British retailer Tesco’s upbeat on Sri Lanka, despite war jitters

Oct 27 (LBO) – An escalating civil conflict has not dampened Tesco’s plans for Sri Lanka, with the UK based mass retailer expecting a 40 percent spike in apparel business from the island next year.

Tesco’s buys clothes for its up-market ranges in its department stores, from about 30 Sri Lankan suppliers, Christophe Roussel, the group’s International Sourcing and Logistics Director, said in Colombo on Thursday.
Duty free tax breaks to Europe, lead times that are among the best in Asia and top notch service has won over war fears that Sri Lanka may be an unstable market for investors and buyers.

“What we see is that there is no threat to production. All the factories that we deal with are in Colombo or to the south of the country, Peace talks have also begun and that is a good sign,” Roussel said.
The Sri Lankan government and Tamil rebels are to begin talks on October 28 on establishing some peace in the country and slowing down a recent surge in violence.

Sri Lanka’s 2.6 billion dollar apparel industry is the country’s top export earner, shipping clothes to buyers like Victoria’s Secret, Liz Claiborne, Marks & Spencer and Tesco’s in the United States and Europe.
The island has largely pitched on high quality manufacture, design and garment finishing and strong labour standards to hedge against competition from countries like China, India and even Vietnam.
“Sri Lanka is slightly more expensive than China or India, but in Sri Lanka it is a pool of excellence for our better and best ranges. We have better fabric and design and much shorter lead times from Sri Lanka to Europe,” Roussel said.

It takes about 13 days to ship garments from Sri Lanka to Europe to the average of three weeks from China and India, the fast turnaround allowing Tesco’s to stock its shelves with new styles, faster.
This year, Tesco’s will buy up 120 to 140 million sterling pounds worth of clothes from Sri Lanka, a 50 increase on last year.

Most of that growth is being driven by a trade deal with Europe that gives Sri Lanka duty free access for over 7000 goods, including apparel, into Europe, Roussel said.
“The GSP Plus has had a definite impact on buying from Sri Lanka,” Roussel said. Sri Lanka is one of five sourcing hubs in the region, alongside India, Bangladesh, China and Turkey.
Tesco’s sources 400 sterling pounds worth of goods at retail values from South Asia and an almost equal amount from China, though its is careful against over-exposure to China.
“We don’t believe in putting all our eggs in one basket, we have put some of our business in China but have split production between five main countries,” Roussel said.

The chain is also trying to source food from Sri Lanka and is in talks with local tea brands and manufacturers, though is cautious in expanding outside of clothes.

“Our organisation focuses mainly on the non-food business and what we do well in Sri Lanka at the moment is developing the garment business and building strong relationships with suppliers,” Roussel said.

Tesco’s group turnover is in the region of 43 billion pounds, servicing 2700 stores in 13 markets around the world. The chain has also posted earnings of 22 billion pounds in the first six months this year.
Sri Lanka posted a low 4.8 percent growth in exports of textiles and garments in the first eight months of this year at 1.9 billion dollars.