Swedish fashion retailer H&M’s decision to phase out production of garment factories from Myanmar has put the spotlight on neighbouring markets such as India that has been inviting global retailers to source more from the country.
Hennes & Mauritz AB or H&M Group said on Thursday that it would phase out production in Myanmar after instances of labour abuse came to light at some garment factories in the country, according to Reuters. H&M will follow peer Zara, whose parent Inditex said earlier that it was phasing out purchases from the South East Asian country.
Fast-fashion brands such as Zara and H&M, say retail experts, source about 10-15% of their apparel requirements from Myanmar. Experts say that these global brands may have to find alternatives within the Asian region for their sourcing needs, given that it has traditionally been a critical part of their global sourcing operations.
Besides Myanmar, apparel and fast-fashion brands also source from markets such as Bangladesh, China, Vietnam, Thailand, Cambodia, Indonesia, Sri Lanka and India owing to availability of labour, a large base of small, medium and large garment manufacturers, favourable policy and affordable cost of production.
Of the Asian countries, India, say some experts, accounts for just about 3-5% of sourcing by foreign brands, though there is potential for growth.
Rahul Mehta, president of the Clothing Manufacturers Association of India (CMAI), an apex body of apparel makers in the country, says that while India is no longer a low-cost apparel manufacturing hub like Bangladesh, it is still a large domestic market, which is hard to resist for global brands.
“Global majors are looking to increase their local sourcing and manufacturing needs from India than they did earlier. One reason for this is the increasing unease and wariness they feel in some South East Asian countries owing to the geopolitical situation there and growing labour abuse issues. The need for local sourcing is also tied to their local ambitions,” he says.
While India exports around $16 billion worth of apparels, and is the fourth-ranked apparel exporter in the world after China, Bangladesh and Vietnam, the domestic market for apparels is five to six times the export market at about $80-100 billion, according to estimates by Wazir Advisors, a retail consultancy based in Gurugram.
Both foreign and Indian brands, the consultancy says, have been increasing their manufacturing in the country as they look to keep price points down. For instance, fast fashion brand Uniqlo India’s CEO Tomohiko Sei said this week that the company was on track to achieve 30% domestic sourcing, as per the current FDI policy for single-brand retail.
Under the current norms, 100% FDI is permitted in single-brand retail trade with a rider of 30% mandatory local sourcing to promote micro, small & medium enterprises (MSMEs).
The Japanese retailer currently works with 17 sewing factories and six fabric mills in India and may increase this number in the future as it expands its presence in the country. The company is expanding its offline presence with two new stores in Mumbai, which will take it overall store count to 12 in the country by the end of 2023 calendar year.
H&M India, on the other hand, has said that it will add six more stores in the current calendar year and will take it total store count to 57 from 51 outlets at the moment. The company’s country sales manager Yanira Ramirez said that India was a growth market for H&M and that it was looking to scale up both online and offline operations as part of its larger omni-channel strategy in the country.
Zara, meanwhile, has retained a more calibrated approach to store openings in India, with about 20 outlets in the country. Yet, the brand remains the most successful of the fast-fashion brands in India, with sales of Rs 2,562.50 crore in FY23, a year-on-year growth of 40.42%, according to Indian joint venture partner Trent’s latest annual report. Zara’s profit in India was up 77.66% YoY to Rs 264.30 crore for the financial year ended on March 31, 2023, Trent’s annual report said.
While Uniqlo India and H&M India are yet to disclose their FY23 numbers, for FY22, the latter (H&M India) posted revenue of Rs 2,115.18 crore, up 49% from a year ago, while its profit rose to Rs 25.29 crore, according to data by business intelligence platform Tofler.
Uniqlo India, meanwhile, posted revenue of Rs 391.7 crore in FY22, up by nearly 64% compared to the previous fiscal. The company posted a net profit of Rs 21.5 crore in FY22 for the first time since it began operations in 2019, according to data sourced from Tofler.