Coronavirus outbreak to take heavy toll on readymade garment exports

According to the ICRA report, demand from the EU has remained weak and recent trends in US apparel imports have also been discouraging.
Readymade garment exports dropped by around 4.51 per cent to $1.437 billion in February 2019 compared to last year. 

Exporters said the coronavirus (COVID-19) outbreak will impact exports for the next few months. This is because nearly 80 per cent of retail shops in western countries have shut due to the virus. 

According to official data, while from December 2018 exports have been growing till May 2019 on a month-on-month basis, they have been falling since December 2019.

Exporters have attributed the drop mainly due to COVID-19, which impacted sentiment in the European market — the largest for Indian exporters.

Raja M Shanmugam, president of Tirupur Exporters’ Association, which represent traders who export garments worth around Rs 25,000 crore every year, says, “With the outbreak started in China, initially, it was looking like an opportunity for Indian exporters. This was because European customers, who were traditionally sourcing from China, started discussions with Indian exporters for new orders. But ever since the virus started spreading to Europe, in the last one or two weeks, things have turned upside down.” 

For orders placed, delivery is taking much more time than usual. This it the primary reason for the fall in exports.

T Thirukumaran, managing director, Estee Exports, one of the leading garment exporters, agrees.

He said that as most countries are under lockdown, stores are shut due to restrictions by their governments and people don’t go out and stay at home. The drop is mainly due to weak buying and many customers’ going bankrupt or witnessing lower sales.

“The outlook for the future is very bleak due to coranovirus as many stores have shut all over Europe. Sales have dropped by almost 80 per cent in the last two weeks and this is going to continue until the virus is tamed,” he said.

In Italy and France, where COVID-19 cases have been rising rapidly, all non-essential retail stores have been ordered to shut down. This forced Abercrombie & Fitch, New Jersey, Buck Mason, Everlane and Walmart to reduce working hours.

Jayanta Roy, senior vice-president and group head, corporate sector ratings, ICRA, added, “In addition to sustained pressure on liquidity, owing to delays witnessed in clearance of government dues, we expect a correction of around 100-150 bps in the operating profitability of Indian apparel exporters in FY20. This is expected to result in a moderation in debt coverage metrics. The impact is likely to be more pronounced for leveraged and smaller companies, with limited bargaining power with customers, and modest liquidity cushion.”

According to the ICRA report, demand from the EU has remained weak and recent trends in US apparel imports have also been discouraging. 

Volumetric decline in the US has been Rs 12 per cent year-on-year (Y-o-Y) for apparel imports in Q3 FY20 and decline in nine months of FY20 has been Rs 0.3 per cent.

This follows a Rs 17 per cent and Rs 5 per cent Y-o-Y decline in domestic retail sales of clothing and clothing accessories (in value terms) in the US in Q3 FY20 and nine months of FY20, respectively.

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