Leather is one of the most widely traded commodities globally. Growth in demand is driven by the fashion industry, especially footwear and bags. Indian leather exports account for around 13 per cent of the world’s leather production of hides/skin.
The export of leather goods from India stood at $4.8 billion in 2019-20, down by 9.5 per cent over the previous year. They comprise largely leather footwear and components, leather garments, finished leather, and other leather goods.
But, unlike Italy or Spain, which started as a contract manufacturer, most Indian companies
did not move up the value chain or build brands for the global market. Among key reasons is that companies were not investing in R&D; did not build enough scale; stuck to old legacies, which include catering only to leather-based products; and didn’t have the desire to create a brand, value, and a differentiator.
N Mohan, executive director and chief executive officer, Clarks India, and chairman, Non-Leather Footwear Panel, Make in India Programme (Council For Leather Exports), says today most units take only job works and continue to be contract manufacturers.
Industry executives suggest that Indian companies should start focusing on value addition.
“We should start adding value by offering a design development service,” said Mohan, who worked with Tata Group’s Tata International for nearly three decades before joining Clarks, a UK-based international shoe manufacturer and retailer.
He added this would involve doing market research on fashion elements and offering products that fitted into the DNA of their ultimate customers. Innovation is the key. “It is very important to get the customer’s traction. This will help us to add additional value. China has mastered this thanks to the hand holding of Taiwanese entrepreneurs and their influence,” he said.
Companies like Hidesign, Farida Group, KH, Mirza, and Super House do have these kinds of capabilities and that explains their growth.
Industry experts say Indian companies should provide a “one-stop solution”, which involves creating ranges using European/American design houses after researching the DNA of the brand and what is in vogue in the market, sourcing products from Indian factories, and delivering at the customer’s door. This is known as “DDP” (Delivery Duty Paid model). This is another way of creating value for the customer as today there are few players who have the knowledge and patience to hand hold.
It is possible to earn an additional margin and create stickiness with the customer on both the above steps. This is how brands like “Me Too” from Taiwan became a global brand from being a contractor.
A customer buys a brand without caring too much for the origin as long as it blends into her personality. Indian companies should venture into this only if they are able to sustain a brand for at least 10 years. It will be good to take a stake in a brand and get involved in the development process before taking over. Many brands are available in the market but all may not have acceptance across generations, say experts. This is also a huge opportunity.
“Building a brand is a story and it should connect emotionally and build a desire for the brand,” said Dilip Kapur, president and founder of Hidesign. His company is a leading global manufacturer and marketer of leather products, including bags, wallets, belts, jackets, and shoes.
Building a brand requires lots of skill sets and understanding the customer’s culture. “Hidesign builds the brand based on differentiated products, desire, sustainability including ecology, belief in harmony with nature, and respect for working with one’s hands and value. Design is intertwined with culture. My hands-on approach is necessary to keep intact that principle which is at the core of Hidesign,” said Kapur.
“A perfect bag must make the woman feel beautiful. It should become a second skin to her, which is why our bags are all-natural, with no harmful chemicals,” he stated as an example.
But, the journey will not be easy, as apart from patience, skills, and vision, significant funding is required. For example, the R&D spend as a percentage of revenue, to build and sustain: Value-added services would be 5-6 per cent; pure conventional products 1-3 per cent. And, for branded products, it can be as high as 10 per cent. Clearly, the task is cut out for Indian companies.