Purpose – The aim of the paper is to estimate the evolution of Latvia’s textile and clothing industry. The Latvian textile and clothing industry is traditionally highly export-oriented. Approximately 80 % of the sector's manufacturing output was exported in 2006. Historically based on a small number of giant enterprises, the sector has evolved into a virtual cluster with a many newly emerged flexible and specialised SMEs. The major markets for Latvian textile and clothing goods are EU member states (~76 % of exports), where product quality is a prerequisite. Methodology/Approach – The paper shows the results of situation analysis in Latvian textile and clothing industry using a database of Associations of Textile and Clothing Industry and questionnaire of enterprises. Findings – The results of research shows the evolution of Latvian textile and clothing industry during the last five years, the sector's main strengths and market potentials in future. Research limitations/implications – The research has only been carried out on a very limited number of subjects. It is caused by a very low level of cooperation of Latvia’s textile enterprises in such researches. However, as Latvia is a small country, data for this research was sufficient and the results clearly show the situation. Originality/value of paper – This information hasn’t been previously published in this way. That will help to evaluate the industry evolution prospects in international textile and clothing markets.