Chennai: Exports cancelled, leather industry gets the boot

At the end of last year Balachander M A M, a Chennai-based manufacturer and exporter of leather shoes and shoe uppers was gearing up for a new dawn in his business. The CEO and partner of Winner Overseas, supplying predominantly to Germans, was in discussion with an American buyer, who had reached out to him to find an alternative sourcing base to China.
A couple of months later, when Balachander was busy applying for a US visa, the news of the novel coronavirus broke. “Suddenly, we had cancellation of orders. The situation was inevitable. They have sent word that they are keen to source much more from India than earlier as they do not want to depend on China,” said Balachander. “But we don’t know when things will become normal. Even when it does, it is not easy to wriggle out of the Chinese grip,” he said, taking into account the unpredictability that surrounds international trade.
In 2018-19, exports of the Indian leather industry amounted to $5.69 billion, but the uncertainty over Covid-19 is expected to have led to a sharp decline in the business. “Our exports stood at $5.69 billion last year. Estimates show that we have so far achieved around $4.34 billion this fiscal and we need to catch up with another $1.4 billion to touch last year’s numbers. We are awaiting final numbers for this fiscal to figure out actual exports,” said R Selvam, executive director, Council For Leather Exports.
South India accounts for nearly one-third of the leather manufacturing units. The predominance of the south in the industry also stems from the fact that the Council for Leather Exports, the industry body for leather, is based in Chennai. Within south India, Tamil Nadu plays a significant role with the Ranipet-Visharam-Vellore-Ambur- Vaniyambadi belt on the Chennai- Bengaluru National Highway being a hub for the industry and as an employment option for rural folk. Across India, the industry, with 3,400 manufacturers and merchandise exporters, employs around 4.4 million people.
The slump in business is across the country. The past couple of weeks have left Delhi-based Gautam Nair, an exporter of apparel and leather accessories, bewildered. As some of the international brands have cancelled orders with large retail chains in the US and Europe, work in his factories in Gurgaon and Ranchi, employing more than 8,000 workers, has come to a standstill due to the 21-day lockdown.
“This is unprecedented. We make customised products for international brands. Due to the shutdown, retail stores have cancelled orders. Customised products have a short shelf-life, as they are made for a particular season. While some clients are understanding, others are ruthless. If we try to sell customised products to others, we may not get 20% of its value and this is going to impact the industry,” says Nair, managing director, Matrix Clothing and CEO, Tangerine Designs. His companies supply to international brands like Superdry, Banana Republic and Michael Kors.
For Mumbai-based Naresh Bhasin, CEO of Ram Fashion Exports and CLE western region chairman, the challenge is different. His company makes leather footwear for international brands besides exporting its own label ‘Feet First’. The company also imports international brands like Hush Puppies and sells it through Reliance Retail and Future Group here. “The cancellation of orders is happening on two fronts — overseas buyers as well as domestic chains,” says Bhasin.
Kolkata-based leather goods exporter Ramesh Kumar Juneja of J C International has been both ecstatic and distressed in the past few days. “The supply chain got disrupted when the first signs of Covid-19 began making the headlines in China. We have been importing zippers, buckles and linings from that country.
Soon, our orders from overseas increased as China could not supply. But after the virus spread in India, overseas buyers have put our orders on hold as well,” says Juneja.
“While our payments for goods shipped are not being processed, we have to pay our workers,” he said.
CLE chairman P Aqeel Ahmed said overseas buyers have cancelled orders to the tune of $1 billion over the past few days.
“Buyers from major markets like Italy, Germany, Spain, France, the UK and the USA, accounting for 65% of Indian leather exports, are asking to stop shipments of completed orders. This has pushed our industry into a deep crisis,” he said.
The crisis is likely to last beyond the 21-day lockdown, say industry observers. “With the supply chain cut off and orders being cancelled, production too will be affected after the 21-day lockdown. With liquidity crunch and no production, the government cannot ask us to pay salaries to our workers when we don’t know when this problem is going to end,” said a leather goods exporter.