|  2012-11-14

Production of textiles recovers slowly after the 2009 plunge

The domestic consumption of textiles shrank dramatically during 2009-2011, by even two or three times, according to market estimates

In 2009 a large number of producers relocated manufacturing facilities in Asia, while a part of the local companies closed or downsized significantly their output. This resulted in around 25% y/y decline of the domestic textiles production in 2009.

 

Such abrupt plunge has not been alleviated yet, even though in 2011 and H1 2012 the market showed some signs of revival. Statistical data however reveal that clothing apparel output index further dropped by 1.5% y/y in 2011, after the marginal 0.1% y/y decline in 2010 and 25.5% y/y plunge in 2009. In H1 2012, the index turned in the positive area, increasing by 6.6% y/y.

 

Even so, Romania remained among the top European clothing and footwear producers in 2011 and the financial results of the top players show that large companies have managed to adapt to market circumstances. The total revenues of major 20 companies neared EUR 900mn in 2011. Nonetheless, very few of the top producers are present on the domestic retail market, as most of them shifted focus to orders under lohn system.

 

Imports of textiles show more dynamic performance than exports, but trade balance remains positive in 2011

 

The imports of clothing and footwear products showed more dynamic performance than exports in 2011, yet the trade balance remains safely on the positive side. Imports of knitted apparel and accessories increased by 11% y/y in 2011, versus 7.5% y/y advance of exports during the year, but their value did not reach half of exports, statistical data show. The same situation is noted for the not knitted apparel and accessories, where imports surged by 20.7% y/y to EUR 400.3mn, versus exports advancing by 18% y/y to EUR 1.8bn in 2011. Footwear and gaiters exports reached EUR 1.3bn last year, up by 17.5% y/y, while imports rose by 25.1% y/y to EUR 592.4mn. The fervent dynamics of clothing and footwear imports last year is partially explained by the retailers’ expansion and the trade balance is unlikely to witness abrupt changes in the short run.

  

According to market data, around 85% of the textiles production is exported. Traditionally, the main export countries have been Italy, Germany and the United Kingdom. There were no significant changes in this regard in 2011 compared to the previous year.

 

Prospects for the exports’ performance in the near future remain volatile and linked to the economic developments in the EU, as the economic downturn continues to affect European countries thus exerting downward pressure on external demand.

 

Textile producers continue to face with qualified labour force shortage, increasing costs, difficult access to financing

 

The Romanian textiles industry includes approximately 100,000 manufacturing companies, of which most are small and medium sized. Even though the larger players managed to generally overcome the adverse market conditions in 2011, the smaller companies continued to face with endogenous demand-side deterrents, as well as exogenous drawback factors, in the broader macroeconomic context impacting negatively on costs and financing conditions. The small and medium-sized companies have limited distribution options and are more vulnerable to the retailers’ shifting preference towards cheaper products, disregarding quality level, under the shrinking purchase power of customers. In addition to this, the sector is still facing a shortage of qualified labour force.

 

Foreign players expand aggressively on retail market

 

The clothing and footwear retailers resumed expansion, taking advantage of the more advantageous terms offered by the shopping centre owners and of the modern retail space supply added to the market in 2011, which allowed them access to new locations across the country.

 

The retail chains’ expansion was rather linked to market circumstances, namely the availability of new spaces under more convenient conditions, than demand-driven, as the purchase power continued to shrink in 2011 and players actually reported declining sales per store last year.

 

Besides the expansion of the international retailers already present on the domestic market, Romania continued to be attractive for new entrants. Mas-market brands such as H&M, Calzedonia, New Look and Petit Bateau, but also luxury brands Burberry, Escada, Valentino entered the Romanian market last year.

 

The local clothing and footwear retailers, on the other hand, besides harsh competition from international companies, faced with difficult access to financing and liquidity problems for the past two years, which added to the rising cost of utilities.

 

Accordingly, the Romanian companies could not keep up the pace in expansion with international players and could not offset the shrinking sales per store with higher volumes sold in enlarged retail network, as it was the case of foreign companies. Some local players were forced to file for insolvency, while others restructured business and product portfolios. 

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