Portugal’s rag trade braces for tough times ahead as bankruptcies double

Bankruptcies in Portugal’s fashion and textile sector doubled in Q1 of 2024 as the country’s garment and shoe manufacturers are being held hostage to negative geopolitical and overseas commercial headwinds. 

Text: Chris Graeme

Portugal’s textile, clothing and footwear sectors were hard hit in the first quarter of 2024 as a fall in consumer spending, both at home and overseas, reflected the current economic uncertainty and reduced consumer confidence across industrial sectors.

Out of 544 bankruptcies to March in Portugal, 176 were industrial companies, of which 106 were from the textile, clothing, and footwear sectors.

Overall, the number of insolvencies was up by 40 or 7.9% like-for-like on Q1, 2023, affecting the construction, real estate, agriculture, tourist accommodation and hospitality sectors, although these sectors suffered less than most, since textiles clothing and footwear sectors were particularly hard hit.    

According to data from Informa D&B, there were 174 industrial company insolvencies in Q1, of which 61% involved the textile and fashion industries, including clothing and footwear.

Compared to Q1 of 2023, the number of bankruptcies were up 159% with 106 companies in difficulties compared with 41 during the same quarter in 2023. 

It was a significant increase, particularly when looking at 2023 as a whole when the sector suffered 259 insolvencies. The general industrial sector overall suffered 464 bankruptcies in 2023.

In terms of unemployment, in February 2024 there were 288,658 unemployed signed up at job centres with 56,000 from the industrial sector, and of these around 14,000 were from the textile, clothing and footwear sectors, with a like-for-like increase of 8.4%, 12.3% and 80.7% respectively.

The President of the Textile and Clothing Association of Portugal (ATP), Mário Jorge Machado said that the numbers came as “no surprise” given the current difficult business climate, the effects of  which were not exclusive to Portugal. “Even our competitors in Turkey are suffering a downturn in sales” he said at the recent Euratex meeting of sector players held in Brussels.

For example, in the luxury footwear market, in which Portugal is a key player, after two years of outstanding recovery after COVID-19, the luxury sector experienced an overall slowdown in 2023, with mixed signals from a reaccelerating Chinese market and slowing markets in the US and Europe. The figures reported by the industry’s major players show just that, and shed some light on the conclusions of the Bain-Altagamma Luxury Goods Worldwide Market Study, which states that “only about two-thirds of luxury brands were able to post growth in 2023, compared with about 95% from 2021 to 2022”. 

In broader high-street fashion clothing segments, while experts remain cautiously optimistic overall, the potential impact on a world-wide economic and trading slowdown for 2024 on the textile and apparel industry is particularly worrisome. 

The World Trade Organization (WTO) predicts a 2-3% decline in global trade in 2024, impacting textile and apparel exports. 

In fact, a recent study by McKinsey & Company found that 70% of apparel companies expect a decline in sales in the next recession.

The survey predicts below-average growth in 2024, mirroring forecasts by major banks and institutions. This translates to decreased demand for consumer goods, including apparel and textiles. 

For example, Bangladesh a major garment exporter saw a dip of 18% in the first half of 2023 due to global economic slowdown, showcasing the immediate impact on developing economies.

Recessionary fears often lead consumers to tighten their budgets, prioritising essential goods over discretionary purchases like clothing. This is particularly concerning for the industry, which relies heavily on discretionary spending.

Existing disruptions due to the pandemic and geopolitical tensions are likely to worsen, further impacting production and delivery of garments.

And increased energy prices and raw material costs coupled with potential interest rate hikes could squeeze profit margins for textile and apparel companies.

Image: Panaprium Sustainable Brands (Portugal)