RMG owners fear loss

Walmart, a key customer of Bangladesh's apparel sector, has cancelled billions of dollars in orders as part of a continued effort to align inventory levels and pursue the demands of budget-conscious consumers.

The company executives said Walmart has cleared out most of its summer collections ahead of the back-to-school season — which has begun in large parts of the South — and the upcoming holiday period, reports FreightWaves. 

They said the company is making progress redesigning its inventories but it will take at least a couple more quarters to wring the imbalances out of its network.

The Walmart step has already started affecting the apparel sector of Bangladesh as it is the key customer of our apparel sector.

BGMEA Vice-President Rakibul Alam Chowdhury said that the industry is suffering as Walmart had already cancelled some orders.

The company has suspended shipments of some orders ready for delivery and halted those in process.

Rakibul Alam said that although none of the factory owners informed BGMEA about the cancellation of the order, the organisation contacted its member factories on its own.

Member factories have been asked to formally report the order cancellation to BGMEA, he added.

Walmart's gross margins took a hit as a result of its actions, said Miller. He said, however, that the gross margin drop was not as severe as at rival Target Corp. (NYSE: TGT). Target, which faces the same inventory challenges as Walmart, has also been reducing inventories as quickly as possible.

Walmart's seasonally adjusted product arrivals, not adjusted for inflation, increased by just 0.1 per cent in the second quarter from the first, said Miller. At the same time, seasonally adjusted sales, again not adjusted for inflation, rose 4.1 per cent over the same period, Miller said. "This is why inventories were drawn down," Miller said in an e-mail.

Most of Walmart's inventory inflation occurred in the fourth quarter, when arrivals far outpaced sales, Miller said.

Walmart's comments came as it reported fiscal second-quarter results that were more palatable than the fiscal first-quarter disaster. Adjusted earnings per share of $1.77 was well ahead of the $1.60-per-share consensus. Revenue of $152.9 billion was an 8.4 per cent year-over-year increase adjusted for currency fluctuations. Operating income of $6.9 billion was 6.8 per cent below the same period a year ago.

For the fiscal third quarter, Walmart projected a 5 per cent year-on-year increase in net sales. It also projected an 8 per cent to 10 per cent year-on-year decline in operating income and a 9 per cent to 11 per cent drop in adjusted earnings per share.

Shares rose more than 5 per cent on the trading day to close at $139.37 a share.