Coats Global CEO Rajiv Sharma with the team in Sri Lanka during his recent visit to the country

Coats Global CEO Rajiv Sharma was in Sri Lanka recently, on a flying visit which covered a tour of the Coats plant in Horana and the local head office in Colombo. A few one-on-ones with key players in the local apparel industry were also included in his busy schedule. He spoke to the Daily FT about global trends, resilience of the Sri Lankan economy, apparel industry, and the optimism its people bring to the equation. Following are excerpts.

Q: How important is Sri Lanka for a global company like Coats?

A: Sri Lanka has a special place in our industry and for Coats. It makes complex garments and supports brands in their innovation. The people in the apparel industry in Sri Lanka make this possible and it allows the country to punch above its weight both in the industry and inside Coats. When you meet people from the industry, there’s optimism, intellect, cutting edge skills and a “can do” mindset. The kind of garments manufactured in Sri Lanka are highly specialised and complex. It’s not easy to shift this production to another country. Sri Lanka has skilled workers, new machinery and excellent management that make it an attractive destination for several apparel brands.

Q: You are saying the apparel industry in Sri Lanka is mature?

A: I would say it is specialised and growing, because the world is getting more specialised. In the last decade, you must have experienced two things in your clothing and shoes — they have got lighter and more colourful. It takes sophisticated manufacturing processes to make these kinds of garments. Sports, athleisure and active wear are projected to grow above the overall industry growth rates. There’s a saying, ‘when things are volatile and uncertain, you make the trend your friend’ and in this case, the trend is clearly Sri Lanka’s friend because that’s what gets manufactured in this country.

Q: How will you hold your ground for Coats in Sri Lanka?

A: There are three things we focus on in Sri Lanka. One is technical services and support. Customers in Sri Lanka are very sophisticated and demanding, which is good for us because it makes us better as a company. The second thing we do is digital, digital tools, interphases to seamlessly support our customers; and the third thing that we do is we make sure we have enough capacity here to fulfil not only the current demand but future demand. For me the focus is on how we can leverage the human capital in Sri Lanka and export that spirit within the Coats system so we can begin to see the same mindset and thinking across Coats units in other parts of our business.

Q: Are multinational companies attempting to control how we look? With globalisation seeping into every corner, our individuality is challenged; as the global head of a company that manages colour across the world, how do you see this?

A: In general, brands respond to consumer trends and preference. So, there is no question of MNCs trying to control how we look. Most brands are global companies that operate in a global economy, with global supply chains. In order to keep retail prices in check, most brands look for economies of scale. Today, one-third of global consumers are under the age of 25 years. They focus on individuality, experiences and uniqueness. Most brands are now responding to this consumer trend by allowing some customisation by the individual consumer. It’s important for each country to have its own set of designers and apparel brands that bring out the best of local culture and traditions. In some ancient cultures, you’ll find a very strong and thriving domestic apparel and footwear industry — ethnic designs, colours, fabrics, fibres, etc.

I’d be the first to say that brands through their marketing can shape consumer sentiment and consumer preferences; but at the end of the day, it is the consumer who decides what they want to wear and how they want to express themselves. The younger generation processes information differently, and want to be part of the creative process for products they consume, like customisation, innovation, experiences; they want to know where the cotton in the garment they’re wearing came from. The industry is responding to that, because they make up one third of global consumers, and we have to cater to them. So, in keeping individuality, domestic consumers have to make their voice heard.

Q: Would you have had a much bigger colour palette for your threads in the past than now or has it become smaller?

A: The colour palette has actually gone up due to the proliferation of colour by designers. This in a way is the outcome of catering to many more segments of consumers. Last year we created and manufactured over 160,000 different colours. To give you an idea of the complexity we deal with, I will give you three numbers i.e. we have 1.5 million unique products called SKUs in industrial terms that we sell to 40,000 customers in 100 countries. Multiply those three numbers, and it gives you the amount of complexity we have to manage within our operations. Each brand wants to differentiate their products at the retail store and colour is one source of differentiation. Mass customisation is a fact of like as one has to cater to the preferences of individuals or small groups.

Q: What do you think of the world economy and where it’s going? Everybody is predicting scenarios of gloom and doom. Where do you think companies are headed in the future?

A: 2020 was defined by COVID and everyone knows what happened. If you look at the last 26 months, there are two things that have defined the global narrative — macroeconomics and geopolitics. Both interplay with each other and that’s causing volatility and uncertainty. The apparel industry worldwide had a very strong rebound last year, coming out of COVID. The Sri Lankan apparel industry has done very well last year and continued to do very well in the first half of this year, like everyone else. But clearly, like all other industries, we too see some challenges in the future. Having said that, the Apparel industry is very resilient and agile. I am confident that brands, retailers and manufacturers that are aligned with the winning trends of athleisure, sporting goods, activewear, outdoor, the casual wear will win. Formal wear, travel, denim and fast fashion will need to reinvent themselves on the pillars of sustainability, innovation and durability of garments to thrive in this decade.

Q: People are predicting a global recession that will obviously impact every sector. What is your reading of that? What will you tell your board?

A: It’s ‘not’ all doom and gloom. I think the reality will be less negative than what is projected on TV or in newspapers. In Q4-2021 and Q1-2022, the industry experienced a big demand surge. In the second half of 2022 and most of 2023, I expect the industry to get back to its historical growth rates. At the premium end of the apparel and footwear industry, demand remains robust when compared to historical growth rates. The mass market end of the market is experiencing some softness as consumers lean towards more saving and a pause in shopping. The US market will be the least impacted on a relative basis to Europe and Asia. Europe is in a difficult spot and a recession in likely. Asian domestic markets are robust ex-China. My hope is that next year China makes some policy adjustments to spur growth and domestic consumption.

Q: We are all anxious about what’s going on in Sri Lanka? But what do you see from the outside looking in? Are you hopeful of a rebound?

A: Not hopeful but confident of a rebound; I know it’s going to happen and it will be a strong rebound. It’s actually happening as we speak, despite the last three months of unrest and economic hardships. To some extent, you might attribute this to the resilience and hopeful nature of Sri Lankans. The currency devaluation increases Sri Lanka’s competitiveness in export. When I meet customers in Europe and the US, there is genuine support and goodwill for Sri Lanka apparel industry. There is a genuine effort to go the extra mile to help. One has seen several countries and multi-lateral institutions rush to Sri Lanka’s assistance. During my 22-hour visit to Colombo, I witnessed calm on the streets. Food and medicines are available and the shortage of fuel is easing. So overall, Sri Lanka is firmly on the road to recovery.

Q: What would you say is the most important aspect in your sustainability drive in Coats, globally and in Sri Lanka?

A: Sustainability means different things to different people in different industries. Let me define what sustainability means for Coats and how it’s measured. The period from 2019 to 2022 is defined as Phase 1 of our sustainability program. In Phase 1, we have big targets for water intensity, energy intensity, effluent, waste, social and recycled materials. The period from 2023 to 2030 will be phase 2 in which we focus in two big areas i.e. transition from oil-based materials to recycled and renewable materials and in the transition from hydro-carbon based energy to renewable energy.

Our ambition is by 2030, to make all products in Coats from either recycled or renewable materials and to have more than 70% of our global energy consumption from renewables. We are investing resources in material transition, coming up with new plant-based materials, more sustainable materials like vegan dyes and chemicals. We are leveraging renewable companies to provide us with energy coming from solar, wind and biomass alternatives. Between renewable energy and material transition, we will reduce our total CO2 emissions by 50% within this decade. It’s a very exciting journey for us.

Q: What is the next 10-year vision for the global company? I understand Coats is not only into apparel?

A: Coats has been in existence for 260 years. Sewing thread is its main products and we are the world’s best and largest industrial sewing thread manufacturer. About a decade back we embarked on a strategy that I like to call “Beyond the stitch line”. We have diversified into different end markets by leveraging our core competency in manufacturing and material handling. When I joined the company in 2011, roughly 92-93% of our sales came from threads. Today, 75% of our sales come from threads and by the end of this decade, it will be 60%.

So the non-thread business is growing. Non-thread business involves making highly engineered and technical yarns that go into a fireman’s suit, military applications, reinforcement material for oil and gas subsea pipes, wrapping around fibre optic cables, etc. We just invested in two footwear acquisitions that specialise in structural components. Our growth strategy has four pillars. They are innovation, sustainability, digital and acquisitions. These four pillars allow us to grow in our traditional markets and adjacencies.

‘Sri Lanka’s apparel industry will rebound’: Coats Global CEO Rajiv Sharma