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Is Turkey's supply chain unravelling?

As the Turkish lira slumped to a record low earlier this month amid political and economic turmoil in the country, Drapers investigates what impact it might have on the fashion industry.

The Turkish lira has fallen in value throughout 2018 and came under pressure in early August following the announcement that the US would levy tariffs on Turkish-made steel. The currency has fallen against the dollar by as much as 40% this year and is currently trading at 7.8 lira to the pound, compared with 4.5 lira to the pound at this time last year.

Although more expensive than their counterparts in Asia, Turkish manufacturers can offer faster delivery times and the flexibility to repeat in season, which has led to many UK retailers and brands to move some production to the country.

Richard King, sales director at The Cotton Textile Company, which works with Turkish mills, says many clients have sought assurances from Turkish suppliers over how they finance their operations after the currency fell by a fifth in recent trading.

“The conversations were very different,” he says. “They used to be about new developments. Now they are asking, ‘How have you funded your machinery?’.

“We sought and got reassurances from our partners so that we could move forward with surety in our manufacturing.

“We are seeing more caution from labels we work with – we are seeing range cuts. But one label approached us to look at Turkey to bring things closer to home from the Far East. There are still advantages.”

One UK supplier says the drop in the Turkish lira has pushed up the cost of any loans taken out by manufacturers denominated in US dollars by more than a third.

“A lot of Turkish businesses could go bust in the next two or three months,” he warns. “It’s a disaster for manufacturing – not just on clothing but all industries.

“The view of many in Turkey is that yes, there may be great opportunities on price, but you may find the supply chain struggle to sustain the business.”

Political instability has deterred many UK companies from investing in ranges sourced from Turkey. One UK supplier notes that though cheaper, Turkey’s political instability may weigh on brands when deciding on their sourcing options.

He said: “Turkey is high up on the scale of risk – certainly as high or higher than Bangladesh. The Turkish premier [President Erdogan] is erratic and doesn’t have good ties with European governments, so it’s difficult to know how he is going to react. Trump only needs to say one thing and it can cause even more problems for our Turkish partners.

“With many brands, it is more about ethics than the money [for items] and what a brand stands for, so for that reason many brands may not choose Turkey.”

However, another high street supply source noted that the currency value drop makes Turkey a cheaper option than before, which may tempt new business: “The simple economics is that the price to import will become much cheaper, but there are risks associated with that because of the uncertainty in the economy”.

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