What does the textile industry need to do to quickly recover?
VietReader 19-10-2020, 14:32

Products have helped reduce the impact on production and business activities of Century Yarn. Source: Internet

Business results declined

By the end of the third quarter of 2020, textile and garment exports reached US$22 billion, down 10% over the same period last year. This reduction has narrowed significantly compared to 16% in the first half of 2020. Ofwhich, garment products saw the smallest decline, while the yarn group has the strongest.

The reason is that garment enterprises mainly export orders that are delayed during the quarantine period, and do not carry out new orders. Currently, customers are still placing orders in moderation due to concerns about the pandemic.

Century Spinning Company recorded good recovery in September 2020 as demand for recycled yarnwas less affected than newyarn and the selling price of recycled yarn was also stable while the primary yarn price remained stable. This helped the company’s revenue in the third quarter of 2020 reach 60% compared to the first quarter of 2020, a quarter that has not been affected by the pandemic.

Profit after tax in the third quarter is expected to reach more than VND10 billion. The company forecasts that fourth quarter output will continue to recover, reaching 80-90% compared to Q1/2020. However, due to the sharp decline in the second quarter, RongViet Securities Company still forecasts that revenue in 2020 of Century Yarn will decrease by 32% compared to 2019 and profit after tax will decrease by 46%.

Song Hong Garment Company also faces a series of difficulties when consumption of traditional products including apparel and bedding has plummeted due to the pandemic, especially the owner of the New York fashion chain & Co. (accounting for 15% of May Song Hong’s annual sales) filed for bankruptcy protection. At the end of Q2, accounts receivable from New York & Co. worth up to VND219 billion, accounting for 31% of debts and 7% of total assets of Song Hong Garment Company.

With the assumption that Song Hong Garment will make provision for all VND219 billion of New York & Co.’s receivables, Rong Viet Securities Company estimates that the company’s 2020 revenue will decrease by 26%, net profit down 89%. Gross profit margin is also expected to decrease to 17.4%, from 21% in 2019.

Meanwhile, Thanh Cong Garment Company is a rare enterprise with positive business results in the first nine months of 2020, with profit of nearly US$8.2 million, up 9% over the same period in 2019 and exceeding 2% of the yearly plan.

According to detailed analysis of the business results of May Thanh Cong, Rong Viet Securities pointed out that the fabric segment is most profitable thanks to the increase in demand for domestically produced fabrics to enjoy incentives from the EVFTA. In addition, the company has implemented many solutions to save production costs, business management.

In particular, mask orders have partly compensated for the decline of the traditional orders. The Board of Directors of May Thanh Cong also expects the yearly after-tax profit to exceed 20-25% compared to the plan.

Take advantage of new trends

Pham Van Viet, Vice Chairman of Ho Chi Minh City Textile and Embroidery Association, said that up to now, textile enterprises have only received about 50% of their orders for the fourth quarter. In addition, outsourcing prices have decreased from 15 – 20%, so businesses lose money since receiving orders. Meanwhile, face masks and protective goods, which are considered “staples” of many garment companies, have sharply decreased due to an oversupply around the world.

“In order to reduce costs and retain workers, it is imperative that enterprises let employees take a rotating break and hold on to production, because if the employees leave to do other jobs until the market recovers, getting them toreturn is not easy, especially for those sectors that need skilled labor like textiles,” said Viet.

In that context, Viet hopes the EVFTA will help the textile and garment industry get out of difficulties. Enterprises will have many opportunities to expand export markets, but need to prepare a specific plan and understand the regulations in theEVFTA such as rules of origin, product standards, and consumer demand in each market since the EU has very high requirements on production and business conditions, production technology, quality standards, product designs and especially social responsibility.

In addition, experts also recommend businesses promote the quick conversion of traditional goods to those with fast adaptability. According to SSI Securities Company, the change in consumer habits towards ‘athleisure’ (high-applicability fashion products) and basic goods, along with the strong growth of the online sales channel is expected to be the main drivers of overall growth in the post-pandemic industry. In addition, although domestic manufacturers do nothave the ability to directly sell online in export markets, they can still make efforts to win more orders from brands benefiting from the new trends after Covid-19.

Grasping the above trend, many businesses are also making efforts to convert production activities. Specifically, Century Fiber is developing and selling many items of garment yarn with special features such as sun protection, anti-wrinkle, moisture absorption, dyeing, elasticity, effect on fabric.

The company has also invested in expanding a closed production chain to meet domestic fabric needs to take advantage of incentives from the EVFTA. In addition, in 2021, Thanh Cong Garment will also start the secondgarment factory in Vinh Long, increase 8 million products from the current 31 million products, and are expected to increase the capacity of dyeing, knitting, and weaving in the 2022-2023 period.