Homesick Goods

Reverse Flow

• Lower overseas profits and the lure of India’s growing retail segment are causing exporters to consider the domestic market
• Textiles, apparel, leather, handicrafts, gems and jewellery are some key segments where exporters are shifting tack
• Exporters are finding it tough to handle Indian retail practices of limited buyer network, absence of proper payment schedules

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It all began in 2006, when the tax holiday on export income was phased out. Then came the distinct cooling in the overseas market, coupled with the growing retail segment at home. “Across segments, exporters are looking at the domestic markets, helped by the ability to distribute products in an organised fashion in the top 8-15 towns,” says Raghu Pillai, CEO, Future Value Retail.

“Till 2008, we were only exporting. When the tax holiday ended and the global crisis pushed down profits, we decided to divert to domestic markets,” says Rajan Hinduja, MD, Gokaldas Exports, the largest exporter of readymade garments. Currently, 12 per cent of Gokaldas’s turnover comes from the domestic market and is expected to reach 20 per cent within a year.

While much of the action has focused on garments—early birds include Himatsingka Seide, which set up exclusive furnishing and fashion fabric showrooms and Tirupur-based Royal Classic Group’s chain of Classic Polo stores—other segments haven’t lagged behind. Like Rajesh Exports, which launched Laabh Jewellers in 2007. In fact, Sanjay Kothari, vice chairman, Gems and Jewellery Export Promotion Council, calls domestic demand the “lifesaver for many diamond exporters”.

Similarly, about 50 big leather exporters are currently supplying 10-50 per cent of their products to major Indian outlets. “In the next two years, the Indian market will offer great advantage for exporters,” avers Habib Hussain, chairman, Council for Leather Exports. Handicrafts is another area that’s banking on revival in malls and retail activity to build on the capacity many manufacturer-exporters have created. As Arvind Singhal of retail consultancy firm Technopak puts it, exporters are not looking at “switching but see India as another major market to expand operations”.

Not all exporters paint a rosy picture of doing business in India. The fact that the Indian retail sector does not follow global practices of prompt payments deters many. Used to payments within fixed time schedules, exporters find it tough to handle the Indian retail practice of approaching different suppliers, endless deferment of payment for supplies and returning unsold goods. The slowdown in commercial property development and lack of organised buyers also forced many exporters to restrategise.

So, some may have opened their own outlets or created shop-within-shop modules, but others are going slow. “The customer, market and brands are still to mature, so lots of exporters have begun to redefine their strategies,” says Amit Rai, CEO, S. Oliver Fashion India. Rai reveals that it took three years of understanding the Indian retail sector for Orient Craft to decide to enter the field through the JV with the German clothier.

Despite the domestic market being good, A. Sakthivel, president, Federation of Indian Export Organisations, points out that volumes are huge in exports, while the Indian retail market is fragmented. But even as exports look healthy again, expect recession-scarred exporters to hedge their bets domestically.