In the recent textile and garment industry outlook report, the Center for Analysis and Investment Advice of SSI Securities Joint Stock Company (SSI Research) believes that inflationary pressure will continue to challenge the market in 2023. Besides, consumption is expected to still decrease, affecting businesses in the industry.
According to the Vietnam Textile and Apparel Association (VITAS), export turnover for the textile and garment industry is estimated at $44 billion, an increase of 8.8% compared to 2021.
The Vietnam National Textile and Garment Group reported that in 2022, the textile and garment market experienced a challenging situation, with a prosperous first six months followed by a difficult reversal in the last six months. This was due to a decrease in demand for textiles and garments in major markets such as the US and EU, due to high inflation and rising interest rates.
Although Vietnam's textile and garment exports for the whole year are expected to reach a new high of about $44 billion, an increase of 8% compared to 2021, the growth rate of the fourth quarter of 2022 has slowed down, and the difficult situation is expected to continue into 2023.
Furthermore, the textile and garment industry, as well as other industries, are facing challenges such as the ongoing epidemic, ongoing global inflation, decreased consumer purchasing power, and ongoing tensions between Russia and Ukraine. Additionally, strict requirements from brands such as production discounts, small orders, and fast delivery times will further complicate the situation.
In the recent textile and garment industry outlook report, the Center for Analysis and Investment Advisory of SSI Securities Joint Stock Company (SSI Research) believes that inflationary pressure will continue to challenge the market in 2023.
According to McKinsey, global haute couture sales are forecasted to grow between 5-10% year-on-year, while the rest of the market is expected to fall 3% year-on-year. This trend is expected to be evident not only in the differences between high fashion and other segments in the textile industry, but also in regional differences. The US economy, although expected to slow down, is still forecasted to be a larger market than other major economies.
The process of reducing inventory has been carried out at large retailers, with the most positive development recorded in sportswear businesses. However, data from the US still shows high inventory levels across the industry that are expected to last through Q2 2023. Orders are expected to begin to accelerate quarter-on-quarter in Q3/2023, despite an upward outlook. Earnings growth (year-on-year) remains uncertain in the second half of 2023.
VITAS forecasts that Vietnam's textile and garment export value will reach $45-47 billion (an increase of 7-11% over the same period) in 2023.
SSI Research believes that this target is quite challenging because the yarn sub-sector has started to record a loss in the fourth quarter of 2022, and Vinatex also forecasts that garment orders will decrease by 25% year-on-year in 2023.
Spending on non-essential items and general consumption is also forecast to decline, and retail sales will be boosted by promotions and discounts. Accordingly, SSI Research believes that gross profit margin of the entire value chain will be under pressure, with domestic yarn and garment manufacturers being the most vulnerable due to lower average selling prices.
Meanwhile, SSI Research believes that the pressure from raw material costs on manufacturers has eased because cotton and oil prices have dropped significantly since the second quarter of 2022. Falling fabric costs will partially offset it lower average selling price.
However, SSI Research still forecasts a decline in overall gross margin due to the lower bargaining power of domestic manufacturers compared to retailers (especially during periods of weak demand) and wages is expected to increase by 20% over the same period.
With interest rates expected to remain high throughout the year, rising financing costs are likely to weigh on net margins, especially for highly leveraged companies.
(Enterprise & Business)
Textile and Garment & Footwear Industry Report - December 2022