Recent data from the global sportswear supply chain indicates persistently low industry sentiment. A combination of geopolitical tensions, rising raw material costs, and uncertain consumer demand continues to pressure sector valuations. The S&P 500 Textiles, Apparel & Luxury sub-index has declined 15% year-to-date, bringing its total drop to approximately 65% from its peak at the end of 2021. The index is now hovering near the lows seen during the COVID-19 pandemic. A team led by Goldman Sachs analyst Michelle Cheng noted in a recent report that March orders from major Asian sportswear OEMs were mixed, while forward order visibility from brands has decreased. Furthermore, Nike's slower-than-expected recovery is acting as a significant drag on the sector. On the demand side, U.S. consumer data for March showed some resilience, but performance was more uneven across Europe, the Middle East, and Africa. Cheng stated that market sentiment deteriorated noticeably following the outbreak of U.S.-Iran conflicts. The subsequent trend will depend on data feedback following the implementation of a recent two-week ceasefire agreement. Recent comments from Donald Trump suggesting high oil prices may persist into the second half of the year have further intensified concerns about sustained pressure on household consumption budgets.
Supply chain data presents a mixed picture, with order visibility declining. Goldman Sachs' latest report reveals a clear divergence in March order performance among major Asian sportswear contract manufacturers. Among Taiwanese footwear and apparel manufacturers, Eclat Textile outperformed its peers. Both Makalot Industrial, which primarily serves fast-fashion apparel, and Pou Chen, a major sportwear footwear maker, reported first-quarter results largely in line with expectations, though they faced some pressure due to holidays in Indonesia. Conversely, Feng Tay, a key supplier of athletic footwear for Nike, continued to see a year-on-year decline in orders. Similarly, orders from competitor Hansae were weak in the first quarter. Analyst Cheng pointed out that while most manufacturers reported their March orders had not yet been significantly impacted, some companies have indicated reduced forward order visibility from brand clients. This is primarily due to rising costs and an uncertain demand outlook. She warned that if raw material prices remain elevated, contract manufacturers will face greater margin pressure in the second half of the year. Intensifying competition among brands could further limit suppliers' ability to pass on costs, especially as brands may transfer some cost pressures back to the manufacturers.
Nike acts as a drag on the sector, while Fast Retailing offers a positive contrast. At the brand level, Nike's slower-than-expected recovery pace is one of the most significant negative signals for the industry currently. Cheng stated that Nike's delayed adjustment continues to weigh on the entire supply chain. As a major retailer in China for Nike, Adidas, Puma, and Converse, Pou Sheng International reported a 6% year-on-year sales decline in March, reflecting a typical post-holiday consumption slowdown. Its first-quarter revenue decreased by 1% year-on-year, which was broadly in line with market expectations. In contrast, Fast Retailing provided one of the few positive signals. Cheng noted in the report that a divergence is evident at the brand level, characterized by "negative signals from Nike and positive signals from Fast Retailing." The latter's performance offers some counterbalance to the overall weak industry sentiment.
Demand-side divergence persists; a true bottom awaits a confidence reversal. Uncertainty on the demand side is intensifying. Cheng indicated that, based on management commentary from companies like Levi Strauss, PVH, and Nike, as well as high-frequency data, U.S. consumer demand in March remained resilient. This is partly because the impact of higher energy prices has not yet fully filtered through to household budgets. In comparison, demand performance in Europe, the Middle East, and Africa has been more uneven. Consumer sentiment in developed markets weakened noticeably after the outbreak of U.S.-Iran conflicts. Cheng stated that her team will closely monitor the latest data following the recent ceasefire agreement to assess the actual impact of the geopolitical situation on consumer demand. Whether the index can truly find a bottom will largely depend on a substantive reversal in consumer confidence, a shift for which the current macroeconomic environment has not yet provided a clear signal.
