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TEXTILES

Lower consumer spending for clothing and subdued industrial demand to weigh on sales

S

SENSITIVE RISK for entreprises

  • Fragmentation

  • Internationalization

  • Capital Intensity

  • Profitability

  • Fragmentation

  • Internationalization

  • Capital Intensity

  • Profitability

  • Growing consumer base in emerging economies
  • Strong taste for fashion among mature economy consumers
  • Many niche segments seeing healthy growth (luxury, sportswear)
  • Global supply chains vulnerable to external shocks (pandemics, trade tensions)
  • Very strong pressure from large clients (clothing retailers)
  • Changing consumer preferences hurt demand
  • Competition from the fast-growing second-hand market in mature economies
  • Challenging relocation of manufacturing from China to other countries (Vietnam, Bangladesh, Indonesia, etc.)
  • Adaption of new ESG standards could inflate operating costs

What to watch ? 

  • The return to normal after the Covid-19 outbreak in key regions (Asia Pacific, Europe, North America)
  • China's decreasing influence as a manufacturing hub
  • Initiatives from large clients (clothing retailers) to curb their environmental footprint and adapt to changing consumer preferences
  • Changes in raw material prices (cotton)
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A combination of high inventories, lower cotton prices, soft retail sales and weak industrial demand sent the industry into negative territory in 2019 (-2.4% in sales) after a strong 2018 (+5.5%). All three segments of the industry (textiles, leather and shoes, clothing) contributed to the slump, with only a few large manufacturing countries bucking the trend (India, Indonesia, Vietnam and Turkey, in particular).
 
Turning to 2020, industry turnover in value terms should recede further amid the Covid-19 outbreak and the prolonged closure of clothing stores in key large economies. We anticipate global sales to recede further at around -8%/-9% for 2020. Industry margins will benefit from a soft commodity price environment with cotton prices expected to further decline and benchmark oil prices to fall way below their 2019 average. The truce on trade reached between the U.S. and China is a credit positive for the industry, but Chinese manufacturers will continue to lose market share as labour costs dent the country's competitiveness and retailers are seeking to diversify their sourcing.
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Textiles: about 50% of industry turnover. Textile manufacturers serve mostly the needs of the clothing and home improvement industries, to a lesser extent other industries (automotive, etc.)

Apparel: about 30% of industry turnover. Apparel manufacturers are mostly contractors to which large fashion retailers outsource the actual manufacturing of their clothes and accessories.

Leather and shoes: about 20% of industry turnover. Leather goods and shoes generally have distribution channels that are distinct from apparel.

Asia Pacific concentrates 80% of the industry's turnover, with China's share standing at 50-60% across most segments, the remainder being split between India, Bangladesh, Vietnam and Indonesia. Excluding Asia, Turkey and Mexico also have sizeable textile industries exporting to the European and U.S. markets, respectively. Some countries producing high end or technologically advanced fabric have kept a significant manufacturing base (Italy, France, Germany, Japan in particular).

Key players

Country Role Sector risk
China

#1 Producer
C

Sensitive risk

India

#2 Producer
B

Medium risk
Italy

#4 Producer
C

Sensitive risk
Turkey

#5 Producer
D

High risk

Contacts

Contact Euler Hermes

Economic Research Team

research@allianz-trade.com

Sector Risk Analyst

Aurélien Duthoit

aurelien.duthoit@allianz-trade.com

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