Overcapacity in the Indian market and slack export markets have hit global denim giant Arvind Mills bulk fabric and branded garment sales, resulting in a pile-up of processed fabric estimated at Rs 125 crore.
Although a faxed message by the company denied any such slowdown in offtake, industry and trade sources maintained that as much as Rs 35-40 crore of fabric stock is lying with distributors across the country.
In addition, analysts tracking the company affirm that another Rs 15-18 crore worth of stock is stuck with converters (intermediaries who manufacture and distribute Ruf-n-Tuf jeans). Stocks of Newport jeans worth about Rs 30 crore are also reported to be lying with the company.
Since May 1997, Arvind has been hit by the slowdown in major export markets, particularly the US, where consumer preferences have shifted from denim to chinos, gabardine and other casual fabrics. In 1996-97, Arvind sold as much as 52 per cent of its 74 million metre output in export markets.
At the same time, the recent devaluation of currencies in Southeast Asia has affected Arvinds competitiveness. Says a vice-president with an Indian manufacturer-exporter, Manufacturers from Southeast Asian countries are today selling fabric for Rs 55 per metre, which Arvind typically sold for Rs 105-95 per metre.
In the domestic market too, Arvinds two readymade best-selling brands, Ruf-and-Tuf and Newport, have run into rough weather. Ruf-and-Tuf, which was the first brand to launch a ready-to-stitch kit in 1996, began facing strong competition from cheaper fake kits, made by local operators throughout last year. The competition from imitators forced Arvind to launch Ruf-and-Tuf in a ready-to-wear format, so that it could cash in on the brands high awareness.
This took its toll on Newport, which had been driving volumes in the lower end of the ready-made jeans market with its aggressive penetration pricing of Rs 399. With Ruf-and-Tuf ready-to-wear jeans priced at Rs 299 fighting for the same shelf space as Newport, the two brands have ended up cannibalising each other, slowing down Newports explosive growth.
This downturn in offtake comes at an inopportune time for the company, which raised its total capacity to 120 million metres in 1997-98. It had planned to produce and sell at least 100 million metres to make the capital expenditure viable. Analysts believe that the figure will now be closer to 75-80 million metre.
Another factor that has affected performance has been the overcapacity in the domestic market, brought on by the entry of three players Raymonds, Mafatlal-Burlington and Century Textiles. These players, who were expected to enter the market earlier, ran into unforeseen problems. Arvind, on its part, tried to pre-empt their entry by upping its capacity. As it turned out, that did not deter these players from entering the market by last October, adding a combined annual capacity of 18 million metres to the industrys total annual capacity of 182 million metres.
To make things difficult for the new entrants, Arvind dropped prices of its volume seller from Rs 105 to Rs 95 per metre, but it did not have an effect. All the companies matched Arvinds price cuts to corner marketshare, affirms a competitor. As a result, Arvinds domestic fabric sales did not grow significantly, and are expected to be around 27 million metres, against the 26 million-metre mark in 1996-97.
