India can become a manufacturing destination to the world in the post-COVID world: Kulin Lalbhai, Arvind Limited

Lalit Agrawal, Chairman and Managing Director, V-Mart; Sandeep Kataria, CEO, Bata India Limited; and Kulin Lalbhai, Executive Director, Arvind Limited; talks about the impact of lockdown on their business, current ground situation, expansion plans and strategy to achieve it in the post-COVID world during a joint interview with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: Your business model always remains very tight and you have a strong presence in rural India. What is the ground situation and how lockdown has impacted your business? What is your way forward?

Lalit Agrawal: COVID has a tremendous impact. The lockdown was implemented very well by people and was equally effective in small places as well as big cities. Almost all of our shops, leaving 3-4, have remained closed for 50 days of the 60 days. But on an average 30 shops were opened in the last seven days and now it seems that about 50% of stores will be opened from tomorrow. Recovery is coming and permission is being given to open stores at many places and many authorities are reading themselves for the purpose. Still, there is much confusion at the District Magistrate level like how to open essential and non-essential shops, how many days they should be opened and for what time. At the same time, they are facing problem in differentiating a mall and standalone shop as well as big and small shops. So that clarity is coming and we are having discussions with the government as well as local administration levels. The markets have started opening and customers are also coming to shop that they need. However, the impact has been a considerable one in the last 60 days and revenue was almost negligible in this period. But, I think that the impact will reduce from here and expect that by next month our revenue will reach 40% mark of the last year.

Q: Bata is a big brand and have several stores all over the country. Let us know the situation of your business right now in terms of a number of stores that are being opened and the impact of lockdown on your business?

Sandeep Kataria: The stores have started opening since last week and it is likely to speed up this week. We were able to open 400 stores of hi-street last week but the problem is that they are not opening for a complete week. Few stores were opened for two days and while others were open for five days and that to for limited hours in accordance with the decisions taken by the local authorities. Hopefully, we will be able to open more stores this week and reach the mark of 700 stores by the end of the week.       

Q: Manufacturing has started to a good extent and what is your on-ground situation? Also, are you facing the dearth of labours, if yes, then how are you dealing with it?

Kulin Lalbhai: Manufacturing was started at the end of April and start of May and I think we faced certain challenges related to labours at the start. But if seen now, then most manufacturing has reached the mark of just 30-40% till date due to the absence of domestic demand. That’s why we are not facing challenges in terms of supply

Therefore, there is not much challenge related to supply right now, it is less in regard to labour availability but we are facing challenges related to demand. As Lalit and Sandeep have said, the opening of the economy will be a very important step. I think the demand will go up as soon as the concept of safe shopping gets into the mind of the consumers. Many of the hi-streets have been opened and I think the decision to open the hi-streets taken in Lockdown 4.0 is a good decision. But our business is an apparel business and in this case, 40% demand for branded apparel comes from the malls.

So, I think opening the malls safely will be an important step and new orders for manufacturing will come only after the revival of the actual demand. So, I hope that the malls will be opened in the same manner as the lockdown is being opened gradually. The domestic orders are likely to start coming in from the month of June.

Q: Update us about the inventory levels, which would have piled up due to the closure of stores amid lockdown, and how they will be disposed of or liquidated? Also, talk about the segment where demand is seen?

Lalit Agrawal: There is a change in customers’ behaviour is changing and will change. Corona has changed almost everything. Then how people will think, the difference at the income level will be created as many will lose their jobs; many big businesses will reduce and turn small, thus everyone will have to reduce their expenses. ‘Live with Less’ is a new jargon in which you will live less, i.e. you will have to live by spending less, wearing less and desiring less.

Going forward, we will have to focus on customer needs because will like to buy things/products they need and not as per his desire. Youngsters will like to buy a particular fashion or assortment that he needs. Actually, the customers will like to create little more value for his money so that he can buy more in the same, which means he will go for something cheaper or good and effective product. So, the inventory that is available with us was taken for normal circumstances and future business and we have lost a lot of it as they were for spring and summers and that’s why we can’t provide deep discounts on that inventory as we have invested a lot on it and haven’t received any income from it. But there is a need to tempt the customers and provide some incentives to promote family shopping environment to make sure that they come to the stores and buy the products but we will not be able to provide any steep/ deep discounts. And, we retailers have decided to not offer deep discounts and save our inventory because the world including India was under lockdown due to which new designs and styles were not created or are not out. Thus, we can sell these designs among the customers and manage our inventory. We will place new orders after waiting for some time and make sure that the orders are released at the last moment as we are not aware when the second wave of corona will come creating a situation where a new phase of lockdown is enforced. So, we will have to keep it in our mind while planning the demand and manage our order. We will have to cater to our supply chains and keep our vendors ready.  

Q: Talk about the inventory level available with Bata and how will you deal with it? Do you think that the company’s expansion and new product plans created in the pre-COVID world will be stopped for a time being and what is the strategy for the Indian market?

Sandeep Kataria: I think the revival that you will see after we are reopening can be divided into three parts (i) Revive, (ii) revitalize and (iii) thrive. Right now, we are in the revive phase and the most important aspect at this juncture is to gain back the trust of our consumers and give them confidence that you are safe and we will take complete care of yours. As we don’t have that chance that’s why we are looking at all 24 points, in which the stores are sanitized completely and our team should be safe, their checklist, Aarogya Setu and PPE should be available completely. As far as ending the inventory is concerned then we all have agreed, as Mr Lalit has said, that we do not want to invite too many customers in a big way by launching end-of-season sales and others. We don’t want it. We need to be responsible here, we need to be able to cater to people for their necessities. Lets things start slowly. The next phase will come and things will be revitalized when new designs will be out and surely thrive phase will come by the second half of the year. We will thrive when the festival season will come and that will be the right time to bring in the new designs.

Q: How the credit cycle looks like and what impact it had on receivables? As a big textile major are you seeing at some new opportunities to venture out in new things?

Kulin Lalbhai: First of all, I would like to talk about the domestic market and the credit cycle block, where the cash cycle has stopped. It should be solved first as manufacturing cannot be revived completely until and unless the cash flow is revitalized. That’s why the only hope is that there is an increase in the credit availability to retail from the credit cycle of the bank. The package announced for the MSME hasn’t moved to the retail yet because retailers are not part of the MSME. There are big retailers who place their orders to MSMEs who work with them. So, some credit will come to the manufacturing segment because of the financial package. Similarly, there is a need to increase credit availability in the retail segment. Retailers will be able to place new orders to the manufacturing units only if they have credit availability. I think demand is increasing and it will go.

Parallel to it, if there is an increase in the credit availability and credit disbursal of the retail segment then it will bring a cross-multiplier impact on demand, which in return will increase the domestic demand for manufacturing. Coming to your question on exports, I think it is a great opportunity for India as the world is completely dependent on China for PPEs and masks. And, India in just two months has shown its ability installing an ability to produce 3 lakh per day PPE bodysuit and Arvind was one of the central players in creating this whole supply chain. So, I think, the time by which India will be self-sufficient for PPEs and masks, and then India can become a manufacturing destination for the world.

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This is the best example of India for being self-reliant. India has installed a completely new industry of international standards in just 2 months. So, whenever exports will be opened then it will be a great opportunity for India.