Weak U.S. demand hits Southeast Asia’s garment exporters

BANGKOK — Major garment and footwear producers in Southeast Asia have seen their trade to the United States drop this year as high inflation cuts into consumers’ budgets, with industry insiders and experts warning of further gloom ahead.

Shipments of apparel and footwear from manufacturers in Cambodia, Bangladesh, Myanmar and Vietnam fell between 20% and 30% by value during the first four months of this year, according to a Nikkei Asia analysis of the latest U.S. customs data.

Exports of the same items to the European Union have also started to slow. Figures for the same period show Bangladesh’s garment exports to Europe shrank by 3% and Cambodia’s dipped slightly as well.

Initially defying the trend, Vietnam garment exports to the EU grew by almost 20% for the January to April period, while Myanmar’s EU exports maintained single-digit growth. But the newly released April figures show a significant drop-off in shipments compared to the previous month.

The decline follows strong post-pandemic rebounds in shipments to the American and European markets.

Highly dependent on garment, footwear and travel goods, Cambodia has seen a 30% overall drop in exports in the first four months of the year, according to figures released by its customs authorities.

Ken Loo, secretary general of the Textile, Apparel, Footwear & Travel Goods Association in Cambodia (TAFTAC), pointed to inflation and the economic fallout of Russia’s invasion of Ukraine as reasons for the decline, which he said started last year and would likely continue throughout 2023.

There have not yet been significant job losses in the $11 billion sector, which employs more than 700,000 workers, he said, adding, “New investors have managed to keep total employment figures relatively stable.”

Loo said the failure of the U.S. Congress to renew the Generalized System of Preferences, which provides duty-free access to the American market for certain goods from developing countries, was “certainly” a factor in the decline of travel good exports, which are covered by the scheme and dropped 27% in the first quarter, year-on-year.

Myanmar’s exports to the U.S. and European markets have somewhat stabilized after the industry was hit by COVID and further affected by the military takeover of the country. Several international clothing and apparel companies have cut ties with the nation amid concerns over human rights and labor conditions under the junta.

In Bangladesh, the picture was “nuanced,” according to garment factory managing director Mostafiz Uddin, the founder of the Bangladesh Denim Expo and Bangladesh Apparel Exchange (BAE).

Uddin said orders were down and many factories were not running at full capacity, meaning workers were getting fewer hours and less overtime to top up wages.

“This has been an ongoing thing for a few months,” he said. “I believe orders are down because many retailers are still clearing backlogs of stock.”

He was cautious about the outlook for the rest of 2023. “There is quite a lot of uncertainty at the moment. We are all waiting to see how the rest of the year plays out.”

Sheng Lu, an associate professor at the University of Delaware’s department of fashion and apparel studies, said fashion companies faced a “very challenging” sourcing environment as inflation ate into household budgets and families prioritized living expenses over discretionary purchases.

“Struggling with shrinking demand, many U.S. fashion companies chose to cut sourcing orders and reduce inventory, resulting in declining trade volume,” he said, adding the uncertainty added pressure as brands began planning their spring 2025 merchandise.

Several major brands have laid off corporate staff in recent months. U.S. retailer Gap announced in April it would cut some 1,800 jobs in a second round of layoffs, Reuters reported, while Swedish giant H&M was reported in November to be cutting 1,500 workers. Adidas is consolidating its North American operations, Retail Insider reported in January.

On top of economic pressures, U.S. brands are also dealing with ongoing trade tensions, Lu said.

He pointed to the Biden administration’s decision to continue with Trump-era tariffs on Chinese exports, as well as efforts by some Republican lawmakers to strip China of its permanent normal trade relations (PNTR) status, which would result in major tariff hikes.

“Given the mounting uncertainties in the business environment, reducing sourcing risks and achieving sourcing flexibilities are among the top priorities for fashion companies this year,” Lu said.

“Many choose to diversify their sourcing base further, especially reducing ‘China exposure.'”

He said brands were keen to expand so-called nearshoring in the West but countries in Southeast Asia would remain attractive. “It is not always easy to find new production capabilities.”