What comes to mind when we talk about imported leather goods? Coach bags, Gucci shoes and Burberry jackets, isn’t it? Although European and American brands have won the perception battle, when it comes to India’s leather goods imports, it’s all about the mass produced, low-priced varieties made in China. And this, implies an all-weather opportunity to Indian importers!
Vanita Peter D’souza | The Dollar Business
Most of us love bags, watches and jackets. And our love for them multiply manifold, if they are made of leather. What if they are imported as well? That would be the icing on the cake, isn’t it? Not really. Although difficult to believe, the fact is that the per unit price of India’s leather goods imports is over 40% lower than that of leather goods exports! This, despite India itself being the world’s fourth biggest exporter of leather goods.
Class versus mass
Like most things in life, the world of leather goods is also divided between the classes and the masses – Italy and France being the source of choice for the classes and China being the same for the masses. And given the demographics, India’s ‘mass’ imports dwarf its ‘class’ imports by a country mile – in FY2014, combined value of leather goods imports from Italy and France was not even a fifth of that from China. Explaining the reasons for this to The Dollar Business, Neeta Bulchandani, Creative Director, Bulchee, said, “There is no synchronised market for such products in India. The pricing of these European brands is very high. It does not cater to the average Indian consumer. There is a very small niche market for these brands.”
But aren’t Chinese products of poor quality? Well, both yes and no, at least that’s what Harkirat Singh, Managing Director, Woodland India, thinks. Explaining the real reasons for China, at least in India, becoming synonymous with poor quality products, Singh told The Dollar Business, “When the market opened up, people thronged to China to import goods. They had just one thing in mind – getting the product at a cheaper price. So, if you ask for very cheap products, the manufacturer has no choice but compromise on the quality of the raw material. Breaking the myth around Chinese goods further, Singh said, “Factories in China cater to almost all the top brands in the world. Almost 90% of sport shoes of brands like Nike and Adidas are ‘Made in China’. Even Apple’s products are manufactured in China. So, it is not that they cannot manufacture good quality stuff. What matters is where you source your products from. It depends on what you are looking for and what price you are ready to pay for it.”
Tectonic shift
The Indian leather goods industry has gone through a lot of changes over the last decade. While exports have risen at a CAGR of 8.9% (from $999.9 million in FY2004 to $2,354.5 million in FY2014), imports have exploded at a CAGR of 35.6% (from just $13.3 million in FY2004 to $278.7 million in FY2014). Similarly, although a decade back, in FY2005, the average per unit price of imported leather goods was higher than that of exported leather goods ($4.5 versus $4.2), in FY2014 it was way lower ($4.4 versus $7.4). This means that although we are importing much more than what we were importing a decade back, we have moved from importing higher value items to importing lower value items. And the reasons for this are two pronged – (a) in India, leather goods imports are subjected to a countervailing duty of 12% (6% for leather gloves); and (b) brands like Woodland have started offering high quality products, manufactured in India, to the country’s upmarket, quality conscious buyers. Speaking about this, Singh said, “Our stores are normally located in metro cities, primarily on a high street road or good malls. Pricing has never been an issue, but we do have price brackets, which is different at a store in Vasant Kunj, New Delhi, from that at a store in Meerut or any other smaller town.”
For Aam Aadmi
With the affluent and the upper-middle class gone into the pockets of companies like Woodland, lower-value imported leather goods have found their way to the middle and lower-middle classes. Just spend a couple of hours at Palika Bazaar in New Delhi or at any of the hordes of shops in Sion-Dharavi in Mumbai, and you could buy a Gucci lookalike jacket or a Woodland lookalike pair of gloves, all ‘Made in China’ at less than 10% of what the branded products would be selling at. Buy and use the products and you would be surprised by their quality. If imported ≠ good, then cheap ≠ bad.
Considering that owning anything imported is still a matter of great pride in India, coupled with the fact that affordability hasn’t really kept pace with rising urbanisation and aspirations (and, not to say, that leather goods manufacturers in India are not likely to have it easy under the new government), leather is certainly a product, the value of imports of which are bound to keep heading northwards in the foreseeable future. So, are you ready to import some leather?
“Most Asia-pacific countries import from China” - Anushree Tainwala, Director - Marketing, Samsonite South Asia Pvt. Ltd.
TDB: Does Samsonite import all its products or are some of them manufactured in India?
Anushree Tainwala (AT): We sell wallets that are manufactured in India, whereas our business range of leather bags and luggage are imported from China and Italy.
TDB: When it comes to leather goods, the perception is that imported means better quality. What’s your view on this?
AT: Italy and France’s expertise in leather products has led to this perception. Their quality of workmanship is better.
TDB: China is the biggest source of India’s leather goods imports. What makes our neighbour such an attractive source?
AT: The major reasons for China’s attractiveness are (a) technical knowhow in manufacturing leather goods; (b) minimal lead time in manufacturing; and (c) good detailing/finesse of the workmanship. It’s not just us, but most Asia-Pacific countries import a lot from China. Moreover, in India, we do not have the expertise to manufacture leather travel bags. So, we import from China.
TDB: Countries like Italy and France are home to some of the world’s biggest brands. However, India’s leather goods imports from these countries are minimal. What do you think is the reason?
AT: Leather goods manufactured in Italy and France are much more expensive than those manufactured in India and China. Hence, imports from there are limited to high-end luxury products. Another reason for this is the attempt to encourage the local market/ trade.
TDB: There were fears that once the Modi government takes over, India’s leather trade will get affected. Have things changed on the ground?
AT: No, not much. In fact, we expect things to improve because of the ‘Make in India’ campaign. Having said that, in our case, leather accounts for very little and does not impact the overall business in a big way.
TDB: Leather goods imports are subjected to countervailing duties in India. Don’t you think this is an attempt to protect domestic manufacturers?
AT: Yes. India promotes domestic manufacturing, without becoming protectionist. This will also help the ‘Make in India’ initiative.
“India doesn’t have the facilities to manufacture certain products” - Harkirat Singh, MD, Woodland India
TDB: What kind of leather products does Woodland import?
Harkirat Singh (HS): We are an outdoor brand, so we import footwear and apparel. We also outsource the manufacturing of a few products. But that is mostly a function of the kind of facilities and quality available locally. Sourcing a product in India is much easier, faster and, hence, more convenient. It also attracts lesser duties and other hassles. We go ahead with imports only when we feel some products cannot be manufactured in India as per Woodland’s standards.
TDB: Which countries do you source your products from?
HS: China is the biggest source. Then there are countries like Bangladesh for apparel and Vietnam for footwear.
TDB: There is a perception that imported leather is superior in quality as compared to that produced in India. How true is this?
HS: Certain varieties of leather, like the ones from sheep and goat, are best produced in India. When it comes to cow leather or heavier hides, imported ones are better. This is because the animals here are not very healthy. The meat industry is much bigger in US and Europe. Hence, they have proper slaughter houses. The recovery of leather there is much better. In India, there are only a few slaughter houses. Leather that is sourced from local villages is not well kept. So, in between sourcing the hides and finishing it, the leather deteriorates. It is a perishable product.
TDB: Leather goods imports are subjected to countervailing duties in India. Don’t you think this is just an attempt to protect domestic manufacturers?
HS: Yes, countervailing duties do have an impact. If you talk about footwear, the duty is calculated on the retail price. Brands like us have to declare the selling price of the product and duty, which is pretty high, is then levied accordingly. Similarly, duties on products like garments are also quite high. One has to pay certain slab duties. So, it is definitely there to protect the domestic market. But it only levels the playing field, since manufacturing in India is at par with the best and we can offer good prices.
Even if the duties are reduced, I will always prefer to source locally. It saves the time and effort spent on importing. Sourcing locally also helps us to better check quality. Nevertheless, for special products – technical products like jackets that are waterproof and shoes that are high fashion – wherein we don’t have facilities in India, I have to import. And if I have to import, then I am obliged to pay the duty.
TDB: In FY2014, over 75% of Indian leather goods imports were from China. What makes China such an attractive source of leather goods?
HS: When it comes to mass volumes, China, I think, has an advantage because of its manufacturing policy. Their factories are huge. They have trained manpower, who can handle high scale production. In India, manpower is still not very organised. We can’t have very large factories. People tend to have problems with large factories. The mindset is just not there for large factories, especially when it comes to garments and footwear.
TDB: India’s leather goods imports from countries like Italy that is home to some of the biggest brands are minimal. Why do you think is this the case?
HS: Italy has its own charm, because designs originate from Italy. They are the creators of designs. They have been the pioneers in the footwear and the garment industries. Italy is synonymous with very high fashion and high quality products. But for it, manufacturing in volumes is a problem because of high labour cost. Even raw material is very expensive there. So, they only manufacture for top luxury brands, where ‘Made in Italy’ logo adds value and price is not a criteria.
TDB:There were fears that once the new government takes over, India’s leather trade will get affected. Is it really the case?
HS: When it comes to sourcing leather, India always had an advantage over China. India has abundant leather and that’s our strength. People look at China only for synthetic material. Even large buyers like Walmart buy leather from India and synthetics from China. But we need to find some way to create a source. The government has banned beef in states like Maharashtra, which will impact supply. Buffalo is a big source of raw hide and I think the ban will be a problem. The only way out would be importing from neighbouring countries.
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