pages from the tirupur dairy....

This is the story of when 6 guys had amassed the guts to go and do research on the garment industry....350 kms..

Something which we all cherish still.....

herewith is the transcript..:


Two recent conversations with senior executives at similar, but different retailers, brought up an interesting discovery. These two companies, in the traditional sari retailing business, are both well known and their brands well received in the market, especially in south India. A visit to their several retail outlets in Chennai and other cities present a picture of energy, activity, and growth - at any time of the year. The contrast is with the "modern" apparel retail showrooms selling readymade western garments.

The flurry of business got me talking - on two separate visits to their respective flagship showrooms - with the executives. It was obvious, seeing the crush of customers, the cost of purchases, and the wide variety (in designs, price points, fabric, etc) that traditional apparel retail was holding its own, even succeeding where modern made-to-wear was struggling. Both executives exuded optimism and confidence in their company's performance - about 30% annual sales growth and relative price stability (one of these chats was pre-Diwali and sales for which were yet to happen). Not for them the race to the bottom with endless discounts and two-for-one or two-for-three offers.The vicious circle that characterize Main Street modern chain store retail selling mostly western wear is conspicuous by its absence in retail stores selling traditional wear, especially saris, salwars, and kurtis of all types.

How is it that traditional apparel retail is traipsing along in these ostensibly hard times while western wear retail is caught in a serious bind? One does not have to look hard to discern serious underlying problems; the customer has the market virtually eating out of his or her hands. An article in Business World some time ago said higher unit sales have not resulted in greater absolute value of sales. Payment cycles have expanded, theoretically to 90 days (though there are cases of retailers delaying payments to vendors by as much as two years). Margins are wafer thin. A recent chat with a vendor from Tirupur showed how deep the problem was - a Rs.10 crore company, his firm had not been paid for 11 months for goods supplied and this was reverberating downstream to all suppliers.

It's not as if the traditional wear retailers have it any easier: they incur the same expensive lease for metropolitan locations, advertising and brand-building costs, uneven demand and supply, and need to accommodate to sharply changing tastes and fashion. To some extent, they benefit from regional focus that allows them to narrowcast and finetune, but that argument could be equally turned around - they have less economies of scale to work with as their procurement cannot be spread over a nationwide market.

Most, if not all, traditional wear retailers are tightly held and family-controlled while many of the emerging nationally branded chain stores selling western wear are externally funded and some publicly listed. So numbers for the former are harder to come by and we do not know the details of their cash cycle, working capital, contribution, and the like. Estimates put the number of total retail transactions at over 90 billion a year, which includes retail of all kinds. The total value of retail spending by 2010 or 2012 is forecast at between USD 500 and USD 550 billion (the current value is put at about USD 400 billion). Furthermore, according to the McKinsey Global Institute, apparel retail in 2005 accounted for 6% of total consumption. Included in this consumption basket were food & beverage, transportation, healthcare, housing & utilities, education & recreation, communication, and household products. If one restricts the list only to tangible retail consumption, the apparel market has a larger slice of the market.

It is worth noting that traditional retail has a much larger variety than western wear - while the latter, for any particular wear, has a handful of types by fabric type, a dozen different types in terms of fashion, and a possibly larger selection in terms of color the sari industry by contrast is enormously complex. Complexity, volumes, fabric and design choices, SKU sizes, and relatively unorganized and small scale procurement sources must clearly tell upon inventory holding of finished goods at these retailers. Not for them the option of taking on consignment or return to vendor for disposal in the surplus and rejects markets. These vendors are either company-owned suppliers or small cottage units.

So it's worth pondering why traditional apparel retail with all the obvious disadvantages, in the light of modern management theory, is able to trounce modern western wear retailers in performance. Could it be that relative price inelasticity of the former comes from core constituencies whose demand never wavers? Or is there some other factor at work such as better demand matching, just-in-time product introductions with very short market response-to-design rework, more firmly grounded customer relationships being fostered, or simply better management of inventory and cost? We may never know; but any curious layperson can see the difference: traditional retail is thriving even as modern retail finds itself in a tailspin of self-inflicted injuries. In such circumstances, value is what value does - and the consumer sees only the rebates, offers, discounts, and ever more attractive prices. It would be very interesting indeed to see how the market values a traditional retailer, such as Nalli's, if it were ever to list itself.
more to come....