Manish Kapoor, CEO, Pepe Jeans
“Whether you open today or a month later or you start EOSS from June 15 or August 15, demand and consumer sentiment per say is not going to change much. The other reality is, in terms of physical retail from the time you reopen the consumer will take time to go back to stores. The one change we will see is online is going to bounce back much faster than offline. This change has been seen in China also and the same scenario is likely to happen in India. In a scenario where the lockdown is lifted around May 15 and EOSS is announced, the consumer will still not visit malls to buy, so delaying EOSS is justified.”
What is the current situation in Indian garment industry?
The last three effective seasons have been just about managing like for likes. We were just about managing things and with Covid-19 and the lockdown, the whole industry is in doldrums because there have been no cash flows, people are stuck with inventories. This will get compounded as the market reopens because consumer sentiment is not going to improve overnight, the process, according to me, will take at least six to nine months for recovery. Until and unless the government does something, we are staring at a bleak future.
Please explain the challenges Pepe Jeans is facing with its Spring/Summer collection. And what about Autumn/Winter, how do you expect that to fair?
Pepe’s situation is similar to that of the industry. The bigger problem is with Spring/Summer, I feel demand and other things will start stabilizing once we move into winter. Inventory will be the bigger problem, as we have already produced Spring/Summer and there will be a huge leftover which needs to get adjusted over nine months period. By winter, demand should improve. Current inventory is going to have a huge lag over the complete year.
CMAI discussions have suggested delaying end of season sale (EOSS). Would this really create an impact?
We have been speaking to both RAI and CMAI as brands for delaying EOSS. Probably they are using that window and EOSS is extended to a 60-day period. The idea is, deal with it in a 30-day window. If we start of EOSS in June, where most likely we star reopening stores by May 15, then we will not get any time to sell Spring/Summer at full price. That’s a good move but again it makes sense for EOSS to be from August 1 to August 30, for a 30-days window, giving more time for summer. But come what may, we will only be able solve the discount issue for summer and not be able to solve the issue of excess inventory. Even if we start EOSS as soon as we open, the inventory will not be depleted, it’s only going to hurt margins.
It is a good initiative if we are able to work it out and be successful in delaying EOSS effectively and get the cycle right. Anyway our cycle and the EOSS timing and GST implementation had gone wrong, so we started EOSS almost 15 to 29 days earlier and extended it for another 15 days. That is a positive move but again, it is not going to solve the problem of excess inventory. Moreover given the constrains that a lot of players would have working capital and cash issues and even if 100 brands don’t want to go for EOSS by August 1, I don’t know, how many will adhere to it looking at their constraints.
Considering the consumer sentiment, even if you delay the EOSS or have a shorter window do you think the industry would be in a position to do away with inventory?
Whether you open today or a month later or you start EOSS from June 15 or August 15, demand and consumer sentiment per say is not going to change much. The other reality is, in terms of physical retail from the time you reopen the consumer will take time to go back to stores. The one change we will see is, online will bounce back much faster than offline. This change has been seen in China also and the same scenario is likely to happen in India. In a scenario where the lockdown is lifted around May 15 and EOSS is announced, the consumer will still not visit malls to buy, so delaying EOSS is justified.
A large part of the world is dependent on China for indigo chemicals and other raw materials. Has India and the world learnt a lesson not to depend only on one country for sourcing? Will India become the next sourcing hub? Can we match China’s pricing?
The world has learnt a lesson being dependent on only one country for sourcing. If we look at say winter jackets, effectively 99 per cent of the fabric was sourced from China and could be manufactured anywhere -- India or Bangladesh or any other country. I am sure that is going to change but a bigger change is going to come from consumers as they will be more aware about checking where a product is coming from and will start preferring products manufactured in their own country.
As for India as the next sourcing hub, the biggest problem is we are not prepared. We may say we can produce bulk volumes but we don’t have that scale, the government has never promoted large scale industry and promoted only small to medium scale industries that is where the problem lies. This translates into competitive pricing also. When one unit can produce only 10,000 and is competing with a unit producing 100,000 units, economies of scale brings about a difference of costs.
The government has been giving incentives or support through GST and EMI ease. Is this what the textile industry is looking for? Is the government really putting in efforts to ensure help to the industry?
Looking at it effectively, whatever they have done till now, they have covered the base in terms of poorest of the poor and ensured they get their daily meals. They have done some bit with RBI announcing certain deferments but we need to understand they are short term deferments and don’t address the issues the industry is facing today. Nothing concrete has come for the industry from the government but we are hoping they will work out a package from employee’s perspective and working capital perspective that is needed. I think that there will be some sort of announcement soon.
Small manufacturers are going to take a big brunt, and probably not be able to sustain, what do you feel can be a strategy to help them?
Small manufacturers need to be careful about what they are doing right now, in terms of production categories and which brands they are working with. They have to be agile when there is a demand, for example, today there is a huge requirement for masks. There will be a culture shift in the country. For me, it is not like everything is going to end but will be a way of life. This shift will also give steady cash flow and start looking at going back to basics of what they were doing in a calculated manner. This is not only for smaller manufacturers but manufacturers across the segment, industry and country. People have to think of innovative ways how consumer is going to react; how entities are going to react; and what best they can do in the current scenario.