Textile Sector Update - Poised for gradual recovery, vertical integration

Vietnam’s textile industry has faced a perfect storm. Q4 2022 and 5M 2023 textile exports slumped 14%YoY and 19% YoY, respectively. Global brands and retailers heavily destocked during this period due to expected end-consumer demand compression. During this process, they place smaller orders with shorter lead times and lower unit prices — which prioritize sourcing bases that are closer (e.g., Turkey) or offer lower manufacturing costs (e.g., Bangladesh). Moreover, China reopened its economy in Q1 2023. Finally, a strengthened VND  exchange rates vs competitors hurt Vietnam’s export competitiveness.

However, retailers’ and brands' inventory is set for healthy levels in the next few months. Retailers such as Target, Kohl’s and Walmart saw their inventory (including discretionary categories such as apparel) drop YoY in Q1 2023. Casual fashion brand owners such as Inditex and H&M experienced flat YoY inventory. However, sportswear brands such as Nike and Adidas are still expecting inventory to return to healthy levels in mid-2023, and their inventories were higher YoY as of Q1 2023. Several garment makers are also receiving orders with long lead times vs only rush orders YTD, signaling restocking activities in H2 2023. 

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