After two very difficult years with the US economy slipping into recession, unemployment at a peak and retailers struggling to get footfalls, the situation seems to be getting back on track with many indicators moving into the positive zone. However, the picture from the EU is not so encouraging and with even Germany showing signs of slowing down, economist fear that now it is the turn of the European Union to fight recession. As the industry goes through one of its worst phases, the spirit to stay alive has kept the players grounded and many believe that this year will put the industry back on the growth path, despite all its ‘problems’… so why this optimism, Team AO analyses the factors that could change the game…
The increasing employment picture in the US has brightened considerably according to Bureau of Labor Statistics. Over the past six months, the number of people who are employed has risen by 2.3 million – an average of 3,85,000 per month, the best growth since early 2000.
When many voices from different segments of the industry give a similar opinion, it is time to take notice… and since the beginning of this year, exporters, buyers and technology/accessory providers have time and again expressed with confidence that business would flow in after June 2012. The feelers that are coming from the buyers indicate that Spring/Summer 2013 will be a big season for the industry, particularly in the US. “The buying process for Spring/Summer starts around June and we expect to get good order as US is showing signs of recovery with improving job positions and sales are happening. Even the inventories leftover from last year are finally moving on to the shelves with sales happening at all major retailers,” says Syed Abu Ali, Managing Director, A&Y Services. Syed expects the volume of the orders to increase too, “But since US is cutting down the price, we’ll have to see if we would be able to deliver those low price orders or not. Although in small scale orders, they are offering the same price as it used to be two years back, which is a bit relief for us,” he adds.
Our summer season will have good orders from mid June onward. We have made a lot of preparations for this season in the last one year. Our sampling has risen since February this year. – MD. AZAD RAHMAN CEO, AHL Export International
Media reports from the US are very optimistic of a turnaround; the National Retail Federation (NRF) has forecasted that the retail industry sales will rise 3.4 per cent in 2012 to $ 2.53 trillion. “Pent-up demand is turning desires into needs, which is one reason why consumers have begun opening up their wallets,” said NRF Chief Economist Jack Kleinhenz recently adding, “There is no doubt that the economy is on the upswing, compared to six months ago.” In fact the retail statistics for the month of February show an 8.6 per cent increase, which means 20 consecutive month increase in US retail sales, with clothing and clothing accessories stores registering retail sales increase of 11.6 per cent unadjusted year-over-year. “Though February is typically a month for consumers to stay home and wait for spring, shoppers this year took advantage of mild weather to get a head start on outdoor projects and warm-weather apparel,” says NRF President and CEO Matthew R. Shay.
There is increasing demand for new developments by the buyers, but it is disappointing that they are not supporting them by giving enough quantities to justify investment. – RASHED MUSHARRAF Hossen, CEO, Black Pearl
The retail sales data fit in with a string of other economic reports that suggest improving, if still vulnerable economy. That vulnerability is one reason why the Federal Reserve is expected to keep interest rates at historic lows and maintain a bond-swap program designed to add firepower to the US economy. In the meanwhile, the employment picture in the US has brightened considerably; the Bureau of Labor Statistics reported that the number of Americans who had jobs jumped by 4,28,000 in February following a 8,47,000 gain in January, according to a survey of about 60,000 households. Over the past six months, the number of people who are employed has risen by 2.3 million – an average of 3,85,000 per month. That’s the best growth since early 2000, when the dot-com bubble was in full flow.
Encouragingly, strong employment growth is being translated into higher spending activity, as seen by the consistently rising retail sales figures. “This building momentum is especially encouraging for the recovery as it suggests that the self-reinforcing positive dynamics between jobs growth and spending activity could foster a more robust economic recovery in the coming months,” says Millan Mulraine, Senior Macro Strategist at TD Securities in New York. Even the Deutsche Bank is reasonably confident that US consumers will revive later this year. In a recent interview with Wall Street Journal, US economist Peter Hooper ticked off a number of reasons for the optimism: a rising stock market, up 8.5 per cent already this year, which supports household wealth; rising consumer confidence; and consumer credit growing again thanks to low interest rates. When you consider that consumer spending makes up about two-thirds of the US GDP, increasing consumer confidence can be interpreted as a pretty bullish indicator, showing that an economic recovery is taking hold, even with rising costs of petrol.
Positive indicators for better business in the US:
The US economy will grow 2%-2.3% in 2012, better than the lackluster 1.7% it managed in 2011.
Business spending to increase by about 6% in 2012.
Job creation is picking up, with an average of 2,44,000 jobs a month added in December, January and February.
Little or no increase in interest rates for 2012.
Retail sales expected to grow 6% in 2012; clothing to increase about 3.5%.
The gauge of US consumer confidence rose to 70.8 in February from 61.5 in January higher than a prior estimate for January pegged at 61.1 (Consumer confidence is the degree of optimism on the state of the economy that consumers make known through saving and spending).
Europe could be a dampener…
In Europe, Greece’s successful completion of a debt swap that clears the path for a second round of bailout money allowed the country to avoid a chaotic default that could have reverberated across the continent. But Europe still risks falling into recession as severe Government cutbacks bite deeply. The European Central Bank now estimates the euro zone can at best deliver growth of 0.3 per cent this year. At worst, GDP will shrink by 0.5 per cent. Even Germany, Europe’s biggest economy, saw industrial orders slump 2.7 per cent at the starting of the year, dimming the outlook for its export sector, which is the backbone of its economy.
Buying offices working with the European Union are less enthusiastic. Though buying is happening, the pace is cautious and if the situation does not improve, buying for S/S ’13 could hit the road block. The garment industry of Bangladesh had to struggle a lot in the last two years and many industries and companies couldn’t survive during this tough time. But now things are getting better and hopeful for the future.
Also it’s a relief impact that the labour and other cost in China has increased making Bangladesh the second best option for America and Europe. Now China is no longer a tough competitor of Bangladesh at least in basic items, though they are ahead in high value items.
“Our summer season will have good orders from mid June onward. We have made a lot of preparations for this season in the last one year. Our sampling has risen since February this year and on that basis, we are hopeful that we’ll have good orders from our US clients,” says Md. Azad Rahman, CEO, AHL Export International. Adding to same, Md. Salauddin, Proprietor, Adroit Linkers says, “We are expecting a good season ahead, especially for the big and medium brands and retailers.”
However, all are not too optimistic since they have not received the much awaited feelers on the expected volume “Yes, there was sampling, but not so much,” said Rashed Musharraf Hossen, CEO, Black Pearl. Rashed experiences increasing demand for new developments by the buyers but is disappointed they are not supporting them by giving enough quantities to justify investment. “Recently China developed a new printing technology with the use of leather. It is called ‘Leather Cut Printing’. Our American and European buyers are demanding garments with this feature, but as for now, only China and Vietnam has this technology, only when we get volume orders we can consider to invest in this technology,” Rashed adds.
The manufacturers are also excited about new markets such as Japan, showing lot of promise. The whole season has been summed up by Kamal Ahmed, Managing Director, Bokatex International when he says, “Yes, I agree that this season is proving to be better than before, but until July-August, I can’t give the clear concept as it’ll be the time for starting of a new season. A lot of enquiries have come to us from American buyers and on that basis I can say that this year will be a good year for Bangladesh.”