El Salvador Textile Industry Feels the Pinch As U.S. Clothing Demand Shrinks

San Salvador — El Salvador’s textile industry is facing headwinds, such as the inflation of raw material prices and the saturation of supply chains, as well as the economic slowdown in the United States, the Central American country’s textile industry chamber (CAMTEX) has warned.

The U.S. economy contracted by 1.4% during the first quarter of the year ,and the probability of a recession in the coming months has skyrocketed, and textile manufacturers foresee an impact on the demand for their products.

“People will begin curtailing their clothing purchases, they will not stop buying food while they can, but there may be a drop in the purchase of apparel,” said Patricia Figueroa, executive director of CAMTEX and of the Central American-Dominican Council of Textiles and Apparel (CECATEC-RD).

Large U.S. department store chains are already seeing the effects of the downturn. Target, for example, announced this week that it will reduce inventories and cancel orders from suppliers.

“Excess goods in stores and warehouses is an industry-wide problem as retailers from Walmart and Gap to Macy’s suffer from a combination of order backlogs, changing consumer tastes and inflation, which increases the value of the stock on their balance sheets,” according to a Bloomberg report.

The Salvadoran textile sector had been enjoying good results in previous months. Exports between January and April totaled $953.3 million, an 11.9% increase over the same period last year, and also above pre-pandemic figures.

The U.S. is the main market for the sector, accounting for 68.4% of textile exports. Between January and March, the country sold $489 million of textiles to that market, an 18.98% increase, according to figures from the U.S. Office of Textiles and Apparel (OTEXA).

Despite having seen an almost 19% increase in textile sales to the U.S., El Salvador faces fierce competition. Of the top 10 textile suppliers to the U.S. market, most Asian nations saw increases of between 40 and 60%, while Latin American countries did not exceed 21% growth.

Opportunities and challenges

“The buyers, the big brands, have always had a passion for Asia. And it is obvious, we are not Asia, the levels, the size, the sophistication of its industry [are not comparable]. But we will have to turn things around a bit here, and for that we have to attract more investment,” Figueroa said.

The U.S. is promoting the relocation of its production to the region, and this could provide an opportunity to maintain competitiveness and overcome the challenges associated with a less dynamic U.S. economy, she said.

At least for the moment, the Salvadoran textile sector has some tools at its disposal to mitigate risks, such as long-term contracts between clients in the U.S. and local manufacturers, according to Mauricio Rodríguez, CAMTEX’s technical and commercial coordinator.

“One of the strengths of the sector is having long-term contracts, companies that come to settle, to create production processes that tie companies to the consumer for a long time. If demand is going to fall, that’s fine, it will decline, but we will continue exporting because we have to comply with the contracts we have already signed,” Rodríguez said.

On the other hand, pressures derived from increased raw material costs still persist.

“To make an estimate of the increase in costs, I believe that at least there was an increase of 20-25%,” according to Figueroa.

Cotton is a major contributor to textile price inflation, as its price has increased by 79.2% since the end of 2019, according to Cotton USA figures. In the last year, the material rose 16.9% to $1.38 per pound, at April 2022 figures.

Cotton T-shirts stand out as the textile product that El Salvador exports the most of, totaling $204.8 million; in second place are jackets for men or boys ($105.9 million), and in third place, T-shirts made of synthetic fibers, which account for $75.2 million in export revenues.

Translated from the Spanish by Adam Critchley