Retail Management Project_Group 2_WMG21

8/9/2019 Retail Management Project_Group 2_WMG21

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APPAREL RETAIL INDUSTRY IN INDIA

Project Submitted by:

Group 2212011 Harsh Vardhan Vyas

212025 Rajdeep Roy Chowdhury

WMG 21


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Table of ContentsIntroduction .................................................................................................................................................. 3

Indias Macroeconomic Scenario .............................................................................................................. 3

Indias Demographic Dividend .................................................................................................................. 4

Fashion Retail Scenario in India: Trends and Market Dynamics ................................................................... 5

Indian Apparel Market Structure .............................................................................................................. 5

Key Players .................................................................................................................................................... 7

Future Trends and Opportunities ................................................................................................................. 9

Online Apparel Retail Boom ........................................................................................................................ 10

Foreign Direct Investment and It Impact on Apparel Industry in India ...................................................... 12

Effects of FDI on Apparel Industry .......................................................................................................... 12

Competition Concerns in Apparel Retail Industry ...................................................................................... 13

Challenges for Fashion Retail in India ......................................................................................................... 15


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IntroductionThe Indian Apparel Industry has an overwhelming presence in the economic life of the country. It is one

of the earliest industries to come into existence in the country. The sector has a unique position as a

self-reliant industry, from the production of raw materials to the delivery of end products, with

considerable value-addition at every stage of processing. Apart from providing one of the basic

necessities of life, the apparel industry also plays a pivotal role through its contribution to industrial

output, employment generation, and the export earnings of the country. Currently, it contributes about

14 percent to industrial production, 4 percent to the GDP, and 17 percent to the countrys export

earnings. It provides direct employment to over 35 million people.

Image 1: Major Influencers of Indian Apparel Market

Indias Macroeconomic Scenario

The sound growth of the fashion products market, driven by the 8-to-9% GDP growth and positive

investment sentiment, looks like a thing of the past. The growth story of one of the largest emerging

economies, India, has required severe revision. A growth rate under 5%, coupled with double-digit

inflation, has dampened consumer demand for fashion items. As a result, the Indian fashion products

consumer has become a cautious spender; demanding value for the money spent. In many cases, the

Indian middle class has started trading down by shifting to either products available at a lower price-

range or to lowering purchase volumes if within the same price range. The recent inflation in food and

vegetables prices has added to the woes of the Indian consumer.

Food being an irreplaceable item has eaten into the share of non-food items in recent years.


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Image 2: Consumption shifting from necessities to discretionary spending

In addition to the weak economic sentiment, the worsening political environment and an increasing lackof confidence in governments and institutions has negatively impacted the countrys overall business

competitiveness. As a consequence, the retail market is also hit in terms of business growth. With no

sign of any substantial recovery in the macroeconomic sentiment or any respite from inflation in the

near future, the trading down by Indian middle class will continue in the coming months. Non-food

items, including fashion, are expected to bear the adverse impact of this trading down.

Indias Demographic Dividend

The demographic dividend of India is tilted in favor of the consuming age group. In contrast to the

increasingly aged populations in the West, Japan, and even China, India is expected to become the

worlds youngestemerging economy by 2020, with around 64% of its population in the working agegroup. This young consuming class has new aspirations and is more open to experimenting with fashion

brands and modern designs.

In addition to such a favorable age group, the Indian fashion retail market is expected to deal with a

heterogeneous consumer group. The Indian fashion consumer has been traditionally heterogeneous as a

result of income disparities, the influence of ethnic clothing, regional preferences, etc. But in recent

times, heterogeneity in taste, choice, and preferences has increased substantially even within

consumers in the same region and same ethnic group, belonging to the same income level and age

range.

The Indian consumer is now conscious about his/her personality and selects such fashion products asmight suit his/her personality the best. As a consequence, exclusive ethnic wear brands are multiplying

in a market which is also accepting western wear fashion items more readily.


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Fashion Retail Scenario in India: Trends and Market DynamicsThe Indian retail market is expected to demonstrate a promising year-on-year growth of 6% to reach

USD 865 billion, by 2023, from the current USD 490 billion. The share of apparel in Indias retail market

is 8%, corresponding to a value of USD 40 billion and is expected to grow at a compounded annual

growth rate of 8.7 per cent till 2016. The growth would primarily be driven by the surge in demand for

readymade apparels in semi-urban areas, rising income levels and youth population and increasing

preference for branded apparel. In addition to fashion apparel, the growing demand for fashion

accessories makes the Indian fashion market both interesting and lucrative.

Image 3: Apparel dominates organized retail with nearly 35% share

The Indian fashion retail market has witnessed several fascinating changes and challenges in recent

years, which are indicators of the countrys evolving fashion retail market. The challenges associated

with these changes need to be addressed in the most efficient and prudent manner in order to harness

the concomitant benefits.

Indian Apparel Market Structure

Indian apparel market is segmented in three different ways:

1. Segmentation by user category: The domestic apparel industry has 3 segments, viz Mens wear,

Womens wear and Kids wear. Menswear accounts for 40% of the total market.

a.) Mens wear:Mens wear market in India fastest growing apparel segment. The entire

apparel industry (2011-12 estimates), including domestic and exports, is pegged at Rs

3,270 billion and is expected to grow by 11% to Rs 10,320 billion by 2020. Currently

menswear is the major segment of the market (Rs 720 billion) and is growing at a


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compounded annual growth rate (CAGR) of 9%. Gucci, Hugo Boss, Salvatore Ferragamo,

Armani, Versace, Brioni, Ermenegildo Zegna, Canali, Corneliani, Alfred Dunhill, Cadini,

are all present in India mens wear market.

b.) Womens wear: Womens formal wear and ethnic wear markets are still ruled by

unorganized players. With more women expected to enter corporate world, both these

segments are good opportunities because of the market size. Historically, the mens

apparel market in India has been significantly larger than the womens apparel market.

With only 20 percent of Indias urban women in the workforce, womens wardrobes

have traditionally been limited to home wear and items for special occasions. Now,

women are more willing to dress differently when they venture beyond the hometo

shop, for example, or visit a school or office.

c.) Kids wear: Kids wear is a major category with few established playersviz., Lilliput, Gini

and Jony, Catmoss, Benetton, Disney, Barbie etc. It still holds a large opportunity which

is clearly untapped. The Indian kids wear retail market is expected to touch Rs 580

billion by 2014. At present, the size of kids wear market in India is estimated at about Rs

380 billion.

Source: Wazir Advisors

2.) Segmentation by Use: A rough estimate of the segmentation by use is depicted in the pie chart

below. Casual apparel dominates and account for more than 50% by value.


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Image 4: Segmentation of the apparel retail in India

3) Segmentation by Price:

Low-end market: volume driven, products are mostly unbranded and dominated by large

number of manufacturers, mostly regional or even local players.

Mid-range market: quality products. Manufacturers large and medium.

High-end market: premium and super premium product categories. Dominated by MNC and

major Indian manufacturers.

Key PlayersThe apparel retail sector is experiencing the huge development and making an increased contribution to

GDP, it requires a better and exclusive regulatory framework to sustain the impressive overall growth.

Competition in the retail sector is getting stiffer in the nation as many big players both national and

international are testing and applying different retail plans in the market .Entry by fresh players is still at

a promising stage. But, increasing competition in the sector would, in due course, lead to a drop of

margins with each retail chain trying to attract consumers through innovative and effective ways

The key players in the apparel retail market in are:

MADURA FASHION AND LIFESTYLE

Madura Fashion & Lifestyle, a division of Aditya Birla Nuvo

Ltd, is one of Indias leadingbranded apparel companies

and a premium lifestyle player in the retail sector. After

consolidating its market leadership with its own brands, it

introduced premier international labels, enabling Indian

consumers to buy the most prestigious global fashion

wear and accessories within the country.

The companys brand portfolio includes product lines that

range from affordable and mass market to luxurious, high-

end style and cater to every age group, and youth to men


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and women. Madura Fashion & Lifestyle is defined by its brands Louis Philippe, Van Heusen, Allen

Solly, Peter England and People that personify style, attitude, luxury and comfort.

Madura Fashion & Lifestyle reaches its discerning customers through an exclusive network comprising

more than 1,300 stores, covering 1.5 million sq ft of retail space, and is present in more than 2,000

premium multi-brand stores and 100 departmental stores.

RAYMOND APPAREL

A 100% subsidiary of Raymond Limited, Raymond Apparel Ltd. (RAL) ranks amongst India's largest and

most respected apparel companies. We bring to our customers the best of fabric and style through

some of the countrys most prestigious brands Raymond Premium Apparel, Park Avenue, Parx and

Notting Hill.

RAL entered into the ready-to-wear business with the introduction of Park Avenue in 1986 catering to

the men's formal wear market. Parx was launched in 1998 to address the growing trend of smart

casuals. Raymond identified the vacuum for a high end, casual wear brand and hence decided to acquireColorPlus as a part of strategic expansion plan for their ready-to-wear business. Notting Hill was

launched in 2007 to cater to the popular price segment.

Crossing the gender divide two of our brands, Park Avenue launched the Western Women's wear

collections. 'Park Avenue Woman'- A complete range of Premium Business Wear for women is designed

especially for the working women professionals of today.

ARVIND LIFESTYLE BRANDS

A subsidiary of Arvind is the other largest player in apparel retailing space of India it has portfolio of 1

international brands and 12 .its own brands. It also now holds Ed- hardy, which is projected to belaunched in 2013 with new global product and different pricing strategies. Apart from these above

mentioned above players the other which also enjoy a good position in the Indian apparel retail market

includes, Kouton retail India, Indus- League clothing, Zodiac Clothing co.


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Table: Foreign Brands in India

Future Trends and Opportunities The growth in the apparel segment will be primarily driven by the growth in Modern retail.

Currently comprising 18% of the total market, the modern retail share is poised to grow sharply

over the next 5 years to contribute a 25% share.

The increased presence of retail formats across hypermarkets, specialty retail formats, cash &

carry as well as e-commerce shall drive growth of modern retail.

An increasing number of international brands across formats shall foray into India to leverage the

potential. Keen competition is driving international brands to adopt made for India modelsleading to

higher acceptance and thus increased share from around 18% in 2011 to 25% over the next five years.


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Online Apparel Retail BoomApparel e-tailing has experienced significant growth across the country due to increasing time-poverty,

changing lifestyles, convenience and flexibility of shopping from home and option of free home delivery

(in most cases). Factors such as dramatic increase in penetration of IT devices and communication

solutions (especially tablets, broadband and smart-telephony), and emergence of exciting new virtual

reality technologies are contributing to the expansion of apparel e-tailing.

Image 5: Online retail- Growing fast and tapping the true potential

The average Indian consumer has been experiencing increasing time-poverty these days. People have

been spending more time commuting to and at their offices, on leisure and recreation, on vacations, in

grooming and maintaining their well-being, socializing, teaching school-going children etc. leading to

limited time available for shopping and such activities. There is an increasing emphasis on reducing the

stress and time taken for routine activities (household chores/ shopping etc.) and maximizing the time

spent with families and friends. Convenience in terms of ease and time, information, decision-making,

transactions and flexibility has been a major factor influencing adoption of e-commerce. This factor to a

large extent also plays out for apparel e-tailing.

Increasingly consumers feel stressed to drive to a crowded mall and navigate through it to buy a

garment. Rather, they prefer the convenience of shopping at home and getting the goods home-

delivered. For them, this allows comparison of designs and prices at their leisure, and in the privacy of

their homes, without having to deal with either hovering sales staff or the rush of the stores.

The Internets ubiquity gives online brands the capability to reach all Indians, even those with no access

to an online payment facility, as most brands offer Cash-on-Delivery (COD) options, offering them the

luxury of seeing the product before making payment for it. Infact, COD has been a one of the big factors

for online retailing to take off in its second innings in India (first being in the year 2000).


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Technology has also played a major role in addressing some key concerns of apparel retailing on the

web. High resolution graphics, streaming videos of garments donned by models, virtual dressing rooms

and 360 viewing and zoom tools have made online shopping an interesting exercise. Customers can key

in their vital measurements to find the right fit, and can also browse through multiple brands for the

perfect dress. Players like Yempe.com, Indias firstonline fashion brand, trying to get the first-mover

advantage, aim to create experiences and craft consumer memories, apart from offering private-label

fashion brands. It has integrated, advanced and highly user-friendly facilities like 'Virtual Dressing Room'

where users can try the merchandise before the actual purchase.

Among big cities, consumers in Mumbai topped the numbers of online shoppers, followed by

Ahmedabad and Delhi. However, shopping on the net is gaining traction with consumers beyond metros

and Tier I cities as well and gaining momentum across the country.

Given these reasons, apparel e-tailing has started to boom. In doing so, it has taken three distinct

routes:

First is the Multi-brand route - Few players have cashed in on early-bird benefits and captured a

significant online market share: Myntra.coman online fashion store for women and men launched in

2007; Yebhi.com (Big Shoe Bazaar India Pvt Ltd) launched in 2008, is the fastest growing company in

lifestyle category in India; Futurebazaar.coman online retailer which caters to the fashion and apparel

category, launched in 2007.

Second is the Apparel brands going online - Brands like Zodiac, Madame, Fabindia, Mustard and La

Senza, to name a few, have made their products available online.

Third is the Niche route - Numerous pure-play e-tailers are entering into niche segments to cash in on

these untapped categories. Strapsandstrings.com, promoted as Indias first online lingerie shoppingboutique, offers Indian women the opportunity to shop for international lingerie brands like Lise

Charmel, Chantelle, Mimi Holliday and Cosabella, which are not available locally. Learning from the

international success of Diapers.com, a number of baby products (including apparel) focussed ventures

like BabyOye.com, FirstCry.com, HushBabies.com and LittleHood.com have emerged in the country.

E-commerce has come a long way, but the journey is still not complete. This growth story is not devoid

of challenges common to the industry, both globally and locally. Consumers, for the longest time, have

been accustomed to going to a store and shopping for their apparel and jewellery. Online shopping is a

drastic shift for traditional shoppers as they cant touch and feel the products. Also, e-commerce in

India is in its infancy and the available infrastructure is still inadequate. Lack of common taxation rules

further hinder growth in this segment. Inter-state movement of products often poses a problem given

the different taxation rates. However, brands and retailers have to understand that it is not merely

about setting up a portal and creating an e-catalogue. The consumer mindset, engagement, aftersales

service and supply chain, personalization, variety of offerings, return policies and convenience thereof

and above all a greater value proposition to the consumer are some of the key success factors.


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Currently, huge opportunities lie ahead for the apparel e-tailers. Companies that ensure that their

customers are happy are sure to receive success in the field. Having said that online shopping

predominantly still remains a practice of urban and middle-class consumers. Apart from the

infrastructure adequacy, its proliferation will depend on apparel e-tailers ability to overcome the said

challenges. Though consumers in small towns have started using the Internet actively, the

transformation from visitors to shoppers will take some time. In this context, apparel e-tailing is an

interesting and definitive prospect for apparel brands and has bright future to scale greater heights.

Foreign Direct Investment and It Impact on Apparel Industry in IndiaThe recent resolution on Foreign Direct Investment, or FDI, in the retail sector has been applauded by a

large section of both industry professionals and consumers, despite the many voices debating the merits

of allowing FDI in the current economic situation and its possible impact on the Indian retail and

manufacturing environment.

The recent resolution on Foreign Direct Investment, or FDI, in the retail sector has been applauded by alarge section of both industry professionals and consumers, despite the many voices debating the merits

of allowing FDI in the current economic situation and its possible impact on the Indian retail and

manufacturing environment.

As is quite apparent, the FDI policy is formulated with the objective of bringing in large funds to be

invested in improving the supply chain and back-end of the retail sector (especially for the food and

groceries segment) and to ensure that the manufacturing sector also gains from large multi-brand

retailers being forced to source 30% of their products (by value) from IndianSmall and Medium

Enterprises (SMEs).

Effects of FDI on Apparel IndustryNo Impact Demand:

From the fashion apparel demand perspective, India has emerged as one of the most attractive

destinations for American and European brands in the last 10 years and will continue to hold promise

for the next 10 years, irrespective of the policy on FDI. Apparel, being a more brand driven category

than, say, food & groceries, has already seen many international brands enter.

India over the past 15 years despite the restrictions in the FDI policy in single-brand retail with the

allowing of 100% FDI in single brand retail there may not be such a large change in the apparel retail

landscape excepting probable changes in the operating structure of international brands.

Industry as a whole will benefit:

From the industrys perspective, allowing up to 100% FDI in single-brand retail and 51% FDI in multi-rand

retail seems like a favorable proposition, since a large part of the fashion industry supply consists of

SMEs and they will surely benefit if more international brands make a foray into India. Many foreign

brands present in India have, over the years, increased their sourcing from India as this gives them the


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benefit of shorter lead times and lower costs. Many brands have also set up their own back-end

manufacturing infrastructure. This trend will continue to widen in the future as, with increasing

competition, the pressure on price will increase further, forcing brands to look for ways to cut their

costs.

Thus From the apparel industrys perspective, it is favorable both from the demand and manufacturingperspective as it will not only provide more opportunities for suppliers but will also improve their

manufacturing capabilities. It remains to be seen how the new FDI initiative actually impacts the

industry and economy in the years to come.

Competition Concerns in Apparel Retail IndustryIn Apparel Industry there is immense potential to increase competition by enabling the development of

new products, new distribution channels, and greater efficiency in business activities and also due to

changes in government investment policies. Competition policy issues may arise in relation to mergers,

particularly when they are developed by existing market participants with a significant combined marketshare (as buyers and sellers) in underlying retail markets. Competition concerns would include evidence

of price fixing or tacit collusion, or anticompetitive discrimination against, or refusal of access to third

parties. Issues will not arise in all cases, and this will depend on the details in each case. In many

situations there will be pro-competitive and other public benefit issues that should be taken into

account.

As we know Retailing means the final link between the production of a good and the end-consumer. The

characteristics of the end-consumer are thus crucial to the economics of retailing. Typically, the end-

consumer can be characterized as being: Small, Immobile & Uninformed. These aspects of Apparel

retailing feed straight into a discussion of the nature of competition in apparel retailing. We can identify

four dimensions of horizontal competition between apparel retailers:

Pricing

Geographical location;

Product selection; and

Retailer service.

Pricing:

(I) Differential pricing

In apparel prices tend to be very visible, with secret discounts to consumers being rare (although these

do occur for large purchases). This may ease collusion between retailers through different retailing

formats (because cheating on collusive agreements is easy to observe). On the other hand, compared

with other dimensions of competition in the industry it is relatively easy, given that resale between

consumers is relatively unlikely because individual purchases tend to be too small to justify the

necessary co-ordination between consumers of different types.


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This price discrimination tends to be implemented through provision of discounts for certain (broad)

consumer categories (such as students or pensioners) or by designing retail choices (such as trade-in

offers, credit deals, end-of-season sales) in such a way that different consumers choose different

options

Loss leading: When choosing between apparel retailers, consumers often have only very vague ideas ofthe relative qualities and prices of products. In this case, consumers tend to choose between retailers on

the basis of their Reputation for good product range and general low prices.

One method of gaining a reputation for general low prices under these circumstances is loss leading

which could be anti-competitive. By setting low prices on a number of key items, and then by

promoting these products and their prices, retailers induce consumers to compare retailers on the basis

of the prices of these products.

Geographic Location:

Geographical location means that local market power can be high and the inability to find anappropriate location can act as a barrier to entry. Moreover, the attempt to gain access to good

locations may be an incentive for merger in apparel market.

Product Selection:

The product selection decision will depend on the relative strengths of various different factors:

Strategic reduction of competition: Retailers can strategically reduce direct price competition

between themselves by spreading out in product space (niche marketing).

Business stealing: By moving closer in terms of product space to a rival, each retailer thinks that

it can improve its share of the market by attracting customers from its rival.

Retailersservice

In the apparel industry the various retailer services may affect competition in various ways. If retailer

services are important, there may be a so-called free-rider problem: that may have badeffect on all

consumers and retailers.

These various dimensions in Apparel retailing have important consequences for competition policy, and

it is crucial, when considering competition in apparel retailing, to examine all of these dimensions.

Competition problems are likely to be particularly prevalent in apparel markets, since markets will onlytend to work imperfectly when there are asymmetries in bargaining power(consumers are small), high

transactions costs (consumers are immobile), information asymmetries (consumers are uninformed),

or vertical restraints.

Indeed, there have been majority of cases internationally where the competition authorities had to look

at competition in apparel retailing. The issues typically covered included:


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Vertical issues: It including vertical restraints, differential discounting, and own-brand competition. The

vertical restraints that may exist in apparel industry may include:

Retail price restrictions : such as resale price maintenance (RPM);

Manufacturer non-linear pricing : that is, non-linear manufacturer discount schemes such as

franchise fees, quantity discounts, or differential discounts for different retailers; Quantity forcing : requiring retailers to sell minimum quantities of the manufacturer's products;

Full-line forcing: requiring retailers to carry the full line of the manufacturers products;

Exclusive dealing: requiring the retailer not to carry the products of competing manufacturers;

Territorial exclusivity: which protects one retailer from intra-brand competition from other

retailers within that territory;

Refusal to supply: as a general means of enforcing the compliance of retailers with any kind of

requirements set up by manufacturers, or simply as a method of constraining total sale.

The main potential anti-competitive effects of vertical restraints are market foreclosure and rising of

rivals costs, competition dampening, and facilitation of collusion.

Challenges for Fashion Retail in IndiaSome key challenges faced by retailers in general, and fashion retailers in particular, are the

heterogeneity of the market, evolving customer needs, rising real estate rentals, a complex tax regime,

and infrastructural bottlenecks.

These challenges have been addressed through innovative thinking by some retailers, but many of these

issues need to be addressed by collective bargaining and mutual collaboration at industry level.

Heterogeneity of the Market

Heterogeneity is a key characteristic of the Indian retail market in general. The complexity of the market

can be decoded by comparing it with the developed retail markets of the West. For example, in the US,

there are 4 shops for every 1000 people whereas the corresponding number for India is 14 shops per

1000 people. The Indian retail market is characterized by a diverse spread of customers with unique

preferences.

From a retailers perspective, this requires a thorough understanding of consumer preferences across

the country and of the similarity and differences in consumer buying patterns.

Evolving Customer Needs

Evolving customer needs are a challenge for Indian retailer as these require rediscovering the customer

within a short time span and then rearrange the organizations structure, retail formats, and product

portfolios accordingly.


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Unlike a mature retail market, the retail market in India has to continuously focus on the process of

learning, unlearning, and relearning. Again, this alone is not sufficient; the insights gained in the process

must be translated into actionable business decisions.

Rising Real Estate Rentals

High leasing costs resulting from mispriced commercial real estate is a major concern for Indian

retailers. Additionally, it is very difficult for retailers to find suitable commercial retail space in most

Indian cities. Real estate rents and space availability are characterized by fragmented ownership,

irregular auctions, inappropriate store designs, etc. Retailers have to push governments to allocate more

retail space which can be rented/leased out at reasonable cost.

Complex Tax Regime

The Goods and Services Tax (GST), which aimed to enforce a uniform tax regime, is yet to come into

force. The current tax regime continues to be complex thanks to multiple tax enforcement authorities,

varying tax rates, duplication of taxes at different points. At present, the taxes charged by differentstates vary from one another, and so a national retailer needs to understand state-specific tax rules and

plan retail models accordingly.

On a positive note, the government has realized that the simplification of the tax regime and the

deployment of uniform tax rates will be a huge step towards reforms. Hopefully, the GST will be

effective sooner rather than later, and will provide abiding relief to retailers.

Infrastructural Bottlenecks

Indian fashion retail is hit by infrastructural bottlenecks due to the poor conditions of roads, highways,

etc. which creates supply chain constraints and increases inventory costs.

However, one of the less discussed but more critical infrastructural bottlenecks for the Indian fashion

retail industry is the lack of fiber neutrality. Customer demand for manmade fiber-based apparel is

growing globally. It is unfortunate that India lacks the infrastructure to manufacture and process

manmade fiber-based apparel in general and polyester-based apparel in particular. This bottleneck is

partially caused by government regulations that impose high excise duties and import duties on

polyester. There is thus a need to overcome the deficiencies in the polyester-based fashion products

segment as it is difficult to resist the growing demand for manmade fiber based clothing.

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