Vietnam’s textile and garment sector enjoyed a rosy year in 2022 despite the formidable challenges, with export revenue hitting the target of $44 billion, according to the Vietnam Textile and Apparel Association. The figure represents year-on-year growth of 8.8 percent.
Many businesses, however, believe it will difficult to maintain this level of growth in 2023. Domestic consumption fell sharply in the fourth quarter of 2022 and is forecast to remain low in the first quarter of this year. Enterprises faced a shortage of orders coupled with falling prices in the fourth quarter of 2022 and in early 2023. Expanding distribution networks is also a costly endeavor.
The number of orders plummeted
The recent Global Economic Outlook report by Fitch Solutions said that consumer spending in 2022 increase by 2.5%, but it is forecasted to decrease by 0.9% in 2023. With Vietnam's textile and garment enterprises mainly serving exports, the possibility of a global economic downturn is weighing heavily on the business results prospects of these enterprises.
According to Vitas, orders in the last months of this year and the first quarter of 2023 dropped sharply, causing many businesses to cut output and reduce labor. Many companies also said that order value decreased due to pressure from foreign retailers.
Besides the phenomenon of order cancellation, difficult business conditions make businesses forecast to face the risk of late payment from partners, affecting cash flow, and even generating bad debts. While demand in the output market is weak, many businesses still face difficulties due to recent fluctuations in exchange rates and interest rates.
The garment market is expected to remain quiet until the second quarter of 2023. Businesses should simultaneously promote both export activities and expand the domestic market.
Although the domestic market in 2022 has brought efficiency to textile and garment enterprises, many enterprises still think that it is difficult to maintain the achieved growth rate by 2023, due to a sharp decrease in domestic consumption demand in the fourth quarter of 2022 and the tendency to continue to decline at least until the end of the first quarter of 2023.
Meanwhile, expanding the distribution network is very costly. The trend of reducing the number of stores to give the best price to consumers in 2022 will continue to be the solution for some businesses in 2023.
TEXTILE AND GARMENT & FOOTWEAR INDUSTRY REPORT - 12/2022