Home textiles: E-commerce causes major disruption

Home textiles: E-commerce causes major disruption

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India’s home textile exporters are still in search of good news from abroad which has remained elusive form them since last two years. Latest exports figures available do not augur well for the sector at all. Indian home textile makers may have to rework their strategy and even explore new markets to keep the business going and growing.

If the first six months exports during the current calendar year is any indication, year 2018 will be worse than the previous year for our home textile exporters. Warning bell has already started ringing with India’s market share in total home textile exports to the US declining two percentage points during the first six months of the current calendar year. In June 2018, India’s market share in home textile exports to the US (which includes all sub-categories) declined 5 percentage points to 29%. In the same month, India’s market share in cotton sheet exports to the US (in USD terms) increased 2 percentage points YoY (Year on Year) to 49%, while market share in terry towels declined significantly by 13 percentage points YoY to 33% which is a very dangerous signal for the industry. One could derive partial solace from the fact that 2017 June was an exceptional month in terms of performance and can be considered as an aberration.

Though in Jun 2018, India’s cotton sheet market share (USD terms) increased 2 percentage points YoY to 49%, the market share has actually declined by 1 percentage points during the first 6 months of 2018. At the same time China gained 1 percentage points YoY market share to 26%, while Pakistan’s share remained flat YoY at 17%.

What is interesting to note is that poor performance is mainly restricted to Indian exporters while other exporting countries are either gaining in market share or holding on to their existing market share. For example, in the first six months, while market share of Indian terry towels declined by 3 percentage points, China and Pakistan gained 9 & 2 percentage points in market share, respectively, during the same period. So, it appears that India’s loss is our neighbour’s gain. 

One of the main reasons for poor US demand for hometextile is the consistent de-stocking by the US importers during last few quarters. De-stocking which pulled down our exports of home textiles to USA last year continued to remain the main reason this year too. De-stocking is taking place due to the shift that is happening from offline to online and so this process was significantly accelerated last year and continued this year too. Inventory de-stocking is a general phenomenon, but is more pronounced in bath products than the bed-sheets. Though the exact volume of online sales is not available, it is estimated that the online percentage of the total sales is now between 25% and 30% of the key products. As part of the market share which has moved from offline to the online space there have been inventory adjustments leading to de-stocking. Initially, it was believed that de-stocking is a short-term phenomenon but the trend continues to haunt Indian exporters in 2018 also.

India’s first six months’ exports of terry towels to the US decreased significantly by 16.5% YoY to USD 326mn. At the same time, world terry towel exports to the US saw a decline of 8.4%. However, decrease in volume is partially offset by a 2.4% YoY increase in realisations. Similarly, during first six months, India’s exports of cotton sheets to the US (in USD terms) declined 7.2% YoY to USD 330mn. On the other hand, world cotton sheet exports to the US declined by just 5%. Thus, shift from offline to online has caused market disruption in the home textiles industry in the USA which may soon be followed in other countries too, including India.

However, shift from offline to online will not only impact the quantity of exports but also may change the sourcing country too.  Online sellers usually prefer to source product from close to the markets where they are selling. So, generally most of the smaller players actually tend to bring product from Turkey, Portugal, some of them actually buy within the US. For them it’s not about making profits initially, but they are more interested in gaining market share and get the top-line ticking. They prefer shorter lead times, smaller runs, and smaller quantities. So, in the early stages, it is likely to come from closer to their market but as individual players grow and become sizable they will start sourcing from their traditional sourcing hubs like India, Pakistan, China and Bangladesh. In other words, whatever market share has been lost may not be regained immediately but may happen over a period of time.

In addition to this problem, home textile makers are also faced with the problem of increasing cotton prices. Domestic cotton prices have increased nearly 19% since January this year to Rs 134/kg currently. However, cotton inventory held by the home textile makers for consumption up to the beginning of new season, that is, October, may provide partial relief from the increasing cotton price. Home textile makers are hoping that the new season will start on a softer note for cotton prices.

However, USDA projections indicate that global cotton production would decline by 2.4% to 26.2mn tons for 2018-19. Global consumption is estimated to increase 4% to 27.8mn tons, resulting in global cotton deficit of 1.5mn tons. If the cotton production in India follows global trend, then cotton prices may remain at elevated levels in the new season too much to the discomfort of domestic home textiles industry.