- Growth of the middle class in emerging countries
- Rise of fast fashion
- Products with high price elasticity of demand
- Sector heavily impacted by the health crisis linked to COVID-19
- Price structure very sensitive to swings in commodity prices
The textile-clothing sector is composed of two branches: textiles on the one hand and clothing on the other. Although linked, the two are subject to different constraints and mechanisms. Textiles provide inputs to the clothing market, mainly cotton for natural fibres and polyester for synthetic fibres.
The textile-clothing sector, which has been struggling for the past decade, was hurt as many countries introduced lockdown measures and closed non-essential stores in an attempt to curtail the COVID-19 pandemic. Weak consumer demand led to lower revenue for brands and stores, which were forced to scale back, postpone or scrap clothing orders for the textile industries, causing imports of textile fibres such as cotton to be reduced or cancelled altogether. While a pound of cotton was trading at USD 0.71 on 9 January 2020, the price plummeted to USD 0.48 on 1 April, the lowest level since 2008, before clawing back to USD 0.69 on 27 October 2020. There were numerous factory closures and production chain disruptions (as it was harder to source inputs) in China, Pakistan, India, Bangladesh and Vietnam. These countries account for 70% of world cotton consumption, according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), which estimates that world cotton consumption in 2019-2020 fell by 16% compared to the previous season.
This supply and demand shock led to a deterioration in the cash flow of companies in the sector, job losses and even bankruptcies, including that of British group Oasis and Warehouse in April 2020. Business consulting company McKinsey estimates that a third of the companies in the sector will not survive past 12 to 18 months following the onset of the crisis. The second wave of the COVID-19 pandemic and measures including renewed lockdowns in Q4 2020 further undermined the situation of the sector’s companies, which had already been weakened by the first wave.
Some trends observed before the crisis were exacerbated by measures taken to counter the pandemic such as closures of physical sales outlets. Companies that have managed to adapt by collaborating with companies specialised in online sales or by developing these services internally for their customers will be the least impacted by the crisis, since lockdown measures have led to a significant expansion of e-commerce, reinforcing a trend that was already underway before the crisis.
In 2018, global online sales of clothing and footwear accounted for 16% of total sales, compared to 10% in 2012. The rise of e-commerce has been accompanied by a shift in demand from Europe and the United States (U.S.) to Asia-Pacific, where 62.6% of online sales occur.
Notes for the reader
Global cotton crop year starts on 1 August and ends on 31 July of the following year.
The advanced economies are Europe, the United States, Japan, Australia and New Zealand.
Sector Economic Insights
COVID-19 implications, short- and medium-term prospects
The clothing market is very sensitive to changes in economic conditions. According to Coface, world GDP fell by 4.8% in 2020 and is expected to rebound by 4.4% in 2021, following a global economic growth of 2.5% in 2019. The main garment consuming markets, notably the advanced economies and China, experienced a drastic slowdown in economic activity in 2020 (-6.2% vs. 1.7% in 2019 for advanced economies and 1% vs. 6.1% for China). Furthermore, while activity is expected to rebound in 2021, GDP is set to remain below 2019 levels in major advanced economies. In many countries that took strict lockdown measures to curb COVID-19, clothing stores were closed, as they are non-essential businesses. McKinsey expects revenues in the global apparel and footwear industry to decline by 27%-30% in 2020 compared to 2019, and to increase by 2%-4% in 2021 compared to 2019. Sales in the textile-clothing sector in the European Union are expected to drop by half in 2020. In a climate of uncertainty, with consumers preferring to set aside precautionary savings and focus on essential goods, online sales were unable to offset the losses caused by the closure of physical stores and declined by 15%-20% in China, 5%-20% in Europe and 30%-40% in the U.S., according to McKinsey.
The textile-clothing sector is highly globalised. Production chains were disrupted by the crisis. The peak of the epidemic in China led to shortages of commodities such as cotton, and of inputs, because some factories supplying the sector had to shut down. This hurt manufacturing industries worldwide, particularly in Latin America and East Africa, which are highly dependent on Chinese raw materials. As the epicentre moved to Europe and then to the U.S., factories in many countries were closed to prevent the virus from circulating in the workplace.
Due to a lack of orders, many companies could not pay their employees’ wages and were forced to lay off staff. In Vietnam, where economic growth was among the strongest in Asia (6.5% in 2019, according to Coface), between 400,000 and 600,000 people (out of 2.8 million) have lost their jobs in the sector according to the Vietnam Textile and Apparel association.
Cotton production forecasts, consumption forecasts and price trends
According to Coface forecasts, demand for fibre is unlikely to return to pre-COVID-19 levels in the short-term, as orders are declining because of the drop in consumption caused by the recession, as well as inventories of unsold goods and fibre not used by manufacturers. ABARES expects world cotton consumption to increase by 9% in 2020-2021, which will still be 8% below the 2018-2019 level. ABARES forecasts an average price of USD 0.67 per pound for 2020-2021, down 6% from the previous season.
World cotton production is expected to shrink by 5% in 2020-2021 because of lower plantings due to expectations of weaker prices in recent years.
Government restrictions to stop the spread of COVID-19 in many countries and the interruption of textile production suggest that world cotton stocks will increase (to 22.3 million tonnes by the end of 2020-2021, up 4.9 million tonnes since the beginning of 2019-2020). ABARES expects a 3% rise in world cotton trade in 2020-2021 on the back of increased manufacturing activity in importing countries such as China, Vietnam, Bangladesh, Turkey and Indonesia.
Increased use of synthetic fibres compared to natural fibres
The textile-clothing sector is evolving because of various factors. For one thing, the use of synthetic fibres (mainly polyester) is increasing, at the expense of natural fibres such as cotton. Polyester has several advantages over cotton: its production requires less water and no pesticides. It is also easier to handle and mix with other fibres, and its production is less subject to climatic hazards. Moreover, low oil prices keep the cost of synthetic fibres down. There are incentives to substitute cotton and wool with these synthetic fibres. Another point worth mentioning is the substantial development of environmentally-friendly natural fibres, driven by consumers’ growing environmental concerns.
Relocation of textile factories to low-cost countries
Textile manufacturing, especially low value-added manufacturing, is shifting from China, which dominates textile manufacturing worldwide, to other economies with lower production costs such as Vietnam, India, Bangladesh and Ethiopia. China's share in global textile exports decreased from 38.3% to 29.1% between 2015 and 2020, according to Fitch Solutions. This trend, which has been exacerbated recently by trade tensions between the U.S. and China, is expected to continue, as higher Chinese wages push up production costs. Textile industries, which change collections very regularly, have an incentive to set up factories in countries where wages are lower. According to a New York University study, in 2019, the minimum monthly wage in Ethiopia was USD 26 compared to USD 326 in China.
Demand is shifting from Europe and the U.S. to Asia
As demand for clothing from Asia (mainly China) grows, the importance of Europe and North America in this sector is declining. Sales of clothing products outside North America and Europe equalled sales in these regions in 2018 and are expected to reach 55% of total world sales of clothing products in 2025. The Asia-Pacific region (Vietnam, Philippines, Indonesia, Malaysia, Thailand and Singapore) is highly attractive to the apparel sector, especially because it has a large proportion of young people, for whom digital solutions play an important and growing role. The three largest e-commerce websites in this region (Lazada, Shopee and Tokopedia) saw the gross value of their merchandise sales increase sevenfold between 2015 and 2018. The luxury industry has also been affected by the shift in activity in the sector: China generated 90% of growth in the luxury sector in 2019, accounting for 35% of purchases according to Bain & Company, an international strategy and management consulting firm. Another important transformation that is taking place in the clothing market is the rise of fast fashion, particularly in advanced economies and China. The term refers to a strategy used by brands that consists in changing their clothing collections very quickly in order to stimulate and increase the frequency of consumer purchases. A direct consequence of this evolution is the shorter lifespan of clothes, which are now kept for half as long as they were ten years ago.
Last update : February 2021