Indian Exporters Face Pricing Pressure As E-Commerce Firms Bleed US Retailers

Trade & Policy

Indian Exporters Face Pricing Pressure As E-Commerce Firms Bleed US Retailers

US-based home textile retailers, who are the biggest customers of Indian exports, are facing an increased threat from mega e-commerce firms like Amazon, and have even begun to file for bankruptcy, according to a recent report by Nirmal Bang Institutional Equities.

More than 300 retailers have filed for bankruptcy so far this year, a significant rise from the previous year. As a consequence some Indian exporters have already reduced supplies to the troubled retailers. Contract renegotiations are getting trickier as US retailers facing tough market conditions are said to be resisting price hikes.

Incidentally, the development comes at a time when the profitability of Indian home textile exporters are already weighed down by a firm rupee and higher raw material prices.

According to the Nirmal Bang report, Indian suppliers of US retailers like Welspun India Ltd have stated that US retailers have been cutting down inventory by moving to weekly orders instead of monthly consignments, thereby passing on the working capital costs to suppliers.

Meanwhile, another report by Emkay Global Financial Services Ltd has stated that USA-based retailers, who are under increased threat from e-commerce, are asking for price cuts from suppliers.

Though Indian companies are yet to receive price cut requests so far, the home textiles industry is at a point where US retailers are trying to discover the right model which is a combination of online, offline and omni-channel methods. There are frequent promotions at retail and the same is significantly increasing. Hence, the industry is seeing build-up in pressure, according to the Emkay Global report.

US retailers are aiming for significant cost savings from their supply chain, as a continuing exercise. It will be a multi-year journey before the supply chain is transformed, according to Target Corporation, a large US retailer which has already reduced inventories.

The transformation may not unsettle Indian exporters’ business in a major way in the near term, given India’s strengths in accessing raw materials and market share gains in US textile imports.

However, if big e-commerce firms like Amazon in their bid to gain market share, keep up the competition and pressure on prices, then they could exert pressure on the profitability of Indian exporters in the medium to long term. It would all depends on how US retailers and Indian exporters handle these changes. If they can make a dent in the online market or gain a foothold in the marketplace of big e-commerce firms by themselves, then there may not be much of an impact, according to another analyst.