RMG and Surviving the Future: How Bangladesh Clothing Manufacturers Can Recover Quickly after the Coronavirus Pandemic
At the time of writing this article, the official number of Coronavirus cases worldwide was 1,154,169 with a total of 50,395 deaths. Even though Bangladesh’s number of cases is but an insignificant portion at 70 affected with 8 deaths, the economic devastation, more importantly on the Bangladesh clothing manufacturing industry, is anything but.
Worldwide, the fashion supply chain has suffered massively because of the pandemic. Take for example, one of Bangladesh’s biggest buyers, Primark. The Irish retailer has closed all of its stores in the UK and given that they sell solely at their stores, they have had to cancel all its suppliers’ orders, which in Bangladesh has amounted to $273 Million. Upto $3 Billion worth of orders have been cancelled or suspended in all, and so far only H&M and PVH Corp (Tommy Hilfiger and Calvin Klein) have come forward to accept the products in production.
The positives are still there though. The Bangladesh government has come forward with a Tk 5000 Crore stimulus package for export oriented industries, at 2% interest and a six month grace period, to pay the salaries of their workers and employees for the next three months. HSBC has also come forward with short term loans and a relaxation of payments for their existing clients in the RMG industry. Globally, other stimulus and bailout packages are being announced as well. Even though a recession is all but announced, recovery will happen and this one will most possibly be faster than what the World went through back in the Great Recession.
As markets will open up sooner or later, the Bangladesh RMG industry has to adapt to changing reality. The following are a few short term to long term fixes, with long term positive implications.
In 2011, the top 36 listed companies in the industry had a cumulative net profit of BDT 1252 Crore. In 2018, they registered a cumulative net profit of BDT 341 crore. There is no doubt that the industry has come under duress because of the evolution of the fashion industry. Because of fast fashion, survival was already being threatened even before COVID-19 came. Right now, cutting costs is higher priority since sales will be tight either way.
Applying Lean Six Sigma methodologies is a proven way of reducing operational costs and increasing margins. At its simplest, Lean manufacturing is a philosophy with a system of tools and methodologies to help you reduce and/or eliminate low value adding and/or non value adding work and processes in your business. In layman terms, it is about lessening or getting rid of things that don’t help much in making you money. For a clothing manufacturer that means reducing lead time, increasing the space available for production, increasing the productivity of labor and the effectiveness of equipment, and a change in the mindset of management, employees, and workers.
Lot of Bangladesh clothing manufacturers are, and already have implemented lean practices in their production or processes. To give you an idea, one manufacturer I have worked for, increased their production capacity 24% in a year’s time by applying lean principles in their production facilities. Another manufacturer applying Lean manufacturing, KDS Group, has managed efficiencies of above 70%, while the country’s average is around 35% to 40%.
Lead Generation through Digital Innovation
One of the main barriers to consumer access in this industry is a lack of digital presence our entities have. China has Alibaba to connect buyers to Chinese manufacturers. At the moment Bangladesh has a few digital sourcing platforms such as NewThread and Alibaba Bangladesh Pavilion, but having a proper website brings a manufacturer that much closer to a buyer. Mind the use of the word proper. A lot of Bangladesh manufacturers do have a website, but the overwhelming majority of them have something that is makeshift and unimpressive. They tend to have one for the sake of having it with no clear communication, a poor user interface, giving off a sense of mistrust and fraud.
Unlike our counterparts in China, it is not easy for buyers to access and work with the bulk of suppliers and manufacturers in this country. About 80% of the orders being processed in the country still come through buying houses and that ends up adding extra margins to an order. Bigger factories are well equipped and have a lot of talent but they cater to larger buyers, the Inditexes and H&Ms of the world. There still lies a large pool of buyers who make smaller orders and that too on a more frequent scale. Buyers who don’t have the ability to or want to have a physical presence in the country, yet have actionable orders. Usually, their search for a supplier will start with a Google search. This means that you have the advantage of not having to go find a buyer, but have the buyer come to you.
A big advantage of having a digital presence is the ability to venture into multiple markets. Because of the future uncertainty with established buyers, it would be wise to broaden the fishing net and find buyers from other markets too. There are markets around the world that will not be as affected as Europe and North America and will likely not be as well. South Korea has recovered. Not just them, Singapore, the Middle East, other countries in Asia, will likely see a faster recovery if the growth remains the same and the situation of the pandemic gets better sooner rather than later. This is a chance to widen the net and start approaching more buyers in non-traditional markets. The BGMEA site has a whole data list of the countries Bangladesh currently exports to and that is a first step in identifying those markets.
In the past three years, the percentage of Chinese sellers on Amazon making more than $1 Million has increased two-fold from 23% to 45%. One Chinese manufacturer selling on Amazon, Orolay, sold a winter coat at $139. They went viral and were at one point generating $5 Million in sales every month. That was more than their yearly revenue as a manufacturer. E-commerce platforms have allowed more Chinese manufacturers to sell directly to consumers.
Bangladesh manufacturers can take a leaf from their counterparts in China and start selling direct to consumers through E-commerce platforms too. Consumer demand is rising, and because of the culture change of fast fashion, consumers are hungry for getting the lowest prices. Think about yet, why buy a dress for $50, when you can buy the same thing for $5?
It’s not just AliExpress and Amazon doing cross border E-commerce. Lazada has a foothold in South East Asia. Daraz has a presence all over South Asia. Amazon has even struck a deal with the Bangladesh Post Office to make deliveries smoother and more convenient.
Clothing manufacturers in Bangladesh have a huge problem of empty lines. This will only be propagated by the Coronavirus pandemic. By private labelling and producing clothing and selling it themselves, manufacturers can now keep lines busy and have more production in their spaces. Two great examples of this are actually already here in Bangladesh; Yellow by Beximco and Sailor by Epyllion. Yellow also sells on Amazon.
The Coronavirus shall pass. The Bangladesh RMG industry has endured shocks and crises, both domestic and international, and has come out of it stronger. The industry is still a pillar of the economy, contributing to more than 80% of exports, employing 3.5 million people, and the skills that the industry offers is unmatched. There is no doubt that for the next three months it is about surviving at all costs. Applying quick incremental steps for recovery over the next three months will go a long way to ensure faster recovery in the near future.