A large proportion of smaller players are closing down their businesses, plagued by an uncertain outlook, stretched working capital and liquidity, and rising raw material costs
New Delhi: With the surge in covid-19 cases forcing closure of non-essential stores in several states, apparel manufacturers could be staring at delayed orders yet again.
A report by brokerage Motilal Oswal tracking the business of malls, apparel retailers, as well as apparel manufacturers, paints a grim picture for the manufacturing sector whose business is directly dependent on stocks moving at large retailers.
“Retailers were operating at sales of 70–80% pre-covid levels over January–Feb’21. However, the industry has once again been put on the back foot due to fresh lockdowns being imposed; the impact from the second wave could be more severe given the already weak condition of many players," the brokerage said in a report on the apparel manufacturing industry after speaking to key players and industry associations such as the Clothing Manufacturing Association of India (CMAI).
The CMAI said a large proportion of smaller players are closing down their businesses, plagued by an uncertain outlook, stretched working capital and liquidity, and rising raw material costs.
Roughly 80% of the apparel manufacturing sector remains largely unorganized and highly dependent on cash and credit, which means smaller players are the first to get impacted with state-level closures, it said.
Apparel manufacturers have faced a cut in orders both from domestic as well as export markets. That's because the pandemic lowered the demand for formal wear and subsequent lockdowns meant an inventory pile-up with retailers, the report said.
“Apparel manufacturers commenced delayed operations in late November amid a huge inventory pile-up at retailers. Although manufacturers were allowed to operate after the lifting of lockdown restrictions last year, they remained distressed due to no fresh orders—weighed by the lack of demand from retail stores and consumers," the report said.
For manufacturers, a high credit period remains a concern. “The apparel retail industry has low entry barriers, with low capital requirements and the easy availability of products and resources. The credit period has historically been high in the industry, which has burdened manufacturers and vendors. Manufacturers have always been highly dependent on credit, limiting the liquidity and growth prospects in the industry," it said.