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India feels the retail pinch

As financial turmoil triggers job losses and salary cuts, shoppers in the US are spending less, leading to fall in the sales of retail chains, reports Saurabh Turakhia.

business Updated: Sep 26, 2008 20:48 IST
Saurabh Turakhia

As financial turmoil triggers job losses and salary cuts, shoppers in the US are spending less, leading to fall in the sales of retail chains.

With shoppers deserting US retail stores, India is feeling the pinch. Leading American retailers, which outsource goods ranging from shirts to carpets from India, are in the process of reducing their orders.

“There is a 20 per cent decline in apparel orders for the spring-summer season as compared to the last year,” said Premal Udani, MD, Mumbai-based Kaytee Corporation. “Consumption is coming down in the US in a big way.”

Udani’s Kaytee Corporation, which exports to leading US retailers, is among the companies that had ramped up capacities in a big way in 2000 when the quotas on apparels were phased out. “Elimination of quotas was meant to boost our orders. But we do not see any large rise in orders,” said Udani.

Target, one of the leading retail chains in the US, reported a drop of 2.1 per cent in sales in August.

The closure and consequent filing of bankruptcy by some mid-size retail chains have worsened the problem. For instance, Steve & Barry’s, an apparel retail chain firm, has filed for bankruptcy under chapter 11 in July. The New York-based chain was started in 1985 and had 276 retail outlets.

The crisis is going to balloon with leading US retailers like Wal-Mart, Target and JC Penney forced to cut down their orders from India, according to experts.

“It is clear that there will be some slowdown and even Wal-Mart will not be immune to it,” said Rajan Hinduja, MD, Gokaldas Exports. “Though it is too early to give out a strong reaction, the possibility of Indian suppliers getting affected is not ruled out.”

Wal-Mart and JC Penney had set up huge outsourcing offices in India for large-scale outsourcing. Wal-Mart, according to estimates, imports close to $600 million worth of goods from India.