Turkish Textile Industry Struggles

In mid-March, suddenly, there was radio silence. Then, slowly, the requests began to creep in. “We must cancel our order”; “Those goods aren’t my responsibility”; “I don’t care what we agreed, if you don’t drop the price, we’re not paying for that.”

As Europe and the U.S. began to close down in the grip of the coronavirus, attempts by beleaguered international fashion brands to delay, reduce or cancel payments to Turkish manufacturers became an avalanche. Worse still were those remaining silent as the pandemic grew, leaving suppliers hanging on, wondering if they were ever going to get rid of finished goods, pay their own suppliers or, even, go bankrupt.

When most of Europe and many U.S. states were in lockdown and retailers shut up shop, the knock-on effect on Turkey’s booming clothing manufacturing industry looked enormous.

“We were left all alone with $1.5 billion to $2 billion worth of stock,” said Seref Fayat, chair of the clothing committee at Turkey’s main industry group, TOBB.

The sector had shrunk by around 30 percent just at the end of March. By the end of April, it had contracted by a record-breaking 65 percent.

Hadi Karasu, head of the Turkish Clothing Manufacturers Association, put it even more bluntly. “I said then that brands were wrecking our industry, and I stand by that,” Karasu, who is also a new vice president of Euratex, the European trade body, told WWD. “I’m not being emotional. This happened. In March, with all that panic, all talk of things like solidarity, sustainability, code of conduct went right out of the window.”

When textile companies came to call, manufacturers were asked to pay for goods nominated by foreign brands. Utility bills started to come in. Concerns over cash flow loomed. The potential fallout was huge for an industry that directly sustains more than 1.5 million workers — a further 3.5 million including families — with an equally large number of associated jobs in sectors such as marketing, distribution and cotton growing.

“They didn’t seem to understand that for so many people it was a life-and-death situation. We were just all in shock,” said Karasu. “If they had continued like that we would be left with a huge disaster.”

The clothing and textile industry is vital to the economic health of Turkey, second only to the automotive sector. The world’s sixth biggest exporter of textiles and Europe’s third biggest source of ready-to-wear, Turkey is a rare net exporter — contributing up to 15 percent of the country’s exports.

In April and May, worried clothing associations began to issue calls for calm and pleas for cooperation between buyers and suppliers as the TGSD’s Coronavirus Help Desk flooded with messages of concern and complaint.

Things began to stabilize. Big fashion groups such as Inditex and H&M discussed solutions. Levi Strauss & Co., Adidas and Nike Inc. cooperated, prompting others to follow suit. Payments were made or rescheduled. Slowly, Western governments supported industries and workers, allowing their brands to give assurances to suppliers. The inventory affected dwindled to around $200 million to $300 million worth and the situation has been improving. But problems continue.

“Some brands still aren’t paying up. And this includes well-known names,” Fayat, who is also chairman of the board at System Denim, told WWD. He pointed out that Turkish government support was less comprehensive than in Europe and the U.S., as it is mostly loans and limited wage support, rather than furlough schemes, interest-free lending and grants. Yet that didn’t stop the pleading and bargaining.

“You think, how can we possibly be in better shape than you?” Fayat said. “I get maybe 5 to 10 percent of the price that these goods are sold at. They sell at multiples of 30 or 40 times cost. I know this. I put the price tags on.”

Nobody is yet willing to name and shame offenders — although Karasu said he may well have to after the next round of talks — but all agree that there has been a lot of “bad behavior.”

Asked about the main culprits, fingers point unanimously to the U.K. and the U.S.

According to Mustafa Gültepe, head of the Istanbul Apparel Exporters Association, Europeans eventually behaved well. “The best were the Germans. The French, the Spanish were OK.”

There was trouble from Californian brands, he said, but they finally agreed to postpone payments and deliveries. “The worst were the British — and this goes across the board,” Gültepe said. “There was a lot of opportunism as they forced discounts and threatened not to pay at all. The British are always harsher. Brands are all very keen on talking about ethics but they need to show they are being ethical themselves.”

Told that British stores had reopened and queues were pictured outside retailers such as Primark, one source said: “Good, they better start selling so they can start paying. We know Britain didn’t manage the coronavirus well and that retail there was already in trouble. We sympathize, but they didn’t have to act like this.”

The timing has been particularly unfortunate for Turkish manufacturers as their COVID-19-related problems began when the industry saw itself in good shape following years of economic setbacks caused by a range of issues, including a coup attempt in 2016 and several terrorist attacks. Then came diplomatic rows with countries such as key trade partner Germany, and the freezing of Turkey’s European Union accession process over concerns for the rule of law.

The economic woes had produced one upside. The lira lost value, helping Turkey to become competitive against developing countries and still aim to secure a reputation as a quality producer. Faced with ever-cheaper competition from Asia, Turkey has been focusing on sustainability and higher-end production, promoting its status as a vertically integrated industry with a skilled workforce.

It was working. Last year Turkish ready-to-wear exports hit $17.7 billion. Exports in January and February totaled $3 billion. Talk was all about increased capacity, new factories and innovation. In late February, trade minister Ruhsar Pekcan praised the prospects for the industry, highlighting a 2020 export expectation of $19 billion: “Our goal is no longer to sell cheaply but to sell high-quality products with added value.”

When the outbreak started in China, orders began migrating to countries such as Turkey. Manufacturers moved fast to capitalize amid hopes that the disease would remain localized. They had expected a bonus 10 percent growth due to the outbreak. This in turn boosted hopes that Turkey would meet an expectation for apparel and textile exports of $30 billion by 2023, the 100th anniversary of the Turkish Republic’s creation from the defunct Ottoman Empire. Now this target looks difficult, if not impossible.

There are still grounds for hope. One saving grace — although only a small portion of Turkey’s output — was the growth of online sales, with a rash of orders from companies such as the U.K.’s Asos and Germany’s Zalando. Turkish businesses have increased their own online capabilities. “We have achieved in three months what was planned for three years,” said Fayat.

Digital is the way to go, said Gultepe, citing projects already in motion — such as an EU-funded business-to-business project to make the latest technology available to Turkish businesses, enabling them to design and show collections on virtual models in a digital setting without the need for samples. “We aim to build the digital infrastructure, especially for SMEs in both manufacturing and retail,” he said. Increasing digital capabilities, and quickly, was key to reshaping the way the sector does business and meeting customer expectations.

There is less of a chance domestic demand will plug gaps. High streets are slowly recovering, but stores in shopping malls are arguing with landlords over rent and contracts, while achieving only 25 to 30 percent of their usual sales at most.

International trends offer more succor. The pandemic exposed the danger of large orders, long lead times and sprawling shipping routes at a time of uncertainty. This sped up moves for closer, more flexible supply chains, putting the focus on Turkey, Eastern Europe and the Mediterranean. Turkish brands are already in talks to pick up orders that would have gone farther afield.

Karasu believes his senior role at Eurotex is also meaningful, as it puts Turkey on a top table as “the supply chain is reconstructed after the coronavirus.”

Turkish fashion leaders expect international buyers to try to push prices down, but they warn of pushback. “You have to stop somewhere,” said Karasu. Brands can no longer just pay lip service to ethics and sustainability. “We have to see this in their purchasing practices.”

Turkey’s government is already considering plans for “green clusters” of renewable energy-driven hubs of businesses, with eco-friendly water treatment and waste management, although COVID-19 has put a pause on that.

The fallout from the trade war with China helped refocus the mind of Americans, manufacturers said, to the benefit of Turkey. Many have offices there, including Ralph Lauren, Levi’s and the Newtimes sourcing group. More are expected.

But the emphasis is Europe, thanks to proximity and growth potential. Fayat pointed out that 72 percent of Turkey’s clothing exports go to Europe. “Yet this constitutes only 6 percent of their imports — so our 72 percent is their 6 percent. Imagine increasing our supplies to just 10 percent of their imports — that would effectively mean doubling our sector. There’s a lot to be gained.”

Fayat expects the sector to contract by 20 percent this year, recovering some of the worst early losses, with a return to pre-pandemic numbers by the first quarter of 2021 and renewed growth by the second quarter. “Online sales are coming to the fore and that’s all about working with small orders and moving fast. I think Turkey will do well out of this at least until 2025,” he said.

But it depends on the pandemic. If there is a second wave, all bets are off.

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