If you don’t know yet, the hospitality textile market in Q1 and Q2 of 2021 has seen its fair share of challenges. There is a good chance the hotel you stay in this Summer will have towels and sheets that look a bit old. The reason is that the property (and industry) will be short on replacements as textile manufacturing challenges continue to grow. In my years as a CEO distributing both hospitality and retail textiles, I’ve never seen so many factors come into play, putting an entire industry into chaos.
Let’s begin with some obvious facts. In 2020 the Covid-19 epidemic rocked the travel industry. The U.S. Travel Association estimates that travel spending in 2020 was down 42%. Those numbers worsen from late March 2020 through the end of the year, totaling $492 billion in losses.
Understanding the Supplier Pipeline
As a supplier to the industry manufacturing towels, your supply pipeline typically consists of approximately six months of product estimates. Traditionally a distributor would have 2-3 months of stock on hand and 2-4 months in the production pipeline, including goods in transit, weaving, bleaching, etc. When closures and travel restrictions began in March 2020, the suppliers in both hospitality and retail hit the brakes hard and developed new forecasts for the balance of 2020. Traditional buying patterns were adjusted down to new levels commensurate with “pandemic” conditions.
Retail Sales Drop • Online Sales Grow
Retail stores closed indefinitely — some closed forever, including Pier 1, Gordmans/Stage Stores, and Stein Mart. Stores that lacked full online stores suffered because customers continued buying online!
According to The NPD Group, online purchases accounted for 29% of home textiles sales from July through September, up from 23% during the same period of 2019. As people remained at home, they focused on buying new decor and updating the spaces where they were now spending most of their time. Good for us? Not really. Let me explain as we create the supply side landscape.
Supply-Side Manufacturing Challenges
While hospitality and traditional retail came to a screeching halt, the supply side was also navigating through Covid related issues. An important fact to know is that conventional towel and sheet manufacturing typically runs multiple shifts with hundreds to thousands of workers in each shift — all of them in very close proximity to each other on the factory floor. With the onset of Covid, social distancing restrictions started very quickly in virtually every country. In the fall of 2020, this was not much of an issue, with lower estimates of demand and weak global orders. When the hospitality industry established forecasts for Q2 and Q3 of 2021, the Spring production demands aligned with over 300,000 new Covid cases daily and massive government shutdowns. With product demand at a two-year high and lockdowns in manufacturing facilities, there have been product shortages throughout the market.
Global Gridlock Adds to Textile Manufacturing Challenges
In September of 2020, India’s Parliament passed three farm acts that caused what has commonly been referred to as the India Farmer Protest. These acts are:
- The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020
- The Farmers Empowerment and Protection Agreement on Price Assurance and the Farm Services Act, 2020
- The Essential Commodities (Amendment) Act, 2020.
Indian farmers wanted guaranteed minimal pricing for their crops. Over the four months following these acts, Indian farmers have also been protesting to bring awareness to their plight with massive gatherings and road blockages leading to delays of raw materials, mainly in Punjab Provence. Free passage of raw materials and finished goods has been disrupted for months, leading to delays of finished products to market.
The Shipping Industry Takes Advantage to Stay “Afloat”
Another major factor in towel shortages and rising pricing has been the shipping industry as a whole. China, the first market that had Covid related issues, was also the first to reopen. Chinese manufacturing facilities ramped up production and shipping; however, the rest of the world could not receive all the containers. There was no time to clear the extensive backlog of vessels with limited workers before more ships started arriving, so they returned them at the same rate. With North America facing an estimated 40% imbalance, 100 containers come into port, while only 40 leave. 60 of 100 containers continue to accumulate, a staggering figure considering the China-to-USA trade route sustains on average 900,000 TEUs (twenty-foot equivalent or approximate cargo space) per month. That’s during a normal year. The current shipping volume is at record highs this quarter — up 23.3% compared to last year, according to Descartes Datamyne, the world’s largest database of import trade data, import-export data, trade intelligence data, and international trade statistics.
According to Drewry, a supply chain advisor in the U.K., the world container index, as of June 3, 2021, looks like this:
As you can see, freight companies are taking advantage of shortages with record costs for freight movement, increasing up to over 4X costs from the previous year.
For an up-to-the-minute look at these numbers click here: The World Container Index Assessed by Drewry
Textile Manufacturing Challenges and the Depreciating U.S. Dollar
Finally, over the last year, the dollar has been steadily declining against the Yuan, Indian Rupee, and Pakistani Rupee. These three main textile producers are causing an increase in landed prices of finished products. As the U.S. dollar has decreased in value against currencies of leading textile producers, there has been increased pricing pressure on finished goods. Essentially, more dollars are required to purchase the finished product simply due to the decreased value of U.S. currency.
The Current Supply vs. Demand Imbalance
With the supply-side shortages and pricing pressures, there has also been increased demand for towels over the last several months. According to Destination Analysts:
- Optimism Is Up as Vaccinations Continue: Now, 73.4% of American travelers have or will get vaccinated against COVID-19. Of those who have been inoculated, 87.3% are more comfortable with the idea of traveling. Overall, nearly two-thirds of American travelers believe the pandemic situation will improve in the U.S. next month; only 8.6% anticipate it will worsen. Americans are feeling safer and more confident about travel than ever during the pandemic.
- Americans Continue to Actively Dream and Plan: In the last week, 77.5% dreamed and/or planned traveled, up nearly five percentage points. One-third report that they researched travel ideas online. Nearly 77% of American travelers say they are in a ready-to-travel mindset.
- Americans are Booking + Going: In the last week, 18.7% of American travelers made a travel booking and/or reservation, primarily hotels (56.9% of travel bookers) and airline tickets (43.5% of travel bookers, up from 32.5% last week). Americans report they will take an average of 2.3 leisure trips over the next three months.
So, with increased travel and increased bookings comes increased demand for towels and sheets, which are simply not supported due to supply-side disruptions. What that means to the hospitality industry is shortages in availability. So, if those towels at your hotel look a bit “tired” this Summer, most likely, the property simply doesn’t have a new product available to replace the old towels.
Does Your Supplier Have a Strong Enough Pipeline?
In conclusion, over the last six months, a host of factors have disrupted the production, transport, and pricing of finished products. Increased demand due to the reopening of travel and a summer travel season with vaccines has led to new forecasting of textile needs to replenish supplies in hotels, VRBO’s and vacation destinations. While manufacturers and distributors are rushing to get products to the U.S., shipping delays are not filling the pipeline. Strategy, planning, and time are the only ways to help keep the supply chain filled. The supply of home and commercial textile products this Spring and Summer will certainly be interesting, and those with products on the shelves and a strategic supply chain will be the big “winners” through the rest of 2021.
For more insight into Monarch Brands’ supply chain developments, read Hal’s article: Why do my wholesale towels cost more today?
President, Monarch Brands