise IIP, in collaboration with regional
financial institutions and the public sector to develop an integrated textile and apparel cluster.

4 5
Policy Imperatives
This article argues about repositioning the textile and clothing industry in major producing coun-
tries to re-engineer the supply chains to service the $ 800 billion world market. This will require an
alignment with the emerging dynamics about sustainability and circularity, technology upgrada-
tion and addressing the constraints faced by the fragmented clusters to unlock their potential.
Circular Textile Economy
Reuse is a key aspect of sustainability. The linear business model using virgin materials and generat-
ing waste is unsustainable in the long run. According to a study carried out by Gherzi for Euratex
more than 80 per cent of collected textile waste is being incinerated or land filled. Furthermore,
textile- to- textile recycling rate at below 1% presents a major challenge as well as an opportunity.
On the demand side, the commitments made by international brands and retail to incorporate sus-
tainable fibres in general, and end of life recycled fibres into fashion design, give a clear impetus.
Legislative measures being mooted by the EU would create non-tariff barriers for import of T&A not
meeting the sustainability norms in terms of using regenerated fibres. The “EU Strategy for Sustain-
able and Circular Textiles” talks about introducing mandatory “eco design norms” to reduce depen-
dence on virgin raw materials.
The EU Strategy for Sustainable and Circular Textiles aims to create a coherent framework and a
vision for the transition of the textiles sector to the green economy. For example, with abundant
availability of pre- and post-consumer textile waste, the Indian sub-continent offers tremendous
opportunities to international brands and retailers to source sustainable apparels. The existence of
well-developed integrated textile hubs in India and Bangladesh, indigenous machinery
manufacturing capability and initiatives of leading textile mills, the textile recycling industry is set
for growth.
EU Strategy for Sustainable and Circular Textiles
“By 2030 textile products placed on the EU market are long-lived and recyclable, to a great extent
made of recycled fibres, free of hazardous substances and produced in respect of social rights and the
environ- ment. Consumers benefit longer from high quality affordable textiles, fast fashion is out of
fashion, andeconomically profitable re-use and repair services are widely available. In a competitive,
resilient, and innovative textiles sector, producers take responsibility for their products along the
value chain, including when they become waste. The circular textiles ecosystem is thriving, driven by
sufficient capacities for innovative fibre-to-fibre recycling, while the incineration and landfilling of
textiles is reduced to the minimum.”
The US Market Situation
Although the U.S. textile and apparel market has recovered from the severe downturn in demand
exhibited during the pandemic, problems still plague the sector.
Most notably, an overhang in inventories weighs heavily on current and medium-term demand and
fortunes of retailers -- and, by extension, textile and apparel manufacturers. Indeed, inventory accu-
mulation will be the central story for the industry as 2023 unfolds.
6 7
When the full effects of the pandemic gripped the U.S. market in 2020, lockdowns altered consumer
consumption patterns while also impacting the ability of companies to rely upon timely delivery of
their products from overseas. In turn, a ripple effect occurred where steep declines in consumer
demand resulted in a profound slowdown of business activity throughout the supply chain. For sup-
pliers worldwide selling into the U.S. market, the slowdown resulted in canceled orders and a steep
inventory accumulation at the producer level.
Over time, U.S. buyers reinstated many canceled orders only to find difficulties in shipping products
from Asia and elsewhere due to lockdowns, worker shortages, and bottlenecks at exporting and
importing ports. For example, delays in importing ports, like in Long Beach, California, took months
to correct. But problems remained. Once the bottlenecks were cleared, U.S. brands and retailers
struggled to sell products promptly.
Impact of Inflation
Affecting the ability of retailers to offload their merchandise was rising inflation, which impacted
large swaths of the consumer market and out-of-season styles. Additionally, rising inflation altered
consumer spending patterns to favor purchases of essentials such as food and fuel over non-
essential purchases such as clothing. Further compounding the situation was a weakened
housing market adversely affected by rising interest rates. With new home sales declining, home
textile salessuffered as a consequence.
In 2021, consumer spending soared as the economy slowly reopened from pandemic lockdowns.
Yet, the surge in consumer demand was met by depleted inventories. As a consequence, the indus-
try struggled to meet demand. Further complicating the situation were the logistical bottlenecks
faced by suppliers, buyers, shippers, and ports throughout the supply chain.
Faced with stubborn inflation, throughout 2022, the Federal Reserve embarked on aggressive inter-
est rate hikes to dampen soaring demand and lessen inflation. The strategy shows signs of working
today, only that weaker consumer demand resulted in poor holiday sales in December. Moreover,
with weak sales, inventories remain at very high levels.
High Inventories Compounded by Inflation
Questions remain surrounding the question of high inventories. It will take at least another six
months for inventory to be worked off, assuming no further disruptions to the supply chains and the
overall health of the global economy remains decent. For the moment, fuel prices have moderated
in the U.S. market, freeing consumer dollars for purchasing clothing and other textile products.
Moderating inflation rates should also encourage more consumer purchasing.
Even so, should the Federal Reserve overshoot its desired objective of easing demand while not
creating excessive unemployment simultaneously, consumers will further reduce spending on
items such as clothing. This would create a horrendous situation for apparel brands and retailers as
they continue to off load pandemic-era inventory and new merchandise. Price discounting will
prove irrelevant should consumer demand dry up.
A Tenuous Outlook
December retail sales results provided a preview as apparel store sales were flat from previous
months -- despite months of discounting. Should the labor market turn sharply lower, this pre-
view will prove prescient. A warning for the industry. Although the U.S. economy and consumer
demand will ease, the country will likely avoid an outright recession. Yet, that assumes there are
no unanticipated shocks.

So, the outlook is tenuous. The industry has recovered from the bleak days of the recession. Still,
the nagging effects of pandemic-induced inventories and weaker consumer demand conspire to
harm textile demand. Over the next six months, the situation will become more apparent as
bloated inventory is ultimately sold off and the potential for new textile demand from brands and
retailers ripples back through the supply chain. Time will tell, but concrete developments will
hopefully translate into tangible benefits for textile and apparel makers.

The global textile & clothing industry is under- going a

Last
step change characterized by sourcing shifts,

The
sustainability and digitalization. While the polycrisis
facing the industry is real and poses challenges, at the
same time, there are opportunities to align your
business models to the emerging trends. Strengthening

Word
the textile eco system is a policy imperative.
Navigating through the polycrisis requires close
collaboration among the stakeholders.

Navdeep S. Sodhi Robert P. Antoshak

Gherzi Parter Gherzi Partner
(Switzerland) (North America)