EAI 01 ISSUE 04
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GSP WITHDRAWAL TO HAVE MINIMAL IMPACT
Slow
recovery for Indian exporters McKinsey:
Indian Ascent in global industry APPAREL EXPORT PROMOTION COUNCIL MAGAZINE
| July 2018
AppArel / Global affairs
Withdrawal of GSP benefits to have minimal impact on Indian apparels and textiles • US plans to scrap GSP benefits to India within the next two months • Around $17.97 million worth of Indian imports currently enjoy GSP benefits • Women’s or girls dresses containing 70 per cent or more of silk or silk waste are likely to be highly impacted • India is likely to impose higher duties on 29 goods imported from the US from April 1
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AppArel / Global affairs
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he US plans to scrap the generalised system of preferences (GSP) benefits for India within the next two months that allowed the Asian country to export up to $5.6 billion worth of products to America duty-free. This withdrawal of the GSP scheme comes on the back of far greater restrictions on visa issuances for Indian firms under the Donald Trump administration. While Indian IT companies have adapted by increasing local hiring, this comes at the cost of lower margins.
India to address US Concerns on medical devices and diary market access The US initiated the review of the GSP status to India on the basis of representations by the US medical devices and dairy industries but it subsequently included numerous other issues on a self-initiated basis. These included issues related to market access for various agriculture and animal husbandry products, easing of procedures related to issues like telecom testing, conformity assessment and tariff reduction on ICT products. According to the commerce ministry, India was ready to address US concerns regarding medical devices in principle, by putting in place a suitable trade margin approach in a reasonable
“The US imports $586.58 million worth of RMG products under 15 categories that currently enjoy GSP.”
timeframe to balance concerns about fair pricing for the consumers and adequate remuneration for the suppliers. On the issue of dairy market access, India has clarified that while its requirement for certification is non-negotiable given the cultural and religious sentiment, simplified dairy certification, without diluting this requirement, could be considered. India is also willing to consider discussions for a mutual recognition agreement on telecom testing,
Minimal impact on apparel exports The scrapping of GSP will not have any significant impacts on India’s shipment to the US. According to the Apparel Export Promotion Council (AEPC), the US imports $586.58 million worth of RMG products under 15 categories that currently enjoy GSP. India’s share of this pie is $17.97 million. The MFN (most favoured nation) tariff in 15 products varies from 0.86 per cent to 14.6 per cent in which India gets duty access with 100 per cent margin of preference. These 15 products contribute to only 0.46 per cent of India’s apparel exports. The bulk of the benefit is concentrated on Woven silk dresses for women, which make up 58.5 per cent of India’s total trade under GSP. AEPC has identified, on the basis of current trade
APPAREL EXPORT PROMOTION COUNCIL MAGAZINE
| April 2019 / 3
AppArel / Global affairs
“GSP removal would lead to a loss of hundreds of jobs.” with US, that GSP withdrawal on as many as 11 products of the 15 may have a negligible impact on India’s apparel exports to US. The high impact would be on women’s or girls dresses, not knitted or crocheted, containing 70 per cent or more by weight of silk or silk waste. The moderate impact will be on shawls, scarves, mufflers, maintillas, veils and the like, not knitted or crocheted, containing 70 per cent or more silk or silk waste. India believes the duty reduction would almost entirely benefit third countries and accordingly conveyed to the US its willingness to extend duty concessions on specific items in which there is a clear US interest. Referring to the India-US trade being heavily tilted towards India, the commerce ministry said that due to various initiatives resulting in enhanced purchase of US goods like oil and natural gas and coal, the trade deficit with India substantially reduced in 2017 and 2018. This reduction is estimated to be over $4 billion in 2018, with further
reduction expected in future years on account of factors like the growing demand for energy and civilian aircraft in India.”
GSP removal to affect jobs The financial markets are doing extremely well currently and one of the reasons for this the prospect of an end to the USChina trade war. However, the current trade tension between the US and India clearly does not bode well for the industry According to M Shanmugam, President, Tirupur Exporters Association, the GSP removal would lead to a loss of hundreds of jobs . He urged the Centre to help the industry in the form of incentives.
India’s retaliatory tariffs to derail substantive package Now, with the US terminating preferential treatment to Indian exports under GSP, India is likely to impose retaliatory tariff although it has maintained that these tariffs are a separate issue and no knee-jerk reactions are warranted. India is likely to impose higher duties on 29 goods imported from the US from April 1, adopting a firmer stance in relations with one of its biggest trading partners, which withdrew benefits under the Generalised System of Preferences (GSP). Higher duties have been proposed on US walnuts, chickpeas, lentils, boric acid and diagnostic reagents, among other goods, imposing an additional burden of $290 million on them. The increased levies, proposed in June 2018 have been already deferred six times in view of the bilateral trade dialogue. These tariffs are likely to derail the substantive package that India and the US were working on to resolve trade issues. n
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AppArel / Business
Indian children’s wear exports to the US up
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ndia’s children’s wear exports to the US grew 6.52 per cent from January to October ’18. India is the only country which increased its value-wise share, while all other countries declined their share on a year on year basis. All the top Asian exporting nations saw a fall in their respective value-wise exports in the children’s wear segment to the US. The share of China, Bangladesh and Vietnam dwindled by 3.23 per cent, 2.50 per cent and 2.52 per cent respectively and the declining trend of these countries helped India capture the shift especially from China which caters to 47 per cent of the children’s wear demand in the US. Some Indian manufacturers who had
Indian exports to Africa inch up
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ndia’s exports to Africa increased from 7.5 per cent in 2009-10 to eight per cent in 2017-18. Of the 54 African countries, there was significant trade with 47. Many of these countries rank high in terms of ease of business.For Indian exporters, Africa presents an almost unlimited market. The country’s biggest market on the African continent is South Africa. South African chain store buyers, independent retailers, boutique owners, home textile and soft furnishing buyers, agents, wholesalers, importers and other industry professionals are interested in Indian products particularly fashion garments, embroidery, sequins, beadwork and the hand washes that India is famous for. India has set up an apparel training centre in Nigeria. This will rebuild the cotton and textile value chain of Nigeria. India is South Africa’s second-largest clothing import source market. It is recognised as one of the best sourcing destinations for garments, textiles, footwear and leather. India
previously been focusing solely on the export market have started reorienting themselves to meet the growing demand within the country. Within India, by 2023, children’s wear retail is projected to constitute almost 22 per cent of the total apparel business in India. The 0 to 14 years group amounts to around 29 per cent of the total population. his market in India is mostly dominated by private labels -- big retailers, international brands and just a handful of home-grown mono brands. Organised brands comprise only a miniscule of the overall children’s wear market.n
India to maintain steady growth
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ndia’s economy is likely to grow at 7.3 per cent in 2019 and 2020, according to Moody’s Investor Service. India is less exposed to a global manufacturing trade growth slowdown than many other Asian nations and is poised to grow at a relatively stable pace in two years. The announcement in the interim budget 2019-20 on direct cash transfers for farmers and the middle-class tax relief measures are expected to contribute a financial year stimulus of about 0.45 per cent of the gross domestic product. The Reserve Bank of India is likely to be able to maintain its current monetary policy stance after some tightening last year. Though the overall strength of the banking system is improving, it remains a constraint on the economy. However, a complete turnaround of the banking system requires more time amid slower-than-expected resolution of legacy problem loans. With range-bound oil prices, export growth has outpaced import growth for the last two years. Fiscal spending on infrastructure and the rural economy should continue to support domestic activity, recommends Moody’s. Moody’s growth estimates are based on the calendar year. India, however, measures its economic growth on the basis of the April-March financial year. Government spending announced this year is expected to support near-term growth. n APPAREL EXPORT PROMOTION COUNCIL MAGAZINE
| April 2019 / 5
AppArel / emerging india
Year 2019 will be India’s ascent in global fashion industry: McKinsey study
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hough economic expansion is happening across Asia, 2019 will be the year when India will take center stage. As highlighted in McKinsey’s latest ‘State of Fashion report written in partnership with the Business of Fashion, India’s ascent is one of 10 trends the fashion industry needs to watch out for in 2019.
Retailers leverage technology As per data from McKinsey’s FashionScope, India’s apparel market will be worth $59.3 billion in 2022, making it the sixth largest in the world, comparable to the United Kingdom’s ($65 billion) and Germany’s ($63.1 billion). The aggregate income of the addressable population is expected to triple between now and 2025. According to Sanjay Kapoor, Founder of Genesis Luxury, a luxury retail conglomerate, higher incomes are likely to create a whole new class of consumer: Retailers are moving on toward the ‘gold collar’ worker, term that defines the highly paid professionals. Over 300 international fashion brands are expected to open stores in India in the next two years. To build momentum around conventional stores, Indian players are innovating: retailers are leveraging technology to enhance the in-store experience with digital marketing displays and improved checkout. For instance, Madura Fashion & Lifestyle launched the Van Heusen
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AppArel / emerging india
for the few, with just five million smartphones in a country of 1.2 billion people and only 45 million Internet users. These figures have since increased to 355 million and 460 million, respectively, in 2018, and they are expected to double by 2021, when more than 900 million Indian consumers will be online. E-commerce leaders are moving to solutions based on artificial intelligence.
Consumption patterns, preferences in focus
Style Studio, which uses augmented reality to display outfits on customers. Malls have also increased their share of space devoted to food service and entertainment. Growth in the apparel sector is also being driven by increasing tech savviness among consumers. Ten years ago, technology was
Successful brands have studied the consumption patterns of their consumers, their preferred colors, designs and touchpoints. Indian women have beautifully amalagated the Indian and Western sensibilities across the spectrum. Traditional clothing made up almost 70 per cent of women’s apparel sales in 2017. It is expected to account for a 65 per cent market share by 2023. With nearly 40 per cent of the Indian network unpaved till 2016, India’s
APPAREL EXPORT PROMOTION COUNCIL MAGAZINE
| April 2019 / 7
AppArel / emerging india
infrastructure too continues to lag behind that of many other Asian countries. In addition, retail stock is often below expectations. However, there are signs of improvement. Reliance Brands, which operates over 500 stores for International brands is developing two fantastic luxury malls in Mumbai along with the convention center.
Offering a great promise Many brands are determined to take advantage of India’s blossoming growth. The majority are likely to choose one of the three routes. First, players can partner with existing e-commerce platforms. This is most suitable for players with low brand awareness and relatively little capital to invest; it also offers a good way to test demand and customer preferences. Second, brands that have little local knowledge and are looking to enter the market quickly can do so with a franchise model, developing brick-and-mortar retail spaces. Finally, players that have significant local knowledge and capital resources can create fully owned and operated stores. In short, the Indian market offers great promise. Despite structural challenges that include inequality, infrastructure, and market fragmentation, strong economic growth, scale and rising tech savviness will combine to make India the next destination for global fashion and apparel business. n
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AppArel / Brand Retail
Sports retailers differentiate with different looks
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ports retailers are differentiating themselves from their competitors in order to offer customers an unique shopping experience. In the past, brands could dictate what sports collections had to look like, but the conservative sports looks won’t work in future. A number of interesting small brands are delivering something special. These brands come from the fashion, luxury and sustainability segments. They are presenting themselves in a new way and with different approaches. Tentree, based in Canada, has one goal: to plant one billion trees by 2030. Ten trees are planted per product sold. What started with one T-shirt has become
Gap splits into two
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an impressive collection and 58,230 trees have been planted in the European business alone and 25 million worldwide. Templa, based in Australia, presents a young, very contemporary ski collection in the luxury segment. All materials and their processing are highly functional. Only the look is strikingly different: calf-length down coats, sack-like parkas, wide cargo pants. With its strikingly colorful women’s collections, Blutsgeschwister serves around 350 fashion locations in Germany. The brand is known for parkas, hoodies and hooded jackets. Jackets and parkas are equipped with a water column and are therefore ideal for urban environments. In addition, the brand attaches great importance to sustainable production. n
UK February retail sales fall
ap is splitting into two companies, one is Old Navy. The other unnamed company will comprise Gap, Banana Republic and the company’s other brands. So Old Navy will become a standalone company. The aim is to showcase Old Navy and deemphasize its slumping namesake brand. Old Navy’s business model and customers had increasingly diverged from Gap’s other brands over time. Originally launched by Gap in 1994, Old Navy offers apparel that generally comes in at a lower price point than at Gap or Banana Republic. Including all its chains, Gap has about 1,35,000 employees and 3,688 stores globally. Gap reported fullyear comparable sales of positive three per cent at Old Navy versus a decline of five per cent at Gap and a gain of one per cent at Banana Republic. The company plans 230 more Gap store closures globally over the next two years as the company works to revitalize the Gap brand by re-engaging with customers and expanding its loyal customer base, leveraging the multigenerational, democratic appeal of the brand. The move comes as the US retail sector faces stiffening pressure from online retailers as e-commerce eats up a greater share of retail sales. Conventional brick-and-mortar chains are also making costly investments to become omnichannel vendors to stay relevant. n
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ncertainty around the UK’s imminent exit from the European Union has hit consumer spending. In February, UK retail sales decreased by 0.1 per cent on a like-for-like basis from February 2018, when it had increased 0.6 per cent from the preceding year. On a total basis, sales increased by 0.5 per cent in February 2019 compared to 1.6 per cent in February 2018. This is below both the three-month and 12-month averages of 0.9 per cent and 1.2 per cent respectively. Over the three months to February, in-store sales of non-food items declined 2.8 per cent on a total basis and 3.1 per cent on a like-forlike basis. This is below the 12-month total average decline of 2.4 per cent. Over the three months to February, nonfood retail sales in the UK decreased 0.6 per cent on a like-for-like basis and 0.4 per cent on a total basis. This is below the 12-month total average decrease of 0.2 per cent. Online sales of non-food products grew 5.4 per cent in February, against a growth of 6.4 per cent in February 2018. This is below the three-month average of 5.6 per cent and pulls down the 12-month average to 6.9 per cent. n
APPAREL EXPORT PROMOTION COUNCIL MAGAZINE
| April 2019 / 9
AppArel / Exports
Slow recovery for Indian apparel exports amidst challenging environment • India’s apparel exports in Q3 FY2019 remained lower than the average quarterly exports during the past five years. • Incremental developments on CTPPP could considerably strengthen Vietnam’s competitiveness. • EU-Vietnam FTA could weaken India’s positioning in the Vietnam market
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ollowing a decline of 4 per cent in FY 2018, India’s apparel exports are further estimated to decline by 4-5 per cent in FY2019. India’s apparel exports in Q3 FY2019 remained lower than
the average quarterly exports during the past five years. ICRA expects this trend to bottom out and recovery to set in with internal challenges and abrupt pressures subsiding, though the pace of recovery is likely to remain muted considering the challenging environment.
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AppArel / Exports
per cent at present, while India has been able to barely maintain its share at ~6-7 per cent.
Value added markets and established client base help growth
FTAs to alter global trade dynamics India continues to experience intense competitive pressures from nations that offer a cost advantage over India as this constrains the overall momentum of the apparel export sector of India. The concerns are heightened by the progress on certain large free trade agreements (FTA) which can materially alter the global trade dynamics. The most prominent amongst these is the Comprehensive and Progressive Trans Pacific Partnership (CP TPP), which is the third largest free trade area in the world by GDP. By mid-January 2019, the agreement had entered into force between seven of the eleven nations. Even though there is some respite for India considering that the leading apparel importing regions are not yet a part of the CP TPP, any incremental developments on this front could prove to be a potential threat as it could considerably strengthen Vietnam’s competitiveness. Another FTA being closely watched is the EU-Vietnam FTA. Conclusion of the FTA can weaken India’s competitive positioning in one of the key apparel markets, accounting for ~37 per cent of India’s apparel exports in CY2018. This can be corroborated from the fact that Bangladesh, which enjoys a duty-free access to the EU market since 2001 under the Generalised Scheme of Preferences, has been able to expand its market share in EU from less than 7 per cent in 2001 to ~20
Steps taken by the Government of India remains critical for the domestic apparel exporters to capitalise on the revived global apparel trade as well as the continuing loss of market share by China
ICRA research also notes that a sample of large, listed, domestic as well as exportfocused garment-manufacturing companies has continued to perform well, reporting a 13per cent (YoY) growth in Q3 FY2019, following the similar average growth rate during the previous four quarters. ICRA believes that presence in the niche and valueadded product segments, together with access to an established client base has helped exportbased companies to maintain revenue growth,
Presence in the niche and value-added product segments alongwith with access to an established client base has helped export-based companies to maintain revenue growth, in contrast to the broad industry trend in contrast to the broad industry trend. This, together with a revival in domestic demand, particularly in metros and tier-I markets where the larger listed players are predominantly present, translated into a healthy growth for ICRA’s sample during the current financial year. Besides, favourable currency movement and healthy growth in revenues facilitated an improvement in margins in the recent quarters, given the operating leverage inherent in the operations. Going forward, steps taken by the Government of India to address the challenges, will remain crucial for a broad-based recovery across the sector. This also remains critical for the domestic apparel exporters to capitalise on the revived global apparel trade as well as the continuing loss of market share by China, which opens up a lucrative opportunity for key players such as India, Vietnam and Bangladesh.n
APPAREL EXPORT PROMOTION COUNCIL MAGAZINE
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