How Coats is future-proofing for innovation and sustainability | Apparel Resources
It is said that Coats – the world’s largest industrial thread company – makes enough thread to go to the moon and come back every three hours! Coats was born around 260 years ago, when the First Industrial Revolution started. Today Coats stands at US $ 1.50 billion turnover and sells its products to over 5,000 fashions brands /industrial OEMs and 40,000 factories across the world. Sustainability and Innovation lie at the heart of Coats strategy – the company has also been investing in technology and digital capabilities, while it has an ambition to reduce emission by 50 per cent in this decade and reach net-zero emissions by 2050.
Coats firmly believes in building online and digital capabilities. Rajiv Sharma, Group CEO of Coats, who joined the company around 11 years ago, affirms that Coats is not just a thread company, it can also be viewed as an Industrial Cloud company as it has invested significantly in technology and talent. This investment has helped Coats to manage complexities and disruptions in the supply chain seamlessly. Team Apparel Resources (AR) recently sat with Rajiv to discuss about the apparel industry and get his thoughts on the changes taking place. Read the excerpts.
AR: How has the apparel industry, especially retail, changed over the last two decades?
Rajiv: The fashion industry missed the Third Industrial Revolution – automation – and instead moved production to Asia where labour costs are relatively lower. China has been a big reason for retail prices in the West being stable during the past two decades. Following the 2008 global financial crisis, the industry focused on working capital and cash management. There was also a trend of smaller quantities being ordered more frequently. While more fashion brands were profitable in the last decade, the high frequency ordering and order complexity put immense pressure on the supply chain.
Most fashion brands have invested in sophisticated digital platforms to connect with consumers and push an omnichannel strategy.
Overall, the industry was fitter and faster by the time Covid hit in 2020. The industry was able to absorb the severe impact of Covid by pushing harder on innovation, sustainability and online sales.
AR: As global apparel market is strongly reviving, the apparel manufacturing industry is upbeat about the orders. How does Coats see growth in its global markets in today’s time and how is India poised?
Rajiv: Coats has extensive operations across Asia. We adjusted very quickly to Covid disruptions by making all employees focus on two things – health and safety, and cash. Our investments in technology allowed us to flex our supply chain and continue serving customers. Globally, our sales declined by 19 per cent in 2020, but we saw a strong rebound in 2021 with sales growing by 29 per cent. The premium, performance and sports categories were relatively less impacted by Covid. The global industry is expected to get back to 2019 levels sometime next year.
Coats has been in India for over 100 years and is better known by the name ‘Madura Coats’ in India. We have a large manufacturing base that caters to not only the domestic market, but also our international markets. India is an important market for Coats and I am excited about the overall prospects of the domestic apparel brands.
AR: Apparel and textile industry is ever-evolving but it is challenging too at all times. Recent inflation and hike in yarn prices have hugely impacted demand and supply chain. It might have impacted your margins too. How you have managed to arrest the impact of high yarn prices and inflation?
Rajiv: There are two events that have had an impact on supply chains this year. First, Russia’s war on Ukraine has created higher oil and commodity prices. This leads to inflation and higher input costs for everyone. Secondly, the ‘zero Covid’ policy in China has resulted in additional supply chain disruptions as manufacturing, logistics and ports have been shut in some part of China. Shanghai port – which is one of the busiest ports in the world – had a three week waiting period for ships to dock into the port in April.
At Coats, we focus on self-help programmes to mitigate the effects of inflation. These include premiumisation of our mix, manufacturing productivity and overall cost base efficiency. Last year, we experienced four major areas of inflation – labour, energy, freight and raw materials. Coats tends to do much better than competition in inflationary periods. Our scale, technology and talent allow us to deliver the optimum balance of price and productivity.
After many decades, retail prices of apparel and footwear have gone up. Inflation and supply chain disruptions have got most brands to push retail prices up and lower discounting. This is good for everyone in the supply chain. We carefully manage our factory utilisation, product mix and overall cost-base productivity to deliver the required customer value and shareholder value.
AR: Sustainability has two aspects – customers, end-customers, while it should also cater to the company’s self-goal ensuring more eco-friendly supply chain. How does Coats handle sustainability in each of these segments? What are your long-term sustainability goals and roadmap?
Rajiv: The industry is changing in response to growing environmental pressures and ever-evolving consumer demands that are encouraging a direction towards sustainable alternatives. This requires a different mindset, a lot of investment and the right eco-system. Coats is a leader in our space when it comes to sustainability. We already have a well-established set of sustainability goals that we are dedicated to achieving across our own business operations with a focus on water, energy, effluent, waste, social and materials used in our products. We have since identified ways to raise our ambitions further to accelerate change. This includes a roadmap towards net-zero by 2050, and designing products and packaging solutions for circularity. Decarbonising our supply chain is no longer a ‘nice to have’, it is a ‘must have’. Consumers expect brands to be environmentally responsible and to not waste natural resources. Sustainability needs to be embedded into the company’s brand DNA. The time for talking is over. Today’s winners will lead the way and deliver outcomes with speed and at scale.
AR: Coats was certified as a ‘Great Place to Work’ in 2021, while Madura Coats got certified only recently in 2022 and it’s well deserving. Please share with us the contribution of talent and people over the years that has made Coats a market leader.
Rajiv: Madura Coats was first certified as a Great Place to Work in 2021. This year it has gained its second certification. This is a matter of great pride for myself and everyone in Coats. Our goal is to have more than 80 per cent of our employees working in sites that have been certified by GPTW.
In my position, I am focused on two topics: (1) Capital Allocation – What do we invest in and how much? (2) People – How do we create winning teams and superior talent? I believe if you get these two things right, the rest will work out. We believe in getting great people, investing in them, providing relevant tools/training/environment and then letting them free (within a framework) to deliver stellar outcomes. It’s actually not too complicated. It comes down to basic beliefs. I believe in investing in talent and technology to secure a competitive advantage.
AR: Smart textiles is the new growth opportunity area that requires conductive threads. How is Coats addressing this area? What all initiatives have been taken by Coats to tap the growth in smart textile market?
Rajiv: Smart textiles is a very niche segment and currently quite small. In the grand scheme of things, it is a category in its infancy stage which is largely used in professional sports and medical applications. At some point in the next 8-10 years, we will see smart textiles entering mainstream when scale starts to increase. Today, we have the ability to make a thread transmit heat (or lack of it), electrical signals and even incorporate electronic circuitry. Conductivity and threads have been around in Coats for the last 100-plus years. There is a fun fact – Thomas Edison who invented the light bulb used Coats thread around 120 years back.
The challenge to bring smart textiles into mainstream apparel is the fact that it must last 60-100 laundry cycles. Detergents, hot water, circular motion and dryer heat can impact the functionality or life of the smart apparel. There is still some work that needs to be done to ensure the cost, comfort and functionality of smart textiles is as good as or better than today’s garments.
AR: Minimum Order Quantity (MOQ) is decreasing as concepts like on-demand manufacturing, micro-factory and no inventory model are on the rise. Availability of right threads in right colours and small quantities is the key factor. How Coats is adapting itself to address these issues?
Rajiv: Order complexity can be managed by having flexible manufacturing systems and technology. Micro-factories closer to the point of consumption have been tried and failed. It’s a good idea, but the implementation does not work for the consumers or brands. In reality, it’s more marketing value than economic value! Last mile customisation in a retail store is allowing brands to address the need of hyper-personalisation for now.
The method of making a garment or footwear has not materially changed in the last 40 years. Yes, machines have got faster and are using fewer natural resources, but the key steps in manufacturing are more or less the same. You can put more electronics in a shirt and get more diverse colours but a shirt is a shirt. That’s not changing, so I don’t see any significant change in the basic construct of garments, shoes or bags over the next 20-40 years. What is changing is the need for speed, sustainability, personalisation and traceability of supply chain. Today a consumer who is buying a T-shirt wants to know where the cotton was grown and, if possible, even the name of the farmer. So, to really push hard on conserving the resources of this planet, Coats is committed to doing things in a more responsible way.
AR: How would Coats define a ‘Good Quality Thread’ and what stringent quality standards does Coats follow to ensure quality production?
Rajiv: Quality assurance and high standards are an integral part of the Coats culture. We invest in ensuring raw material quality meets our high standards. We are quite firm on our suppliers’ quality and reliability. At various stages of our production, there are quality checks. Each factory has a big sized laboratory with quality instruments and trained personnel. At any stage of procurement, manufacturing and warehousing, our employees are empowered to stop the line if they sense a quality or safety issue.
There is a lot of time, money and effort spent on training employees to ensure safety, quality production and efficiency standards are met. We use camera technology and sophisticated algorithms to ensure superior colour quality.
AR: ‘Demand Forecast’ is something the industry is eyeing at to predict what comes next in advance. What are your views on this?
Rajiv: Demand forecasting in the apparel business is quite difficult. Let’s take an example – a consumer is scrolling through an e-commerce app just to know what all products are there and suddenly he/she comes across a pair of socks that really excites him! He may end up buying those socks. Who could forecast that? Even the consumer didn’t know he was going to make a buy! By using digital and AI, it’s becoming a bit easier for brands to forecast aggregate volumes. Some brands are also connecting data pipes between them, the Tier-1s and Tier-2s. This gives the supply chain a bit more time to adjust and react. While the consumer is well connected with the brands, there is work to do in terms of digitally connecting the brand with their supply chain.
At Coats, we have up to 3 weeks of confirmed orders for apparel and footwear. We are also working off a brand forecast that covers the next 6-12 months. This forecast is an indication of future demand, but there are no commitments. We do need to buy raw material 6 months in advance. If we buy the wrong materials or do not have the right materials in the right factory, we will see inventory write-offs and higher costs. Coats does very well in managing this complexity.
AR: What is your message from Coats to the garment factories as what they should do for bringing automation and having more data to make data-driven decisions?
Rajiv: The factories play a vital role in garment production. My plea to them would be to make sustainability and compliance an even more important part of their strategy and operations. I have a lot of admiration for the owners of garment factories that have focused on value delivery instead of lower cost to stand out.