Mumbai-based fashion apparel manufacturer Spykar Lifestyle recently received $5 million (Rs 20 crore) investment from private equity firm Avigo Capital Partners. However, unlike most companies which use the funds to increase manufacturing, Spykar will do the opposite.
The company will soon hive off its four manufacturing units, located around Mumbai, into joint ventures. With this, the company's entire manufacturing will be outsourced. Currently, only 20 per cent of the company's brands are manufactured.
It is not just smaller players such as the Rs 90-crore (Rs 900 million) Spykar, which think in-house manufacturing is unviable. Big Bazaar, which has labels such as DJ&C and Knighthood, does not manufacture the brands it sells. ITC, which runs the Wills Lifestyle apparel retail business, does not have manufacturing facilities. Madura Garments prefers a mix of in-house production and outsourcing.
Six months ago, Big Bazaar sold all of its five manufacturing units. Big Bazaar CEO Rajan Malhotra said as the rupee appreciated, the manufacturing units across India started catering to the domestic demand. Hence players found this option more cost-effective.
"India is divided into sourcing centres when it comes to apparel manufacture -- east for ethnic wear, north for kidswear, south for readymade garments and west for menswear," said Malhotra.
Sanjay Vakharia, director, marketing, Spykar, said: "We want to be a branded company and not a manufacturing company. Our objective behind going for fully outsourcing production is to concentrate on brand-building. We have also set up a vendor development team, which is on the lookout for prospective vendors to manufacture our products."
Spykar plans to set up a high-tech design studio soon. This unit will create samples and give it to other manufacturing units to replicate.
Kamal Bose, general manager, sourcing and merchandising, ITC Lifestyle, said: "Companies are primarily following three models for outsourcing -- completely controlled, partnership and buyer-supplier. Our company had realised the potential of outsourcing manufacturing and gone for 100 per cent outsourcing from the day we began operations."
Karnataka-based Rs 1,050-crore (Rs 10.5 billion) Gokaldas Exports is among the largest apparel manufacturing companies and has seen its domestic business growing four-fold in the last one year. Ritesh Khandelwal, divisional manager, Gokaldas Exports, said, "Our domestic market turnover has gone up from Rs 25 crore (Rs 250 million) in 2006 to Rs 100 crore (Rs 1 billion) in 2007." Next year the company expects this to go up to Rs 200 crore (Rs 2 billion).
The company claims that production for the domestic segment has seen a jump of 80 per cent in the past one year.
Even though there had been a slowdown in the textile sector, the apparel industry would not be affected as apparel makers had hiked supply to cater to the domestic demand, he added.
The outsourcing initiatives will help companies get the benefits of lower sourcing costs without getting into issues like economies of scale.
For instance, if an apparel company provides 50 designs to retailers only about 10 of them become top sellers and deliver economies of scale, say industry experts.