Apparel scrambles to stitch solutions to COVID-19

Thursday, 5 March 2020 03:35 -     - {{hitsCtrl.values.hits}}

  • $ 200 m-$ 500 m impact expected as result of coronavirus outbreak
  • High-level meeting between industry stakeholders today to discuss response plan 
  • Sector mulls seeking Govt. support, impact could be felt past May  
  • Companies concerned about fallout from supply chain disruptions    
  • Factories likely to close for longer period in April as supplies dry up

By Shailendree Wickrama Adittiya 

Major stakeholders of the apparel industry will meet today for a crucial discussion to find ways to counter the double impact of the coronavirus outbreak, as the sector struggles with both disrupted supply chains and slower demand in key export markets with initial estimates indicating the impact could reach as much as $ 500 million. 

Early stages of data collection indicate an impact of $ 200 million to $ 500 million on the apparel industry as a result of the coronavirus outbreak due to the unavailability of raw materials, although the apparel exports industry is yet to identify the impact of the drop in orders, especially from European markets.

Representatives from the industry are expected to meet later today to discuss how extensive the impact of the coronavirus outbreak on the industry is and if the industry will have to make any requests from the Government for special assistance or support. The industry is expected to present its proposals to the relevant authorities after the meeting. 

The original impact of the coronavirus outbreak was on the supply of raw materials, Sri Lanka Apparel Exporters Association Chairman Rehan Lakhany told the Daily FT, explaining that Sri Lanka depends on China for raw materials.

“There have been some major delays in shipments for supplies from China and the impact has been different from factory to factory and customer to customer,” he said. This has also resulted in a backlog, which is further impeding the local apparel industry.

The impact may be felt until mid-May or even beyond May and there is a lot of uncertainty within the industry regarding the impact of the coronavirus outbreak. 

“Some Chinese suppliers have said they started production and the factories have opened but we hear that they are not operating with a full labour force,” Lakhany said, adding, “Due to that, we expect that production won’t be at the usual level.”

While alternative sources for raw materials seem like a solution, Lakhany said that there were certain limitations to this. 

“It takes a long time to develop those sources and technology,” he said, adding that alternative sources for certain raw materials cannot be found outside China.

“All garment manufacturing countries like Vietnam and Cambodia are looking at alternative sources and they are all going to these limited sources. There is a limited capacity,” he said, adding that there was going to be a shortfall given the sudden increase of demand from sources with a low supply.

Thus, raw materials from alternative sources will come at a cost and Lakhany said: “When it comes to things like polyester fabric, you find weavers in Turkey and South Korea, all at a higher price but some of them still rely on Chinese yarn. So it won’t be easy.”

Due to the unavailability of raw materials to continue production, some local factories are planning to shut down operations for two to three weeks. In addition to this, the Sinhala and Tamil New Year holidays in April pose an added challenge to the industry.

According to Lakhany, factories usually close for 10 days for the Sinhala and Tamil New Year. 

“Some of the factories are saying they will not be able to open their factories even after 10 days because they won’t have raw material so they have to prolong their holidays,” he said.

This will be a huge loss to the factories as labour is one of the biggest costs of production in the garment manufacturing industry. 

“When you take our export value, 60% is raw material and 25% is our labour component. Labour is a huge cost in this industry and having to close the factories with pay will have a huge impact on these factories for the New Year and beyond,” he explained.

Despite factories possibly having to close, even for two to three weeks, salaries will have to be paid. In addition to this, the impact of the coronavirus outbreak depends on the factory and Lakhany said some factories may even close earlier depending on the impact.

The coronavirus outbreak has also impacted the number of orders Sri Lanka is receiving, although Lakhany said the impact of this has not started materialising just yet. However, the industry is expecting a drop in orders. 

“Italy is the third-largest country we export to in Europe and it has been hit by the coronavirus quite badly,” he explained.

However, the industry was uncertain of how big a drop in sales they would be faced with. 

“Our estimates are that there will be an impact of a 30% drop in orders from this region. We don’t know exactly what the impact will be,” Lakhany said. 

The $ 5 billion industry counts on the US and UK as its two largest export markets.