The Hindu Business Line : Global textile retailers to witness decline in prices

COME January 1, 2005, global retailers of textiles may witness sharp price declines as prices of goods are expected to go down in the post quota regime.

Over the next five years, prices are likely to fall by as much as 20-25 per cent mainly because of the decline in tariffs and availability of cheaper products.

The lowered prices, said Mr Sandeep Chugani, Vice President, A.T. Kearney, Inc., will be the "real" prices of goods.

According to a study by the Consumer & Retail Practice of A.T. Kearney, `Turning Risk Into Reward: Textile and Clothing Quota Elimination,' quota costs represent as much as 30 per cent of the landed product cost of certain garments. Garment costs will fall and `migration' costs — cost savings that arise by sourcing products from lower cost countries — can reach 10-20 per cent in certain product categories over the savings achieved through quota elimination.

It predicts that the highly fragmented and inefficient network fostered by the quota system should evolve into a more competitive industry structure.

According to Mr Chugani, US retailers will be able to source their products 25 per cent cheaper, but how much of this will actually percolate to consumers remains to be seen.

In 2005, textile manufacturers would be forced to be more efficient or will have no business. Thus manufacturers would have to become more productive, innovative, raise the level of technology employed and improve supply chain management. Helping things along is the fact that US labour is three times costlier than it is perhaps in South East Asia.

"Though India stands to gain as much as China, India has not invested as much in manufacturing and supply chain as China has, " said Mr Chugani.

Currently, 12-13 per cent of the garments sold in the US are from China, this figure could rise to 20-40 per cent in the first two years of the end of the MFA, and thereafter by 40-60 per cent, according to survey of global wholesalers, manufacturers and retailers by Goldman Sachs.

In India, however, preparedness for the quota free regime in India is limited only to select large players. "To compete with players like China, the industry needs to invest in increasing scale of operations. But, this does not mean that the smaller players will be at a disadvantage, they too will survive by focussing on local markets and offering price benefits to the consumers," said Mr Nabankur Gupta, Group President, Raymond Ltd.

Besides scale and product quality, infrastructure facilities need to be considerably enhanced to enable the Indian textile and apparel industry to compete in global markets. "The focus has to be on improving port capacities and turnaround times, allowing flexibility in contract labour and continuing the reform of the textile sector," he added.

The end of the MFA opens huge opportunities for apparel manufacturers from countries such as China and India. Mr Gupta said that Indian manufacturers would be able to offer the global customer a single-point contact to source the finished garment. Investments made in increasing apparel-manufacturing capacities and vertical integration by major companies such as Raymond would offer the benefits of economies of scale to both manufacturers and consumers.