'Corona Shock' Unilateral Order Cancellations by Overseas Buyers... Fashion Employees Losing Jobs (Summary)

Blocked Sales Channels Inside and Outside... Both Large and Small Businesses Stagger
Cost-Cutting Restructuring Leads to 'Unemployment Crisis'... Surge in Rehabilitation Applications

[Asia Economy Reporter Lee Seon-ae] The textile and fashion industry is collapsing due to the novel coronavirus infection (COVID-19) pandemic. Export routes have been completely blocked, and the domestic recession that has persisted for several years has worsened, effectively closing all sales channels both domestically and internationally, causing both small and large companies to falter. As companies with high export ratios collapse one after another, concerns are rising that the textile and fashion industry will be paralyzed. Meanwhile, business restructuring aimed at cost reduction is ultimately leading to workforce reductions, making an 'unemployment crisis' a reality.

◆Large companies falter, supply chain collapse accelerates= As large companies also begin restructuring one after another, the collapse of the textile and fashion industry's supply chain is accelerating.

According to E-Land Group on the 1st, E-Land Retail will close the offline (store) operations of 9 out of 17 children's private brand (PB) brands that have been sold at directly operated retail stores such as New Core Outlet and Icheon Il Outlet. E-Land Retail is the company with the most brands and the largest sales scale in the domestic children's clothing business sector, so the brand restructuring carries significant meaning.

An E-Land Group official explained, "Having experienced the COVID-19 crisis, we judged that business structure reform was necessary and decided to focus on strengthening the online platform," adding, "We plan to officially restructure the business centered on online by launching a children's clothing online platform and converting existing offline brands into online-exclusive brands."

Concerns about restructuring for employees responsible for the brands being withdrawn have also been raised. Employees, engulfed in anxiety, have posted on the workplace app community Blind, but E-Land Group drew a line by stating there will be no artificial workforce reduction. E-Land Group explained, "Employees who were responsible for existing brand operations will be transferred to internal business division jobs such as V-commerce, media commerce, online MD, and online sales through necessary job training and competency enhancement processes and internal recruitment."

Uniqlo is also pursuing store efficiency, with offline store closures continuing and corresponding layoffs naturally occurring. Previously, controversy arose when Baek Woo-jin, CEO of Uniqlo Korea's FRL Korea, accidentally sent an email to all employees announcing workforce reduction plans. Uniqlo's sales plunged 31% year-on-year to 974.9 billion KRW last year after becoming the target of a boycott against Japanese products. This is the first time since 2015 that Uniqlo's sales have fallen below 1 trillion KRW.

Emergency management measures such as wage cuts and unpaid leave or vacations are also continuing. Baba Fashion, Aioli, Buraedang, and Dongkwang International are implementing unpaid leave. LF voluntarily cut executive salaries by 30% in March and plans to continue emergency management until the situation stabilizes.

◆Flood of rehabilitation applications and ongoing bankruptcies= As large companies falter, mid-sized companies supplying textiles or fabrics to them are also being hit. In the Daegu Dyeing Industrial Complex Management Corporation, where synthetic fabric processing companies gather, some are expected to close. An official hinted, "Several places have declared temporary closure, and one is planning to stop operations entirely and close."

The situation is even more severe for small and medium-sized companies with high export ratios. With unilateral order cancellations from overseas buyers continuing, losses are significant, and they are barely surviving through workforce restructuring. Most companies with high export ratios such as SeAH Sangyuk, Hansol Textile, Shinseong Trading, Shinwon, Poongin Trading, and Choi Sin Moolsan are reportedly implementing restructuring measures such as unpaid leave, salary cuts, and voluntary resignations.

An industry insider said, "Due to order cancellations and delays from overseas clients, it has become difficult to collect payments, and companies are bearing the full cost of fabrics, sewing, and accessories used for production, resulting in losses of hundreds of billions of KRW per company," adding, "Since most sales depend on exports to the Americas and Europe, even if the counterpart unreasonably cancels contracts, it is difficult to respond strongly due to future relationship maintenance and legal issues, so companies can only focus on cost reduction."

Another insider lamented, "In many cases, legal restrictions in export target regions differ from those in Korea, making it difficult to pursue legal disputes over unilateral order cancellations."

Accordingly, the number of companies applying for corporate rehabilitation and bankruptcy is increasing. Yejin Sangsa, which operates textile accessories and handbags, Brian & David, a sunglasses specialist affiliated with Sewon ITC, and golf wear Nut Club have entered rehabilitation procedures. Recently, Sungchang Interfashion, which operates 'Anne Klein New York' handbags, also filed for rehabilitation. Dada C&C, a hat manufacturer, received approval for its rehabilitation plan, and BM Global, which operates golf wear Woolsey, had its rehabilitation plan submission deadline extended.

An industry insider said, "There are currently a considerable number of companies waiting to apply for corporate rehabilitation, and 3 to 4 companies are undergoing bankruptcy procedures," adding, "The number of corporate rehabilitation applications in clothing manufacturing has averaged 20 to 30 cases annually over the past five years but has sharply increased since the first quarter of this year."

Expecting government support is also difficult. Although the government has proposed support measures such as 'Employment Retention Subsidies' for all industries, these are suitable for industries like manufacturing where future situations are somewhat predictable, but the fashion industry is considered too risky to apply. Therefore, the Korea Federation of Textile Industries has appealed for support tailored to the flexible nature of the business, requesting ▲emergency management fund support for mid-sized companies ▲relaxation of damage proof standards ▲expansion of trade insurance and unpaid payment damage target countries.

This content was produced with the assistance of AI translation services.