As the UK finally begins to move out of lockdown, wholesalers and retailers are surveying the cost of the coronavirus pandemic and working hard to learn the lessons of the crisis. Not least, many firms have suffered serious supply chain disruption and are now keen to build more diversified models that will provide greater resilience in the future. India in particular offers attractive opportunities in this regard.
It’s important to point out that the pandemic has not affected wholesalers and retailers uniformly. Some businesses have enjoyed record sales as consumers have stocked up on essentials and adjusted to new ways of life; household goods, computing and the games and toys market are all good examples. The channel mix has also changed, with online sales soaring as shops have been closed; ecommerce now accounts for around 30% of total retail sales, up from 18% prior to the crisis.
In other cases, the impact of the crisis has been significant and polarising - in fashion, high-street retailers lacking online presence have seen revenues diminish as non-essential retail stores closed. Meanwhile, online players have been able to increase their demand from consumers unable to visit bricks and mortar stores.
Supply chains reconsidered
However, whether wholesalers and retailers have suffered or prospered at the hands of the pandemic, their supply chains have been disrupted. That disruption began even before coronavirus reached the UK, with suppliers in China forced to cease production early in the first quarter. And it has continued ever since as businesses have sought to manage inventory and distribution in the face of unprecedented shifts in demand.
Retailers closing outlets, for example, have had to cancel stock, implement force majeure clauses, and move to slower shipping. Many will have seen their supplier relationships suffer as a result. For those businesses seeking to service increasing demand, the challenge has been to ramp up sourcing during a period when many markets were not fully open and when international transport networks were under huge stresses.
In fact, many wholesalers and retailers were already rethinking their supply chain models even before the pandemic. Online fashion brands, for example, need quicker deliveries of smaller amounts of stocks. Some have been onshoring to meet that need and the UK’s fashion manufacturing sector has been increasing in size, though it still needs to import fabrics.
Across the industry, then, coronavirus has accelerated the trend towards supply chain transformation, with many businesses in the sector are now determined to diversify their supply chains. The crisis has exposed their over reliance on suppliers in China, and firms now recognise the vulnerabilities that flow from depending heavily on a single producer or country. They are also keen to build more contingency into their supply chains and move away from maintaining near zero inventories.
Part of this renewed focus on supply chain fragility is an acceptance that the resilience of tier-two and tier-three suppliers is crucial too. Some firms are looking at reshoring elements of their supply chain, while others are considering sourcing from new countries.
India stakes its claim
India is especially well placed to meet these needs. In contrast to Bangladesh, which suffers supply chain frictions, and Vietnam, where fabrics must still be imported (and labour costs are rising), India provides a one stop shop in categories such as fashion and homewares, from raw materials to the finished product.
In fact, India is a well-established supplier of textiles, fashion and homewares to the developed world, with annual exports of some $40bn a year (in addition to $100bn of domestic sales). The sector has strengths across the entire value chain and is well diversified across segments including traditional handloom products, handicrafts, wool and silk products and the organised textile industry.
India’s access to base supplies is a key strength, offering a point of competitive advantage over other large apparel exporting nations such as Vietnam, Cambodia, Bangladesh and China, which depend on it for raw materials. India is the world’s largest producer of both cotton and jute, and the second largest producer of polyester, silk and fibre.
The country’s labour market is also a differentiator. Although labour costs in India are around 30-35% higher than in Bangladesh, the workforce is regarded as more skilled. This is potentially important in areas such as high-value fashion, handicrafts and homewares.
Scale has been achieved courtesy of the country’s very sizeable domestic market, which in recent years has grown more quickly than its counterparts in regions and countries such as the United States, the European Union and Japan. The increasing disposable income of India’s middle classes and the growing sophistication of both consumers and the organised retail industry, including ecommerce continue to drive this growth.
For all these reasons, India is in a very strong position to serve a global customer base. Last year alone, Indian fashion and homewares exports to the UK totalled $3.5bn, including fashion apparel ($1.9bn), homewares ($860m), and shoes and leather products ($600m).
How can we help?
We already have strong relationships in India, including Supply Compass, which has offices in London and Mumbai and works with UK companies keen to source from India. While India has its own significant difficulties with coronavirus, some parts of the country are more adversely impacted than others and opportunities for trade are ongoing. Manufacturers hit by the crisis, moreover, are preparing to resume activities.
Supply chain finance could be a crucial part of the relationship for many UK wholesalers and retailers now looking to establish new supplier relationships in India. Such arrangements enable suppliers to secure payment from buyers in advance, with the buyer’s bank effectively taking on the liability to settle the bill and the risk against the supplier until their invoice has been settled.
We’re currently working on a supplier finance proposition targeted specifically at UK wholesalers and retailers. This includes homewares and fashion retailers, designed to provide transparency of payment, accelerate the speed at which these firms can begin doing business with new partners and secure the supply chain diversification they so badly need.
Santander’s Webinar on Wholesale & Retail Sector Supply Chains touched on diversification opportunities in India. Speakers include John Carroll, Head of International & Transaction Banking, Santander, Richard Lim, CEO of Retail Economics, Gus Bartholomew, Co- Founder, Supply Compass, Edward Dixon, Group COO and Managing Director, Sannam S4 and Deepak Mohindra, Editor-In-Chief, Apparel Online (India, Bangladesh and Vietnam). Listen to this webinar recording.