Some unscrupulous international retailers are taking advantage of security concerns after the July 1 Gulshan cafe attack to lower prices of apparel items, The Daily Star has learnt, talking to more than a dozen garment exporters.
Soon after the attack, retailers either suspended or cancelled their trips to Dhaka. With the government coming down hard on militancy, many of them resumed their business trips in recent months. But some of the retailers continue to use “security” as a tool to cut down garment prices further, said industry insiders.
"Lower price is not the only setback that we are facing now", said a mid-level knitwear exporter, who neither wanted to be named nor to disclose the identity of his retailer.
Retailers are asking manufacturers to hold meetings in a third country such as Hong Kong, Singapore, Germany, Thailand or India for placing work orders. This means travel expenses borne by local manufacturers would add to their production costs.
“One of my US retailers offered me $3.5 for a woven shirt last month, which was sold at $5 before the Holey Artisan cafe attack,” said another exporter, seeking anonymity.
The security situation appeared to have given them an “edge” to bargain, he said, adding that the price was finally fixed at $4.5 after a lengthy negotiation.
The reduction of price to $4.5 from $5 meant 10 percent less per piece of shirt whereas the profit range on the value of Freight on Board (FoB) varies between 2 and 7 percent, the manufacturer said.
“It means that I have been sending goods at loss. And I have been doing so only for running my business and with a hope of profit in the future,” he said.
That is how garment businesses go. They don't complain against these opportunists.
"Compromise is the solution for us. We need orders to keep the wheel moving," quipped a sweater manufacturer from Gazipur.
Moreover, the cost of doing business is rising by at least 15 percent every year. Recently, it has gone up significantly for upgrading compliance standards recommended by the engineers of the Accord and Alliance, he said.
Siddiqur Rahman, president of Bangladesh Garment Manufacturers and Exporters Association, said it may be true that retailers are offering prices much lower than usual on security grounds, but no garment maker has complained to the BGMEA about it.
The leader of the garment makers' platform cited devaluation of the pound against US dollar and appreciation of the local currency against the US dollar as a major reason for the drop in prices of garment items in the US market.
Buyers from the US, Bangladesh's single largest export destination, are now cautious about purchasing apparel items from Bangladesh, as there could be changes in US trade policies after the November 8 election, he noted.
“The US retailers have recently decreased the volume of purchase of apparel items. This is one of the major reasons behind the fall in prices of garment items.”
Besides, the pound fell to $1.18 from $1.45 following the Brexit vote on June 23 this year, said Rahman.
“This is another major reason behind the decline in prices of garment items in UK markets,” he noted.
After the US and Germany, the UK is Bangladesh's third largest export destination, accounting for 11.13 percent of the total shipments.
In fiscal 2015-16, Bangladesh exported goods worth $3.80 billion to the UK, registering a 6.01 percent year-on-year growth, according to Export Promotion Bureau data.
Garment items account for 80 percent of the total shipments to the UK a year.
The slump in the pound means British consumers will have to pay more for the same basket of goods. This may lead them to cut back on their expenditure.
Bangladeshi exporters are getting less money, as the local currency appreciated against the greenback. Previously, the exporters could draw nearly Tk 80 against a US dollar, but now it has declined to around Tk 77 a dollar, Rahman said.
KI Hossain, president of Bangladesh Garment Buying House Association, echoed the BGMEA chief's view.
He said retailers are offering lower prices also because of the fall in retail prices of garment items in the US markets.
“But, it's true that retailers are still asking local manufacturers to hold meetings in a third country for placing work orders,” Hossain said.
Faruque Hassan, managing director of leading garment exporter Giant Apparels Ltd, said, “We are failing to make retailers understand that local manufacturers are in a bad shape due to the fall in prices of garment items.”
“A few days ago, we, in presence of an influential minister of the Netherlands, urged international retailers to give us fair prices for apparel items.
“If we cannot deliver goods within the shortest possible time, we have to face order cancellation, or give discount or pay for expensive air shipments,” he said.
“We are in trouble because the consumers in the West are spending less on apparel items nowadays. They are spending more on other items such as mobile phones and apps.”
As a result, apparel export may face major challenges in the future. For example, export of garment items from China, the largest apparel supplier worldwide, has not seen any increase over the last couple of years, he pointed out.
In 2015, sales of apparel items declined by 7.8 percent year-on-year due to their low demand in the Western countries.