Delhi-NCR still relying on value addition for business
• The region is the most expensive among the apparel manufacturing hubs in India.
• Embroidery, prints, sequin work and other value-added techniques are the specialisation.
• The export industry is now exploring the domestic market to tide over the lean period.
• Athleisurewear is a new category that many companies are looking at; most are testing the waters in the domestic market.
• Expansion plans, if any, are mostly in other states.
Among the oldest garmenting hubs in India, the Delhi-NCR region has been known for its strength in womenswear, mostly because of the wide value addition options available and the small run factories that make fashion garments. International buyers understand this edge and place orders accordingly. However, of late, many other hubs have also upped their game and are offering techniques and quantities that previously were only possible in DelhiNCR. The competition has increased significantly and factories in the region are searching for new ways to stay relevant. From going deeper into the niche category to consolidating the operations and exploring new markets, the region is in the process of revaluating its growth avenues and potentials.
Delhi-NCR, home to thousands of small exporters…
There is a segment of exporters and industry watchers who believe that nothing has changed in this region… The big exporters are still growing; the middle ones are stable and investing in ways to stay relevant, while the small ones are struggling for survival. But, there is also a segment that believes that this slow phase has actually been good for the industry as a whole and for Delhi-NCR, in particular, as the region is home to a large number of small and medium companies who are thriving with importers/wholesalers and small boutique stores, which have withered the slowdown that has affected the bigger brands and retailers, in a much better way, though prices have been hit.
These small- to medium-level players are the backbone of the garment export industry and a majority of them are predominant in the Delhi-NCR region. Many of these players, particularly the smaller ones, have either closed shops or have reworked their strengths as global economies continue to put great pressure on prices along with several policy changes, in particular GST, which has really hit these small players hard. “The bigger exporters have the resources to follow-up on the GST procedures and documentation, as also the power to pressurise the Ministry for refunds. If you check, none of the small exporters have got the refund yet, while the bigger companies have received their refunds,” says Anil Varma, President, Delhi Exporters Association. He further points out that overall GST refund is about 7-8% of total turnover and from a small exporters’ (Rs. 1-5 crore) perspective, that is actually his margin.
Value continues to pull in the buyer…
It is no secret that this region has the highest wage and cost of production, yet buyers still come searching for uniqueness. “The NCR is very important to garment trade and even today, when other centres are coming up strongly, the region accounts for nearly 40% of total garment exports from this country,” shares HKL Magu, Chairman, AEPC and MD of Jyoti Apparels, one of the stalwarts of the industry and the Delhi-NCR region. He adds that the industry as a whole has seen some difficult times, but singling the NCR as having the biggest impact is not fair. In fact, exporters in the region are the most flexible in design and quantities, thanks again to the small- and medium-level players that buyers find very creative to work with. Players in the region understand that just giving value addition is not enough and they are giving buyers compelling reasons to come back season after season. “Buyers come to us because our product is more of niche than mass. If price is a concern, we can change fabric depending on target prices set by buyers. We start with at least US
$ 8/9 and it goes up to US $ 20 per piece. Majorly our business comes from the product that varies from US $ 12 to 16. Buyers come seeing the product. We have everything in our product right from embroidery, print to other value addition,” shares Arjun Sehgal, Director, Mariko Plus. To be even more niche, the company has developed skills related to embroidery
on delicate fabrics, such as chiffon, rayon crepe and georgette which is actually a tough task. It hires highly skilled workforce for the same. Mariko has also developed its own blocks for kalamkari printing which, it says, is its USP in the export market.
New directions include focus on domestic retail…
A trend that comes out strongly from talking to players in the region is the increased interest in domestic market. Earlier the players of NCR were focused only on exports, and domestic market was a total no-no. But now with the global business getting not only very competitive in price, but also demanding on other issues like compliances and shorter lead time, many of the smaller factories are opting to manufacture for small brands and retailers with 20-50 stores. “Why should I spend so much time and money on convincing the buyer about my capabilities when I can get local business that is better paying and less of a headache? Also, now that we do not get duty drawback in exports and other benefits too have dwindled, there is no real advantage of working in the international market,” reasoned a small exporter from Gurgaon with a turnover of less than Rs. 10 crore, on promise of anonymity.
For bigger exporters, the local market presents an opportunity to keep factory running in lean period. “We have got 2 units; 630 machines in one unit and about 350 in other. These machines run 100% from October till March and rest of the year, they run at 50% capacity. And that is the area we are trying to address. So, in the lean phase, we are doing business with domestic brands – Gini & Jony, Cover Story, Arvind Brands, Future Group, Being Human, to mention some. However, payment remains the biggest challenge in domestic. We, as exporters, are not used to handling such payment issues,” says Karan Jain, Director, Pooja International.
Nothing new for exports…, but athleisure from export houses have caught attention in domestic market
From a product category perspective, the region has nothing new to offer to the international market, but some knitwear exporters from the region are experimenting with athleisurewear though only for the domestic market. A few cases in point are Paragon Apparels and Knitcraft Apparels, both of which have introduced local brands for the segment. While Aurro Sportswear from the house of Knitcraft is being sold through online platforms,
Alcis products from Paragon are available in over 700 outlets across the country including all leading large format stores such as Lifestyle, Shoppers Stop, Central, Globus,
Sports Station, etc. and on online retail websites and 5 exclusive brand stores at New Delhi, Mumbai, Kochi, Jaipur and Guwahati.
The USP of both Paragon Apparels and Knitcraft Apparels is that they have international quality but Indian price. “The idea behind setting up Alcis Sports was to create a home-grown affordable Indian athleisure brand which is at par with international brands in terms of quality and also in sync with
Indian sensibilities,” says Roshan Baid, Managing Director, Alcis Sports. The company has secured an investment from Singapore-based venture capital firm RB Investments, which has a strong portfolio of startups in India, including The Beer Cafe, Swiggy, Bluestone.com, Fab hotels, Faasos and PropTiger to name a few. The company has also appointed celebrated Indian cricketer Shikhar Dhawan as its brand ambassador for the company along with popular television personalities Lauren Gottlieb and Karan Tacker.
Sanchit Khurana, Founder, Pace Athletica, and the owner of the Aurro brand, feels that it is not just about price, and states, “Not just cost, but also marketing of products in India to penetrate the market holds the same level of challenge.” He further opines that the overseas activewear brands in India are getting benefits despite having high prices because they are not seeing any competition from the domestic brands. He also mentions that the manufacturers are determined to reduce their cost of operations to become cost-competitive in the Indian market. They are reducing the margin of products to make a stable place for their products. Apart from this, they are investing in technology to increase productivity and reduce human intervention.
Each hub within the region has something to offer…
Historically, the NCR region was developed as a garment manufacturing hub due to the need to shift factories out of the main city, for various reasons spanning high cost of manufacturing to pollution concerns. Initially, Gurgaon was the preferred destination, with most of the big companies like Orient Craft, Richa Global, Jyoti Apparels, and Modelama moving in that direction. Labour availability was good due to a strong immigrant worker culture and slowly the cluster developed strong linkages in service and products that made the hub a workable manufacturing destination. However situation is changing and even the addition of Manesar region has not helped. “Udyog Vihar is becoming very unviable and difficult to work in now, more so as other industries have also come up very strongly in and around the area, which are attracting the workers more, and also putting immense pressure on the infrastructure,” says Aditya Mathur, Director, Akriti Creations. The company has recently set-up a new factory in Noida, mainly to be more competitive.
Among the sub-hubs within the region, while Delhi is the most expensive, with wages for skilled workers going up to an average of
Rs. 15,000 a month, the same in
Noida would be around Rs. 8,000, and approximately Rs. 11,000 in Gurgaon and Faridabad (both falling within Haryana jurisdiction). This wage difference is one of the major reasons for exporters to invest in Noida. However, not everyone is happy with the experience. No doubt, Noida is the best place not only in terms of wages, but also labour availability.
The only concern here is the security issue which is very high and many manufacturers are apprehensive of labour unrest, mostly brought about by the anti-social elements in Noida. This is also true of Ghaziabad again, technically within UP, which has not grown as a major hub primarily due to the image of the city, as being ‘crime-prone’.
The situation is of grave concern and many exporters and association have been trying to find a solution. “We have been constantly writing to the
authorities on the rampant corruption and law and order situation in Noida and are still to get relief that can be termed as worthwhile,” says Shiv Bhargava, President, Exporters Grievances Association, Noida. Bhargava is among the pioneers of the Indian garment industry and was also one of the first companies to set-up a unit in Noida. In fact, the law and order situation has in the past caused many factories to spend good amounts on security agencies and many even claim that the police department is not very supportive in case a theft or any other incident is reported.
Some companies have also pulled out of Noida due to these issues, but the city is still an attraction. “Earlier the factories moved from Okhla to Gurgaon, but now most of the new factories are coming up in Noida as the Government in
UP is very proactive in supporting the garment industry,” says Lalit Thukral, MD, Maharana of India.
As also the President of Noida
Apparel Export Cluster, Thukral is working to make Noida the future garment manufacturing destination, and earlier this year, the Yamuna Expressway Industrial Development Authority approved a 200-acre Textile Park, wherein 100 textile businessmen will be allotted space. The park is expected to boost industry growth by creating nearly half a million employment, 90% of whom will be women. It will be ready in a span of three years.
For exporters in the region, the choice of where to set up a factory is not an easy one and sometimes the nature of NCR itself can be a hindrance.
“For companies that have factories in Noida, Delhi and Gurgaon, it can be very difficult because the states are different and many rules and regulations, besides the minimum wages differ, so balancing the management can be very tough,” says Anil. In this context, Magu shares that Jyoti Apparels too found it difficult to run factories in both Gurgaon and Noida and has since relocated fully to Gurgaon for management convenience.
Wages: Increased in Noida; Delhi’s issue still pending
Continuously increasing minimum wages in Delhi and subsequently Gurgaon was one of the major reasons for shifting to Noida, but that also is now going to see change. Though the proposed wage hike in Delhi is still in court and various stakeholders have different opinion and reactions, the minimum wage is now going to increase in Noida. According to a new notification of Uttar Pradesh State Government, the increase in wages will be applicable from 1st October 2018. Currently the minimum wage for unskilled, semi-skilled and skilled is Rs.7,674.45, Rs. 8,443 and Rs. 9,457.49, respectively. The wage is to be increased by Rs. 61, Rs. 69 and Rs. 76, respectively. These rates will be valid up to 31st March 2019.
Now with this increased wage rates in Uttar Pradesh, the difference between the two main hubs of NCR – Noida and Gurgaon – has narrowed down and is just Rs. 871, as the minimum wage for a skilled worker is Rs. 10,328.83 in Gurgaon. In Delhi, the minimum wages of unskilled workers were revised in March 2017 from Rs. 9,724 to Rs. 13,350 per month, for semiskilled workers from Rs. 10,764 to
Rs. 14,698 and for skilled labourers from Rs. 11,830 to Rs. 16,182. In April 2018, there was again a little hike in these rates. As the Delhi High Court put a stay on the State Government’s notification, the issue is now in Supreme Court.
Encouragingly, the companies in Noida seem to be prepared for the rise. “Definitely increased wage is always a burden but there is no option. As we knew well in advance that minimum wage has to grow from this month, tentatively, one could plan in advance accordingly,” says Rajeev Bansal, MD, Celestial Knits & Fabs, Noida and Divisional Chairman, Indian Industries Association, Meerut. The full impact of the wage raise will be known in a few months, but as of now, the industry does not seem to be too worried, which is a positive sign.
Expansions now in other states…
While exporters in other hubs have readily relocated to more lucrative areas when cost of production increases, like Mumbai factories moving to Bangalore and Chennai factories going to Tirupur, Delhi factories have mostly shifted to the NCR hubs. Only Shahi from Faridabad has really shown courage to take factories to the south in a big way. There are some other examples though, but even Shahi being India’s leading exporter and having set a successful example, has not motivated the industry at large to move out of the comfort zone… But things could change now! With cost of production in the Delhi-NCR becoming uncompetitive, especially if a company wants to expand, the new emerging states of Odisha, Jharkhand and even Telangana are the preferred locations. Companies like Orient Craft, Matrix, Pearl Global, Modelama, Richa Global, Meenu Creation, Akriti Apparels have started exploring the opportunities in these emerging manufacturing bases. But then there are others who feel that too much time is spent in creating the right ecosphere. “We are planning to set up a training centre in Ranchi. We did an internal survey that 50% people in our factory belong to Bihar and Jharkhand. Because if you keep running to low-cost area, where will they go after 5 years? Also, setting up a factory in a new area is time-consuming. By the time it gets approved and the plant starts functioning, we might come to know that technology has already upgraded. So, these collective issues are stopping us from moving out of Delhi-NCR,” says Karan Jain.
Enthusiasm at buying houses/liaison offices in Delhi for increased business…
Some of the buying houses across DelhiNCR are doing well; few are becoming more organised and continuously adding newness into their products and services. To mention few: New Times Group, Gurgaon office recently was in process to hire new staff as it is growing well. Gloria Jeans’ India office also confirmed an increase in its sourcing. Patanjali recently opened its sourcing office in Noida. Apart from these well-known and established buying offices, few new buying houses are also emerging in the region, like Avanni Apparel Sourcing of Delhi, which is a new name that’s having a major focus on domestic and also having clients in overseas markets.
Creatnet Services, another Noidabased buying house, installed ERP and is geared up for consistent growth of 25%. The buying house recently also associated with young women clusters of Uttarakhand to reimagine and contemporise their techniques into beautiful and modern boho-luxe silhouettes.