# Inside One of India's Largest Garment Factories | Bharat Sahni | Founder's Office Episode 16

https://www.youtube.com/watch?v=Ry_jT5uITiQ

[00:02] I wanted to understand more deeply about exporting from India and one category where India has a lot of experience is garments.
[00:12] We export to brands around the world like Zara, Ralph, Lauren, Marx and Spencer and you name it.
[00:18] So to get an insider's view on how this is done, I visited my friend Bhat who has been in this business for the past two decades.
[00:25] Hi Bat.
[00:26] Hi Sarth, how you doing?
[00:27] Very well.
[00:28] Nice to meet you again.
[00:29] He runs Wearwell which has over 2,000 workers specializing in designing and manufacturing of kids and women's fashion.
[00:38] We do a lot of kids wear so we need to ensure that all the garments are metal detected because if while sewing a garment if a needle breaks and it gets trapped inside a garment and we ship it with the needle and child wears it to harm the child it could be fatal for a child.
[00:53] Correct.
[00:54] Today we want to break down how does one find international buyers to sell to.
[01:00] What is the product differentiator in India that helps Bat
[01:02] And his competitors secure orders.
[01:05] What kind of investment does it take to go to international exhibitions?
[01:09] What are order costings and margins?
[01:11] And where really lies the opportunity for one to build a business in exporting garments from India.
[01:17] This is founder's office with Saraka Kahuda.
[01:20] [Music]
[01:22] So Bhat what um we want to learn from you today is that there are a lot of people in India who now want to export and one of the biggest challenges is how do we find customers outside of India.
[01:35] The idea here is to understand that anyone who's actually making garments from India for the world um how do you differentiate from what is happening in other parts of the world so what is the specialization that you guys build here so that foreign buyers keep coming to you guys to say what happens here in India happens better than what you'll get anywhere else in the world.
[01:57] Right?
[01:57] Second, if someone had to start today, one, would you recommend that this
[02:04] Industry continues to be something which still has enough for more people to come in?
[02:09] Or if not, maybe we could take other insights from your experience which people can replicate into other industries.
[02:20] How to find buyers, how to pitch to them, how to develop their product and how to look at operations.
[02:25] So yes, wherever you would want to begin.
[02:28] So I'll begin by saying that you know to solve an unsolved problem.
[02:33] I think when I started the business, uh, you know, we realized that there were not so many children manufacturers, uh, because firstly the margins were much lower compared to women because parents don't want to spend a lot of money on children's clothes because kids constantly outgrow their clothes.
[02:51] Correct.
[02:53] And also because of the safety aspect, right?
[02:56] Because, uh, if a child swallows even a button, uh, you know, it can be fatal, right?
[03:01] Or small babies tend to lick their clothes and if the color is coming off, then they would be...
[03:05] Ingesting they'd be ingesting all the dyes and chemicals.
[03:07] So the level of uh health and safety requirements are they're very very stringent on kids wear.
[03:12] So we saw that as an opportunity.
[03:16] So my suggestion to anybody who would want to get into exports whether it's toys whether it's garments or whatever it is you know you need to solve an unsolved problem uh you know you need to find your niche and then you know you diversify into different products like we started off with with baby and uh toddler and you know and older girls and then we diversified into teen category uh you know and and then into women's wear.
[03:41] So would you say from an opportunity perspective it makes sense even if someone today sets up a tiny workshop or tiny factory but they specialize in very unique Indian designs which are not known by the masses as the design language is slowly going away from say minimalistic design to more maximalistic if they can just bring in those elements in their design and pitch to say like a like an Inditex a
[04:07] It would be difficult for someone just starting off to pitch to an Inditex or a Marks and Spencer or a Next.
[04:14] You know, it's not easy to break through with a brand.
[04:16] It can take years.
[04:18] I mean, I remember when I started off as well, I approached one of these big retailers and they said that uh sorry, you're too small for us.
[04:25] Come to us when you have a thousand tailor.
[04:27] Mhm.
[04:28] So, somebody starting off, I would advise that you start off by doing exhibitions.
[04:33] Okay.
[04:35] And when you are small then be prepared that you're going to get smaller brands that are going to start with you initially where the quantities would be low.
[04:42] Uh you know but that should not discourage you.
[04:45] That's how even I started.
[04:45] Okay.
[04:45] I started with hardly 50 pieces.
[04:49] Uh you know when I started I I did exhibitions all across the world.
[04:55] I kind of you know got exposure and kind of put my company out there and we started with very very small boutiques uh doing very very small quantities and then you kind of build yourself up from there you build credibility and you learn as you as you.
[05:08] Grow bigger and then with word of mouth.
[05:10] If you do a good job then you know people in our industry, our industry is small.
[05:14] People keep moving from one brand to another and if they've had a good experience with you they'll refer you to the next brand that they go to.
[05:21] And that's how you get a lot of the brands that you work with is just peripherals.
[05:24] So the merchandiser, the merchandisers moving, the designers are moving, the buyers are moving, the merchandise.
[05:29] Have you got in business because of that?
[05:31] Most of the business is all based on your credibility and word of mouth.
[05:37] So about 5 to 10 lakhs per exhibition is what one could budget as a, yes, as a decent spend which would include the rentals for plus other expenses for you to take your stuff.
[05:46] Yes.
[05:47] I would probably say less than 10 lakhs.
[05:49] I would say between five and 10.
[05:51] Yeah.
[05:51] Uh, you could, you know, be able to pull it off.
[05:54] Got it.
[05:55] Yeah.
[05:55] And any other channels which have opened up today?
[05:57] Do you feel there are other ways apart from referrals and exhibitions that people are getting international clients?
[06:02] Maybe it hasn't worked for you or you haven't tried but have you heard of other ways?
[06:07] You know, LinkedIn is a good way as.
[06:09] Well, uh, you can find out information of brands and important people who work in those brands through LinkedIn.
[06:16] And you could, you know, be on a lookout as to, uh, you know, what gaps they might have in their supply chains.
[06:26] And if you had to meet someone at one of these brands, what title would you go after?
[06:29] Would you say there is a chief merchandiser?
[06:31] Is there like a category manager that you typically have on e-commerce platforms?
[06:36] What title would you go?
[06:37] I would, I would say you need to go after the sourcing teams.
[06:40] Uh, they are the ones who are strategizing as to how many vendors do they need in India, how many vendors do they need in Bangladesh, do they have enough vendors, do they have less vendors?
[06:51] So it all starts with the sourcing teams.
[06:52] Okay.
[06:56] So is there a story around how you bagged one of your first big clients where there could be a learning?
[07:01] Oh yeah.
[07:03] Yeah.
[07:03] I think, uh, I think it was, uh, it was Zara actually, uh, when initially we started working with Zara.
[07:09] Packed up our suitcases and we went to Spain to Lakaruna where the head office is.
[07:14] And uh, we had taken our women's wear collection for a women's wear meeting.
[07:20] You know, they gave us one of the meeting rooms and the women's wear team came into the meeting room and we had displayed all our women's wear samples.
[07:27] And I think within 10, 15 minutes the meeting was — I guess they didn't, they were not looking for a women's wear supplier, but somehow we were lucky to get an appointment with them.
[07:40] Uh, and then you know, I requested them.
[07:43] I was like, you know, we've come from very far even though you've only picked one or two samples.
[07:48] I know it's going to be difficult for us to work with you, but in case your kids wear team is around and they are looking for a supplier, we don't mind showing them the women's samples and then if they like something, you know, we can take inspiration and we can do mini versions of those.
[08:04] And then uh, you know, they went and checked and luckily for us the kids team was looking for a supplier.
[08:10] Kids wear team came and they saw the collection they made.
[08:13] They made a bit selection.
[08:16] And that's how we started with Zala, we started with Zala kids and that was the day we realized that there was a big void in uh in kids wear suppliers.
[08:25] Understood.
[08:25] So today if one were to map out say specializations across geographies um what would you say does a Bangladesh specialize in versus earthland, Cambodia, India versus China versus Turkey?
[08:42] Who are the newer players coming in?
[08:44] And I say this because even if someone has to do a study of maybe this is new or this is not happening in India, I could think of going after it and doing it better than what someone else is doing.
[08:53] So Bangladesh essentially you know the customers uh they tend to put all their tech packs you know uh because there's not a lot of creativity that comes out of Bangladesh in terms of design you mean the buyer's own designs.
[09:05] Yeah.
[09:05] Buyers own designs that they would like to uh you know put in put in with a vendor.
[09:10] Uh.
[09:11] So say like a Zara, I would say this is our specification, our design.
[09:14] Yes.
[09:14] And we need someone to just replicate this high volume low cost.
[09:18] Okay.
[09:19] Tech pack business, I would say that is what goes to Bangladesh.
[09:22] Okay.
[09:22] Right.
[09:24] China, they specialize in, I mean, they, China's huge, right.
[09:27] They are the biggest exporter of garments in the world.
[09:31] So but they specialize in outerwear, jackets, jackets, you know.
[09:35] Yeah.
[09:36] All kinds of jackets they do.
[09:38] That's what they specialize in.
[09:40] I would say Turkey specializes in fast fashion because of their proximity to Europe.
[09:47] Similarly with Morocco as well and Portugal as well.
[09:49] So these are all manufacturing hubs.
[09:52] Okay.
[09:52] But India's strength is that, you know, we are vertically integrated.
[09:56] So we grow our own cotton, we do our own spinning, we have our own dying, processing, printing, we have our own garment manufacturing.
[10:05] So everything is available in India.
[10:09] Countries like Bangladesh and Vietnam.
[10:11] And Cambodia 90% of the raw material is imported in from either India or China.
[10:18] You see, so that really gives India uh strength.
[10:22] So what I'm also hearing is that if say an international buyer for the sake of an example, let's take Zara.
[10:29] Yeah.
[10:29] If they were looking for vendors globally, they would come to India not necessarily for the cost advantage.
[10:36] They would come here for designs.
[10:38] Design, correct?
[10:39] That contract manufacturers here come up with and if they like someone's designs a lot, they'd say, "Why don't you make it for us?"
[10:46] Yes.
[10:46] Or they could go to a Turkey.
[10:48] So would you say Turkey today is one of the closest competitors for India compared to maybe a Bangladesh?
[10:53] Uh yes, but the handwriting is different.
[10:57] Like India specializes more in uh I would say embroideries, different techniques, hand work, uh printing uh and I would say more like light weight fabrics I would say you know Turkey product uh you know is more uh.
[11:15] Jersey product, I would say.
[11:17] But fashion jersey they do.
[11:18] And uh they also do a lot of similar products what we do, uh, but the level of embellishment is not as much because and labor in Turkey is expensive, right?
[11:28] So they would probably do, you know, more automated embellishment where India would do more hand embellishment.
[11:35] Got it?
[11:35] You see, so the product would look different.
[11:39] So the buyers normally they come to India for that typical, you know, Indian handwriting, you know, which is India's trend that nobody really can really replicate.
[11:47] And do you also see a lot of native Indian designs now translating into fashion and apparel in such a way that the world is liking like something which is traditionally very Indian now has become like an international feature.
[12:01] Yes.
[12:02] Yes.
[12:03] Like uh block printing or your chicken curry embroidery.
[12:06] Really?
[12:07] Yeah.
[12:07] I mean so chicken curry apart from your kortas you are you replicating it in some other form?
[12:12] Yes of course.
[12:13] Yeah, we're doing AI embroideries and I believe now going.
[12:16] Into spring summer 2026, the Indian look is going to be very much in fashion.
[12:22] You must have seen the Kapuri jutis that Prada is doing.
[12:25] Absolutely.
[12:25] So it's the everybody's talking about India, and that's great news for India because that means a lot of business is going to come into India.
[12:31] So how many designs in a year do you have to manufacture?
[12:35] So I think last year we would have manufactured over a thousand designs.
[12:39] Uh, that's like uh, so almost like three a day.
[12:41] Yeah.
[12:43] And see, that's why I say it's a very difficult business because every design is different.
[12:47] You know, it's not like an industry where you're making the same thing over and over again.
[12:51] So how big would your design team be to deliver say thousand designs in a year?
[12:55] Do you think a team of five to seven people can do this?
[12:59] Yeah.
[12:59] Yeah.
[13:00] Absolutely.
[13:01] So that's absolutely.
[13:01] So we work a lot on uh, you know, CADs as well.
[13:06] So we do uh, 2D CADs, we do 3D CADs.
[13:09] Uh, we're using even AI now to help us with our designing.
[13:11] I'm quite involved in the whole design process.
[13:13] I whenever I travel, I visit a lot of stores that brands that I that I.
[13:18] Look up to.
[13:21] Uh, you know, I always go and see what new things they're doing, what new fabrics they're doing.
[13:24] I encourage my design teams to travel.
[13:27] Uh, we go to China on sourcing trips where we go to the markets in Guanza or the markets in, you know, Shiaoing, and we source a lot of our sampling fabrics from there.
[13:36] Okay.
[13:37] Uh, so a lot of the fabric is imported.
[13:39] How much would you say is important in terms of winter fabrics?
[13:42] We import a lot of fabrics from China because India essentially is more spring summer.
[13:45] We do viscose as well.
[13:47] We do some polyesters as well.
[13:48] But I would say they're more lightweight fabrics.
[13:51] You know, a lot of the heavier weight fabrics, uh, a lot of the occasion wear fabrics, party fabrics, bling fabrics, a lot of them come from China because their quality is better when it comes to those fabrics.
[14:04] India is very strong in cotton.
[14:06] Chinese cotton is banned because of the Xinjiang province.
[14:09] Correct.
[14:11] Uh, so the world does not want Chinese cotton.
[14:12] Correct.
[14:15] Uh, so that's why, automatically because of that, a lot of cotton business comes to India.
[14:17] So every region specializes in certain.
[14:21] Types of garments, certain types of fabrics.
[14:25] Uh, but what is essential for us as a factory owner, as a garment manufacturer, is that we keep our factories busy around the year.
[14:32] M, so for that, if I need to import fabric from China and that keeps my factory busy in the winter months, then so be it.
[14:38] You know, I'm providing my workers employment, we are giving work, and you know, we are running our company.
[14:45] So, have you seen India benefit from the China plus one, or do you feel in your industry it's more a narrative and people continue to buy from China because India just doesn't have the specialization to deliver what those people are delivering?
[15:00] No, definitely I think uh China plus one factor has helped India.
[15:05] Yeah, you hear your buyers saying we want to kind of — yes, yes.
[15:08] I've diversified; I've added a few brands over the years uh who had a lot of exposure in China, who wanted to reduce the exposure in China, and because of which they started working with us.
[15:18] But end of the day, it's all performance based, right?
[15:20] I mean, if you — they you'll —
[15:22] Get an opportunity but you have to deliver.
[15:24] If you don't deliver then, uh, you know, they'll move on to the next.
[15:28] But you feel in the minds of, say, the consumer, I would assume a lot of your buyers would be, say, European brands.
[15:35] Do you feel in Europe people would look down upon a made in China product, the end consumer, and does that in any way impact the pricing that these brands can command?
[15:45] No.
[15:46] No.
[15:46] You see, you see the China plus one factor is not because people look down on Chinese product.
[15:51] Chinese product is great.
[15:53] Correct.
[15:53] Uh, it is, it is the risk which is attached to it.
[15:56] You see what is happening now with the, with the tariffs.
[15:59] Trump suddenly raised tariffs.
[16:01] So if you had too much exposure in China, suddenly, you know, you having to pay a higher duty, right?
[16:08] And because China is such a big exporter to the world, then most of the brands, you know, had too much exposure.
[16:15] Maybe 90% of the sourcing was coming from China, so they were in a very vulnerable position because of uncertainty that is going on in the.
[16:22] World today, so China plus one is really to kind of, you know, reduce their risk and diversify their supply.
[16:27] It's more geopolitical, you're saying.
[16:31] It's not from a consumer lens that they're looking down upon a particular market in any way.
[16:36] Quality is great.
[16:37] The product is great.
[16:38] Okay.
[16:39] And what's your process immediately after you get a customer?
[16:42] Um, how many designs would you have to show to them for it to be a profitable venture?
[16:51] Like, does it so happen that you know a customer has to pick at least six or seven designs and give a certain amount of order where you know it'll turn out to be a good partnership that goes along?
[17:05] And I'm bringing this question from the fact when you mentioned Zara liked only two of your designs and you knew that this is too little for it to be meaningful in any way, right?
[17:15] So you got to look at your hit rate, right?
[17:18] So normally a good hit rate I would say, uh, maybe 50%, right?
[17:21] So if you sample 10...
[17:25] And five get selected, that's a good hit rate.
[17:27] No, that's huge.
[17:28] Yeah.
[17:28] So uh 40 to 50% I would say you know, so I mean if you only have two or three garments selected, uh your hit rate you only get one order right, whereas compared to if you have 20 or 30 garments selected.
[17:41] Uh so that's also another way how we evaluate uh the brands that we work with.
[17:46] How much have we sampled and how many orders have we received?
[17:50] What is the hit rate?
[17:50] Is the hit rate is low?
[17:53] That is a concern for us.
[17:55] We have a discussion with the brands about that and then strategically we decide whether it's worth investing uh and working with our brand or not.
[18:03] And how does the economics work?
[18:05] Typically do brands tell you that this is the price at which we will be selling it and I can see it from the fact that you guys attach labels which have pricing labels for for the brand.
[18:18] So if imagine their end price to the customer is 100, do they give you a target costing within which you need to produce?
[18:25] Of course.
[18:26] So a price firstly all depends on the quantity.
[18:30] The larger the quantity, the tighter your margins are going to be, right?
[18:35] And the smaller the quantity, the higher your margin is going to be.
[18:39] So it all depends on quantity.
[18:41] Sure.
[18:41] And then we have basic fabric minimums that we need to meet.
[18:45] We have dying printing minimums.
[18:47] We have uh so if you're not able to meet the fabric minimums in terms of the grade or in terms of the processed fabric then you have to pay a search charge to the mill.
[18:56] What is this?
[18:57] Uh so basically when you buy a fabric right like let's say you buy a cotton fabric and for a solid fabric your minimum order quantity is 2,000 m right but the buyer comes back and says that my order is only 1,000 m.
[19:13] So you can still do that order but you charge a search charge which you have to pay to the fabric supplier just to be able to stock just to be able to get meters even though his MOQ is 2,000 you're getting only 1,000 m so you'll have to pay sir.
[19:26] Charge to the supplier and then you have to factor that into your costings and charge your customer for it.
[19:30] Sure.
[19:31] Right.
[19:31] So from a benchmark perspective, typically what kind of cost are they expecting from you given the price point for the end customer?
[19:41] Do they always give the price point for the end customer and then seek quotations from different factories, saying this is the order size, this is the price, this is the sample, what is the best quotation that you can give, and you see factories undercutting each other?
[19:55] So normally, normally, depending on the brand, the brands, whatever they buy from you, they sell, I would say, between three to four times or three to five.
[20:05] You're essentially at 20 to 30% of their selling price is where you need to function.
[20:11] Yes.
[20:11] Exactly.
[20:12] Yeah.
[20:12] Exactly.
[20:13] And then that also would depend then on the quantity.
[20:15] The larger the quantity, the even slimmer your margins get.
[20:17] So we are constantly looking at what the customers are doing, like for like products.
[20:21] How much are they retailing for and then?
[20:26] calculating based on that what should be
[20:28] the price that we should be quoting them
[20:30] and then we have our open costings also
[20:33] to we we first work out from scratch
[20:35] what is the actual cost of the garment
[20:38] right? And then we see what they are
[20:39] retailing at, what should be their
[20:41] target. And then we always give options.
[20:44] So the sample, the first sample might
[20:45] turn out to be more expensive. And then
[20:47] we have to find out ways
[20:49] uh to get larger orders to kind of fit
[20:52] it into their price.
[20:53] You know, so like let's say you do a
[20:54] dress with embroidery front and back.
[20:56] If the price is coming too high, you go
[20:58] back to the customer and say, "Okay,
[20:58] I'll give you embroidery only in the
[21:00] front. I won't give you at the back."
[21:02] So we are able to reduce the price and
[21:03] kind of fit it into your target.
[21:05] Got it? You know, so normally we code
[21:07] the first price, then the buyer comes
[21:09] back with the target and then you do the
[21:11] reworking to see how you're going to be
[21:12] able to fit the garment into that price
[21:15] and confirm the order because end of the
[21:17] day we are doing all the sampling and
[21:19] doing all the creative work that has to
[21:22] uh you know it has to convert into
[21:25] orders eventually, right? There's no
[21:26] point making a beautiful sample if you
[21:28] can't confirm an order on it. So you
[21:30] have to keep the price points also in
[21:32] mind while designing you. A lot of the
[21:34] times you know the designers you know
[21:36] they get lost in the creativity and they
[21:37] make something beautiful but you're not
[21:39] able to get it costed in the price.
[21:41] Yeah. So it's not feasible.
[21:42] So it's not it's not you have to have a
[21:44] practical approach.
[21:45] Okay. So
[21:45] so imagine any if if one were to go and
[21:48] buy like an occasion where dress for
[21:49] about 5,000 rupees in the market.
[21:52] Essentially the costing at which you are
[21:54] required to sell to the brand is close
[21:56] to about a,000 realistically
[21:59] depending on the brand. But you would
[22:00] say between 1,000 to,500 would be the
[22:03] right range.
[22:04] Yeah. Approximately 1500 bucks I would
[22:05] say. Yeah. Yeah.
[22:06] Okay. So anything that sells for 5,000
[22:08] is 1,500 at which you need to sell.
[22:11] Essentially that's how the industry
[22:12] works the math works three to four times
[22:14] because end of the day uh you know they
[22:17] are importing the goods they are paying
[22:18] freight they're paying duties into the
[22:20] countries they have overheads in terms
[22:22] of their stores
[22:23] warehousing
[22:24] warehousing staff salaries and then also
[22:27] initially when they put the goods into
[22:29] the stores they sell at the full price
[22:33] and then whatever doesn't sell through
[22:35] correct they have to do in a few weeks
[22:36] they go they sell on a discount
[22:38] and then and then so on you know so
[22:40] first they'll they'll drop 20% then
[22:42] they'll drop 40% and you know so to be
[22:45] able to liquidate all the stock
[22:47] so they have that risk factor as well so
[22:49] three to four times is probably what is
[22:52] usually what they work
[22:53] okay
[22:54] on yeah
[22:54] got it and imagine now you're producing
[22:57] something that sells for 100 you produce
[22:59] in about for the sake of simplicity 25
[23:03] thinking that the customer sells it at
[23:05] 4x the price at which they buy from you
[23:09] and if 25 is the price that you get
[23:12] typically what is the cost breakup like
[23:14] for you from a percentage perspective
[23:16] how much and I'm I would just say
[23:18] industry margin would you say
[23:20] 30% is cost of fabric 20% is labor 20%
[23:24] is overheads
[23:25] so you're right 30% is about
[23:27] approximately the cost of the fabric uh
[23:30] women's wear it could be higher it could
[23:31] be even 50% kids wear is roughly about
[23:33] 30%
[23:34] um manufacturing cost is roughly about
[23:37] 30%
[23:37] okay
[23:38] again uh your accessories
[23:41] U like your buttons, zippers, uh labels,
[23:44] tags, all that would be about 10%. And
[23:46] then we work normally I would say
[23:49] between 10 to 15% margin.
[23:51] Oh, so the gross margin for you is
[23:53] Yeah.
[23:53] About 15%.
[23:54] 10 to 15%. Yeah.
[23:55] So which means after you remove
[23:56] overheads and stuff the margins should
[23:58] be single digit.
[24:00] Yes. It's like I said it's a it's a very
[24:02] very uh competitive business.
[24:05] I like to say that I'm overworked and
[24:06] underpaid.
[24:07] Yeah.
[24:08] So, so,
[24:09] so which also means when you're doing
[24:10] this much capital investment in setting
[24:12] up manufacturing,
[24:14] you really need massive quantities to
[24:16] recoup.
[24:17] Exactly. Exactly. That is why
[24:19] for anyone today, it's a very tough
[24:21] business. They're better off doing
[24:23] something else for their time. Would you
[24:25] say
[24:25] it's a lot of hard work uh and
[24:27] especially if you are I mean I don't
[24:29] mean to discourage people who you know
[24:31] would want to
[24:32] uh get into the government business but
[24:34] it is a very very competitive business.
[24:36] M
[24:37] uh you know with margins are are razor
[24:39] thin there's no room for error and then
[24:41] you have to be very very careful because
[24:43] there's so much uncertainty in the world
[24:45] every other day you hear of certain
[24:46] brands which are going bust
[24:48] correct
[24:49] you know and then as suppliers uh you
[24:52] know uh you know we are not secured if
[24:55] somebody goes under and because mostly
[24:57] we are working on relationships and
[25:00] there's no our payments are not backed
[25:02] with LC's uh mostly so you got to be
[25:04] very very careful who you work with you
[25:07] always check their financials. Uh you
[25:10] know run in Brad Street is a good way of
[25:12] checking the company financials.
[25:14] Uh you know constantly uh
[25:17] do you guys track that?
[25:18] Yeah we track that. Yeah
[25:19] because there's working capital stuck in
[25:21] payments
[25:21] cuz we we have uh paid a heavy price in
[25:24] the past where one of the brands did go
[25:26] under and we had a huge exposure uh with
[25:28] that brand. I don't want to name anyone
[25:30] but uh no
[25:31] but but you learn the hard way life in
[25:33] life you you learn the hard way. So uh
[25:36] my advice would be to constantly u you
[25:38] know check the financials of your of
[25:40] your customers see how they're doing uh
[25:43] you know and then trade accordingly. So
[25:46] also I I understand you would be imagine
[25:48] you get an order for a,000 units. You
[25:52] would produce maybe 3 to 5% extra just
[25:55] to account for
[25:57] normally it's 2% extra to account for
[25:59] account for rejection or you know so
[26:01] normally our customers also uh they
[26:04] allow us to most of them allow us to
[26:06] ship extra as well.
[26:07] Okay.
[26:07] So they give us a 5% tolerance you can
[26:09] ship plus five or minus five
[26:10] but that comes to your cost. So you have
[26:12] to be extra cautious about how much
[26:14] no you can if you ship extra they pay
[26:15] you for extra pay as long as it's within
[26:17] the 5%.
[26:18] Okay.
[26:18] If you you can't if you have to ship 7%
[26:20] extra then you have to take approval
[26:22] but within that plus - 5 they give you a
[26:24] free hand.
[26:24] So it's to account for if in case there
[26:26] are rejections.
[26:26] Yeah. So normally if there's a quantity
[26:28] is 1,000 pieces you know we will cut
[26:31] 1,50
[26:32] and maybe ship 1,30. So only 20 pieces
[26:36] or so get rejected.
[26:37] You understand? Because we it's
[26:39] important that we don't ship less. We
[26:42] can ship a little bit more but don't
[26:43] ship less. So all the stores that they
[26:46] have planned for get all the goods in
[26:49] the right ratios.
[26:50] Right. All the sizes are given to all
[26:52] the stores.
[26:53] Correct.
[26:53] If you have a shortage then certain
[26:54] stores might not get certain sizes.
[26:56] So you always cut slightly more and out
[26:58] of that you're allowed to ship a certain
[27:00] percentage and they pay you for it. So
[27:02] well you know we've also seen in certain
[27:04] markets where there would be big brand
[27:08] products being sold at like a steep
[27:10] discount and someone who's kind of like
[27:12] an aggregator from different different
[27:14] factories of say what they call export
[27:16] surplus.
[27:18] What is the regulation around it?
[27:20] Because a number of times we've heard a
[27:21] lot of the shipment is actually coming
[27:23] from a Bangladesh and someone would buy
[27:25] like an entire
[27:28] I don't know you can't call it a
[27:29] container maybe like truck full of of
[27:32] different brands assorted material and
[27:34] then they would sell it at a deep
[27:35] discount. Is that something which is
[27:37] allowed by brands or you think all of
[27:38] that is happening?
[27:39] So normally again from brand to brand it
[27:42] differs but most of the brands don't
[27:44] allow you to sell their leftover pieces
[27:47] in the secondary market.
[27:49] for a for a
[27:52] like 6 months or a year.
[27:53] Oh,
[27:54] right.
[27:54] So, if you produce extra,
[27:56] you have to stock it up in your factory.
[27:58] Okay.
[27:59] Right.
[27:59] And then you can release it after
[28:01] you can release it. But again, there are
[28:02] certain brands that have nominated
[28:05] certain agents that only you can sell
[28:07] to.
[28:08] You cannot sell to the local market. You
[28:10] can only sell to their local agents.
[28:12] So, that probably goes to their outlet
[28:14] stores
[28:15] and they sell at a discount a season
[28:17] later.
[28:17] Okay. And then certain brands say that
[28:19] you can sell to the local market but you
[28:21] must cut our labels
[28:23] because then you have to remove the
[28:24] branding completely.
[28:26] Okay.
[28:26] Right. But you can't sell in that season
[28:28] because
[28:29] in that season they are selling it in
[28:30] their stores.
[28:31] Correct.
[28:31] So that product cannot be found being
[28:33] sold in another store down the road you
[28:37] know. So so and you don't know whoever
[28:39] you're supplying to where are they
[28:40] further supplying to. So because of that
[28:43] uh you know you have to uh hold on to
[28:46] the garments and then depending on the
[28:49] brand's policy you can either sell it in
[28:51] the local market by cutting the labels
[28:53] or you can give it to the nominated
[28:54] person nominated agent with the labels
[28:57] to the outlet who will sell it to the
[28:58] outlet.
[28:59] Okay. But from a quality perspective
[29:01] those those garments are not supposed to
[29:04] be like substandard in any way or is it
[29:06] grading perspective?
[29:07] They could be they could be. So
[29:09] typically how does that secondary market
[29:11] operate today?
[29:12] Do you think there is a business
[29:13] opportunity for someone who come in
[29:15] there?
[29:15] Yes, there's a big business opportunity
[29:16] there.
[29:18] Lot of lot of uh you know uh people come
[29:22] to us uh you know they buy stock surplus
[29:25] fabrics from us you know and they even
[29:29] come and they ask us uh what surplus
[29:32] fabrics we have left over that they can
[29:34] convert into uh
[29:35] finished goods.
[29:37] Okay. And then you know uh they export
[29:40] those goods
[29:41] okay
[29:41] to markets like the Middle East where
[29:43] they're able to get good uh prices
[29:47] uh from uh you know wholesalers and even
[29:51] uh retailers.
[29:52] But those are those are non-branded
[29:54] products.
[29:54] Yeah. We we put their brand labels.
[29:56] Okay.
[29:57] Yeah. Because we're not allowed to uh
[29:59] sell stock with the labels of the brands
[30:01] that we are working with unless until we
[30:03] selling to their nominated agents.
[30:05] Okay. So you would say there is an
[30:07] opportunity in a lot of smaller guys
[30:09] actually going to manufacturers like you
[30:13] collating your unsold raw material in
[30:16] the form of fabric.
[30:17] Yes.
[30:17] Certain accessories
[30:19] putting together something from it
[30:21] because then they optimize on the raw
[30:23] material cost.
[30:24] Correct.
[30:24] And then cater to a market in the Middle
[30:26] East
[30:27] exporting it getting incentive on it
[30:28] from the government and getting a higher
[30:30] FOB from the brand that they are
[30:32] supplying to as well. So that's a that's
[30:34] a good business actually.
[30:35] So instead of focusing on your your Zara
[30:38] and Marks and Spencers and Next and all,
[30:40] might as well go for the second tier and
[30:43] create this opportunity.
[30:44] Yeah. Because I mean if we sell our
[30:45] leftover fabrics in the uh you know to
[30:50] secondary market,
[30:52] it goes for scrap,
[30:53] right? So this way even we get a better
[30:55] price for our fabric
[30:57] and they get a readymade garment using
[30:59] utilizing our our leftover accessories
[31:01] and our our fabrics and uh yeah so
[31:04] that's actually that's actually a good
[31:06] model for downtime.
[31:08] So when uh when it's not our peak when
[31:10] it's downtime production time so that's
[31:12] when we tend to make all our stock
[31:14] surplus.
[31:15] Got it. So imagine you have a dream
[31:18] client which could be an Inditex which
[31:21] is a house of brands and it has so many
[31:24] brands and would you say that pitch to
[31:27] Index and they take it upon themselves
[31:29] to see where your designs would fit in
[31:32] which subbrand or you have to be
[31:35] subbrand specific and then you work
[31:36] backwards to say that okay
[31:38] let me try and get the brand book of say
[31:40] like a masimo duty. Yeah.
[31:42] And see what is it that they stand for,
[31:44] what is it that they would like and then
[31:46] start pitching something that
[31:47] correct? So I mean Inditex also has six
[31:50] seven brands right and every brand also
[31:53] specializes in a certain age group
[31:55] right like a pull and bear will cater to
[31:56] a teen's age group
[31:58] correct
[31:58] Zara would cater to a slightly more
[32:00] older
[32:01] Masimodi would be even older
[32:03] correct
[32:04] so you so you can't uh you know you have
[32:07] to your design uh like a teen clothing
[32:11] would look different than a than a
[32:13] slightly older woman's clothing right
[32:15] uh so you have to design as per the
[32:18] brand
[32:19] that you aspire to work with,
[32:21] you know. Okay. And uh Yeah.
[32:23] So, do they give you any instructions on
[32:25] these are designs that we're looking at
[32:27] which is say open information in the
[32:29] market that anyone can access.
[32:30] So, they normally share their trend
[32:32] boards, their mood boards, okay,
[32:34] with us because we already working
[32:36] together.
[32:36] So, it's more like an internal document.
[32:38] It's not publicly.
[32:39] You have to be on boarded with a brand.
[32:41] So, the onboarding process happens
[32:44] before you start working. They come and
[32:46] they do your social audit, your
[32:48] technical audit. You have to get those
[32:50] approved and then you start working with
[32:54] the brand. And once you're onboarded as
[32:55] a supplier, you get your supplier unique
[32:57] supplier number only then they start
[32:59] sharing information with you. Otherwise,
[33:01] the information is very very
[33:02] confidential and we are not allowed to
[33:04] share one brand's mood boards with
[33:06] another.
[33:07] Okay? You know, in fact, when we have
[33:09] customers visit us, we can't even show
[33:12] what we are doing for other brands.
[33:15] If it's not been shipped,
[33:16] if it's been shipped, then you can show
[33:18] because those products are anyways in
[33:20] the stores.
[33:21] Okay. So, would you recommend someone
[33:23] who does not have access to this
[33:25] information, should they look at maybe
[33:28] what's happening with the WGSN? Should
[33:31] they look at what's happening with
[33:32] panone and all these design agencies
[33:34] when they do fashion forecasting and
[33:36] they release reports and maybe at times
[33:38] you have to buy like a subscription
[33:40] which might cost you maybe a couple of
[33:41] hundred for the year. Do you think it's
[33:44] worth it? It's a good start or it
[33:46] doesn't help because it's that
[33:48] information becomes a commodity where if
[33:50] panone has said mocha moose is going to
[33:52] be the color of the year for 2025 now
[33:55] that it's public information everyone
[33:56] might be doing it and you really need to
[33:58] differentiate in some other way.
[34:00] So um I think you have to look at the
[34:02] cost involved like some of these
[34:04] subscriptions could be very very costly.
[34:06] They can go up in thousands of dollars
[34:08] you know so you got to look at the cost
[34:09] factor. Um and I think a lot of the
[34:12] information is available on the web and
[34:15] with artificial intelligence a lot of
[34:17] the information you can get for free. So
[34:19] I'm not a very big believer that you
[34:20] need to spend all this money to be able
[34:22] to get all the information. M
[34:25] um you know I I think exposure really is
[34:28] is key. So visiting stores, traveling a
[34:31] lot uh you know that really gives you a
[34:34] lot of exposure. Uh and then the brands
[34:36] that we work with you know they also
[34:38] send us their mood boards their trend
[34:40] boards which is a great way to uh you
[34:43] know understand what really is going to
[34:45] be in trend and then every brand is
[34:47] different right so you know you so that
[34:50] gives you a overall good picture as to
[34:53] what
[34:53] so what I'm hearing is more exposure
[34:55] about understanding what is the brand
[34:56] ideology and what they stand for for
[34:58] different and seeing yes I think rather
[35:00] your work can kind of
[35:00] I think rather than thinking what's
[35:02] going to be in trend you know you You
[35:05] should try and understand your customer.
[35:07] Correct.
[35:07] And try and give your customer what
[35:08] they're looking for.
[35:10] That is key.
[35:11] So, so do you think when Indian
[35:12] factories essentially serve
[35:14] international customers, do you see a
[35:17] lot more concentration of buyers in the
[35:20] US or in Europe or in some other part of
[35:23] the world purely based on what we
[35:26] specialize on? And maybe a market a
[35:29] market is also untapped and kind of like
[35:31] a white space
[35:32] you know. Uh in terms of the market
[35:34] which you asked me a territory which is
[35:37] untapped uh I would say it would be
[35:39] Latin America
[35:41] and and the reason behind that is that
[35:43] they are big manufacturers themselves.
[35:47] Mhm.
[35:47] You know they have a lot of factories in
[35:48] Latin America. There a lot of uh
[35:51] domestic productions that happen there
[35:53] and they have very high tariffs on
[35:57] Indian goods and goods from elsewhere.
[35:59] Correct.
[35:59] Because kind of protecting their own
[36:01] domestic manufacturing.
[36:02] So I think Latin America is
[36:04] and also for them to ship to the US is
[36:05] much cheaper from a time and costing
[36:07] perspective. So
[36:08] yes. Yes.
[36:09] All right. So so far we've covered uh
[36:12] your costing.
[36:14] We've we've spoken about consumer trends
[36:17] across the world.
[36:18] We've spoken about how different markets
[36:20] have different specialization, how to
[36:23] get your first buyer, how you got Zara
[36:25] to begin with. Now, do any of these
[36:28] brands that you start working with
[36:30] purely from an intellectual property
[36:32] protection perspective? Um, do they stop
[36:35] you from working with any other
[36:37] competing brands? Does that happen or
[36:39] It doesn't happen. It doesn't happen
[36:41] very regularly, but it has happened in
[36:42] the past. I again I wouldn't want to
[36:44] name the brand but uh one time this very
[36:48] uh wellreputed brand had issued a
[36:51] statement that if you work with so and
[36:53] so brand that we will not work with you
[36:54] and we realized there were only two
[36:56] factories in the world that work with
[36:57] both of those brands and we were one of
[36:59] them really
[36:59] there's one in China and there was one
[37:01] in India we were the one and we had to
[37:03] unfortunately end our relationship with
[37:05] with that brand because the the brand
[37:07] that came out with this statement was a
[37:09] giant and he was one of our biggest
[37:10] customers and we couldn't disappoint
[37:12] them.
[37:13] uh
[37:14] you know but I've it's only happened
[37:16] once in the last 25 years that I've been
[37:19] in business
[37:19] but you at any point feel like there's a
[37:21] lot of
[37:23] uh concentration risk to one buyer does
[37:26] that continue for the India market
[37:28] so that's always very risky uh we
[37:31] like do you do you feel that even today
[37:33] or do you feel now
[37:35] concentration of one buyer
[37:36] yeah no buyer has more than 20% of my
[37:39] sales
[37:39] so ideally it should not be more than
[37:40] 15% if you ask me no buyer should more
[37:42] than 15%.
[37:43] Are you within that benchmark?
[37:45] We have certain buyers who are even
[37:47] higher who are 20%. I think higher
[37:49] should be 20%.
[37:51] Uh but yeah, that's uh that's not ideal.
[37:54] Ideally, it should be 10 to between 10
[37:56] and 15%.
[37:57] M okay. So any IP protection uh clauses
[38:01] that you have to sign or be careful
[38:03] about or in fashion because everything's
[38:06] out in the open so quickly and because
[38:08] of fast fashion literally your lead
[38:10] times are they they won't leave you with
[38:12] too much time right like they'll give
[38:13] you a design you'll produce you'll ship
[38:15] it out do you feel that IP is becoming
[38:17] more a thing of the past in fashion
[38:19] no copyright is very very important uh
[38:21] okay you know
[38:22] and who owns the copyright it's the
[38:24] brand
[38:25] yes it's if we supply a certain garment
[38:28] Even if it's our design and we supply it
[38:30] to a certain brand, we have to make sure
[38:32] that that same design is not supplied to
[38:34] another brand.
[38:36] Okay? So when you make designs,
[38:37] essentially what you're doing is you're
[38:39] selling
[38:40] exclusive or non-exclusive licenses
[38:43] to your design to different brands and
[38:45] if one picks a brand do they say we want
[38:48] an exclusive or a non-exclusive license
[38:50] and does that
[38:51] they don't say that. They don't say
[38:52] that.
[38:53] But is that understood?
[38:54] It's understood. Yeah. Because uh
[38:55] Okay. So the moment you've pitched a
[38:57] design which is yours and one agrees to
[38:59] buy it, you cannot pitch the same
[39:01] design.
[39:01] We have to protect the interest of our
[39:03] customer.
[39:03] Okay.
[39:04] Right. So you tweak it a bit.
[39:05] If we are supplying to five brands,
[39:07] let's say in UK,
[39:09] right? And if I sell one brand a certain
[39:11] product and if I sell the second brand
[39:13] also the same product, then how does a
[39:15] brand differentiate from the other,
[39:18] right? And then what will happen is that
[39:21] if you supply to one brand a certain
[39:23] product and you supply to the second
[39:25] brand the same product, the first brand
[39:27] will sue the second brand for
[39:30] you know copyright and then the second
[39:32] brand will end up suing the supplier who
[39:34] sold to both.
[39:36] Oh.
[39:36] So you will end up in trouble. You'll
[39:37] end up in lawsuits. So and then also uh
[39:41] so they I'm assuming they take a
[39:42] declaration from you that whatever
[39:43] design you're giving them you will not
[39:46] it's understood. It's understood. Yeah.
[39:49] Oh
[39:49] yeah. I think agreements are more to do
[39:52] with financials and returns and quality
[39:55] and all that.
[39:56] It might be mentioned in some of the the
[39:58] fine print. I mean honestly I'm not
[39:59] but now it's understood because that
[40:01] mature in industry you wouldn't mess
[40:02] with it.
[40:02] Yeah. Yeah. It's understood. I mean if
[40:03] you are working with uh you know
[40:06] different brands in the that supply in
[40:08] the same region then you have to protect
[40:09] their interest.
[40:10] So how would you change designs? For
[40:12] example, if you feel denim wear for kids
[40:14] is suddenly in vogue
[40:16] and there are certain kind of sleeveless
[40:19] dresses that young girls would love to
[40:22] wear which has some flower
[40:24] embroidery on top of it.
[40:26] Do you change the the colors on the
[40:30] flowers or would you change the density
[40:32] of the flowers?
[40:32] It has to visually look completely
[40:34] different.
[40:35] So even if it's the same shape and it's
[40:36] the same embro design only the color is
[40:38] different visually it'll still look the
[40:40] same. M
[40:40] so unless unless or until it's a generic
[40:42] design like a a blue shirt is a blue
[40:45] shirt
[40:45] correct
[40:46] you know uh but I think that's that's
[40:50] why that way men's wear is a lot safer
[40:52] correct
[40:53] as compared to fashion category like
[40:55] but then margins in men men's wear would
[40:57] again be slimmer because you are not
[40:59] really able to differentiate
[41:00] yes yes
[41:01] understood
[41:02] another question from a financial
[41:04] perspective that occurs to me is imagine
[41:07] in this business very similar to yours
[41:09] someone is doing about 100 crores of net
[41:12] sales in a year. Um do you think there
[41:16] is a certain amount which always is
[41:18] blocked in working capital in
[41:19] receivables and inventory?
[41:21] Is that a percentage of sales and how
[41:23] are you thinking through it? Is it
[41:25] linked to how many months of
[41:27] inventory is always blocked in raw
[41:30] material in finished goods and in
[41:32] receivables? Any benchmarks around that?
[41:35] So normally inventory I would say uh our
[41:39] our average lead times are uh I would
[41:41] say about 90 days.
[41:43] Lead time to sell to customer and
[41:45] recover the money.
[41:46] Yeah. From the day we get the order to
[41:48] ship is roughly about 90 days. And then
[41:51] uh
[41:52] oh so 90 days of production time.
[41:54] Yeah. To get all to source all the
[41:56] materials to get all the approvals to
[41:58] manufacture that average time I would
[42:00] say roughly be about 80 to 90 days.
[42:02] Okay. Okay.
[42:03] And then once the goods are shipped out
[42:06] uh you know normally we get our payments
[42:08] uh between 30 to 90 days.
[42:12] And once you ship the average time to
[42:14] get there is about 15 to
[42:17] it's higher now. It's higher now because
[42:18] of the Red Sea issue.
[42:20] Uh the goods are going around Cape of
[42:22] Good Hope.
[42:23] Uh so which is taking another 2 weeks I
[42:26] would say about maybe
[42:28] 50 to 45
[42:28] about 5 5 weeks. Earlier the shipping
[42:30] time was about 3 weeks. Now it's taking
[42:32] about 5 weeks.
[42:33] Okay.
[42:33] So uh and then you know we have uh
[42:36] normally with the banks we have uh
[42:38] factoring facilities
[42:40] where once the goods ship out we are
[42:42] able to discount our bills correct and
[42:44] get our payment. Uh
[42:47] so so roughly I would say uh
[42:49] so 90 days of just building inventory
[42:51] and manufacturing and other
[42:53] and another 30 days on average
[42:54] another 30 days on an average.
[42:55] So 120 days I would say.
[42:56] Oh that's that's a long period actually.
[42:58] Yeah. Yeah. So I would assume
[43:02] 120 days of sale would make about at a
[43:04] 100 cr that would be about 25 cr. When
[43:07] you go to say cost of goods sold at
[43:12] 30% that would be close to 8 to 10
[43:14] crores of working capital on a 100 cr
[43:18] correct.
[43:18] Yeah. So you would say about 10% is what
[43:20] would be of your revenue is blocked in
[43:22] working capital.
[43:22] Correct. Absolutely. Absolutely. So if
[43:24] you're 100 cr business then at any given
[43:27] point of time your uh outstanding with
[43:30] the customers will be roughly about 10
[43:32] crores.
[43:32] Wow. That's a that's a substantial sum
[43:35] for a low margin.
[43:36] Yes. And unfortunately the interest
[43:38] rates in India are also not the most
[43:40] competitive.
[43:41] Yeah.
[43:41] And that's another reason uh why uh
[43:44] China and Bangladesh have done so well
[43:47] because they get subsidized interest
[43:48] rates.
[43:49] Correct. uh you know our rates could be
[43:51] even three times compared to them
[43:52] at the rate that that we borrow money
[43:54] from our banks uh apart from the duty
[43:57] benefits that they've enjoyed Bangladesh
[43:59] has enjoyed the low labor costs they've
[44:01] enjoyed uh you know uh and that is why
[44:05] you know I've always felt that it's not
[44:06] a level playing field and we've always
[44:08] had a disadvantage just because we are
[44:10] located in India and that is also one of
[44:12] the reasons you know we have to
[44:14] constantly innovate uh to be able to
[44:17] sustain that business rather than just
[44:20] you know depending on buyers to send us
[44:21] packs that we develop and convert into
[44:23] orders.
[44:24] Sure.
[44:24] Which increases our overheads as well.
[44:26] Yeah.
[44:27] Wonderful.
[44:29] Thank you. I think this has been
[44:31] fabulously insightful. Thank you for
[44:33] taking us through your entire factory.
[44:36] We've not seen all of them but we saw
[44:37] this one
[44:39] which is very beautiful and we are
[44:42] taking a lot of inspiration from this
[44:44] and hopefully as as India grows we'll
[44:46] see a lot more manufacturing in India
[44:48] and we hope for India to have a lot more
[44:50] such factories and you to have a lot
[44:52] more such factories. So thank you for
[44:53] making the time.
[44:54] Thank you. The pleasure is all mine. Uh
[44:56] it's been a pleasure and uh I hope it's
[44:58] useful and we can inspire the youth.
[45:02] This was Bhat's factory in Noa and there
[45:04] are garment hubs all over the country
[45:06] from Tirupur to Ludjana to Jaipur.
[45:09] Stick around because I'll take you into
[45:11] more such factories across industries in
[45:14] the upcoming episodes of Founders Office
[45:16] with Sarta Kahuja.