Blog - Lodz Denim

Denim industry says 30-40% of operative capacity shut

The Rs 15,000-crore denim industry says 30-40 per cent of its operating capacity has been shut since the goods and services tax (GST) was implemented, due to weak domestic demand and reduced potential for export.

The government has levied 12 per cent GST on branded garments beyond the maximum retail price of Rs 1,000 and five per cent below this threshold. Denim demand from local consumers and importers has fallen, with manufacturers either having to shut down or operate at reduced capacity.

“Since the GST implementation from July 1, the denim industry has temporarily closed down 30-40 per cent of its operating capacity across the board. If this continues, there can be more production cuts,” said Sharad Jaipuria, chairman, Denim Manufacturers Association.

The denim fabric manufacturing industry had, over the past decade, been growing at a 15 per cent compounded annual rate. Installed capacity is 1.5 billion metres a year, second largest in the world, after China. With annual sale of Rs 15,000 crore, this industry employs around 400,000 workers directly, besides the indirect spinoff.

Denim manufacturing hubs have gone under a massive slowdown due to the liquidity crunch after demonetisation and slow acceptance of GST by small players to become part of the formal economy. As 85 per cent of the fabric is sold in the the domestic market, denim fabric mills are badly hit,” said Akhilesh Rathi, Director, Bhaskar Denim.

The number of denim fabric mills was 30 in 2012; it is now 46. Denim fabric production capacity was 800 million metres in 2012 and is now 1,500 mn metres, with another 150 mn metres of new capacity in the pipeline for expansion.

According to Amit Dalmia of R&B Denims, the upstream activities of garment sewing and washing in small scale industry hubs will take a while before they change for working smoothly with the formal banking system. “We are not foreseeing any short-term recovery of the market,” he said.

India exports denim fabric of 200 mn metres annually. The value of export was $316 mn in 2016-17, down 11 per cent from $335 mn in 2014-15.

Atul Singh, Director at the Ashima Group, says the government needs to announce immediately some enhancement in duty drawback rates and extend some more benefits under the Returns of State Levies scheme, the Merchandise Export from India Scheme, the focus product and focus market schemes.

Denim industry faces investment drought

The Rs 30,000 crore Indian denim industry is likely to face a shortage of fresh investment in the next five years with around 30 per cent of capacity remaining idle for years.

Over the last five years, India’s denim makers have more than doubled capacity to 1.3 billion meters a year because of an abundance of cotton and subdued fibre prices. But lack of technological innovation among Indian manufacturers and the entry of international brands have forced almost a third of the country’s denim capacity to idle.

“With 42 mills in operation against 25 five years ago, India’s denim capacity has more than doubled to 1.3 billion meters. Of this, 30 per cent remains unutilised,” said Subir Mukherjee, business head, denim, Bhaskar Industries, one of India’s largest denim manufacturers.

THE STRUGGLE
Rs 30,000-cr Indian denim industry is growing at 15% per annum
30% capacity unutilised due to lack of technology innovation
Denim producers to focus on increase in capacity utilisation, number of mills doubled to 42 in five years
Estimated production at 1.3 billion meters

Apart from serving the domestic demand for jeans, India’s manufacturers used to export denim to garment factories in Bangladesh. Now, denim factories have been set up in Bangladesh to meet local demand. “We see enormous potential of growth in branded jeans,” said Rahul Mehta, president of the Clothing Manufacturers’ Association of India. Experts estimate 8 per cent annual growth in denim sales and 15 per cent in jeans over the next five years.
“Indians buy two or three pairs of jeans in a year against seven pairs in the US,” said Deval Shah, business head, Diesel & GAS.

“Indians should create their own brands as they understand Indian consumers better. Foreign brands are luxury ones limited to metro cities. India is gradually moving towards branding from labeling earlier. But, the average Indian business will have to shift to brand building for long-term profits in apparel,” said Mehta.

Anurag Asthana, vice-president, product development and sourcing, Myntra Designs, said, “We are receiving the most traction in the value segment. The denim business will grow both online and offline.”

An overview of the Global and Indian Denim Market

The denim segment has always reigned as one of the leading segments in the fashion industry. The blue denim has been a wardrobe staple and a fashion essential for decades. Globally, the denim industry is expected to grow at a CAGR of over 6.5% during 2015 to 2020, with the market value expected to increase from $113 billion to $153 billion. In terms of pricing behaviour, the growth is expected to be the highest in the Premium and Super Premium categories of the denim products with smaller base numbers. The Latin Americas and Asia are expected to lead the growth in the segment.

India’s Denim Market

Despite a slowdown in apparel exports and domestic market growth, the denim market in India is clocking a consistent CAGR of 15% – 18% per year. Denim is also witnessing the fastest growth rate as an apparel fabric. The current installed capacity of almost 1,200 million meters is expected to increase to 2,000 million meters in next three to four years owing to the huge demand for the fabric.

While India’s share in the overall denim manufacturing capacities is around 10%, at present its share in the global jeans trade works out to 2.5%. India, with its resource advantage of all types of cottons and MMF fibres, and thanks to the introduction of state-of-the-art technology, manufacturing plants, and the entry of top global brands, surely has the potential to grab a higher share in the global market. According to industry estimates, a CAGR of 10% over the period of next 10 years for denim share in international trade is possible

n terms of retail sales, due to the popularity of denim in India, denim wear market is expected to grow at a CAGR of 15% in the near future. The industry’s future looks promising due to the following factors:

Rising disposable incomes
Rapid growth of the retail sector
The westernisation trend prevalent in the nation
Booming internet retailing sector
Young population demographics (15-29 year olds) with higher spending power
A wide range of consumer segments that consider denim as an apparel of choice owing to its comfort and style
Favoured preference for denim amongst youth owing to its versatile association
Increasing usage of denim products by women and youth in smaller cities and rural India
India’s Denim Story

India is a big market with a lot of untapped potential for the denim industry despite the fact that the industry has been growing robustly over the past few years. For a majority of the Indian youth, denim is not just a casual wear, but more of a fashion statement. Almost 85% of the market is dominated by men, with 10% contribution from the female segment and the kids segment contributing about 5% of the market.

Male segment: The growth in the male segment of denim wear is quite significant despite enjoying the lion’s share in the total pie. Until a few years ago, denim was popular with men in the urban centres only. However, it has gradually become popular in the semi-urban and rural markets too. Growing awareness and an increasing sense of global fashion have led to the development, coupling with the continuous change in style statements. Denim is considered the most versatile of fabrics for men with multiple applications like casual wear, workwear, and everyday use.

Female Segment: Among all types of denim wear, jeans or trousers are the most popular articles among Indian women. Women in different age brackets of all shapes and sizes like to wear denim as it is comfortable, functional, and durable. Also, women who are not at ease with western wear have taken up to wearing jeans by pairing them with Indian ethnic wear like kurtis. This mix and match style is gradually picking up, particularly among women in small towns who come from a traditional background and is likely to fuel the growth of the segment.

The fashion element which is so inherently present in women’s clothes has been taken care of through the introduction of ‘flexible / stretch’ fabric for different applications. The segment is expected to grow the fastest.

Kids segment: It is the smallest segment in the domestic market, but is expected to grow faster than other segments primarily due to the availability of the products led by the innovations in the industry for hygienic and flexible fabrics.

However, the retail segment in the section has its own challenges since the larger market is dominated by unorganized sector due to pricing point disadvantages applicable to organised retailers. With parents and children becoming more conscious about kids fashion and trends, the kids wear segment in India is garnering a lot of attention of late. The advent of e-commerce in the apparel segment has resulted in the easier availability of products, though the pricing of products remains a challenge. The increase in purchasing power of the parents is expected to take care of this issue and propel the growth of the segment further.

Demand Drivers and Popularity

The denim industry took root in India in 1986 and has since grown immensely.

India dominates the denim production in the Asia Pacific region and the total capacity for denim fabric manufacturing in India is 1200 MMPA. About 65% to 70% of the total production is consumed locally.

India has about 32 denim fabric mills with manufacturing capacity ranging from 10 MMPA to 110 MMPA. Though the market is currently dominated by men’s wear, other segments are also catching up fast. A huge chunk of denim consumption in the Tier II and III cities is accounted for by unbranded denims. However, as market penetration increases and disposable incomes rise in the semi-urban and rural areas, the general demand is expected to shift towards premium quality products and thereby, branded denims may occupy a higher share in the market in the years to come.

Quite a few yarn manufacturers have come up with innovative solutions to bring in a fresh change to this otherwise static industry. This has led to the introduction of new varieties of denims such as blended cotton yarn and biodegradable yarn made from wood pulp to attribute unique properties like softness, flexibility, and comfort in denim wear. Due to the changing dynamics of the products, the denim industry continues to remain an evergreen fashion favourite among the youth.

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