Fuelled by growing preference towards environment-friendly products, exports of cotton handbags from India has been witnessing a steady growth over the last few years. What’s intriguing though is that there are still not many brands that India can boast of in this product category. But, a little marketing push from the government can go a long way in creating several brands and boosting its export from the country.
Neha Dewan | September 2016 Issue | The Dollar Business
To an avid handbag aficionado, a stylish handbag made of suede or leather is the first attention-grabber. And that exemplifies the usual lack of consumer awareness towards cotton handbags in the domestic market. Mainly due to the lack of strong brand equity, cotton handbags so far haven’t been able to capture the consumer mind-share in India, let alone the consumer wallet share. However, what’s interesting is that India has been exporting over $100 million worth of cotton handbags over the last few years. And the growth story has been really promising in several markets away from India.
According to the data provided by the Cotton Textiles Export Promotion Council (Texprocil), the percentage share of exports of cotton handbags or shopping bags of cotton compared to handbags made of other materials is the highest among the lot – 58.70% in FY2016 as against 22.81% for jute hand bags, 17.17% for other materials and 1.30% in the case of handbags or shopping bags of artificial plastic material. Some of the top export markets for cotton handbags from India are USA, UK, Germany and Spain, with the first two countries accounting for about half of India’s exports of the product.
In FY2016, while USA imported cotton bags worth $30.42 million from India, UK and Germany clocked imports worth $23.08 million and $18.18 million, respectively. Other countries where India has made substantial exports of cotton handbags are France, Spain, Japan, Australia, Belgium, Italy, among others. Overall, exports of cotton bags from India grew at 6.2% y-o-y in FY2016 and industry experts expect this number to only go up, going forward.
Meanwhile, China has emerged as the leading exporters of cotton handbags exporting handbags worth over $1.3 billion annually (CY2015). On the other hand, India’s exports of the product stood at $126.31 million in FY2016. This obviously means that India needs to up its exports ante if it really wants to garner a larger market share. And there is definitely a huge scope for growth.
The demand for cotton handbags and exports opportunities are shaping up well for India in international markets. But, the sudden spurt in the domestic price of cotton due to drought have made the product uncompetitive in international markets in terms of pricing. The price of cotton surged by over 30% in May this year. And, according to experts, it is unlikely to decrease till the new crop arrives in October. Not to say, this price increase is squeezing the profit margin of the exporters significantly. Meanwhile, to address the situation, the government has imported 20,000 bales from Pakistan, with a landing cost which is lesser than the local price. Overall, India has so far imported about 1.2 million bales in CY2016 and it still requires an additional 400,000 bales before the arrival of the new crop. Exporters at the moment are absorbing the price-rise to remain competitive. But sacrificing the margin can’t continue for a long period.
Apart from the cotton price upsurge, logistics and infrastructural challenges are also preventing exporters from realising the true export potential of cotton handbags. “Logistics pose a big challenge today for us, especially when one compares the scenario with that of China. The handling and freight costs are quite high in India vis-à-vis China. In addition, the transit time is too long which leads to delays. The only way to get competitive advantages in the international market for us is to resolve these issues immediately,” says Dinesh Gupta, President, Sekawati Group of Companies, a Jaipur-based exporter of cotton handbags.
As per Gupta, China has been able to lower the freight cost due to high exports volume, which Indian exporters are yet to attain, hence they end up incurring higher freight costs. Moreover, congestion at seaports also adds to the transit time. Channelising
[The style quotient of cotton handbags and their usability in day-to-day functions have made them popular among Customers. ]
shipments through a dry port hasn’t made any significant difference either. “It takes nine weeks for a shipment to reach my client’s warehouse in US from my factory in Jaipur, whereas exporters in China are covering that distance within 3-4 weeks,” rues Gupta.
Exporters are also of the view that cotton handbag as a product category lack a strong promotional push from the government. Cotton handbags should be promoted more aggressively in international markets to increase India’s market share. According to Mamtaa Gupta, Director, Buzzaria, a multi-
brand retail store in Delhi, which houses various apparel and accessory brands and also exports cotton handbags to UK, the exports will take a quantum leap if there is more government support in marketing of the product in international markets. “Government support to market cotton bags internationally, especially to help exporters in participating in trade shows and fund sampling, is the need of the hour. It will also give a platform to young entrepreneurs to showcase their differentiated offerings. All these efforts can lead to enhanced visibility and benefit exporters who are trying to gain a strong foothold in overseas markets,” says Gupta.
It’s because of lack of promotion that no Indian brand has till now been able to dominate foreign markets in the cotton handbags segment, despite India being one of the leading exporters. Creating brands has remained a weak spot for India, not jut in this product category but across the entire textile value chain.
Typically, an exporter can command margins of about 10-15% in this trade. However, to expand the growth spectrum, experts feel, one has to improve manufacturing standards, add value-led features and design detailing such as embroidery elements, mirror work and contemporary elements to make the cotton handbags more appealing. “Initiatives like Skill India and government’s efforts to improve ease of doing business will provide the impetus to the Indian cotton handbags industry. The focus should be on exporting value-added cotton handbags to achieve sustained growth in export volumes,” says Siddhartha Rajagopal, Executive Director, Texprocil.
He believes that a true global presence for cotton handbags from India can be propelled by the ‘Make in India’ initiative apart from an increased focus on brand building by the exporters. “In addition, scaling up the operations in sync with global supply chain networks will definitely help,” adds Rajagopal.
As the Chinese government is in the process of reforming the country’s labour laws (which is likely to increase the production cost there), experts feel that India should intensify its manufacturing and promotional activities to enhance its stature in global market. While the passage of the GST bill should reduce transportation costs, the prices of cotton expected to drop with the new crop in October. If Indian exporters can add value to their products and differentiate their bags, this could be a great time to seize a share from Chinese exporters.
Dinesh Gupta President, Sekawati Group of Companies
TDB: How is your exports of cotton handbags growing?
Dinesh Gupta (DG): We are completely into exports and we have witnessed over 10% y-o-y increase in our sales this year. We are mainly exporting to USA, Canada, UK and Japan and we have plans to expand our exports to other countries in South Africa, Latin America and Europe.
TBD: What factors are behind the growing demand for cotton handbags?
DG: Cotton handbags are becoming extremely popular due to their eco-friendly nature. Women, in particular, prefer to go for cotton bags; they are ideal for day-to-day use and are economic. During my recent visit to Japan, I saw six out of ten women using cotton handbags – for me this is an encouraging sign.
TBD: Consumers are still attracted towards handbags made of leather more than cotton handbags. How do we catapult cotton handbags to the high-end product range in foreign markets?
DG: It is possible to make high-end bags using cotton which are at par with bags made from leather or other materials in terms of looks. And we can create a market for such luxury cotton handbags, as people will be more inclined to buy these environment-friendly bags.
TBD: How challenges is it for Indian exporters to compete with big handbag brands abroad?
DG: It is challenges to compete with big and established handbag brands. I think it is possible to compete with them if we create consumer awareness on the harmful effects of leather, vinyl and polyester bags on the environment. In fact, the big brands are also planning to come up with cotton handbags.
TBD: How do you view the government’s role in encouraging and promoting cotton handbags exports?
DG: The government should undertake some major initiatives to encourage Indian companies to export cotton handbags. First of all, the government should launch a comprehensive campaign to promote cotton handbags and create awareness among people, which will explain the benefit of using cotton handbags. Also, the government should offer support to the manufacturers who will then feel encouraged to boost exports.
TDB: India is one of the leading exporters of cotton products. Why do you think no Indian brand has been able to dominate the foreign markets in the cotton handbags category?
DG: This is because no one has seriously and aggressively tried to market cotton handbags under a brand name in foreign markets. The majority of Indian manufacturers make cotton handbags as per the requirements of their overseas bulk buyers, who procure these products to sell under their own brand name.
TBD: What kind of profit margins can an exporter expect in this trade? How can these margins be enhanced?
DG: Exporters can command profit margin of 10-15%, which is good. However, if Indian suppliers create and develop their own cotton handbags brands and promote them in overseas markets intelligently, they can earn a healthy profit. To increase margins, they can even enhance their overseas presence by opening offices in various strategic locations.
Siddhartha Rajagopal Executive Director, Texprocil
TDB: How can the demand for Indian cotton handbags be boosted abroad?
Siddhartha Rajagopal (SR): India is rich in its cotton heritage and the country is the world’s second largest producer of the white gold. The country takes pride in traditional skills in designing and skilled craftsmanship of the artisans in finishing. In my opinion, to boost the demand for Indian cotton bags in global markets, we have to undertake focused and specific publicity and promotional efforts by participating in some major international events, explore possibilities of establishing sourcing linkages between Indian suppliers and international brands, etc.
Texprocil has been facilitating group participation of its member companies in various exhibitions to showcase India’s strength in value added products. The Council rolls out special literature in multiple languages at the Indian pavilion as a part of the focused promotion of Indian companies and their products. Also, the Council’s website has an e-commerce facility under the section ‘Marketplace’ to help foreign importers connect to Indian exporters.
The government, in addition, has already extended support through schemes like Market Development Assistance and Market Access Initiatives. Policy measures, which treat home textiles at par with apparel for granting incentives for cut and sew process, would surely make the sector more competitive.
TDB: Despite holding the leadership position in the production and export of cotton textile products, India has no major brand with global presence in cotton handbags. What do you think is the reason?
SR: Cotton handbag is a ubiquitous accessory. In this era, cotton handbags are more about style than practicality. To secure a global presence in cotton handbags, along with leveraging ‘Make in India’, exporters need to increase their attention towards brand building and focus on value addition along with scaling up the operations in sync with the global value chain.
Exporters need to carefully analyse both the product and target market segments, which will eventually lead to better demand forecasting and targetted production. This would, in turn, create the much-required impetus for scaling
up operations.
TDB: What initiatives are required to create a conducive climate for production and export of cotton handbags?
SR: The need of the hour is to resolve some of the common infrastructural bottlenecks and reduce transaction costs which are detrimental to competitiveness in the entire textile value chain, which includes cotton handbags manufacturing and export. Higher inland transportation costs, embedded state levies and taxes, higher financing costs, escalating cost of power, etc. add to production overheads. Texprocil has been suggesting to focus on cheaper transportation means such as railways or coastal shipping for transporting goods, particularly raw material and intermediary products.
TDB: How impactful have been the initiatives like Skill India and ease-of-doing-business for the industry?
SR: Skill India will train a large number of womenfolk who can be involved in the production process and to add value to our cotton handbags. And, ease of doing business and single-window clearances will also help boost the micro, small and medium enterprises.
TDB: What are the logistics challenges cotton handbag exporters are currently facing and how can those be resolved?
SR: Cotton handbags are specialised products in nature. So, smaller order size on the supply side and low volume off-take on the demand side make it logistically challenging for a supplier to consolidate shipments to markets abroad at a competitive freight cost. By focusing on exporting value-added cotton handbags, it is possible to achieve sustained growth in export volumes.
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