COVID-19 implications, short- and medium-term prospects
The clothing market is very sensitive to changes in economic conditions. According to Coface, world GDP rebounded by 5.4% in 2021 and is forecasted to grow by 4.2% in 2022. The main garment consuming markets, notably the advanced economies and China, experienced the resumption of their economic activity in 2021 (5% vs. -4.7% in 2020 for advanced economies and 7.5% vs. 2.3% for China). While economies still experience restrictive measures and lockdowns, most advanced countries have grown beyond their pre-pandemic level over 2021. The textile-clothing sector benefits from this rebound: McKinsey expects revenues in the global apparel and footwear industry to grow, luxury leading with 16% growth. In 2022, further consumer confidence recovery will drive the increase in spending, but it is likely to be uneven, with the European market lagging behind that of the U.S. and China. The reopening of physical stores benefit the sector, as online sales were unable to offset the losses caused by the closures in 2020, with sales during 2020 declining by 15%-20% in China, 5%-20% in Europe and 30%-40% in the U.S., according to McKinsey. Overall, McKinsey expects the 2022 fashion industry sales to surpass pre-pandemic levels.
The textile-clothing sector is highly globalized. The sector was at first affected by the supply chain disruptions caused by the pandemic. It now faces supply chain bottlenecks, resulting from the lack of capacity in the transport sector. As a result, transportation costs surged through 2021, and the increase is likely to persist in the beginning of 2022. This affects textile-clothing companies’ operating costs and consumers may face increased prices in 2022.
There are strong uncertainties surrounding the evolution of the pandemic and the emergence of new variants (at the time of writing, the latest is the Omicron variant) that could lead to a new set of restrictions and the closure of clothing stores, dampening the recovery of the sector.
Cotton production forecasts, consumption forecasts and price trends
ABARES expects world cotton consumption to increase by 5% in 2021-2022, and exceed the global supply. Consequently, global stock levels will further decline, reaching their lowest levels since 2018-2019 and the commodity’s average price will reach decade highs. ABARES forecasts an average price of USD 0.95 per pound for 2021-2022, up by 14% from the previous season. This price increase would be a threat for clothing companies, whose consumers are very sensitive to price increases, which should lower their margins to absorb the cost increase.
Cotton production should strongly rebound in major cotton exporting countries, the United States and Brazil, because of more favourable weather conditions in the future season. Production should otherwise decrease in China and India, mainly because of dryness, according to ABARES.
Increased use of synthetic fibres compared to natural fibres
The textile-clothing sector is evolving because of various factors. For one, the use of synthetic fibres (mainly polyester) is increasing at the expense of natural fibres such as cotton. Polyester has several advantages over cotton: its production requires less water and no pesticides. It is also easier to handle and mix with other fibres, and its production is less subject to climatic hazards. The current oil prices favour natural fibres, but incentives to substitute cotton and wool with these synthetic fibres are considerable. Another point worth mentioning is the substantial development of environmentally-friendly natural fibres, driven by consumers’ growing environmental concerns.
Relocation of textile factories to low-cost countries
Textile manufacturing, especially low value-added manufacturing, is shifting from China, which dominates textile manufacturing worldwide, to other economies with lower production costs such as Vietnam, India, Bangladesh and Ethiopia. China's share in global textile exports decreased from 38.3% to 29.1% between 2015 and 2020, according to Fitch Solutions. This trend, which has been exacerbated recently by trade tensions between the U.S. and China, is expected to continue, as higher Chinese wages push up production costs. Textile industries, which change collections very regularly, have an incentive to set up factories in countries where wages are lower. According to a New York University study, in 2019, the minimum monthly wage in Ethiopia was USD 26 compared to USD 326 in China. During the pandemic, supply chain disruptions also enticed some European companies to nearshore textile manufacturing away from China to Turkey and Eastern Europe.
Demand is shifting from Europe and the U.S. to Asia
As demand for clothing from Asia (mainly China) grows, the importance of Europe and North America in this sector is declining. Sales of clothing products outside North America and Europe equalled sales in these regions in 2018 and are expected to reach 55% of total world sales of clothing products in 2025. The Asia-Pacific region (Vietnam, Philippines, Indonesia, Malaysia, Thailand and Singapore) is highly attractive to the apparel sector, especially because it has a large proportion of young people, for whom digital solutions play an important and growing role. The three largest e-commerce websites in this region (Lazada, Shopee and Tokopedia) saw the gross value of their merchandise sales increase sevenfold between 2015 and 2018.
The luxury industry has also been affected by the shift in activity in the sector: China generated the strongest rebound in the luxury sector, and this growth benefits its domestic companies the most as travel restrictions weigh on the demand from China for European luxury products. Another important transformation that is taking place in the clothing market is the rise of fast fashion, particularly in advanced economies and China. The term refers to a strategy used by brands that consists in changing their clothing collections very quickly in order to stimulate and increase the frequency of consumer purchases. A direct consequence of this evolution is the shorter lifespan of clothes, which are now kept for half as long as they were ten years ago.