Sushmita Saha, Assistant Manager, Credit Risk Management and Bonnishikha Chowdhury, Executive Officer, Credit Risk Management

Two very important lessons this ongoing pandemic has taught us are, continuous upgradation with new technology and innovative market penetration strategy are the only way to survive this competitive economy. Our RMG industry is very much buyer centric and we do not have any exposure to the direct consumers. This is high time we should take some serious steps to make a strong position in the global consumer market. Moreover, with growing e-commerce acceptability such penetration in global consumer market has become comparatively easy to achieve.

It is already established that the future is online. However, this pandemic fast forwarded us to the future and made it present. The traditional marketing and management of fast fashion industry is experiencing a revolution because of the emergence of e-commerce. Even though, the domestic e-commerce sector of our country is gradually growing but when we consider the international market, the expertise level is still rather low. Unfortunately, even though Bangladesh is the second largest exporter of global RMG market, most of our manufacturers are still not B2C e-commerce ready. 

Impact of Covid on RMG sector of Bangladesh

RMG industry of our country now boasts 4,621 factories employing about 4.5 million workers (mostly women) and earning a whopping $ 27949.19 mln in the year 2019-20, which accounts for 83% of Bangladesh’s total export earnings. This makes RMG the largest exporting sector as well as the biggest employer in Bangladesh.

However, the unforgiving pandemic: COVID-19, laid a very strong blow to the sector. BGMEA stated, as of April 2020, global brands and retailers, who purchase clothing goods from Bangladesh, have cancelled & suspended work orders worth $3.18 Billion. It directly affected around 2.28 Million workers and the dependents of their income.
The BGMEA unveiled a report on July 24, 2020 named “Analysis of Factory Capacity Booking Survey”, according to which RMG exporters have booked only 35% of their production capacity for August-December period, and on average, the price trend has been showing a 14% decline. Rough calculations made by Bangladesh Garment Manufacturers and Exporters Association suggests that the sector has suffered business losses of nearly $3.7 billion in order cancellations and refusal of shipments since the pandemic hit the US and EU – two key destinations for us. On the other hand, due to lack of order small and medium-sized factories are forced to shut down causing unemployment of a large number of people.

How the sector is recovering?

The industry started facing the impact of pandemic since the beginning of March. When the country wide lockdown was announced from 25th March, the industry personnel were concerned that the pandemic might lead to a huge fall of the industry. The initial concern was the due salary of the workers which was resolved by PM’s BDT 5,000cr stimulus package for export-oriented industries. The stimulus package however was not enough for all the factories. Many missed out and also it was approximately less than 40% of the requirement. On the other hand, the salary was disbursed through mobile financial services which was a revolution for our payment sector.

However, throughout the first and especially the second quarter of 2020, personal protective equipment (PPE) production has helped mitigate some of the pandemic's impact on the textile and apparel sector.

It is observed that as most of the countries has come out of the lock down situation, there is a tendency of the consumers to buy new clothes. Thus, the buyers are in need of new products. One bright side of this industry is, the consumers are always in need of new products. Moreover, due to the shutdown most of the products stocked in the stores are damaged. However, this situation is leading to generate new orders for the manufacturers of our country. On the other hand, Europe is predicting a 2nd wave of Covid, if it causes another shutdown, such situation will be huge shock for the industry.

Traditional B2B model and its limitations:

Business-to-business in general is defined as commercial business between trading partners. The export oriented RMG industry of our country is completely buyer centric. When the pandemic hit the EU countries, the biggest headache for us was the order cancellation. In a B2B model, the buyers place pre-order for their required products to the manufacturers of our country. After preparing the products, the manufacturers hand it over to the international buyers and later, the buyers distribute or sell them to the final consumers. Thus, our manufacturers suffer the most if a buyer defaults in any way. For instance,

If buyers fail to pay bills or take long to pay back the manufacturers face uncomfortable situation since the manufacturers solely depend on them.

If the manufacturers do not receive enough orders from the buyers, they usually have to lay-off the factories as they run on very tight margin. In case of lower volume, operating expenditure cannot be met as well.

If a buyer cancels order, the manufacturer has nowhere to go with such large amount of products. It is because, buyers would require removing all the tag and accessories, before shipment to others. Hence, it is impossible to sell them elsewhere. Moreover, due to bonded warehouse regulations, the manufacturers are not legally able to sell off the products in local market.

All these happen just because our local manufacturers do not have direct access to the international retailers or consumers. We have been following the B2B model for RMG sector. However, B2B e-commerce is also in practice here.

How B2C model works in RMG Sector

B2C is a channel in which the brand creates sales directly to customers such as flagship stores, shop in shop, outlets, and online shopping malls. In case of Bangladesh, even though there are some local brands which follow business to consumer model but in international market the presence is not strong enough.

Marketing is most essential for B2C as this is what exposes the brand or product to the public. Since B2C targets more on a comprehensive scale than B2B channel, effectiveness cannot be underestimated. At many times, more is spent on marketing for a bigger impact on the market through the use of celebrities.
Forrester, an American market research company, divided B2C into five types. 

1. Catalog companies: Retailers that derive the majority of their revenues from catalog sales

2. Brick and mortar retailers: Retailers that generate majority of their revenues from physical stores

3. Pure manufacturers: Apparel manufacturers that sell products only through stores owned by others

4. Hybrid manufacturers: Manufacturers that sell both in their own stores as well as stores owned by others

5. Pure play firms: Retailers that sell apparel only online.

Global practice of B2C E commerce model

Clothing is one of the most popular product categories purchased by digital shoppers worldwide. As per yStats. com’s report “Global Clothing B2C E-Commerce Market 2018”, the global fashion B2C E-Commerce market might exceed half a trillion euros in sales by 2022. In terms of online penetration of total retail sales by 2022, more than one-third of clothing, accessories, and footwear spending is expected to occur online. The growth is driven by increasing number of online fashion shoppers who look for convenience, larger product selection, lower prices, convenient payment methods, online reviews and product ratings when purchasing clothing and accessories on the Internet. However, the projection was made before pandemic; given the rapid adoption of online shopping this estimation might hit two-third level. 

China is considered to be having the largest online retail fashion market globally. Huge population and the high fashion online shopper penetration have been helping China to grow rapidly in online fashion retail sector. Tmall and Taobao are the leading channels for buying apparel products in that country.

The second place worldwide in online sales volume of fashion products is held by USA. As of summer 2018, Amazon was the preferred pure online store for purchasing fashion items among pure online players and multi-channel retailers in the USA. On the other hand, the online shopping sites of store-based retailers Walmart, Kohl’s and Macy’s were among top five destinations for online clothing shopping of the country.

In Europe, UK is considered to be the European leader in online apparel, footwear and accessories retail sales. A ranking from 2018 cited in the yStats.com articulates that HM.com was the most prominent E-Commerce fashion website regarding the number of visits on a monthly basis. Russianbased online fashion retailer Wildberries.ru ranked second, followed by pure online players Asos.com and store-based Zara.com.

India is also observing a continuous change in apparel buying pattern and today's generation seems to buy clothes online without a break there. To cater such growing need, Bangladesh can be the Mexico of India if it can establish its online presence on marketplaces like eBay and Amazon. Bangladesh has been enjoying duty-free trade benefit to Indian markets from 2011 under the South Asian Free Trade Area (SAFTA) on export of all goods including apparel products. Bangladesh's share of the imported garments market in India rose 34% in the fiscal 2019-20 from 26% in the fiscal 2017-18 as per The Daily Star. Global retail giants like H&M and Walmart have opened outlets in India and have already started sourcing from Bangladesh, causing the spike in exports. Moreover, the demand for Bangladeshi apparel items has been rising among the Indian middle-income consumers because of competitive prices.

However, Amazon has demonstrated a strong interest in the global expansion of the online fashion segment in recent years which intensified the global online clothing market competition. In the growing competitive environment, Omni channel strategies have become vitally important for both online and store-based retailers of apparel. For example, European online fashion retailer Zalando now has begun to expand an offline segment by opening several brick and mortar outlets in Germany. 

Bangladeshi local brand in global Market:

Yellow Among the few local B2C practicing brands, “Yellow” of Beximco Textile is very popular among the Bangladeshi fashion enthusiasts. Although Beximco already had an established name in the global market through their export business but Yellow’s success has taken Beximco to a new level internationally. By successfully exploiting the factors like, easy access to raw materials, cheap labor and in-house design and manufacturing capabilities, it possessed first-mover advantage and a unique market share. Moreover, the desire to increase profitability and to diversify customer base motivated Yellow to go international. Currently, yellow has four international shops in Pakistan and South Korea. As per Beximco News, Yellow gained competitive advantages overtime with its in-house design capabilities, with teams based in Bangladesh and Spain, and talented designers from the world’s renowned design institutes.

Benefits and opportunities of B2C e- commerce in Bangladeshi RMG sector:

It’s been more than 40 years since we are successfully delivering world renowned brands including H&M, Uniqlo, Levi’s, Nike, Tesco, Wrangler, s.Oliver, Hugo Boss, Puma, Primark, JCPenney, C&A, Tommy Hilfiger, Inditex, Walmart, M&S, Calvin Klein, Diesel, Gap, Chanel, Zara, G-Star and many more by maintaining reputation. However, Covid 19 hit them hard as well. Among them,

The Swedish fashion brand H&M has announced to close 170 stores worldwide as they faced 50% drop in sales during the second quarter of 2020 due to stores being closed during lockdowns worldwide. However, it will be shifting its focus to its online business in wake of the ongoing pandemic.

GAP has reported a quarterly loss of approximately $1 billion in June 2020 and seeking for discounts and payment deferrals from the suppliers.

Zara's owner Inditex will close 1,200 stores worldwide by 2021, due to losses from the closure of its stores over the coronavirus crisis. It will instead focus on expanding its larger stores and drive its online business and turn its attention to online sales.

Thus, the biggest benefit will be coming out of the shadow of the global giants and having our own market. Bangladesh already has a goodwill in the global apparel market which already gives the manufacturers of our country the opportunity to penetrate the consumer market instead of targeting the giant brands only.

Another big advantage of B2C model is the larger profit margin compared to B2B. It is observed that, when a B2C brand become well known with a good amount of positive image, it can create more profit margin than B2B even after providing discount. Moreover, B2C has faster cycles than B2B in sales, as customer purchases are mainly based on emotional decisions.

Some manufacturers of Bangladesh are already selling their products via Amazon in a small scale and the response was praiseworthy. Moreover, many of our manufacturers have been serving the big brands with their own design. Thus, it is a potential market for the local manufacturers to establish their own brand. 

The industry experts are predicting that, China might come out of their RMG business and relocate it to somewhere else. Even though it is assumed that Vietnam might get the Chinese market but due to some strategic strength Bangladesh is the best solution for China. As it was stated before, China has the biggest online retail market globally capturing that market will be a huge opportunity for us. 

After the Rana plaza incident, the manufacturers of Bangladesh have been very conscious about compliance. As a matter of fact, they have been investing a lot in order to ensure compliance and establishing more and more green factories. These are the mentionable selling points for the global consumers. If these are communicated properly, consumers will be more interested.

Moreover, due to the pandemic worldwide a lot of retail stores are shutting down and more and more consumers are shifting towards online shopping. It is also predictable that due to economic downfall caused by this pandemic, consumers will shift to cheaper clothes and the products manufactured in Bangladesh mainly fall into that category.

The road blocks in establishing B2C model in Bangladesh and way outs:

The first roadblock towards establishing B2C e commerce model is, our policies are not virtual market friendly. As we have been practicing B2B model largely, to start practicing B2C, policy modification is compulsory. For example, allowing local companies to form companies overseas, is necessary to import goods from Bangladesh. Moreover, easing the procedure is vital for international transaction.

B2C brands need more employees and the initial cost of opening a store is higher. In addition, it has limits in expanding to overseas markets because of its pricing structure and regional limitations. It has regional limitations in choosing the location of shops as they are forced to open a flagship store in a big city. Thus, initiating B2C requires a good amount of funds. Hence, facilities like export turnover to remit abroad against actual expenses in product / brand development, marketing and other expenses will be beneficial for the manufacturers. To facilitate them financially new products should be introduced by the financial institutions. Moreover, it takes a lot of time to process international payments which is needed to be reduced. On the other hand, absence of PayPal can also be a discouraging factor for the consumers in B2C ecommerce operation.

In the end, it is very important for the manufacturers to have the willingness to accept the new challenges and take some risks. B2C or B2C e-commerce is definitely a completely new market for our RMG sector where manufactures have been operating is traditional model for a long time. Moreover, the order size will be small but a good range of product diversification has to be ensured. In this case, only technological advancement and process innovation can be helpful.