US de-stocking affects hometextile exports-min
Calendar Year 2017 is one of the forgettable years for the Indian hometextile exporters. In 2017, India’s market share in home textile exports to the US (sum of all products) remained flat at 33%. While India’s market share, in USD terms, in cotton sheets increased one percentage point to 50% in CY 17, there was 1% point decline in terry towels exports to the US (in USD terms) during the same period. India’s terry towel exports to the US declined to 39% in the just concluded year. It should be noted that India has been consistently gaining a 1% point market share in cotton sheets each year since CY12.
It is not just Indian exporters who faced subdued demand conditions in USA but other exporting countries too fared poorly in export of hometextiles. For example, China’s market share in cotton sheets decreased 2% points YoY to 20%, while Pakistan’s share remained flat YoY at 16%.
However, in case of terry towel exports alarm bells have started ringing. While the decline in market share of terry towels in whole of 2017 was just 1% point, in December 2017 the decline was steeper at 8% points. On the other hand, China’s market share in terry towels increased 1% point YoY to 24%. At the same time Pakistan lost 1% point YoY market share to 21%.
Closer scrutiny of exports of cotton sheets to the US reveal that in CY17, exports of cotton sheets to the US (in USD terms) increased 1.9% YoY to USD 717mn (vs. a 0.3% decline in world cotton sheet exports to the US), led by a 2.9% rise in volumes, partially offset by a 0.9% decline in realisation. This eventually led to a 1% point increase in India’s market share in cotton sheets in CY17. On the other hand, India’s exports of terry towels to the US increased 1.4% YoY to USD 642mn (vs a 4.2% rise in world terry towel exports to the US), driven by an 6% YoY increase in volumes, partially offset by a 4.4% YoY decrease in realisations.
One of the main reasons for poor US demand for hometextiles is the consistent de-stocking by the US importers during last few quarters. “This year we are seeing a marked level of de-stocking that particularly all our American customers are doing and this is on the back of the shift that is happening from offline to online and so this process was significantly accelerated this year,” says the director of a leading hometextile exporting company of India. 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. According to them, this de-stocking is a short term phenomenon and US importers would start re-stocking in the next couple of months.
However, there is a word of caution from a leading exporter of hometextiles from India. 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. What the hometextile exporters are hoping for is that atleast the slide (which is happening since last 2-3 quarters) is aborted soon.
Some danger signs are visible in the form of countries like Turkey and Portugal gaining couple of points in market share over the last couple of years. What is even more significant is that this gain in market share is happening at the middle to the upper-end of the market.
Another worrying point for the hometextile exporters is the lower inventory level requirement for the buyers due to automation in the supply chain which has consequently become more efficient. As a result whenever inventory re-stocking happens, it will happen for lesser quantity than before. To that extent, hometextile exports fear, demand will be lesser.
In the mean time, volatile cotton prices and rupee value vis-a-vis USD are also adding to the cup of woes of Indian exporters. Due to multiple uncertainties prevailing in the US market, some exporters have started making concerted efforts to gain a foothold in domestic market. Also, accessing new markets like Australia and Japan are the other strategies followed by the exporters.