JCPenney, LOFT, Ann Taylor, True Religion, J.Crew, Lucky Brand, G-Star, Muji (in the US), Men’s Wearhouse and few more apparel giants have either filed for Chapter 11 bankruptcy recently or are in the process for the same. Another common thread between all these brands is their long-term associations with leading Indian apparel exporters.
While speaking to Apparel Resources on the same, many top-level export houses’ owners and CXOs, account heads of few top buying houses and stalwarts of the industry strongly underlined that filing for Chapter 11 bankruptcy by these brands and retailers is a big setback for Indian apparel exporters. But at the same time, they agreed that some of the brands will rise again and business will come back to India.
At per industry estimates, at least 10 per cent of Indian apparel exporters are directly impacted due to the above-mentioned developments. In our small survey with exporters who are associated with these apparel brands and retailers, around 90 per cent of the respondents felt that filing for Chapter 11 bankruptcy is a way for apparel retailers and brands to run away from due payments, while 100 per cent exporters agreed that this is going to have a long-term impact on the Indian industry. Meanwhile, 65 per cent of these leading exporters also believe that it will take around 2 years for the industry to gain a better position.
The major concern for Indian companies is top players like Ascena Retail Group and JCPenney, as in case of these two, both companies used to place huge orders and shared long-term business relations with India. Though the sourcing of JCPenney had already been reducing from India in recent years, the company still used to source apparel and home furnishing (combined) worth Rs. 1,600 crore. On the other hand, Ascena Retail Group’s (Ann Taylor, LOFT) annual sourcing from India was around Rs. 2,000 crore till last year and it used to source from at least 67 Indian factories, while at the global level, it was associated with around 600 facilities.
The scale of loss for Indian exporters can be estimated from looking at the case of Pee Empro Exports, Faridabad. The company suffered a huge loss of US $ 2 million (Rs. 14 crore) because a retailer filed for Chapter 11 bankruptcy. PMS Uppal, MD of the company, told Apparel Resources, “Chapter 11 by Ascena Retail Group or any other such company is very unfortunate. We had an order worth US $ 2 million from Ascena and we even shipped them goods worth US $ 1 million, but it looks like they will not pay for it, as they have cancelled the rest of the order (worth US $ 1 million) which is ready with us.”
How the situation has worsened can be understood from the case of Gurugram-based Richa Global Exports, a leading Indian apparel exporter. In 2018, the company received Responsible Leadership 2018 Award from Ascena Retail Group Inc. for outstanding performance in CSR. It even remained on top among the elite Global Vendor Group of 17 top vendors of the Ascena Group as its six factories were working for brands like Ann Taylor and LOFT. But with the uncertain times, even Richa Global Exports has become witness to adversely impacted business lately.
Apparel Resources got to know that Noida-based Sahu Exports and Shree Bharat International also faced the heat, as they were associated with Lucky Brand and G-Star. While we approached these companies for official confirmation on the same, we could not connect.
Chapter 11 has also become a tool for a few companies to utilise their money and turn their accounts healthier. While some existing suppliers strongly believe that these brands and retailers still have good potential and can revive in future, others feel that it is too early to comment on the same. A lot of things depend on the support from the US Government, which is yet to be announced.
“Things depend on two major factors – what kind of new investors invest in these companies, and how they will source from India in future,” shared the CEO of a top export house on the condition of anonymity. His company is working with two brands of Ascena Retail Group. He further added that the “overall disruption is a major setback for the industry, and as far as filing for Chapter 11 bankruptcy by these brands is concerned, Indian companies were already aware that things could move in such a direction, so I don’t think that it is a huge setback for Indian exporters.”
The main challenge due to the critical condition of these brands is further order booking, as it takes at least a year for such companies or brands to revive after filing for Chapter 11 bankruptcy. Currently, orders by Ascena are 40 per cent less and are expected to remain the same at least for another season.
“J.Crew used to source at least Rs. 140 crore of apparels from India per year and we also used to work for them, but the day we smelled that things were not right with the brand, we started reducing business with them and stopped completely within a few weeks,” shared the CXO of a Delhi-based company. He further added that there are cases when brands or retailers, before filing for Chapter 11 bankruptcy, made it clear to the Indian suppliers that their payments will be delayed but were safe and would be paid. Having said that, such delays in payments also create huge problems owing to the huge amounts involved.
It is worth highlighting here that the US mainly has three types of bankruptcy filings in the Federal Bankruptcy Code (Title 11 of the United States Code) – including Chapter 7 for Liquidation, Chapter 11 for Reorganisation (or Rehabilitation bankruptcy), and Chapter 13 for adjustment of Debts of an Individual with Regular Income.
Under a Chapter 7 bankruptcy filing, the debtor’s assets are sold off to pay the lenders (creditors), whereas in Chapter 11, the debtor negotiates with creditors to alter the terms of the loan without having to liquidate (sell off) assets.
On a concluding note, be it Chapter 11 bankruptcy or any other stage in bankruptcy, apparel export business is now all about managing significant challenges. And these challenges are growing in recent years. Like, now agencies are not offering risk covers regarding payments. So, the need of the hour is to work more carefully and ethically. Business majorly depends on the overseas sales. Online sale is growing massively for many brands. If a brand leaves any vacuum, other brands will take advantage of the same.