Fast fashion giants slowed down – Dünya Gazetesi

The recession, which is expected to start in the first quarter of 2023 in the USA and in the last quarter of this year in the EU, started earlier in the ready-made clothing industry. While the rate of increase in the sector’s exports decreased due to this development, this situation also led to a decrease in capacity utilization rates. Stating that the developments will cause a contraction of nearly 15 percent in the sector this year, Turkish Clothing Manufacturers’ Association (TGSD) President Ramazan Kaya said that the contraction will spread throughout 2023. Kaya stated that for this reason, fast fashion giants reduced their purchases in Turkey as well as in the rest of the world, while domestic ready-made clothing brands turned to strategies such as destocking. Meeting with Dünya Newspaper Top Manager Hakan Güldağ and General Coordinator Vahap Munyar, TGSD presidents Sanem Dikmen and Ramazan Kaya made statements about the recent developments in the ready-made clothing and textile sectors and their future expectations.

Contraction will continue in 2023

TGSD President Ramazan Kaya said that with 2022, both the economic crisis, inflation and contraction began to be felt clearly. Expressing that the contraction will deepen in the last quarter of the year, Kaya said, “Especially the brands that sell cheap goods, which we call fast fashion, have started this now. Many foreign fast fashion giants currently have no business in Turkey. They don’t order. Previously, we were solving these problems in a quarter or two, now there will be a decrease of 15-16 months. Capacity utilization rates will drop very quickly. There is some work in the middle and upper segment. Tourist shopping also plays a role in it. We will have a shrinkage and economic problems in the next year as well,” he said.

No appetite for investment 7 months ago

Stating that this has led to a slight recession in raw material and commodity prices, Kaya pointed out the increasing labor costs and stated that the level of the exchange rate forced the sector against the labor cost, which reached up to 70 percent throughout the year. Kaya said, “At the moment, the biggest problem for the exporter is that we cannot meet the price in 2023 orders. We are in constant conflict with the customer. They say ‘There is a contraction in the economy, I need to buy cheap’ and they are looking for an alternative. On the other hand, the measures taken by economic actors negatively affect our cash flow and investment appetite. The investment appetite 7 months ago is gone now.” he said. As it is known, an investment attack started in the ready-made clothing sector, especially in the textile sector, last year. In both sectors, an influx of Anatolia had begun. Sanem Dikmen, the other President of TGSD, said that the investments that started at that time could not start production now, and that most of the investors regret today.

The amount of clipping is reduced by half

Dikmen said, “The investor has a hard time seeing the way ahead. With this financing cost, the return period of the investment is not clear anymore,” he said. Mentioning the yarn crisis in 2021, Dikmen continued as follows: “As the cost of cotton increased all over the world in 2021, the price of yarn increased in Turkey as well, but they sold it for $6 instead of $3 to $5. They made a very good profit. Because at that time, due to freight costs and closures, we could not supply from the Far East even if we wanted to. The producers, who turned this into an opportunity in the domestic market, invested with the profitability formed here, but there would be no purchase with the same volume. At the moment, especially the machines purchased by the textile industry, each of which costs 2-3 million Euros, cannot be opened. Machine deadlines were extended until 2024. Now the market has seriously stopped.” Ramazan Kaya, on the other hand, gave the example of clippings in this regard and said, “In the last 2 months, 1 of its 3 factories has been closed. Those with 5 halls closed two of them. This business has a scrap of fabric waste. A company that collects an average of 100 tons of scraps per month can now collect 50 tons. “This is another indication of how stagnant things are,” he said.

“Green Revolution” will be discussed

On the other hand, the traditional annual ready-to-wear conference of TGSD is approaching. Changing purchasing practices will also be discussed at the B2B event to be held in Çırağan on October 5-6 this year with the theme of Green Revolution.

Moving to a fully integrated system

Referring to the transformation in the sector, Ramazan Kaya explained that the partner integrated system has been switched to a fully integrated system. Kaya said, “As part of sustainability, units such as printing, embroidery and dyeing are included. This requires investment. We need medium and long term financing. 7-8 years of financing with at least 1-2 years grace period is required. If you make a factory investment with today’s interest rates, you cannot make that investment in 10 years. But we do it for the continuity of the business. Currently, the gross cost per employee, including Anadolu, is $600. In Bangladesh and Vietnam, where you compete, this figure is around 150 dollars on average.”

There are those who close the production facility

Ramazan Kaya said that there are many investors in the sector that have closed their production facilities due to the prolonged return on investment and falling profitability. Explaining that this will also lead to mergers in the coming period, Kaya said, “If you cannot find the financing from the bank, the companies will support each other, we see it now. Both in private banking and Eximbank, they always have working capital-oriented loans.” In the meantime, one of the names who decided to close the production facility was TGSD President Sanem Dikmen. Dikmen had decided to move its Tuzla facility to Anatolia at the beginning of 2022. Stating that the investment decision was no longer feasible in the past period, Dikmen said, “The profitability has decreased and the labor cost has increased. Since the exchange rates were also suppressed, we decided that there was no point in forcing it. We have turned from moving production to completely shutting down.”

Okay, are we at the point of continue?

Ramazan Kaya pointed out that the main problem in the sector is the unprofitability that started from last year and said, “We cannot make a profit. Profitability declined from 15-18 percent to single digits. Okay, we are at the point of continue. It is also very difficult to close a shop in the country. You are employing thousands of people, they have rights,” he said. Sanem Dikmen, on the other hand, pointed out that the indebtedness rates in the sector are very high and said, “When you take into account the increase in commodity prices and real inflation, assets are not in a position to return the debts.”

As the industry, we are hopeful for the next 5 years

Kaya, who is more hopeful about the future of the sector, said, “What we are talking about is not pessimism, it is just due diligence. We are learning new business models and trying to keep up with the change. We are open. If we think that investments will be made on the basis of sustainability, I think the next 5 years will be good.” Dikmen also touched on the exchange rate issue and said, “We determine the price of the goods that we will deliver 6 months later. Since the increasing costs were balanced with the increase in exchange rates, even if there were deviations, there were no radical differences. There was a balance in itself. Not so now. There is currency fluctuation in the country. It’s printing. Build is the most trusted subject for ready-to-wear manufacturers,” he said.

There is also a contraction in the locals

Kaya also shared his observations on the domestic market. Stating that many domestic retail giants have been contracting since the beginning of the year, Kaya said, “There are people who stopped buying from Turkey for their overseas stores. They make purchases from abroad for their overseas stores, and from domestically for their Turkish stores. Those who decide to melt their stock until September. When they do this, the whole system slows down. But there is a contraction in other brands as well,” he said. As for whether this situation can bring spills in the sector, Kaya said that there will be those who decide to close their business or join forces. Sanem Dikmen noted that even major bankruptcies may occur in November.

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