DHAKA, Bangladesh — Nafiz Fakir is closely watching sales trends in Europe this winter; the future of his family’s manufacturing business here in Dhaka depends on it.

Fakir Apparels is a sprawling complex of facilities for knitting, dyeing, finishing and sewing punctuated by lush green lawns in the bustling district of Narayanganj, a warren of narrow streets crowded with brightly painted rickshaws, honking cars and weaving pedestrians in south Dhaka.

The company has grown rapidly since it was founded in 1998. Last year, it churned out more than 50 million pieces of clothing for brands including H&M, Esprit and Mango, generating $152 million in revenue.

The business has big investment plans for the coming years, eyeing a strategic shift away from low-cost, high-volume basics to higher-value products that allow it to compete on more than price. It’s pushing to grow its position in technical outerwear and looking at ways to cater to growing demand for products made with greater transparency and lower environmental impact, from a digital platform to improve supply-chain traceability to a sorting facility to enable recycling of textile waste.

But those plans hinge on what happens in Western markets this Christmas, as whipsawing demand for clothes plays havoc with global supply chains.

“It’s not a stable business environment any more,” said Fakir, the company’s deputy managing director, during a recent visit to its Dhaka manufacturing complex. “Nobody’s taking long-term decisions now.”

Fakir Apparels is in a relatively strong position. It’s a strategic partner to many of its suppliers and they’ve guaranteed orders through the end of the year, Fakir said. Others are already feeling the squeeze, with production lines falling empty and some orders and payments deferred, industry insiders said in conversations last week.

It’s not a stable business environment any more.

It’s a story that’s playing out across fashion’s supply chains as the industry grapples with a period of intense volatility. A post-Covid boom in demand has been dragged down by inflationary pressures worsened by the war in Ukraine, dampening consumer demand and squeezing economies in manufacturing hubs, amplifying a range of socio-political and environmental challenges that are creating their own ripples of disruption in turn.

Meanwhile the wider fashion business is being reshaped by countervailing forces, with the rise of social-media-fuelled ultra-fast fashion on one hand, and a looming regulatory clamp down on irresponsible environmental and social business practices on the other.

The upheaval comes at a particularly critical moment for Bangladesh. The world’s third-largest manufacturing hub is looking to reposition from the low-cost production that has driven decades of growth in order to retain and boost its position in an increasingly challenging market.

The current situation is “really going to separate the men from boys,” said Ranjan Mahtani, founder and executive chairman of Epic Group, a Hong Kong-based manufacturer that owns factories in Bangladesh, Jordan, Vietnam and Ethiopia.

Demand Destruction

At the start of the year Miran Ali had more orders than he could handle, the combined result of a robust pandemic bounce back and political and Covid-related disruptions that diverted business from rival manufacturing countries like Ethiopia, Myanmar and China.

“I was 30 percent over my entire capacity,” Ali said, sipping coffee on the sidelines of the Dhaka Apparel Summit last week. His firm, Bitopi Group, manufactures for companies including Zara, VF Corp and Pepe Jeans. In the first quarter of the year, it flew more clothes to market — a fast, but expensive transport option — than ever before, Ali said. “Everyone was overbooked and delivering six weeks late … there were freighters out of Dhaka airport.”

Then demand crashed back to earth.

After hitting a record of more than $40 billion for the year ending in June, apparel exports from Bangladesh dropped 8 percent year-on-year in September before flattening out in October, according to data from the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

“We will know by Christmas how next season looks,” said Ali, noting that a correction from abnormally high growth last year was to be expected. “Year-on-year flat would be fantastic,” he said.

This week is likely to give an early indication of what manufacturers can expect, with the Black Friday shopping frenzy typically offering a bellwether for holiday demand.

Signals so far are decidedly mixed. US retailers Walmart and Macy’s both raised their outlooks last week, but major seasonal sales events like Amazon’s Prime Day in October and Alibaba’s Singles Day earlier this month resulted in much smaller sales bumps than usual.

“It’s going to be very rocky for the next two years,” said Epic’s Mahtani. “Covid was a fast recovery; this is going to be a slow one.”

A New Race to the Bottom

On top of lower demand, suppliers are facing downward pressure on pricing

Though brands haven’t cancelled orders like they did at the start of the pandemic, some big customers have asked manufacturers to hold delivery for between six months and a year, said Faruque Hassan, president of the BGMEA. And with the outlook uncertain and the cost of some materials and freight lower than earlier in the year, many customers are pushing for discounts. Some manufacturers are accepting lower prices, even if it means operating at a loss, to keep running at full capacity, industry insiders said.

“We’re putting a lot of pressure on members not to reduce prices,” said Hassan. “You will kill yourself if you reduce prices … you will die from slow poisoning.”

It’s going to be very rocky for the next two years.

The pricing pressures threaten Bangladesh’s progress in other ways too; this week marks the tenth anniversary of the deadly Tazreen factory fire, which killed more than 100 people. The Rana Plaza factory collapse a few months later ranks as one of the industry’s deadliest incidents. The disasters prompted marked improvements in safety standards and working conditions, but labour groups say there is still room for progress, particularly as the pandemic has strained workers’ rights around the world. The country’s minimum wage of 8,000 taka, roughly $78, hasn’t changed since 2018. That’s left workers struggling to make ends meet with inflation in the country hovering around 9 percent.

Meanwhile, demands to upgrade manufacturing in line with big brands’ environmental and social commitments are increasing, even though prices aren’t. While brands are pushing suppliers to invest in costly equipment to cut emissions and water use and pay for expensive sustainability certifications, in many cases they’re ultimately still giving business to the lowest bidder, manufacturers said.

“Sustainability has to be free; that’s what I’ve been told,” said Epic’s Mahtani.

A Supply Chain Shake-Up

The winners and losers from the current supply chain shake-out are still emerging, as a host of competing economic, regulatory and socio-political forces reshape fashion’s post-pandemic sourcing strategies.

Companies are aiming for flexibility and resilience, diversifying their sourcing locations and looking for more options closer to home markets to speed up supply and guard against disruptions.

Nonetheless, Bangladesh remains well positioned. The country ranked as the most promising sourcing destination in McKinsey’s most recent annual survey of chief procurement officers in the fashion industry, published last November. Six out of ten respondents said they planned to increase sourcing share from the country in the coming years.

Still, the current upheaval makes it harder for manufacturers to prepare for the industry’s next looming challenge, with climate change an increasingly worrying wild card. Extreme weather, from drought to devastating flooding, has hurt cotton crops in four of the world’s five largest producers this year. Rising sea levels are expected to threaten thousands of garment factories, while global heating poses a growing threat to worker health and productivity.

“This is not a short-term play,” said Naser Ezaz Bijoy, CEO of Standard Chartered Bank in Bangladesh. “Over time, whoever will look at the short term will lose out.”