The Hindu : Tamil Nadu News : Along the supply chain, prices on the boil

Online edition of India's National Newspaper
Tuesday, Jul 08, 2008
ePaper | Mobile/PDA Version

Tamil Nadu

Tamil Nadu

Along the supply chain, prices on the boil

Sruthi Krishnan

Raw material prices up, transportation is dearer

Photo: R. Ravindran

costlier cloth A textile shop at Godown Street in Parrys in Chennai on Friday.

From wholesale dealers to retail outlets to the on-your-doorstep vendor, there is only way to keep profit margins intact — make the customer pay. With inflation into double digits, costs are shooting up all through the supply chain.

Let’s start with raw materials, the first link in the supply chain. To make synthetic fibres like polyester yarn, petroleum products are used. The increase in fuel prices straightaway hikes costs. From July 1, prices of suiting went up by 16 per cent, says S. Ponnambalam, a former president of The Madras Piece Good Merchants’ Association.

Cotton prices are even more stifling. Off-seasonal rains in March affected cotton crops in the south, he says. The price of a bale of cotton (800 kg) was Rs. 16000 in January; now it is Rs. 32,000.

All the mills, from which Godown Street procures cloth, increased their rates by 10 – 13 per cent on July 1, says Mr. Ponnambalam. The price of lignite has gone up by 13 per cent in a year. The shortage of coal is worrying and many mills may close down because of it, he says. Moving the material from the mills to Godown Street is also more expensive. For example, the cost of transporting one bale from Rajasthan to Chennai has gone up from Rs. 300 to Rs. 450, says Mr. Ponnambalam.

Labour costs have also gone up. With input costs up, what happens to profit margins? In wholesale, profit margins are fixed, Mr. Ponnambalam says. If you don’t want to travel to Godown Street, people like B.S. Jagadeesan come to the rescue. Buying from Godown Street, he sells door-to-door. An added incentive is that people can pay in instalments.

The price of blouse pieces have gone up by 10 per cent in 3 months, he says. Despite his margin being the same, increasing competition is stifling his profits. It is becoming difficult to sustain a family of four with his cloth business, he says.

Mangala Ramadoss regularly buys from Jagadeesan. A single mother with two children, her family manages with her salary of Rs. 7000 a month. She buys churidhars that sell for Rs. 65 on platforms, as prices outside are too high. School uniform prices went up by Rs. 50 this year. She has no choice but to buy, she says.

How are retail outlets faring? For bigger chains, the effect of inflation will not be felt now, says the manager of a retail chain. Purchasing takes place six months in advance. It’s only when the negotiations start after six months that the effect of inflation will be felt.

Anita Shanmugam, Managing Partner of a franchisee outlet, says that June, which is usually a busy season because of marriages, has been dull. Prices have gone up by 30 per cent since beginning of the year. Competition from local labels is catching up. People look for value and don’t mind sacrificing brands, she says.

A distributor for an apparel brand who has been in the business for 11 years says the retail boom cannot be sustained unless real purchasing power increases.

Printer friendly page
Send this article to Friends by E-Mail

Tamil Nadu