Soon, we would be looking at the world from a two-dimensional perspective—Before Corona (BC) and After Corona (AC). Leading industry veteran DARLIE O KOSHY assesses the past and charts out a seven-point roadmap for the future. And, as he writes, only the tough will survive.
I was in Las Vegas on February 4 on the inaugural day of the MAGIC Sourcing Week. It was interesting to note that when our exporters go to Las Vegas, it is generally understood that they are participating in MAGIC. However, the brand MAGIC refers to the show by brands like Van Heusen, Calvin Klein, Ralph Lauren, among others. I found in the MAGIC brand section participation from Turkey, Portugal, etc promoting their own brands and even from Bangladesh projecting green factories. However, India has been participating over the years in the sourcing section which is meant for manufacturers / vendors. The MAGIC word is not attached to the Sourcing Week because it is only a sub-event attached to the main MAGIC. So, India has to travel a long distance to move from the manufacturers section to the section of brands and that is where India’s strength will lie in the future, being a highly creative country.
China has already become the factory to the world and the leader in textiles and apparel exports followed by countries like Bangladesh, Vietnam, Cambodia, Turkey and others. India has been a marginal player in recent times with increasing competition from aggressive Southeast Asian countries. The fact is that apparel exports have stagnated over the last 4–5 years hovering between $15–17 billion and things were looking up in the last quarter of the financial year, when abruptly between March 15 and March 25 the world upended and India became part of the collateral damage of the covid-19 pandemic.
I returned to India on February 11, and now all that looks a distant past as the world has changed in every respect because of the coronavirus. Dr Ian Lipkin, noted virologist, estimates that finding a vaccine for the disease would take another 12–18 months and if so, the world can heave a sigh of relief only when a vaccine is discovered. The news from Oxford University gives much hope of an earlier solution.
The world has timed out as “Before Corona” (BC) and “After Corona” (AC). So first, let us look at “Before Corona” i.e. what was the status of industry and then at “After Corona” situation and project a possible roadmap for the textiles-apparel-fashion industry from both pessimistic and optimistic angles.
Before Corona (BC)
The Before Corona situation was that the textiles sector was desperately attempting to work with the accelerated spread of MMF (manmade fibres) in a big way and also technical textiles because of the focus accorded to it by the government. There were also announcements of more mega textile parks and schemes like the Rebate of State and Central Taxes and Levies (RoSCTL) and interest subvention facilities to help the industry.
However, the projections for apparel exports made by the ministry of textiles seemed to have not moved forward owing to structural constraints and the industry’s lack of sufficient funds for expansion and modernisation. Greenfield and brownfield vendors were not moving at a speed which was expected of them, and many such parks were either underutilized or had not taken off.
The textiles-apparel value chain remained fragmented from the point-of-view of manufacturing, viz. powerloom, handloom, khadi, mill-made, etc and from the point of view of fibres like cotton, silk, wool, MMF, etc. Because of the fragmentation and dependence on cotton-based goods for just one major season, there was already a skewed structure. Owing to low productivity, high freight costs (i.e. FOB), lack of depth of skills, and absence of advanced technologies and long delays in delivery, apparel exports were struggling to find the right momentum for acceleration.
With all these inherent problems, the textiles apparel industries were prodding along at 10–12 per cent growth in the domestic market and very marginal growth in exports. Still, India managed to retain its position as fourth largest exporter of textiles and apparel and there was a hope in regaining a dominant position. However, due to the lack of long-term brand partnerships, attraction of foreign direct investment and government policy support through free trade agreements with Europe and other benefits which other countries were already getting, it seemed that India’s dream of dominating the world textiles-apparel space was diminishing and being put on a rather slow track compared to its soaring ambitions.
Corona and After Corona
The covid-19 pandemic took everyone by surprise and shock. The textiles-apparel industry met with a serious shock especially in the downstream apparel industry because of the dependence on migrant labour. The migrant labour, who were stuck where they were working like in Surat, Tiruppur, Ludhiana and other places, found it difficult to return to their villages and were restless because of the lockdown.
The March and April orders were cancelled, resulting in stoppage of shipments. Many exporters were caught with huge stocks in their godowns. After efforts from the AEPC (Apparel Export Promotion Council) and the ministry of textiles, many ethical companies came forward and announced their commitment to protect the orders placed, which was a silver lining amidst gathering clouds.
However, in the American market, the pandemic, a slow starter, in no time became a chart buster in terms of spread of both the disease and the deaths. This was followed by largescale departmental stores collapsing and announcing Chapter 11/7 bankruptcies. This resulted in a domino effect of huge cancellations and orders being held up though the goods were produced or were in the process of production. It was reported that one of the leading exporters in the country was holding more than ₹6 crore worth of ready goods for shipment when the lockdown was enforced. This was the case in many places and the clusters of production started looking like ghost towns. Fear about the deadly disease along with the fear factor for the lives of the workers led key managerial personnel to panic. The labour started departing in droves, though they could not travel owing to stoppage of trains and buses. Still any have found their way back home on foot and by cycles. The incidents at the Delhi ISBT terminal, Bandra railway station in Mumbai, as also Surat and many other places indicated the serious problem with migrant labour.
Because of the nature of payment terms, the advance for fabrics was the best that exporters got. The cash dried up in no time, and as the government machinery asked exporters to pay wages for March in full, the companies were already finding it difficult to pay up. As far as the April wages are concerned, the associations declared that they would not be in a position to pay those. The multiple crises of labour, cashflows, order cancellations, delayed / cancelled payments and anxiety about own health and that of the employees, and the highly uncertain environment led to almost an unprecedented lack of confidence and panic among large sections of small and medium enterprises.
For large exporters and companies, there were brands that were dependent on them and for such brands and large exporters there was always the possibility of finding a way forward through deft negotiations. However, out of 8,000 exporters, more than 80 per cent are relatively small, and at best medium size; for them, the cancellations of orders meant sounding a death knell for their units and their own aspirations. This meant that for some exporters there was no option but to close down business, for some to take a break and return when the time is congenial, and for others to simply find ways of staying in the business.
The industry members from the domestic sector looked up to the CMAI (Clothing Manufacturers Association of India), and exporters at the AEPC for solutions to lift them up from the deep despair and problems. The AEPC did its best to contact various ministries, buyers and government departments throughout the lockdown period, and as a result the Union minister for textiles made a plea to buyers to honour their commitments. Many of them responded positively. However, the disruption in business has taken its toll and left the industry in a state of confusion.
After Corona Scenarios
As an academic researcher and industry commentator, I would like to take pessimistic and optimistic views in tandem as we look at a roadmap after the covid-19 crisis. The pandemic has a long tail and therefore—as Philip Kotler has pointed out—the way forward will depend on how consumer sentiment is shaped by the event. Kotler has argued that there are five types of consumers who are looking at a neo-capitalist responsible consumption which results in a different view of shopping, buying and consuming. He has argued that so far economies were fuelling consumption through more and more consumption and more and more production of goods for the economies to go forward.
However, there will be recalibration of the consumer sentiment, by simplifying life, downsizing the requirements, or by emphasizing the re-use and recycle philosophy, or by more and more decarbonisation. This is likely to change the consumption and fashion scenario. It is possible that fashion may remain at a standstill till 2021. There could be some sales during the forthcoming holiday season, but before that it is unlikely that there will be any movement of goods except for those who are producing PPE (personal protective equipment), masks, basic utility garments, sportswear, etc.
Nevertheless, online and ecommerce are more or less registering the same level of sales, and suppliers specialised in this will continue to have good sales. There are also many innovations which are happening as a result of the pandemic and increasing awareness of health is leading to more medicated garments and medical textiles. For instance, there is a huge thrust for PPEs, masks and related products; in China they have gone one step further in creating lines of medicated garments. One sportswear exporter in Noida has started manufacturing of coveralls and other PPEs in no time using part of the normal sportswear line. Therefore, optimistically, there will be many exporters who will grab orders on sustainability platforms of India and tweak new fashion lines— more creatively by engaging current customers and dealing with the future by looking at the order for the coming spring-summer season.
But, from the pessimistic standpoint, the current crisis and drying up of cash inflow could lead to a toxic situation where the combination of circumstances resulting in the closure of factories, especially single-buyer-dependent or the ₹5–20 crore level of exporters—and many others going out of businesses owing to the bankruptcy of their key buyer. Only the tough will survive. In fact, there are already factories which have closed down operations not only for now but with an eye on exiting the business.
Many reports have talked about job losses. More than one crore people in the textiles-apparel industry are expected to lose their jobs. A large percentage of migrant labour who left the factories are unlikely to return to their workplaces, and in fact many will not get back to even this industry.
Shaping the Future
There are seven points here.
1. Restructuring the industry: The time has come for realising that in the eyes of the consumer there is no powerloom, handloom, khadi, MMF, cotton, silk, etc—for them, it is all “fashion” which are consumed according to seasons and occasions. Therefore, industry will have to come together in a unified manner for settling their differences and one-upmanship to position India on a new global platform where it can take a leadership position. From all accounts, it looks like that the growing concern about China by importing countries like the US, European countries and Japan, fragility of the planet, health concerns of the people, will give a chance for India to bounce back. Luxury consumption will be replaced by need-based responsible consumption. India— already recognised for sustainable fashion— will have a great future if the position is taken and promoted strongly. It should be noted that already Bangladesh is promoting itself as the country with largest number of green factories for sustainable exports of fashion. Sri Lanka has already been doing so for the last three decades—garments without guilt. Therefore, the competition will be intense. However, it is still possible for India to achieve leadership provided the “textiles-apparel value chain” can be transformed through value creation as a “fashion and lifestyle value chain”.
2. Power of creativity and design: There will be a lot of possibility for India’s power of design, creativity and innovation to be used more effectively as a result of the New Normal, leading to a fresh set of consumer values like conservation, reuse and recycle, and simplification of life. In fact, with the availability of huge design, merchandising and managerial talent, India can promote brands and become part of the brand section of MAGIC in the near future. India needs to get into this position as it has got cotton farms, fibre and yarn production, sufficient MMF resources and all natural fibres, and a huge pool of designers, technologists and merchandisers from leading institutes to become a leading integrated fashion supplier to the world.
3. Brand partnerships: When I had attended the Sri Lanka Design Festival (SLDF) some time ago, there was a conversation between two leading personalities of the Sri Lankan apparel industry who revealed that it was the partnership with brands which had led to the strengthening of that country’s apparel industry. One of the points stressed was about the managerial and financial inputs they had received from global brands in the partnerships. Indian garment exporters were never fortunate in this respect. Now is the time to go back to the drawing board and build long-term partnerships. The recent Jio-Facebook collaboration is a great example which has boosted the sentiment of the market. Since India has a large domestic market with more than 450 million youth who are likely to be more inclined to use affordable branded products, there should be a concerted effort to build brands for the global youth.
4. Focus on productivity and lean management: Indian apparel factories compared to Bangladesh, Vietnam and Cambodia are relatively smaller in size and lagging in productivity. There will be a huge thrust on productivity to control costs and without sustained efforts at the supervisory level along with technology upgradation, this cannot be achieved. There will be a need for controlling costs at every level and increasing productivity. There will be, therefore, a huge focus on lean management, productivity enhancement and technology upgradation.
5. Technology upgradation and automation: Because of the availability of inexpensive labour from Bihar, Uttar Pradesh, Odisha, and West Bengal who were ready to go to Bengaluru, Tiruppur, Ludhiana and other places, labour arbitrage became the fundamental leverage of apparel factories. With the migrant labour workforce having now disbursed, it is unlikely that the same structure of the industry will remain in the future. There will be a cost comparison between technology and labour, and there will be an inclination towards automation, artificial intelligence, robotics and 3D manufacturing for taking apparel manufacturing to another level.
6. Multiskilling and RUN strategy: If companies and exporters have to remain in business, there would have to be very tough performance evaluations and those not performing will have no place in the immediate future. Workers will be evaluated based on productivity and it would become important for workers to have multiple skillsets as owing to the physical distancing required even going forward, workstations would become more prevalent and multiskilled workers would be in demand. There will be a lot of recruitment from local catchment areas unlike in the past and this will open up new multiskilling opportunities as well as for reskilling, upskilling and newskilling (RUN) the remaining workforce through rapid upgradation programmes. PACE-like programmes will be in high demand and adaptability, communication, hygiene and other soft and life skill programmes will continue to remain relevant. Once factories commence operations after the lockdown, even if 50 per cent or more of the migrant workers are allowed to resume after social distancing, employers will have to look at the catchment area for new labour and they will have to have higher efficiency levels, which means new skilling opportunities will have to be implemented to take productivity levels up. Critical also will be the upskilling of the existing labour force – those who have been around for years or maybe even decades. A 7-10 day training programme will be imperative to increase the needle to fabric time to enhance productivity, mainly because margins can come only by improving the unit value realization of the garment. Plus, there are new machines and technologies almost every other day to bring out faster collections. So, reskilling on those new machines and technology will have to be done side by side. The RUN strategy thus will be critical.
7. Domestic retail market: In the previous decade or two, there were experiments of exporters entering the domestic market. Gokaldas Images has a lingerie brand in the Indian market. Similarly, TCNS has a retail chain store brand W. I remember their initial public offering (IPO) getting oversubscribed. As some of the largest exporters are already suppliers to Indian retail formats, there will be even more exporters entering the domestic market. The physical retailors have taken a big hit and if they are able to survive, there will probably be some light at the end of the tunnel around October– December 2020 with the festival season where one could see the demand coming back. However, only if they survive, they can remain in business and survival has become a function of the depth of the pocket and the level of leverage. The Indian domestic industry is facing an unexpected, unprecedented and overwhelming catastrophe. So, there is a need for reassessment of classic merchandise which one can rely on and bring new vibrant colours and novelties, including medicated garments, to get out of the gloom. Luxury retailers are still not going to find the going smooth as there is likely to be an erosion in demand. Fashion designers need to diversify to products which are related to the New Normal lifestyles of people and serve new markets and new customers.
In other words, the industry‒whether it is export or domestic—since it is facing the consequences of a global pandemic cannot remain isolated, and there is an urgent need to find new strategies which are innovative and glocal. There are lessons to be learnt on how China bounced back and the speed at which they are innovating. Indian industry will have to explore all available options by thinking out of the box, to seize the new opportunities. While government support and policy support can give a breathing space and a shoulder to lean on, eventually if the industry has to survive, grow and create a leading position in the world, entrepreneurs and managers need to have new mindsets and advanced skillsets.