Indonesian Demand for Cotton Clothing Low Despite Holiday
The coming Muslim holiday, Eid al Fitr, usually provides a nice boost to cotton clothing sales in Indonesia, but consumers have shifted to synthetics this year.
July 14, 2011
From the Spinwell Marketing Team
Indonesia, the most populous Muslim population in the world, will be entering the fasting period on July 31, and celebration of the biggest festive holiday of the country (Eid al Fitr) to follow on August 31.
Each year during this one-month period, all activities become somewhat stagnant, including business. However, the few months leading towards this festive period are usually vibrant, especially for textiles. Muslims culture is to wear new clothes for the occasion, and hence retail sales reach their peak around this period. Due to the strong retail demand, all level of the textile manufacturing sectors does usually enjoy the benefit too.
Unfortunately, that is not the case this year.
Although the official report has not been tallied, based on several interviews we have had with some friends who are end product manufacturers, retail sales of clothing goods are expected to drop at least 15%.
They also emphasized that the demand for cotton clothes are exceptionally low this year, largely due to price. The difference between fabrics made of synthetics and cotton is huge.
For instance, the cheapest Muslim men’s shirt made of 100% cotton is priced about $7, while the cheapest polyester version is priced about $4.10. That price difference may not be significant for some, but it is a huge difference for the majority of Indonesian population, where income level is in the lower side – especially because inflation has caused the price of many basic products to increase dramatically.
To make matters worse, as the government of Indonesia has decided to increase the Anti-Dumping tax for import of fibers and yarns from other countries, but they do not do the same for finished goods.
As a result, many retailers and distributors have stopped buying locally produced goods and are importing cheaper textiles from other places, most notably China and India. This news was confirmed by a local newspaper on July 6 when they reported that the imports of finished clothing are up 40% this year.
Ever since the demand from the retail slowed, spinners, knitters and weavers have been forced to depend on the export market to keep their sales going. However, the lack of demand worldwide has made this option unavailable to most local manufacturers.
Meanwhile, the local industry, especially cotton spinners, have to purchase forward for their raw material use (fibers) because there is no homegrown cotton available in Indonesia.
The sudden drop of price of the futures and physical cotton prices has left many Indonesian spinners stuck in a very difficult situation: holding high-priced cotton contracts in a dead market. The continuous decline and inability to sell yarn stocks has made Indonesia probably the hardest-hit country during this period. Many good mills find themselves in a situation in which they are just trying to stay solvent.
The unfortunate situation has resulted in many contract cancellations, renegotiations and outright defaults. We have even heard rumors that some mills have begun considering the idea of filing for bankruptcy. We can’t confirm this rumor just yet, but honestly, we are not surprised.