MANAGERIAL ECONOMICS - I

Project Topic

Micro-economic study on Chikankari industry in Lucknow, Uttar Pradesh

(Analysis of economic unit: Individual Firms operating in the Chikan market)

Participants Group D (Section E)

Apeksha Agarwal
(PGP30250)
Apurva Dixit
(PGP30251)
Karan Bhingare
(PGP30253)

Reshal Jain
(PGP30270)

Course Instructor: Prof. Sanjay

K. Singh

Umang
Khetan
(PGP30
294)
Vivek
Anandan
(PGP30
295)

Shubhra Das
(PGP30283)
1

Table of Contents
INTRODUCTION TO THE TOPIC
METHODOLOGY

HISTORY OF CHIKANKARI

AVADH CHIKAN TRADER

CHHANGAMAL TRADER

MODAGE TRADER

10

GOVERNMENT INTIATIVES

12

CURRENT TREND, FUTURE OUTLOOK 14

RECOMMENDATIONS
REFERENCES

14

16

Introduction to the Topic

The project studies the market structure, demand and supply
determinants, government support to and future outlook of the Chikan
industry in Lucknow. Chikankari is a hand-embroidery art that stands out
as the Unique Selling Proposition of Lucknow. The industry is also receiving
help from the State and Central government through Export Promotion
Bureau, Small Industries Development Bank of India (SIDBI) and
Handicrafts Marketing and Service Centre.
Chikankari is an art form that most closely associates itself with the city of
Nawabs. It employs lakhs of people, but remains an unorganised market
facing stiff competition from machine-made embroidery work.
The industry has seen backward and forward integration with single units
handling the production as well as retail of Chikan-embroidered clothes.
Importance of the study: One of the key sources of livelihood for artisans
in and around Lucknow is Chikan embroidery. With the Chikankari industry
receiving support from SEWA (Self-Employed Womens Association), the
industry has got a boost in terms of increase in womens participation. It
was important to understand how the industry works and what the
roadblocks are to its growth.

Methodology
The study takes data spanning over 6 years, primarily collected through:
1. Field Visit: Our team visited multiple Chikankari shops in Lucknow.
We spoke to shop owners in the Hazratganj market and within that
the Janpath area. Some of the shops we visited include:
Chhangamal Traders, SEWA Chikan Industry, Modage Traders
and Avadh Traders.
2. We went through the website and Annual Report of SEWA Lucknow
to study the financial information of a large player in the industry.
3. Financial information was also sought from the Chartered
Accountant of Avadh Traders, Lucknow
4. This report was compiled keeping in mind the relevance of the study
to economics concepts and industry analysis.

HISTORY OF CHIKANKARI
Chikankari is one of the most popular form of embroidery in India that
has grace and elegance attached to it. For centuries this fine white
design has delighted the hearts of the kings and commoners alike. It is
one of the prides and serves as an embodiment of nazakat and tehzeeb
of the city of Nawabs that is Lucknow. Though practiced in Lucknow for
more than two hundred years the art did not originate here.
MEANING
Chikankari, refers to an embroidery variety done originally with pristine
white cotton thread on fine mulls and muslins called tanzeb (tan=body,
zeb=decoration).
The word 'chikan' derives its name primarily from the Persian word,
'Chakeen', which means rendering of delicate patterns on fabric. However
some believe that it may been a distorted version of the words 'Chikeen'
or 'Siquin', a coin valuing Rs. 4 for which the work was sold.
Another explanation ascribes the term to the East Bengal language, in
which the word
'Chikan' meant fine.
ORIGIN
There exist different versions as to the origin of Chikankari embroidery
work in India.
The earliest references dates back to as early as the 3rd century BC.
Greek traveler and chronicler Megasthenes mentions the use of flowered
muslins by Indians.
According to the most popular opinion, the art is believed to be introduced in
the seventeenth century, to the Mughal Court of the Emperor Jahangir by his
wife Noorjehan. It is believed that the queen was a talented embroiderer who
was inspired by this Turkish embroidery.

Pleased by the queens talent and interest in the white floral embroidery,
it was soon given recognition and royal patronage. Soon workshops were
established wherein this embroidery was practiced and perfected to
become a unique art work in itself.
Indian craftsmen also believe that the origin of 'Chikankari' goes back to
ancient times when a traveler while passing through a village near
Lucknow, in U.P, asked for some water from a poor peasant who offered
him the desired help. Pleased with his hospitality, the traveler taught him
the art of Chikankari that would never allow him to go hungry. As per the
belief, the traveler was the prophet.
DEVELOPMENT
Chikankari flourished in the Mughal Court at Delhi in the seventeenth
century. When the Mughal Court disintegrated and the artisans scattered
across the country, some of them came and settled in near Awadh. They
brought this craft with them and established its roots in the city. It further

developed under patronage of the rulers of Awadh. Later in the year

1722, when the capital of Awadh shifted to Lucknow from Faizabad, the
knowledge of the craft came to Lucknow. Here it found the Hand Block
Printing skills that made it easier for them to practice this embroidery, as
earlier the tracing of design on cloth was very difficult.

This availability of easy process of drawing based design encouraged

them to teach this fine embroidery-work to their Kaniz (servants), who in
turn taught it to their other family members. Gradually this embroidery
became a part time earning source of many women of rural areas.
DECLINE AND REVIVAL
The artwork suffered a great deal due to loss of royal patronage. Industrial
revolution and increased productivity, due to commercialization had
further slowed down the growth and the quality of arts and crafts industry.
However for some decades now, the scenario has changed. Machinemade products no longer attract the people. Now handicraft work are
being used to establish style statements. They are being projected as an
ethnic product for a different class to who derive utility by fulfilling their
leisure pursuits. Admired all over the world today, the artwork has trickled
into every section of fashion industry. People in every part of India are
aware of this work greatly due to the contribution by movies and fashion
shows. The work is today being used in other fabrics such as georgette
and chiffon. From being an embellishment used primarily for decorating
clothes, it has now spread to cushion covers, pillow covers, bed-sheets,
table linen and so on.
CURRENT
According to the 2012 report by Udhyog Bandu, Department of Infrastructure
and industrial development, U.P, Chikan embroidery in Lucknow is the
biggest artisan cluster of India.

1 The total number of artisans associated with Chikan Embroidery ,

Cluster, other than Chikankari artisans, is about 5000.
2 There are about 4000 manufacturing units in Lucknow having
individual turnover of Rs.10 crore to 10 lacs.
3 The total turnover of industry is about Rs.1000 crore including
export out of India of about Rs.200 crore.
INDUSTRY ANALYSIS
In order to understand the economic agent namely the firm in the
Chikankari industry, we have analysed three leading shops in the
Hazratganj market of Lucknow. From an economic point of view, we
gathered data relating to cost, price, demand, profit and industry
characteristics.

AVADH CHIKAN TRADER

Established in 1985, Avadh chicken is one of the oldest players in
the market. It is a successful Family business selling the following
products
1
2
3

Ladies suits
Sarees
Kurtis stitched , unstitched and semi stitched

CUSTOMERS & PRICING

Price range of the products are from Rs. 1000 to 3000. The maximum
selling is of products in the price range of Rs. 1000-2000.
The walk-in customers on an average are 70-80 and approximately
50 customers buy something.
The maximum sales happen in the months of March to June during the
summer break. Tourists are the main source of sales. The Offseason
sales dwindle down to around 10-15 customers a day
PROFIT MARGINS
The profit margins are 25 % of the cost for local market and 10 %
markup in export sales, the markup during discounted sales is 10 %
PRODUCTION
1 They have their own production house which is recently established
10 years back and employs more than 200 workers. The salary is paid
on the Job basis. Usually one piece of work takes a week to be ready.
The artisans are from the nearby villages in Lucknow like Unnao,
Hardoi, Lakhimpur spanning an area of about 125 kms. The artisans
are not directly related to the manufacturer.
2 It works on the sub-contract basis. Usually the order is given by the
seller and the production house then passes it on the agents who
then deal with the artisans and get the work done. The point of
contact for the production house is the agent.
3 They are into wholesale business as well as into export business.
They usually export to USA, Europe, New Zealand and Australia. 70 %
of their sales comprise of export sales. The remaining 30 % is in cities
including Mumbai and Delhi
4 The following fabrics are used - cotton georgette silk chiffon and
terry wool. Fabric is procured from local vendors as well as from
Mumbai, Delhi, Surat and Ahmedabad

DEMAND
1

The turnover is around Rs. 5 crore

2 Since this industry is susceptible to rapidly changing fashion trends,

the demand is very fluctuating. As told to us, by the time the
particular product of latest trend gets ready, it may happen that the
trend is gone from the market leading to dead stock. At times, the
stock is cleared with a loss up to 25 % of the cost. 2 designers are
employed to help in laying out the designs for the artisans. The
designers are also paid on job work basis
3 As per the shopkeeper, the 5 years demand trend has been very
positive. There has been 10-15% increase in both local and
international business.it is a rapidly growing industry.
4 Only 100 % cotton kurtis are exported abroad.
5 The change in trend is gauged through customers feedback. The
shop participates in various fares and exhibitions to know more
about the customer requirements.
6 The current trend in the market is of kurtis which forms the major part of
sales.
COST BREAKUP
The cost breakup
Raw Material (Fabric) 25 % of the Total Cost
Labor (chikan work, stitching, finishing)-50 % of the total cost
Operating cost (rent, electricity)-25 % of the total cost
Sale Price
(-) Variable costs
Raw Material
Labor
Gross profit
Operating costs Rent, electricity, transportation cost
Net Operating Profit

Amount
2000
400
800
800
400
400

INVENTORY
At any given point of time, the shop maintains an inventory of
approximately Rs. 25 lakhs. The Work in Progress inventory at a given
point of time is around 50 lakhs.
They have only one shop in Lucknow for retail business as they are into
exports. The shop employs 8 salesperson. The operating cost of the
shop including rent and salaries of the sales person is around Rs.1 lakh
MAJOR COMPETITION
The industry has major threat from the machine work which looks like the
hand work and people who do not have knowledge about this work
cannot differentiate. The products look alike and are sold at half of the
price of original work.

CHHANGAMAL TRADER
Established in 1897, Chhangamal is an exclusive showroom of Lucknowi
Chikan goods. Owned by Mr. Ram Saran Garg it has been the family
business for 4 generations. The showroom offers the following Chikan
products:
1
Kurtis
2
Sarees
3
Salwar Suit
4
Dress Materials
CUSTOMERS & PRICING
The products are offered in the range of Rs.500 Rs.3000. The most
popular and maximum sold product is the cotton/semi-cotton kurtis range
priced in the 1500 2000 Rs bracket.
At an average the shop is accustomed to a footfall of 30-40 customers
from which around 20-25 actually make the purchase. The customer
footfall is a seasonal affair, with the maximum footfall being in the OctDec period. The offseason sees the footfall dwindle down to 10-15
customers making a purchase per day.
PROFIT MARGINS
The embroidery goods are sold at an average 30% mark-up over the cost.
This remains true for most of the year. However, during the offseason or in
situations of stock clearance the goods are sold at a discount bringing
down the profit margin to about 10-15 %.
of the entire
sales inventory
PRODUCTION
of the shop. The
rest
40%
is
Finished goods
The
product
procured
from
placed in the
procurement
other
local
shop are partly
selfsuppliers.
manufactured
and
partly
Procured from
purchased
other
suppliers 40%
from
other
suppliers.
Self
Produced
The
60%

LABOUR FORCE EMPLOYED

professio
The Chikan businessn since
being
a
primarilygenerati
concentrated
in
andons.
around Lucknow city, it
provides a major sourceAt
of employment to theChhanga
local artists who havemal,
been
in
the
sametheir
own

production
factory
was
established
around
40
years ago. It
produces 60%
productio ry work across their
n housedistribution channel to
employs artists in and around
10
Lucknow. There are no
agents direct artists employed
who thenat
their
production
sublet
house.
the
embroide

INVENTORY
At any point of time the showroom stores goods worth Rs 10 -15 lakhs.
The warehouse holds goods in a mixture of finished and unfinished goods
with a combined net worth of 50 60 lakhs. The unfinished goods are
primarily to adjust to the changing market trends and fashions so as to
have the least factory to shop timings.
COSTING
chiffon etc. The
cloth
is
purchased from
pricing of a
Cost of Finshed Goods The
Ahmedabad,
finished Chikan
Surat primarily.
product is
Cutting /
dependent on
3 major
component
16%
1 Cloth
used
2 Embroide
ry
3 Cutting &
Stitching
Stitchin g,

Embroidery
work, 61%

DOMESTIC / EXPORT SUPPLY

The trader was engaged
in domestic supplies to
Delhi, Mumbai etc, but
on account of bad debts
he stopped the same
and is now involved only
in local markets in
addition to some major

Cloth , 23%

The cloth used

is of various
types such as
cotton,
georgette,
tere-cotton,

buyers.

MODAGE TRADER
Established in 1981 as a footwear shop, Modage shifted its business from
footwear to clothing in 2012. Since 2012 they have been selling clothes
embroidered with Chikankari (Chikan Art). Within a short span of time they
have established themselves as one of the major players in the market.
They claim that there are as many as 36 different variety of stitches that
they offer on their product. Their primary products are:
1 Ladies Kurtis
2 Sarees
3 Salwar Suit
DEMAND
Off season Sales per day is on an average 20-25 pieces per day.
Summer season demand peaks to around 80-100 pieces per day i.e.
3000 pieces a month.
Unlike others even winter is a high demand period for them, they sell
woolen products with chikankari on it during these periods. They find that
there is a very large market for such products too. As long as its chikan
art, customer buy it.
A major source of their revenue is through Exports. The customers that
they have are loyal and have a very positive relationship with them.
Every time they buy they suggest someone else also to buy from Modage
because of their quality assurance and customer service. If any of the
product is found to be defective like stained or wrongly stitched they
immediately exchange it without any extra costs. They currently enjoy
having loyal customers from France, UK, US, Kenya, Dubai, Pakistan and a
few others.
PRICING
Since it is a handicraft, prices vary drastically depending upon the
intricacy of the work. For the normal pieces that they stock in shops for
regular customer it is priced between 2000 to 3000 rupees but basic price
range starting from 500 rupees are also there. Although they also have
sarees with a price tag of 40,000 to 50,000 for the high end customers.
The export customers that they have mostly demand these kind products.
COSTS
Labour costs
Wages are given and calculated on day to day basis. Per day wage for a
labour is on an average 250 rupees, presently 15 labours are employed
everyday by Modage. During peak seasons more labours and artists are
employed.
In addition to the labours they also have sales staff who sell the
product at their shop. Currently there are 5 salespersons employed, at
a pay of 5000 rupees per month each. They also have a maintenance
cost of 25000 per day which includes electricity, shop rent and misc.
expenses.

10

COMPETITION
Although the 25 odd shops at Janpath are their direct competition, they
consider even a small shop vendor at a faraway place as their
competition. Reason being, if that small shop starts selling products at a
slightly discounted price than theirs then the customer would naturally
want to buy from there.
Apart from this the new readymade market is a big threat to them.
Because if a design change is required or a pattern change is demanded
by the market, it would take almost 15-17 days to incorporate those
changes in the product for the artisans who stitch by hand. Whereas the
readymade manufacturers just need to push the design into the machines
and the next day theyll have a new lot of desired pattern.
INVENTORY
At any point of time they stock goods which would last up to an estimated 3
months of time. Presently they have around 2000 pieces in shop ready to sell.
And an additional 4000 pieces in stock in warehouse which will need to be
worked on to sell as a finished good. Their usual ratio is 1:2, if they have 100
pieces as finished goods in shop theyll stock another 200 in the warehouse
which can be converted to finished goods in a time span of 12 to 15 days.

11

GOVERNMENT AND NON-GOVERNMENT

INITIATIVES
NGO
There are many NGOs which are directly involved in the development and up
gradation of the works and lifestyle of the people (artisans) with the
establishment of Craft Development Centres in the area. The most renowned
NGO involved in the field of Chikan Embroidery is
SEWA (Self Employed Womens Association).

1
SEWA
Imparting educationThe organization runs a school since 1982, known as SEWA
Samudayik Shiksha Kendra for the children in the community which
has classes from nursery to class eight. The organization also runs 3
residential bridge courses for the school dropout girls in the age
group of 11-14 years.
2
It provides
training
programmes
for skilled
artisan women.

and

conducts

savings

and

credit

3 It aims at improving the economic and social conditions of the

workers in the handicraft industry by providing holistic solutions to
complex problems related to the operations which in turn increases
the efficiency of the workforce.

STATE GOVT. ORGANIZATIONS

DIC (District Industries Centre, Lucknow)
The function of this institution is to coordinate the works between the
various Govt. offices and the artisans. The institution recommends the
names of different exhibitions, bank financing and State/National awards
for master craftsmen.
Export Promotion Bureau, Lucknow
The main function of this institution is monitoring and policy making
of the small scale industries in Lucknow. The institution also provides
Marketing Development Assistance under various schemes to small
exporters in the form of grants.
CENTRAL GOVT. ORGANIZATIONS
Small Industries Development Bank of India (SIDBI)
The head office of SIDBI is in Lucknow. SIDBI provides financial
assistance to NGOs under the Micro Finance Credit Scheme. The NGOs
then distribute the money to the artisans as working capital.

12

Handicrafts Marketing and Service Centre, Barabanki

The main objective of this centre is to improve the social and economic
conditions of the artisans in the handicraft industry. The organization also
provides direct assistance to the artisans for training and direct
marketing outlets through various exhibitions, craft markets and craft
fairs.
The office has also sponsored 2-3 catalogues for the publicity of
Chikan Embroidery Industry.
Export Promotion Council for Handicrafts (EPCH), New Delhi
This organization promotes export of handicrafts from India by
organizing buyer sellers meet, participating in national and
international workshops and fairs and by conducting various types of
seminars and workshops.
Skill upgradation and production under IGP (Income Generation
Activity)
RMK(Rashtriya Mahila Kosh), National Minority Finance Development
Corporation and SBI have contributed immensely to support the skill
upgradation and production to many thousands of artisans for
sustaining the Chikankari Industry, through credit schemes.

13

CURRENT TRENDS
In terms of product, Kurti are being increasingly bought by consumers.
Chikankari work is being adopted on newer products too-Aari is a new
addition to the list
Costs (wages) are increasing. MNREGA and schemes like this are taking
away cheap labour and shooting up the wage rate for the skilled
workforce. This has resulted in increased prices being charged to
customers.

FUTURE OUTLOOK
The industry remains fragmented. Exports are catching up but need to be
promoted more aggressively. Competition from Surat and Ahmedabad
must be warded off by stressing on the authenticity of hand-woven
embroidery and geographical originality of the art. Moreover, the future
beckons the use of machines to part-automate the process, without
making artisans jobless.
FUTURE OUTLOOK AND GROWTH STRATEGY
1 Identify new export markets: High growth rate & profitability
margins seen in the recent past due to strong demand especially for
high end products. A depreciated Rupee also helps increase income.
2 Tie up with retail chains like Nalli and Maharaja Silk Sarees for
more intensive distribution in bigger growing cities. Ethnicity and
FabIndia also sell traditional clothes but have not included Chikan as
yet. They need to be targeted.
3 Aggressive marketing campaign: Getting associated with
Campaigns like Incredible India will highlight Chikankari as Indian
Art among the foreign tourists. Unfortunately, the foreign tourist
inflow in Lucknow is much less as compared to Delhi or Jaipur. So,
Chikan garments must be made available in those cities for
generating income from foreign tourists.
4 Collaborative logistics planning: Transportation cost can be
optimized, if multiple retailers pool in to send the goods to markets
by sharing transportation resources.
RECOMMENDATIONS
1 Set-up a cooperative
supervision

society

structure

under

government

2 Broad marketing campaign (especially online) to establish a strong

brand
3 Train skilled personnel & venture beyond Lucknow to attract more
human capital
4 Collaborative procurement & logistics
5 Better demand forecasting to minimize lost sale & reduce inventory;

seek better avenues for financing short term capital

14

Parameter Current Situation

Recommended Situation

Prici
ng

Different margin across product

range,

Flat pricing & margin

structure
of
~30%

Onlin
Limite
e
d
marketing sale

Scope for price discrimination

presence,
E-commerce, marketing though
no retail presence in
social media websites

Geographi
Explore new markets, specially
cal
Reasonable penetration Muslim
Indi
presence within a,
only few dominated
countries outside
Use

of Entire value
manu
Machine
al
Trade
fares &
discount
offer
s
Collaborat
ion
large
with
r
retail
chains

chain Scope of usage of machines in

largely craving out
designs & other processes

Very few handloom fares Exciting offers specially in lean

& no
winter
promotions
season, more frequent fares &
employed
to fashion shows
enhance
sales
on Chikan products in new markets
deale networ
Sound r
k but
limite
d
collaboration with
stores like Pantaloon etc.

Need to ride on secular move

towards
expansion of organized retail by the
masses

15

REFERENCES
1. Online sources
Udyog
Bandhu:
www.udhyogbandhu.com
The
Times of India:
http://timesofindia.indiatimes.com/life-style/fashion/styleguide/The-beautiful- world-of-chikankari/articleshow/15206311.cms
http://timesofindia.indiatimes.com/city/lucknow/Chikan-thrives-asgenerations-of- artisans-suffer/articleshow/33793188.cms
http://timesofindia.indiatimes.com/city/lucknow/Chikankari-GI-astep-towards- international-branding/articleshow/3986050.cms?
referral=PM
SEWA Lucknow website: www.sewalucknow.com
2. Gyanodaya Portal: ABI/INFORM: Chikankari Industry in Lucknow
3. Sewa Chhangamal Traders
4. SEWA Chikan Industry
5. Modage Traders
6. Avadh Traders.

16