MAS marching on midst major crisis in apparel industry

• Industry wide 30% capacity redundant as apparel exports dip by 18% up to June due to higher inventory and recession in US and Europe
• MAS Group CEO Suren Fernando says global demand for apparel likely to pick up only mid-next year
• Despite downturn insists no plans to pull out from Sri Lanka or permanently close any factories here as yet; has merged two factories at present
• But cautions closure as a last resort cannot be completely ruled out and decisions will be based on demand recovering among customers
• Says furloughing some plants on the cards to temporarily cut overhead costs; Employees of these plants will be paid their salaries during temporary closure
• In February MAS downsized operations in Haiti by 20% and in India merged two plants
• Insists MAS believes in Sri Lanka; continues to innovate having invested $ 20 m in past year
• Exploring new markets in India (through strategic investments), Southeast Asia, Japan, China, and building on new business opportunities to counteract loss of demand from traditional buyers
• Urges Govt. to embark on reforms immediately to avoid potential risk under the current economic conditions

By Nisthar Cassim

South Asia’s largest apparel exporter, MAS Holdings, says it remains committed to Sri Lanka and further enhance exports with a host of new strategic initiatives involving over $ 20 million investment amidst the most challenging time for the industry.

Apparel exports from Sri Lanka have been on the dip this year following a challenging 2022 second half performance forcing the industry to operate with redundant capacity of around 30% which is unprecedented.

Due to higher inventory in major markets coupled with recession, Sri Lanka’s apparel exports have declined by 18% to $ 2.2 billion in the first half of this year. Exports to the US were down 24.78% in the first half of 2023, to the EU by 14.70% and to the UK by 15.4%.

 US and Europe account for over 50% of the global demand for apparel hence their impact on the industry is significant. This reduction in demand has had a ripple effect, especially in terms of job losses and factory closures with the highest number of job losses being recorded in the SME sector. 

According to the apparel industry leader MAS Holdings prospects for a pick-up in orders is unlikely until mid-next year. 

“We don’t see any signs of recovery all the way until the end of 2023 or possibly till the second half of 2024. If there were any indications of recovery in 2023, those orders would have already been visible to us. So, the earliest we can anticipate any sign of an increase in demand is in Q1 or Q2 of 2024. However, there is an overarching sense that this demand level and price reset we are seeing right now will be the new normal going forward, and the market pressures are likely to remain in the medium term,” MAS Holdings Group CEO Suren Fernando told the Daily FT.

MAS has seen a decline of close to 20% of its orders in terms of value across the group when compared to last year. Import of textiles, a key input for the apparel sector, was down by 29% to $ 1 billion in the first five months of this year.

Fernando estimates existing inventory to be around nine months and any recovery in 2024 would be gradual.

In 2022 apparel exports grew by 22% to $ 5.6 billion thanks to impressive performance in the first half of last year.

The global downturn and resultant dip in exports this year have forced the industry to pull back previously planned expansion plans as well as adopt multiple strategies including a freeze in recruitment, amalgamation of smaller factories for scale, and readjustment of production and human resources to minimise the impact.

“Currently, we have merged two plants together and in those scenarios, we transfer all the resources to the other plant. We are working shorter weeks and, in some periods, and have adjusted our shift patterns. Should we furlough a plant, we will continue to keep these employees on our payroll to support them,” said Fernando. MAS employs 110,000 with operations (including manufacturing plants and design centres) spanning across 17 countries.

According to Fernando, MAS implemented several strategic measures to streamline operations from earlier this year. In February 2023 it downsized the plant in Haiti by 20% in terms of headcount in order to adjust production capacity to meet the change in demand.  

In India more recently, given the change in order volumes MAS merged two plants which led to some staff being let go as well. 

 “We have not replaced the natural attrition of labour since July-August 2022. Our headcount has been gradually reducing across the group with labour turnover currently being 1.5%-2.0% per month. Resultantly our capacity has reduced by about 20%,” Fernando revealed. “We are also furloughing some plants to temporarily reduce our production capacity and overhead costs. The employees of these plants will be paid their salaries during this temporary closure period,” he added.  

To its credit and reinforcing MAS’ commitment in Sri Lanka, it has not closed any plants so far.

“A closure of an MAS plant as a last resort cannot be completely ruled out, and the decisions will be based on whether we see demand recovering among our customers. As Sri Lanka’s largest private sector employer, and a responsible corporate, in this scenario, we fully comply with the law and ensure that employees are compensated,” emphasised MAS Group CEO.

Despite the external challenges, MAS has been putting people first and “to the best of our ability, we will secure livelihoods and continue supporting our employees,” Fernando assured.

Among measures MAS took during the pandemic and the recent economic crisis include: Fully equipped Interim Care Centres for employees, families, and communities; investing in COVID-19 vaccination drives and ensuring early vaccination for the workforce; dry ration packs for employees and education material for their children; wage increases supporting employees during high inflation as an extra measure to offer economic support and relief from the harsh conditions faced by Sri Lanka at the time. 

“Our responsibility as the largest apparel manufacturer in Sri Lanka is to the country’s economy and the overall industry. We take the responsibility of preserving this industry very seriously and will always do what is right for the longevity of the company and the thousands of people that MAS and the apparel industry support,” he emphasised.

According to Fernando from a long-term business perspective, MAS is managing a careful balance between the current drop in orders and readying itself for the future.

“The business world is changing rapidly, and we cannot only focus on the here and now. Our plans are a part of a series of strategic decisions to help us be competitive beyond this context, and most importantly to secure the Sri Lankan apparel industry for the future. We know the responsibility we have in the industry and in the country, and realigning our operations to be ready for the future is very important,” Fernando added.

Investing in Sri Lanka and innovation

Group CEO also emphasised that MAS has no plans to pull out from Sri Lanka. “We are a global company expanding operations around the world. Our investments overseas should not be interpreted or misinterpreted as MAS moving out of Sri Lanka. In fact, our global operations only strengthen and support the company in times like this,” he stressed.

Fernando cited MAS’ investments last year in BAM Knitting mills and now upgrading that facility with significant capital expenditure as an emphatic step to expand existing supply chain capabilities in Sri Lanka. “Recent investments across our group, like our investments in Silueta, are clear indicators that MAS believes in Sri Lanka and continues to invest in Sri Lanka,” the Group CEO added.

MAS is also pursuing efforts to build new opportunities and streamline operations. Catering to the demands of a dynamic and ever-changing industry, the MAS portfolio has expanded exponentially; into wearable technology, FemTech, Health tech, adaptive wear, start-ups, and logistics worldwide.

Noting that  firms have to continue to build agility to be able to meet the changes that are to come, MAS has also been exploring breaking into new market segments and working in regions like India. In Sri Lanka MAS sees the increasing opportunity for innovation and co-creation on the basis that MAS’ work in Sri Lanka has helped it to position the country as a sought-after place for value-added product creation, beyond mass manufacturing. 

According to Fernando, in the future, mass manufacturing alone will not be sufficient to attract business. Access to raw material as well as creating unique and transformational products through new tech and innovation is needed. “That is where MAS is heading. We are exploring new markets in India (through strategic investments), Southeast Asia, Japan and China and building on new business opportunities to counteract the loss of demand from among our existing customers,” he added.   

MAS Holdings signed a Joint Venture Agreement with Tata Group’s Trent Ltd, in January this year, setting up an entity in India for the joint development of business into intimate wear and other apparel related products specifically for the Indian and Asian markets.  

Noyon Lanka, a subsidiary of MAS Holdings, acquired the IP assets of the 100+ year old French lace manufacturer, NOYON CALAIS in May this year, positioning Noyon as a global leader in lace manufacturing. 

Last year MAS made a significant investment in BAM Knitting mills to strengthen the supply chain capability in Sri Lanka and offer verticality to our customers in cotton fabrics.

Silueta, an MAS subsidiary in Sri Lanka, the manufacturing technology leader, significantly invested in new technology aimed at further automating the apparel manufacturing process.

MAS strongly believes that the global business environment is changing, to be more cost sensitive, to require more sustainable solutions, and to be able to innovate to generate new business. “We have been preparing ourselves to meet these challenges over the last few years and have been reinventing ourselves to thrive in the future. We are building our capability to meet these pressing needs, for example on the digital front,” Fernando said.

“Our future-proofing agenda has been underway for a few years now where we look at the latest tech in Digital Product Creation and other digital business models. With the pandemic, this shift came about much faster than was expected. Automation, digital technologies, and digital transformation will, to a large extent, change the way we work with our resources. These are all changes that we are looking at and are preparing for.  MAS continues to invest heavily in innovation through our dedicated innovation arm Twinery, to develop new product and apparel technology capabilities that have given us significant business results in the past both in terms of revenue and profitability through innovation,” Fernando said.

Role of Government

Given the role of apparel exports as the largest foreign exchange earner for Sri Lanka, MAS Group CEO pointed out that the Government must embark on reforms immediately to avoid potential risk under the current economic conditions.  “Actively pursuing reforms prioritising economic recovery and growth is key,” he added.

His suggestions include aggressively pursuing FTA’s starting with the Indo-Sri Lanka Free Trade Agreement.  “Sri Lanka and India have had a vibrant mutually beneficial trading history and there is room to further strengthen trading relations between the two countries under the ISFTA,” he said.

Focusing on sustainability, and renewable energy to offset the high energy costs with self-generation options is another suggestion. “Spurring local innovation as an impetus to productivity to remain competitive in the global market during periods of higher operating costs,” Fernando said adding “Improving digitisation and automation for faster lead time and to respond to sporadic demand trends is important too.”