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Textile and garment firms fear drop in profit as orders slow down

By Anh Minh   July 24, 2022 | 04:37 am PT
Textile and garment firms fear drop in profit as orders slow down
Workers make garment products at a factory in Ho Chi Minh City. Photo by VnExpress/Nguyet Nhi.
Textile firms are bracing for a profit plunge in the second half of this year, with the number of new orders slowing down since the middle of the second quarter.

Most garment and textile enterprises have received orders for production until the third quarter or October, according to the Ministry of Industry and Trade.

However, the industry’s growth momentum showed signs of slowing down from the middle of the second quarter when major export markets such as the U.S. and EU fell into an inflationary spiral.

As a result, new orders have decreased and customers have shortened the order period from 6 months to 3 months.

A company specializing in the production of children's fashion clothes in Dong Nai used to get new orders of 80,000 - 100,000 garments every month from US partners.

The company’s manager, Thai Minh, said that over the past two months, the number of new orders has fallen by 20-30 percent.

Minh said the situation will not improve in the short term if the inflation issue in the U.S. remains serious, forcing people to tighten spending on non-essential goods.

"We are promoting our products to Canada and Mexico that have many similar consumption characteristics. We hope to get a few new contracts for the year-end season," she said.

The decrease in textile and garment orders was mainly due to the slow consumption in large markets, especially the U.S. and EU, the increase in inventories of importers and high inflation pressures in the second half of 2022 and early 2023.

"At the beginning of the year, after the pandemic situation was under control, countries reopened and our partners urged us to deliver goods quickly, but now they are very indifferent," Minh said.

The Vietnam Textile and Garment Group (Vinatex) and Rong Viet Securities Company (VDSC) have forecast that the demand for textiles and garments in the second half of the year will decrease due to "overbuying" and inflation that prompts belt-tightening for non-essential products like fashion.

In addition, the double impact of post-pandemic supply chain disruptions and the Russia-Ukraine conflict have pushed the price of raw materials for the garment industry, especially fabric and cotton, up by about 7-10 percent compared to the same period in 2021.

Post-pandemic labor shortage, increasing transportation charges and labor costs triggered by fuel price hike have negatively affected the entire textile and garment supply chain from manufacturers to retailers, industry insiders said.

"Increasing fuel, freight and logistics prices will greatly affect business performance in the last six months of 2022 and possibly until 2023," said Duc Viet, CEO of leading garment firm May 10.

Textiles are also indirectly affected when the euro depreciates against the USD. The EUR dropped to the lowest in 20 years last week at roughly the same as USD, with the greenback surging this year amid global economic uncertainties.

Vinatex general director Cao Huu Hieu said that a weakening euro will reduce the profit margin of buyers in EU countries.

VDSC forecasts that the profits of Vietnamese textile and garment companies will be hit hard in the second half of the year as new orders decrease.

Some leading garment firms have adjusted this year’s business performance targets.

The Song Hong Garment Jsc estimates its pre-tax profits at VND500 billion ($20.83 million) down 8 percent from a year ago.

Nguyen Van Thoi, Chairman of TNG Investment and Trading Joint Stock Company, said that the impacts will be uneven among enterprises in the same industry.

He said the industry can recover if inflation is brought under control and consumer purchasing power increases.

According to data from the Ministry of Industry and Trade, textile and garment exports hit $22.3 billion in the first six months of the year, an increase of over 20 percent year-on-year.

 
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