In this interview, Adesh Gupta, CEO of Liberty Shoes, highlights challenges before footwear industry and explores new opportunities before India due to Covid 19 effect.
Footwear industry, which is highly labour intensive, employees about 6-7 million people mostly with uneducated, unskilled or semi-skill background. Despite its potential to generate employment, footwear companies - who are predominately MSMEs - find it difficult to raise fund. On top of this, 2-slab tax rate within the industry is hurting the growth of the industry. Against these odds, Adesh Gupta - Chief Executive Officer of Liberty Shoes (one of India's biggest Footwear companies since 2003) - is highly optimistic about the industry. While China produces 15,000 crores shoes, India makes only 250 crores - out of which only 10 crores are exported. Post-covid, customers in European countries, US, Japan, etc are likely to will look at India as preferred destination for the future.
Pratap Padode, Editor in Chief of Industrial Products Finder (IPF), spoke to Adesh Gupta through video-conferencing, to understand the potential of the footwear industry and the future growth path.
It was estimated that footwear market was poised for robust growth of 15%. How is the market structured?
MSMEs account for 70-80 per cent of the footwear industry (from manufacturing to retail level). So far this industry is largely dominated by unorganised sector.
Have GST issues been settled?
GST is one of the biggest pain points for this sector. GST slab, normally in all countries, is one. In India, there are 4 rate slabs. But dichotomy is that within footwear sector there are 2 rates - 5% for shoes priced Rs 1000 & below and products priced above Rs 1000 are taxed at 18%. It creates growth problem for the industry, as it encourages production/sales of shoes under Rs 1000. Majority of the buyers prefer shoes in the range of Rs 1000-Rs 2000, and high tax rate of 18% is hurting the industry. The industry is struggling for growth and this is real challenge for manufacturing and retailing.
Is funding an issue before the industry?
Market scenario is such that majority of the banks go after glamour segments - like automotive, luxury products, etc.
Expect for the few big players, footwear industry is not glamorous and, hence, companies find difficulties in generating finance. People believe that the industry has lot of potential to growth, but lenders are not coming forward to lend at lower rates (in fact they charge high rate of interest from MSMEs/unorganised sector).
Big corporates, many of whom are now on the defaulter list of banks, get loans at must lower rate and have easy access to funding. On the other hand, MSMEs - who are prompt in repaying loans - have to pay high rate of interest.
What is the extent mechanisation of the industry?
This industry is labour intensive. Production process when using natural material like leather is complex involving many of components. You can mechanise certain processes and operations. Overall, globally and in India, footwear will remain labour intensive.
How many people are employed by the industry?
Data pertaining to number of units, production numbers, employment details, etc are not available as the industry is highly unorganised. However, it is guess estimation that the industry employees about 6-7 million people.
Importantly, we are giving employment to people who are uneducated and matter the most - poorest of the poor, women, backward, etc. After minimum train (that lasts for 10-15 days), they are equipped to join the production plant.
Employee size and diversity of employment warrants for policy support. Isn’t it?
I wish policy makers could pay a heed to this point.
In the current scenario, post-Covid there will be huge opportunity for us when China vacates some space in manufacturing. If the government, under Make in India initiative, takes steps like interest rate reduction, capacity building, GST rationalisation, etc, we have all the reasons for success.
China produces 15,000 crores of shoes compared to India's 250 crores - out of which only 10 crores are exported. If China vacates 10 per cent of the market (ie about 150 crores), India does not have domestic capacity to fulfil the additional global demand.
This is a time when supply chain (vendors/suppliers) will change and European countries, US, Japan, etc will look at India as preferred destination for the future.
We need to build recipe for success now. Government should solve the grievances of the sector and take concrete holistic approach to support the industry.
How is the progress of Liberty Lifestyle - the retail venture that you have launched in 2018?
When we were struggling with high rate of tax and scouting for retail opportunity, we zeroed down on perfumes as they have high margin and low cost of production. Using our Liberty brand, we have seen very good response so far.
Right now, the luxury market may be hit because of Covid, but in the next 2-3 years we will be in the position to take centre stage in semi-luxury market place. I am more bullish about this business.
What is the percent of e-commerce in the sales?
You will be surprise, though our base will be small, about 70 per cent of sales will come through e-commerce. We sell our products through all big portals.
After lock-down, we will come out with better strategy for the e-commerce as post-covid there will be potential to grow through e-commerce.
How are you planning to start manufacturing after lockdown is lifted? What kind of safety protocols are you going to put in place?
At present, front end (retail) is closed. Even after 2-3 months, there will be hardly any buying across retail stores. Consumption may go down by up to 30-40 per cent. On the back end, there is no urgency to produce goods as retail is closed.
As and when lockdown is called off, we will resume work and follow the guidelines of the government as we are labour intensive industry.
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