The COVID-19 pandemic is primarily expected to adversely impact exports and with second-order impact on the domestic markets with both exports as well as domestic sales falling.
As per the WTO, India is ranked as 5th largest exporter of Ready Made Garment in the world. As the COVID 19 pandemic has also affected the majority of India’s export market (the US and EU together constitute for approximately, 60% of the total apparel exports from India in value terms), causing order cancellations/deferral of order leading to inventory build-up and expectation of slower realisation of export receivables leading to higher working capital requirements. In an exclusive conversation between Mr. Kapil Pathare, Director of VIP Clothing and Faiz Askari, SMEStreet, some key insights related to manufacturing and garment manufacturing were discussed.
Here are the edited excerpts:
Faiz Askari: What are the steps VIP has taken to counter COVID-19?
Kapil Pathare: VIP has kept abreast the development of outbreak Covid-19 in the world starting from china and declaration made by WHO as global pandemic on March 11, 2020. The first case hit in India at Kerala. Centre and State government both have started the taking measure to stop its spared in India, taking a clue from developing countries.
VIP by 20th March, 2020 has taken precautionary measure allowed its employees to work from home and issued necessary guidelines based on directives of WHO and Government authority, to use sanitization, wearing a mask and keeping social distancing across its all working place to keep health safe till the Janta Cerfew.
VIP has done complete lockdown of its manufacturing unit and warehouses post 21 days lockdown announced by our Hon’ble Prime minister till 14th April, 2020 and further extended till 3rd May, 2020 on rising the number cases of Covid-19 across the state with highest Covid- cases in Maharashtra, Tamil Nadu and Delhi. The VIP has also extended the guidelines to work from home till 3rd May, 2020.
FA: Any Initiative VIP has taken to support the government?
Kapil Pathare: VIP as a social cause started the preparation of mask at its manufacturing unit at Tamil Nadu, with the in-house worker, staying at unit dormitory with govt permission and trying to distribute free of cost in the nearby Village of Thingallur to support the sudden spike in demand of Mask to protect against spared of COVID-19.
VIP has followed the guideline issue by Centre and State government of complete lockdown of its operation at manufacturing units, warehouse and office and instructed all the workforce to stay at home safely, observe the social distancing, and observe the guideline issued by Health ministry to protect against COVID-19.
The company is exploring the possibility of exploring to manufacture mask subject to approval from govt.
FA: What is the Impact of COVID 19 on the Production?
KP: Production at VIP’s manufacturing units is totally shut from 20th March 2020. VIP has lost nearly month production which is around 12% to 15% production of overall production till 15th April, 2020 post lockdown.
FA: How long will be the post COVID impact on the retail industry?
KP: The retail industry will take a year time to revive, predicted by top industry association and also the Clothing Manufacturers Association of India (CMAI) has also predicated and anticipated a 25-30% impact on business with a multiplier effect on subsidiary industries and lasting job losses. A survival plan is the need of the hour today for the retail industry. However, I feel next 4-5 months only 40-50% retail industry will be back on track.
Due to the lockdown of the past 21 days in the country, the retail trade has suffered a loss of business to the tune of Rs 3.15 lakh crores and further extension of will have the similar impact on retail trade.
FA: What are the expectations from the central government for the apparel and retail sector?
KP: Relief package for Textile including hosiery industries, the Confederation of Indian Textile Industry (CITI) has requested the government to immediately announce a relief package for the textile and apparel sector to mitigate the crisis being faced by the capital and labour-intensive textile Industry, post the coronavirus spread.
Apart from the reduction in bank interest rate, the extension of soft loans to the industry for a moratorium on repayment of principal and interest amount to the banks for four quarters. Bank interest payment on working capital loan to reduce up to 6% to 7% until the effect of the pandemic is eased out.
FA: What is the impact on the import and export of raw materials and ready-made garments?
KP: The raw material of some specific type fabric and accessories item for medium & high-end lingerie garments will impact more as 80% of sourcing is coming from China. The situation in China is gradually coming on track. The situation in other countries is becoming very stringent including India due to lockdown in the countries will have a shortage of raw material and will impact on the supply of chain of the finished product.
Demand from other countries including the US, Europe and China was subdued primarily due to availability of cheaper yarn from Vietnam and Pakistan. As the COVID-19 pandemic originated in China’s textile hub of Wuhan, Hubei, it has significantly impacted the Chinese textile industry in China with boarded-up factories, Indian yarn exports have dried up and therefore yarn exports are expected to show a fall.
Cotton prices would remain largely range-bound and average at Rs. 122 – 125 per kg for CS20 due to higher production and subdued demand.
Apparel exports are expected to fall due to drying up of order in the last quarter of FY20, working capital issues and lack of clarity on the duties and incentives especially when exporters from Bangladesh, Sri Lanka and Vietnam receive preferential access.
Additionally, domestic consumption is also getting impacted due to all India closure. New store openings have stopped and even domestic stores are facing an inventory build-up due to apparel sources for the upcoming summer season, Further, domestic prices could be negatively impacted if exporters dump their inventories in the domestic market leading to even reduced margins. This could lead to short term blips such as reduced employment of casual labour (factory closures and people moving back to their home towns) and reduced consumption.
FA: As the lockdown is postponed what is the possibility of shutting down any retail store or any job losses?
KP: At present VIP has only 2 retail stores, the postponement of lockdown will have an impact on the Company, but will not have any much substantial impact and job losses.
FA:With the lockdown extension, what will enterprises have to do to get back on track in a post-Covid lockdown Scenario?
KP: If nationwide lockdown continues and the situation persists, will have a huge impact on consumer sentiment, due to closure of market and mall as a precaution measure to maintaining the social distancing, safety and health will be challenging as the inherent habits will take some time with the practice of adopting a new way of life.
Stabilizing the manufacturing unit will be challenging as bring back the labour force which is migrant and non-migrant and ensuring their health and safety. Observing the social distancing, frequent sanitizing will be need of an hour.
Reviewing the status of an order on hand from the dealer and distributors and trade partners understanding there present situation and impact due to lock down and pandemic due to COVID-19.
VIP like every other business will be thinking about sales recovery, and fundamental to that is to update trade strategy in light of COVID-19. Reviewing the behaviour of markets and identify the strong performers and those that might be less active in the coming months.
As a priority, we will contact and enquire all our dealers, distributors and trade partners about their situation first and reassuring them to continue the working together.
Will be trying and keeping communication channels open and with warm personal connect a long way to reassure trade partners of VIP’s commitment and that will be remembered once things have settled down. We abreast their situation, once it is stable, we will review the status of their shipments their recent sales and payments.
If a distributor has difficulty in pursuing sales in the short-term, we might consider the discounting or temporary support in our arrangements, with an agreed timeline for review.
VIP will keep and abreast important developments in the market and building market intelligence and understanding some potential markets that may be recovering from COVID-19 more quickly than others, the consumer spending whether consumer spending by individuals once markets start to gear up again.
VIP will be exploring the untapped market, where we believe our product has the potential and VIP will be focusing on the key online platforms through online channels. VIP will upskill the employee to improve business.