Rising production costs, bargain hunters worry textile exporters

Bangalore: Just when festival orders were bringing some cheer to textile exporters, they have run into bargain hunters.

Overseas buyers negotiating fresh contracts for the coming season are pressing for further discounts on already low prices, forcing textile firms to refuse some bookings.

The firms had anticipated a rebound in order prices with demand reviving. Apparel exports had declined 17% from a year ago to $603 million (Rs2,816 crore now) in October, news agency Press Trust of India reported. But in November, just ahead of the holiday season in their biggest markets—the US and Europe—textile exports rose 8%, textile secretary Rita Menon had said.

“It’s sad that many of us are now forced to refuse orders because prices are not sustainable and countries like Bangladesh, which sell at 18-20% less than us, benefit,” said Rajendra Hinduja, managing director, Gokaldas Exports Ltd, a Rs1,200 crore export firm that operates out of Bangalore.

Apparel exporters are battling rising production costs and still sluggish global demand, particularly in the high-margin, premium garment segment. The price of cotton yarn, for instance, has increased 20% over the last two months, and silk yarn, 50%, according to the Apparel Export Promotion Council (AEPC), squeezing profit margins further.

Hinduja explained that clients who would earlier buy a shirt at $8 want to pay only $6.5 now.

“We can’t sell it at that price,” he said. “We need an upturn in the psyche of the US and European buyers in the coming year so that they go back to buying more premium brands because though volumes have risen, it is mostly in the lower-end of product lines which have lower margins.”

Sudhir Dhingra, managing director of Orient Craft Ltd, a Gurgaon-based export firm, said an order for around 1.8 million pieces of garments from Gap India, through which US-based Gap Inc. routes its imports, fell through last week because the Indian exporters involved in that deal couldn’t sell at the low rates quoted. He didn’t give more details.

Kris Marubio from Gap’s corporate communications team said in an email on Wednesday that company officials were not available to comment for the story.

Textile exporters blamed the lower price quotes on competition from countries such as Bangladesh. “If buyers get cheaper stuff (from other countries), why would they pay more?” said Dhingra.

Exporters have been losing market share to China, Vietnam and Bangladesh, where firms are willing to price their products lower. India wants to boost textile exports to $25 billion by 2012, textile minister Dayanidhi Maran said on Wednesday in New Delhi. India exports textiles worth $22 billion, around 70% of which go to the US and Europe.

Maran said there was a need to reduce dependence on the US and Europe and the government was promoting exports to Japan, South-East Asia and Australia as part of its Look East policy. Till that starts producing results, exports may not pick up.

“While the worst is over, consumers still want cheaper products and retailers still don’t want to lose money by doing otherwise,” said Harminder Sahni, managing director, Wazir Advisors Pvt. Ltd, a management consultancy.

During the depth of the slump in April-May, exporters didn’t have a choice but to sell at whatever price was offered. “Now, we can pick and choose orders that come our way though we would obviously retain our loyal customers,” said Aditya Himatsingka, executive director of Himatsingka Seide Ltd, an exporter of high-end home textiles.

Some export firms are even looking to replacing existing clients with new ones to capitalize on the recovering demand. Chennai-based Celebrity Fashions Pvt. Ltd, which earlier sold a large part of its produce to Gap, has replaced it with new buyers such as VF Corp. and Timberland Co., and expects better volumes and margins from them.

madhurima.n@livemint.com