Down another 15% this year! The S&P 500 Textile & Apparel Index hovers near pandemic lows, Goldman Sachs warns: high oil prices and US-Iran conflict will become "killers" of consumption

The latest data from the global sports apparel supply chain shows that overall industry sentiment remains gloomy. Geopolitical tensions, rising raw material costs, and uncertainty in consumer demand have combined to exert continued pressure on sector valuations.

The S&P 500 textiles, apparel & luxury goods sub-sector index has fallen 15% year-to-date, with a cumulative drop of about 65% from its peak at the end of 2021, currently hovering near the lows reached during the COVID pandemic. The latest report from Goldman Sachs, led by analyst Michelle Cheng, points out that March order performance among major Asian sports apparel OEM manufacturers was mixed, visibility into forward orders from brands has declined, and Nike's recovery is slower than expected, which is dragging on the industry.

On the demand side, US consumer data for March remains resilient, but performance in Europe, the Middle East, and Africa is more uneven. Cheng notes that market sentiment has noticeably worsened since the outbreak of the US-Iran conflict, and future trends will depend on data feedback following the implementation of the ceasefire agreement in the next two weeks. Trump recently hinted that high oil prices may continue into the second half of the year, further intensifying market concerns about ongoing pressure on household consumption budgets.

Supply Chain Data Mixed, Order Visibility Down

Goldman's latest report shows a marked divergence in March order performance among leading Asian sports apparel OEMs. Among footwear and apparel OEMs in Taiwan, China, Ruentex performed better than its peers; fast fashion garment OEM Just Gold and sports shoe maker Pou Chen basically met expectations for the first quarter, though were under some pressure from holiday factors in Indonesia; furthermore, sports shoe manufacturer Feng Tay, which mainly makes shoes for Nike, saw a continued year-over-year decline in orders; Huali's Q1 order performance was also lackluster.

Analyst Cheng points out that while most manufacturers indicate March orders have not yet been significantly impacted, some companies have already reported a decline in visibility for forward orders from brand customers, mainly due to rising costs and uncertain demand prospects. She warns that if raw material prices stay high, OEMs will face greater margin pressure in the second half of the year; competition among brands may further limit suppliers' ability to pass on costs, especially when brands pass some of the cost pressure back to manufacturers.

Nike Drags Industry, Fast Retailing Provides Positive Reference

On the brand level, Nike's recovery is slower than expected, becoming one of the main negative signals in the industry. Cheng notes that Nike's slow adjustment has continued to weigh on the entire supply chain.

As the main retailer for Nike, Adidas, PUMA, and Converse in China, Bao Sheng International's sales in March dropped 6% year-over-year, displaying a typical post-holiday consumption retreat; first-quarter revenue declined 1% year-over-year, basically matching market expectations.

By contrast, Fast Retailing provides some of the few positive signals. Cheng notes in the report that a dichotomy has emerged at the brand level, with "Nike negative, Fast Retailing positive," and the latter’s performance offers some hedge against weak overall industry sentiment.

Demand Side Divergence, Bottom Still Awaits Confidence Turnaround

Uncertainty on the demand side is intensifying. Cheng says that according to statements from management at Levi Strauss, PVH, and Nike as well as high-frequency data, US consumer demand in March remains resilient, partly because the shock from energy prices has not yet fully transmitted to household consumption budgets.

In contrast, demand in Europe, the Middle East, and Africa is more uneven. After the US-Iran conflict broke out, consumer sentiment in developed markets weakened noticeably. Cheng says her team will closely monitor the latest data following the ceasefire agreement to assess the actual impact of geopolitical turmoil on consumer demand. Whether the index can actually bottom out depends largely on whether consumer confidence can make a substantive turnaround, while the current macro environment has not yet offered a clear turning signal.

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