Impact of COVID-19 on Indian apparel industry

Outbreak of the pandemic has driven the economy of the whole world into a downward curve. Almost all the major economies like the United States, China, India and many European countries are under complete or partial lockdown. It is one of the worst times in human history.

Spread of the virus has affected many businesses along with the devastation in the Apparel sector. Due to the closure of retail stores because of the lockdown, garment manufacturers have already started to witness the deleterious effect.

The United States and Europe being the major export markets for India have been adversely hit by the pandemic. Demand for all the textile products have come down to a grinding halt. Stores have been closed for weeks now and there is no news of when they are going to reopen.

Due to this, retailers are facing a significant decline in their sales.

Surplus inventory is present in the stores and in the warehouses which needs to be cleared before the stock of next season starts to come in. As a result, buyers are forced either to postpone or to cancel the orders for the upcoming season.

As per the CMAI (Clothing Manufacturers Association of India), most apparel companies in the county would face a drop of 30% in their sales and profitability, and the industry would see an unemployment level of 10-15%. [1]

Another situation arising is the movement of migrant workers back to their natives due to the pandemic. The Garment Industry being a labour intensive industry is mostly dependent on the workers (more than 80%). Most of the workers are from places like Uttar Pradesh, Bihar, Orissa and the North-East. Factories might face shortage of workers post pandemic, and need to be prepared for the same.

In order to avoid the incidence of crowds and reduce the spread of coronavirus, malls and retailers took the step to close their brick and mortar stores. But the e-commerce channel of these stores are still operational in certain countries. During the initial phase of coronavirus, consumers increased their online purchasing as a safe alternative to visiting physical stores. This shift could lead to a changed buying behavior post the pandemic and has the potential to build longtime e-commerce customers.[2]

After the lockdown when the stores reopen, there’s a chance of retailers observing a slow progression in the footfall. People might avoid visiting crowded places in the starting. The e-commerce trend which people are getting used to during the lockdown can surely build long term e-commerce customers post-pandemic.

Online firms such as Tjori, Voylla, Peachmode among others have announced discounts of up to 80% during the lockdown to prevent an inventory pile up due to suspension of e-commerce deliveries of nonessential items.[3]

“People are sitting at home and have more time to engage with the brand and look through our products. We do not want to close our doors on them,” said Vishwas Shringi, founder of Voylla, which sells jewellery and other fashion accessories.[3]

EMERGING FROM THE PANDEMIC

BRANDS REDUCING THEIR DEPENDENCY ON CHINA

Post pandemic, many countries across the globe would be shifting their business from China to other countries. This can be a great opportunity for the Indian market. As the orders from our major export markets (US and EU) have already started to decline/getting cancelled, it is time for Indian market to look for other countries as well in order to set up their export market.

In China, after the opening of the market after the COVID-19 crisis, the apparel garment retailing has witnessed a 59 percent decline.[4]

China used to be Japan’s biggest trading partner. After the spread of virus and factories closing down, imports from China slumped by almost half which led to japanese manufacturers starving for the necessary components.

Japan is spending 220 Billion Yen ($2 Billion) to shift their production back to their own country. They are spending around 23.5 Billion Yen on companies who seek to shift their production from China to other countries.[5]

**In the process of looking for new customers and countries to set up the market, manufacturers need to make sure not to shift focus from their existing customers.

CONSOLIDATE AND DIVERSIFY

Gaining expertise in what’s missing is the key to survival and growth.

India is competitive in cotton products and women’s fashion wear but once the market revives in H2 2020, the demand in US and Europe would be for autumn-winter season products where India’s expertise is missing.

Capturing the market for autumn-winter season can only happen when Indian exporters focus immediately on synthetics – functional, performance and outerwear apparel; and improve their competitiveness in core categories where China may lower prices to retain share.[6]

PPE AND MEDICAL TEXTILES

Demand of the PPE (surgical masks and protective clothing) has rapidly gone high in the pandemic. The demand is expected to sustain even after the situation is controlled.

Western nations are importing large quantities of such products to battle the disease. The supply of these products is not able to keep up with the rising demand. The rapid spread of the disease across the globe has sensitized people to hygiene and healthcare. This is a lucrative opportunity for the textile & apparel industry in the near future.[2]

BETTER PRICES WITH TIGHT MARGINS

Post pandemic, all the brands might look for support from the manufacturers and vice versa. In the starting, Brands might demand smaller order quantities with tight margins so as to recover from the losses suffered.

As the time is critical, manufacturers from other countries might also approach the brands in order to grasp the orders. In order to retain the orders, leaders will have to rework on the costings to meet the customer demands, and also rework on the MOQs to be offered in a way that it has minimal effect on the efficiencies so that they can feed the production lines.

REVISION OF PAYMENT TERMS

Due to the cash crunch caused in the market, brands might look for revision in the payment terms as well in order to keep the orders up and running. Manufacturers need to have a look on what best can be done so as to avoid further reduction in the orders. Further down the supply chain, garment manufacturers need to seek support from the raw material suppliers for the same.

Wherever nominated suppliers for raw materials who mostly demand for advance payments, manufacturers need to ask customers to convince the raw material suppliers for the same.

WORKING ON EFFICIENCIES AND SHORTENING THE LEAD TIMES

Garment manufacturers in order to recover at a good pace will have to work on improving their efficiencies even with smaller order quantities.

Manufacturers can make use of efficiency optimization tools like OptaCut by Jaza-Soft, IntelloCut by Threadsol, etc.

For brands who are yet to place their orders, or those who have kept their orders on hold to revise the quantities might finalise it very late. This will pressurise the manufacturers to deliver the goods on time. They will have to come up with ways to optimize their lead times.

Companies relying on longer lead time and inflexible supply chains are more vulnerable in this crisis. To meet these two challenges, the manufactures should collaborate with all the partners like mills, trims suppliers, etc. and develop a channel for joint planning. No company will get through this situation alone. Leaders who understand this will not only survive the crisis, but they will also consolidate their position in the industry.[7]

REFERENCES

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