By K. Gopalakrishnan
The 8th Technopak Leadership Forum (TLF) on Textile & Apparel (T&A) was recently in Mumbai with the theme “India’s Textile & Apparel Industry: A Decade Ahead of Opportunity”. The event sponsored by the Cotton Council International (CCI), Alok Industries and SKNL was graced by thought leaders who shared their insights on the T&A industry’s challenges and opportunities.
The Technopak Leadership Forum is a platform for select industry leaders to brainstorm and share key insights on the present and future of this resurging, dynamic sector. The event was a big success, thanks to the presence of well-known industry leaders from diverse segments, including manufacturers, retailers and brands across textiles, apparel and home furnishings. Representatives from various textile forums, financial institutions and the Ministry of Textiles were also present.
Given the changing nature of the
global textile & apparel industry, there is a consequent shift in dynamics, with manufacturing facilities coming up in South Asia. Major South Asian countries, including India, Pakistan, Bangladesh and Sri Lanka, are counted among top sourcing destinations capable of meeting the global T&A demand. At the same time, with the slowdown in the US and the EU, demand is no longer restricted to the Western countries. Thus, international brands and retailers are now targeting emerging economies which have larger populations and higher spending power. India is one such market with a huge demand potential and is poised for high growth with the right mix of government support and exemplary entrepreneurship.
To encash on this opportunity, manufacturers, brands and retailers will need to strategize their operations and customize their offerings as needed.
The following outlook elaborates on the key trends that were explicitly brought out at TLF.
Trend 1: Consolidation of sourcing countries: In the past decade there has been a continued consolidation in the supply base for textile & apparel products. For the US alone, the top five importing partners saw their share rise from approximately 39 per cent in 2001 to 61 per cent in 2011. Similarly, for the EU, the top five importing partners accounted for 48 per cent of imports in 2001 and 73 per cent in 2011. The top suppliers are located in South Asia, with China, India, Bangladesh, Pakistan and Sri Lanka dominating. This is also evident from the shift towards low-cost manufacturing alongside requisite technical knowhow, in which South Asia specializes.
Trend 2: Increasing volatility in raw material prices and currency fluctuations: Raw material prices have been volatile in the past, and this trend is expected to continue in the future. This price fluctuation is similar to that for any other commodity in the market, exciting many speculators and bringing in a lot of money. Even governments are hard-pressed to bring the situation under control.
Across the globe, these fluctuations are difficult to predict. One probable solution to this fluctuation can be to increase collaborations with customers, thus linking the product price to raw material cost and currency movements. Such strategic alliances offer more competitive and comprehensive solutions to retailers and brands.
Trend 3: Countries capitalizing on their respective strengths to form South Asian T&A Union: South Asia had an impressive collective T&A export growth at a CAGR of 11 per cent between 2001 and 2011, adding up to $71 billion of exports in 2011. The region combines to bring together the strengths of traditional manufacturing and exemplary entrepreneurship and government support.
Interestingly, Mr. Vinay Kulkarni, Director a
nd CEO, Recron (Malaysia), observed that, “being part of the region and having the requisite capabilities, the individual countries can leverage respective strengths to form a South Asian Union”.
Individual strengths like low labor costs in Bangladesh or good processing capacity of Pakistan or the full package offering by India can be utilized by the region as a whole. Going forward, trade barriers can be further removed and emphasis placed on mutual co-operation and collaboration among the countries to work for the entire region.
Trend 4: India’s domestic market on a high growth trajectory: The Indian domestic T&A market stood at approximately $58 billion in 2011 and is projected to reach $141 billion by 2021. Clearly, there is a very high growth potential within the market. On the manufacturing side, there are many positives, viz., government support, easy availability of raw materials such as cotton and other fine fibers, and versatile design and manufacturing facilities.
Demand-side growth drivers include the rising population, growing household income, increasing discretionary spending and an influx of branded & organized players in the space.
Mr. Sunil Khandelwal, CFO, Alok Industries, emphasized that people in India are now experiencing highe
r income levels and are now becoming more personality conscious; moreover, the youth are an inspiration for the textile business as they constantly want to upgrade their wardrobe. This new generation is more stylish and fashion-savvy, which provides a tremendous opportunity in terms of the growing domestic market.
He added that, with the rise in per capita income, the proportion spent on textile & apparel increases further, leading to a higher share of wallet for that category.
Trend 5: Positive industry sentiment towards opening up FDI: The industry will have to keep looking at expansion into new and large consumer markets while pursuing growth opportunities in various product segments such as kidswear. Further, choosing long-term players with deep strategic objectives, even at the cost of profitability, is important and can be aided by foreign direct investment (FDI).
Mr. Ashish Dikshit, CEO, Apparel Business, Madura Fashion and Lifestyle, said: “FDI would bring brands and products to India which are far more differentiated and sharper in terms of consumer proposition. It would burn capital that is low cost and long term in terms of investment appetite. It would also help improve the other factors which in turn would improve retail such as logistics and real estate, and also help in overall development of ecosystem.”
Trend 6: Government initiatives in promoting the growth of the T&A sector: The textile & apparel industry is supported by government schemes and plans in various ways. Mr. Sunil Porwal, Principal Secretary – Textiles, Government of Maharashtra, elaborated on leveraging the Government of India’s TUFS through a “zero-window policy”, which requires a required number of sanctions and no interface with the Government, i.e., the project gets automatically approved. Interest subsidy schemes are also available for projects across the State under TUFS, with similar modalities
.
The capital subsidy scheme is applicable only to the backward parts of the State, viz., Vidharbha, Marathawada and northern Maharashtra. The Maharashtra Government also plans to give some capital subsidy if the project is located in any of these three regions.
In addition to these financial packages, Mr. Porwal also announced a few enabling provisions targeting skill development, worker development, modernisation of powerlooms for SC/ST and minorities and modification in labour and environmental laws.
Trend 7: Growing investment by companies to upgrade capacity and modernize plants: With growing opportunities in both the global and domestic markets, Indian companies are investing more in research and development of new technology, and in upgrade, innovation and modernization of existing plants. However, a balance is required in terms of the costs incurred in coming up with innovative and differentiated products.
Mr. Dilip Jiwrajka, Managing Director, Alok Industries, explained that his company is planning to invest heavily in upgrading its existing capacity and increasing its presence in the next 3 to 4 years.
He added: “India is at the footsteps of a Golden Era for the textiles business, which is going to last for about next 20 years”.
He further noted that companies that do not change with time and/or modernize or innovate are going to fail over time. Innovation, modernization and further research & development programs implemented to upgrade product offerings and lower costs are going to yield higher returns in the longer run.
Trend 8: Need to distinguish profit from profitability: Every business aims to create a profit of its owners, shareholders and other stakeholders. However, companies should understand the need to clearly distinguish the concept of ‘profit’ from ‘profitability’. As Mr. Rahul Mehta pointed out, the term ‘profit’ stands for the absolute earnings that the company makes, irrespective of the revenue. On the other hand, the term ‘profitability’ is in relation to the revenue. Profitability measures the percentage of earnings in relation to the company’s total turnover. Small to mid-scale businesses are mostly concerned with the absolute ‘profit’ that the company makes rather than weighing the ‘profitability’.
If the focus is put on earning more and more profit for the company, then the objective automatically shifts to ag
gressive pricing, low cost production, and adopting other strategies which will ultimately lead to higher profitability.
Trend 9: International brands adopting ‘Made for India’ model: As an increasing number of international brands are foraying into India across formats to leverage the local potential, keen competition is driving international brands to adopt ‘Made for India’ models across assortment mix, fashion quotient, pricing grid and city penetration. Brands such as Tommy Hilfiger, Zara, Marks & Spencer and Diesel are gathering key insights on Indian consumers and adopting India-centric business models.
Mr. Ajay Amalean, Director and Founding Member of MAS Holdings Pvt. Ltd., and Managing Director, Retail India, emphasized the point: “We had a humble beginning in India and found our way around it, but we never compromised on the product. Every testing standard that we have done for retailers in the US and the UK, the same exacting standards have been used in our products for India. We have always had confidence in our products. It was a ‘Made for India’ solution in terms of integrity, fit and comfort, not like made for Europe and pushed into India.”
On the other hand, it is also important to note that since Indian consumers expect the same international experience from these brands, too much Indianization may prove to be counter to consumer expectations. But an Indianization strategy is a must in the case of sizing, colour preferences, and region-oriented and festival-oriented promotions. As a large force, international brands should look at delivering a unified global feel to their consumers in Ind
ia.
Trend 10: Emergence of non-store retail formats: As the increasing spend on lifestyle categories in India moves beyond the top six cities, limited real estate supply is giving way to the emergence of non-store formats. Further enablers, including ‘Anytime Anywhere’ access to the Internet and consumers’ quest for convenience, are leading to such digital formats as e-commerce and m-commerce as well as direct selling, catalogue and pop-up stores. These are also driving the increasing acceptance of e-tailing in India.
Further, the brands will have to ensure that the principles of retailing continue to apply to the e-tailing platform as well. Therefore, textile & apparel retailers should be focusing on category management, merchandise management and margin optimization.
Mr. Ganesh Subramanian, Chief Merchandising Officer, Myntra.com, while talking about the opportunities i
n the e-commerce space, said: “India has currently around 120 million Internet users, and this is expected to touch close to a billion by 2020. We are talking about a 10x growth in the user base in the next few years. The estimate is close to around two billion online fashion business by 2015. That is a huge business for many of us to take. There are fantastic case studies: Vancl.com in China and ASOS.com in the US are both $800 million companies and both are very profitable.”
Trend 11: Fast growing niche segments: Enhanced lifestyles, with varied and multiple activities packed within a day, are chiefly responsible for the growth of niche market segments. This trend is seen across kids’, youth, men’s and women’s apparel segments. Some of the traditionally functional categories, such as kidswear, innerwear, accessories and active and comfort wear, are emerging as lifestyle categories to cater to specific consumer needs.
Brands are expanding their product basket to include specific products for specific needs, occasions and purposes.
Mr. Shailesh Chaturvedi, Managing Director & CEO, Tommy Hilfiger India, pointed out: “Smartly using consumer gaps – whether it is children’s wear or accessories – can help fuel growth. We launched Tommy Hilfiger Childrenswear brand 2 years back, and it has now become a very significant part of the Tommy Hilfiger experience in India. Watches and undergarments are also doing extremely well”.
In a nutshell, the fast-changing global tex
tile and apparel sector is creating high growth opportunities for South Asian countries to form a sourcing hub. India is fast emerging a destination of ‘vertically integrated solutions’, which range from fiber to apparel. Most of the large, integrated textile firms are concentrated in this region. Domestic demand is also very promising. However, companies will need to keep upgrading their technology, and also innovate and experiment periodically to enhance product offerings and at the same time keep the costs under check.