Bangalore: Apparel makers are cutting production, deferring expansion plans, and closing unprofitable stores as costs soar in the wake of rising inflation and a marginal slowdown in the economy dampens consumer sentiment.
Those in the business, many of whom are also exporters, say this couldn’t have come at a worse time—they were just recovering from the effects of a 12% appreciation in the rupee last year that battered their exports (when the rupee rises, exports become pricier).
“We will only manufacture products that we can foresee we will be able to sell,” said Alok Dubey, brand head, Flying Machine, owned by Arvind Brands, the retail division of Arvind Mills. Arvind will make 25% fewer jeans this year than it did last year. It also plans to defer expansion plans, shut unprofitable stores, and negotiate rentals on other stores.
Tirupur-based Royal Classic Group, which owns brands such as Classic Polo and Smash is looking to cut production by 10%. “There is no choice. If the demand is not as high as last year, we have to slow down on our production,” said R. Sivaram, executive director, Royal Classic Group. The company reported a turnover of Rs350 crore in 2007-08. Sivaram says cotton prices have touched Rs29,000 a candy (1 candy is equal to 356kg) from Rs20,000 six months ago.
Apparel sales have declined 15-20% in national chains, according to an estimate by Raymond Apparel Ltd. Several companies have announced sales ahead of schedule, according to Kolkata-based Turtle Ltd. And many are considering reducing production.
Some segments of the industry have been hit harder. J. Suresh, the chief executive of Arvind Brands, which is the local licencee for brands such as Arrow, Lee, Wrangler and Nautica, said that premium formal wear brands have seen a sharper fall in sales than mid-market brands and casual wear.
“We have tightened production on brands like Arrow, as demand is low,” he added.
Suresh, however, said the firm will continue to grow because its discount outlets are doing well, as is its export business. Last year, he added, Arvind Brands grew at 60%. This year, its revenues will grow 30-35%.
Meanwhile, other apparel makers are resorting to other means to cut costs. Turtle Ltd, which ended 2007-08 with Rs48 crore in revenues has asked its workers to produce more. Company’s director Amit Ladsaria says Turtle will not cut corners but will still look to getting more out of current resources. Employees sewing 500 pockets a day onto Turtle shirts and T-shirts have been asked to sew 550 pockets.
Sanjay Chandrasekhar, vice-president of Crocodile Products Ltd, which makes garments under an eponymous brand claimed that companies such as Madura Garments, part of the Aditya Birla Group and Raymond Ltd were trimming ad spends. Executives in Madura Garments refused to comment saying they are in a “silent period” in the run-up to the firm’s quarterly results. An executive at Raymond, who spoke on the condition of anonymity, said the firm would focus on cutting costs but declined to elaborate.
Things would only get worse in the current quarter as no company has announced new projects, the official said, adding, many manufacturers were meeting past orders.
The government has asked apparel makers to stock cotton to beat the twin traps of shortage and rising prices.
“There is huge demand from China and it’s a free market, so exports will be there,” said Union textile minister Shankar Singh Vaghela.