Textile Industry Report Calls for Capturing Billions in Lost Value
A report by management consulting firm, Third Eyesight, has called upon the Indian textile and apparel industry to urgently develop capabilities to capture the value that is being lost due to inadequate focus on product development and value addition.
The report titled “Eternal Hope to Reality: Sustained Global Competitiveness for the Indian Textile and Apparel Industry” was released by the Hon’ble Minister of Textiles, Shri Shankersinh Vaghela, and a well-attended industry conference organized by the Federation of Indian Chambers of Commerce and Industry (FICCI)
.Highlighting the immense gap between the current exports of about US$ 20 billion and the vision of US$ 55 billion, Third Eyesight’s report says that the Indian industry needs to look beyond incremental steps.
Presenting the report, Third Eyesight’s chief executive, Devangshu Dutta said, “Dramatic growth cannot come through concentrating on volume alone. Even if the industry wishes to increase its volume of trade, ports are operating at 91 to 92 % of capacity utilization. This sort of growth of exports is only possible through focussing on value addition.”
The Third Eyesight report highlights the fact that when India compares poorly to other countries on the value captured per employee. For instance, if Indian industry were earning as much as Turkey, India’s exports would be close to China’s exports of US$ 161 billion.
The report says India’s exports are still too weighted in favour of raw materials and intermediate products, rather than finished products, and this is a major concern
if one looks at the long-term competitiveness and value-capturing capability of the industry. According to the Third Eyesight report, apparel exports account for only 41% of India’s textile exports in 2007-08.
|India is neither the cheapest producing country nor possibly the quickest in terms of delivery, but it already provides buyers with value in terms of product development and design. According to Third Eyesight, this is the winning formula that needs much more focus. The report describes how design, merchandising and product development capabilities can enable Indian companies to become strategic suppliers to global industry. India’s domestic industry, and its skill at understanding market needs, creating and merchandising product, can also play a valuable role in the industry’s growth in the global area.|
Devangshu Dutta, chief executive of Third Eyesight, said that India already had a significant cachet as a brand in the 1960s, but lost its position until the beginning of this decade. While the trade-brand of India has now started becoming stronger, it is time for the industry and the government to emulate successes created by countries such as Italy. By creating an ecosystem focused on design and product development, India can create and capture the billions of dollars worth of value that is being lost to other countries.
In classic “Mission Impossible” style, I was asked to research and write a report on how renovations impact retail businesses. Every person I called responded in the same manner. First they laughed, then said “good luck, no one gives out that information” and then several people actually were kind enough to share their company’s statistics.
After researching this topic I have chosen to divide the subject into three sections: Emotional/Psychological Impact of Renovations, Fixtures Old and New, and Renovation Facts and Figures.
The Emotional and Psychological Impact of Renovations
Why choose to renovate?
The negatives are: renovations are expensive, time consuming and there’s no guarantee that they will improve business.
The pluses are powerful.
Renovations talk to your customers and to your staff. When management chooses to renovate a store it is showing its faith in the future of the store. Both customers and staff are aware that renovations are rarely made to stores about to be closed.
This certainty creates good faith and a sense of continuity and trust. In today’s fragile business climate, developing trust and a sense of security are primary goals for all retailers.
When a retailer renovates a store he is telling the competition:
” I’m here to stay”
” I’m a player”
” I’m offering my customers more than my competition”
” Match me!”
“I’m here to stay” falls into the reliability/stability category. People want to know that they are buying from someone who will stand behind their merchandise. Although the “Going Out of Business” signs in the windows of several electronics/gift stores on Fifth Avenue in New York City generate sales, confidence in the products is limited. Generally only tourists think they might get a “deal” on Fifth Avenue.
Renovations = longevity in the mind of the consumer.
Renovations = longevity in the minds of the employees. They will treat their customers better with lower job anxiety levels.
Better service = better sales.
Renovations = better sales.
“I’m a player” is an annoying expression but it sums up the feelings of both the manager and the staff of a renovated store. When a store is renovated it says to the competition – “I’m in business, I’m counting on growth and I’m going after you!”
The perceived quality of a purchase is in direct proportion to the look of a store. People buy down in prices when a stores’ energy and appearance is faded, tired and old. Even when maintenance standards are high, people can sense dead energy.
A store that feels old and faded gives customers the feeling that the merchandise assortment is made up of “losers” and is unwanted. Only clearance goods will move well in that kind of environment.
Renovations = management’s confidence in the future of the
Renovations = employees pride in the look of the store
Renovations = customers awareness that the store is in business to stay and is growing.
Awareness of growth and appreciation of new look = improved sales
“I’m offering my customers more than my competition” is another way of saying, “my merchandise mix and my employees are terrific – and I have the power to make it even better.”
Making it even better is the key.
Customers are a captive audience in many of Aramark’s locations. Where else are they going to go for souvenirs or gift items at Muir Woods or Ellis Island? But, even with a captive audience, they will buy less if the energy in the store is old. While cleaning and moving merchandise will improve energy flow, renovations alone create a dramatic increase in the perceived value of the merchandise. If the merchandise is perceived to be more valuable, customers will feel better about themselves when they buy.
People like to be associated with winners.
When a store positions itself as a “winner”, it’s telling the customers that they too are winners for buying at this store.
This may sound simplistic or childish – but it’s true.
Imagine that you bought two t-shirts. One was purchased at
a basic discount store for $12.99 while the other was bought
at an attractive gift store for $15.99. Which T-shirt will have
more emotional value?
Which shirt allows you to feel like a “winner?”
The experience at the attractive gift store would be more memorable because it was appealing. The discount T-shirt would be a practical purchase while the gift store shirt may be more emotional.
Now, add an overall positive experience to the attractive gift shop – such as a walk in Muir Woods or experiencing the win of your favorite team -and the T-shirt’s emotional impact doubles in value.
Renovating the store adds to the value of the merchandise by helping the customers and the employees feel like they are worth the effort. When people feel like they are worth such an intensive effort – they feel like winners. Winners support the store that makes them feel great.
Renovations = people feeling like winners
Winners = spending money to keep feeling that way
Renovations = more money spent in the store
“Match me!” This is not just a challenge to your competitors; it’s a challenge to your staff.
It’s one thing to have a great location and just wait for people to wander in – and another to galvanize them when they come in to buy far more than they intended.
A store that hasn’t been renovated in 7 years has fallen into patterns and traps. The personnel, no matter how hard they try to do something different, are going to repeat merchandising habits over and over.
A newly renovated store offers a fresh floor plan, new fixtures, different lighting and forces the staff to rethink the entire merchandising for the store. Rethinking encourages creativity. Creativity honors both the customer and the sales staff.
Renovations + Creativity = sales.
Renovations get energy moving in a store. Most merchants will either admit – or brag that when they move something – it sells.
There are several reasons for movement creating sales.
Why not just move stuff around the store? Why go to all the trouble and expense of renovation?
Customers know the difference. Fixtures, flooring, wall treatments and lights all get old. They are very difficult to move. Even fixtures on casters may move – but they never change – except to get beat up and old looking. So, you can move product all over the place and it’s a short-term good investment in energy. In the long term, only renovations will give the total store the lift it needs to get people to buy more when they come in to browse.
Fixtures Old and New
After talking with numerous fixture manufacturers and store designers one fact came up over and over. The only people who buy stock fixturing are small Mom & Pop stores that think they can’t afford custom fixtures.
The big box retailers who have seas of chrome quads can afford to have the quads manufactured to their exact specifications. Even the most mundane, typical fixtures in a chain store have probably been recreated and engineered to fit the store planner’s needs.
While there are many specialty fixtures on the market that are standard – such as some quilt holders, poster swing frames, etc., the bulk of fixtures are custom made.
Custom doesn’t have to mean more expensive. A lot depends on the surface materials and how complicated the fixture gets. Interesting, expensive surfaces = interesting, expensive merchandise.
Interesting surfaces can make even the most mundane gifts seem unique. When you are trying to develop a mood, feeling or image for a store, standard non-custom fixtures will more often than not destroy that mood by making the store similar in feel to the local convenience store.
Custom fixtures have the most impact in the front of the store, in focal areas and at the cash wrap. These are the areas that will convey the entire theme of the store. If these areas are standard issue – the store will have less impact than 7-11.
The logic behind this is easy – what we see influences what
we think. If we see bland off-white counters and chrome racks
with a vast assortment of gifts heaped on the shelves, we think
– “okay, let’s grab something for the kid and get out of here
before the traffic gets bad.”
If, however, the counters are wood mixed with copper and the sides are birch and you see trees wherever you look adding a soft feeling throughout the store – all of a sudden things start looking more appealing. It’s more interesting, fun and engaging. The store has honored you, their customer, by making itself more presentable and different from the competition. The merchandise then looks more appealing and interesting which leads to increased sales.
Renovation Facts and Figures
Very few people were willing to share their renovation facts and figures. One major fact that became extremely obvious was that if renovations didn’t pay off, no company would be doing them.
Every company that renovates one or more stores figures on a minimum increase of 10% of sales with an anticipated and/or hoped for increase of 38% which seems to be the average increase after significant renovations.
The method of analyzing the success of a renovation is unique to each company.
There is virtually no way to compare sales and profits figures or, “apples to apples” by company. Each figures their costs differently. The only figures that matter are those within each individual company.
Some smaller companies saw immediate increases in sales and didn’t dwell on the actual renovation costs. For other companies, the costs are factored in to determine the actual profit and the percentage of profit increase over time after the initial renovation costs are covered.
One of the premier upscale chain of stores in the United States shared their process with me for this essay. They did not want their name mentioned.
When they decide to renovate one of their stores they first look at the real estate deal. The costs of the real estate determine how much they need to make on the property after renovations.
They then create a target for this location. They look at the history of the location, the national average of their stores and their actual goal for the store.
They determine the sales per square foot by category in the store, the average throughout the chain, their expectations for each department and the gross margin by department.
This corporation expects -and generally gets 2.5 growth out
of each renovation – for example: 1 million spent on renovations
will generate 2.5 million in sales.
The one million will be amortized and capitalized over five years.
Their oldest stores are often located in their best market areas. To remain competitive and to keep their best customers from going into their worst stores, they often renovate highly successful locations to keep them fresh and appealing. They believe they must remain competitive in their own market.
Bobby Drouin, the director of Real Estate and Store Planning
for “Things Remembered” was very helpful with information regarding
their remodeling projects.
” Things Remembered” has two types of remodels/renovations:
The Skin Package
This is a clean-up/fix-up program that deals with the storefront, carpet, wall paint and lights.
Full In-Place Remodel
This includes new architecture, custom fixtures – which consist of a standard fixture package that is custom for them.
They tend to have stronger percentages of growth after either type of remodel in “A” centers.
Mike Grimes, the president of GH Home Furnishings in Charlestown,
MO finds that when he makes improvements to his store the confusion
and movement during construction excites customers and sales
increase. When he put a new façade on his building the
sales increased 28%.
When he did a remodel in the bedding area of his store (new carpet, new walls, banners and fixed the ‘dip’ in the floor) the sales in that area increased 45%.
“Spirit of the Red Horse” carries American Indian western-themed
gifts. Jim Stelton of CBR. Inc. carried out a renovation for
this interesting store that included:
– Replaced the ceiling coves to make the energy flow better and create an airy feel.
– Changed the fixturing from solid to the floor to “leggy” so the airflow and energy improved and the store feels lighter. – Redid store front
– Created storage drawers by each bay with twin panels to reflect the new traverse detail.
After renovations “Spirit of the Red Horse” improved their business by 30% yearly with an average ticket price increase of 10%.
Devangshu Dutta, based in New Delhi, India has been researching the impact of renovations on retail sales internationally. What he discovered was the impact in the six months following major refits and renovations ranged from 10 to 40% of a sales increase with large discounters showing a lower impact than smaller specialty stores. Gross margins also improved to the extent of 10 to 12%. The sales upswings tapered off after the initial months but sales levels per square foot remain higher than comparable stores that remain unrenovated. They also remain about 5-10% higher than previous levels for the same store. The impact, Mr. Dutta states, comes from the renewed consumer interest as well as better management of space and merchandise.
These figures are supported in the United States by every person interviewed. All those who did not want their names or companies mentioned in this report agreed that the percentage increase in sales after a full renovation averages between 30 – 39%. “Skin” remodels averaged 12 – 20% sales increases.
A renovation tells the world that you are putting your money where your mouth is – a cliché that makes financial sense.
When you renovate you are offering your customers more than the competition. You are giving them an interesting, fresh, creative and hopefully exciting shopping experience. When you correctly factor-in location, renovation costs and new merchandise, experience proves that your profits will increase significantly over time.
Just a decade ago, it might have been hard to imagine that the take-out food of choice for millions of Indians would be a baked good of Italian origin.
When I was contacted for an article on supply chain management, for publication towards the end of 2002, two topics came to mind. One of them was a good one to begin a year with, and could form the basis of a “new year resolution” article. The other topic forms the basis of this article.
Just as you would introspect about and evaluate a number of other things at the end of the “old” year, how about evaluating your supply chain? Admittedly, it takes a little more time than the six days between Christmas and New Year, but we can certainly try to lay the foundation here. Remember, you cannot hope to improve what you cannot measure, and since the buzzword is supply chain improvement / optimisation / effectiveness, we do need to look at the measures as well.
Traditional Measures Will Not Get You There
In their efforts to improve profitability or just to sustain the businesses, most companies face a dichotomy in satisfying each customer’s needs and in keeping costs under control. In this context supply chain management is mainly seen as a means to contain costs. Thus, the traditional key measure many managers apply to effective supply chain management is the cost of their supply chain operations – the lower the cost, the better the supply chain looks to them.
However, even the most hard-nosed manager will acknowledge that it is virtually impossible to do this on a sustained basis – cutting “fat” too deeply can lead you to cutting muscle – similarly profitability, market positioning, competitive advantage can be whittled away if supply chain management only focuses on cutting costs.
Even if you just focus on costs, what costs will best indicate supply chain effectiveness? The cost of inbound and outbound logistics? How about the costs of inventory carried in the various distribution centres? What about work-in-progress? While we are looking at costs, let us not forget the other costs associated with sourcing, and distribution, including manpower costs which do not get covered elsewhere. And finally, if goods hit the market late due to a poor supply chain performance, discounts and markdowns need to be considered as well in the costs incurred by the supply chain. So the thinking that cost is a straightforward measure is, in itself, an incorrect assumption – if you think so, you are probably over-simplifying or under-estimating the costs involved.
Let us then look what other measures might be available. In a previous article I mentioned the need to integrate supply chain management with the company’s business strategy, rather than treating it as a back-office function with dirty fingernails and greasy elbows. In my view effective supply chain management must work backwards from the customer needs in mind. Adopting this approach can enable companies to add financial and business value not only in the long term but sometimes immediately.
Once you look at supply chain management this way, as emanating from customer needs and being integrated into every other function of the business, you begin to realise that there needs to be another way to measure its success as well as taking the key decisions related to supply chains: location, production, inventory and transportation .
Time and space will not permit me to detail the various methodologies, but I believe it is worthwhile highlighting one as the most comprehensive, if not complete, method. Even within this there are several detailed layers, which can only be briefly touched upon here.
“From Your Supplier’s Supplier to Your Customer’s Customer”
The Supply-Chain Council’s Supply Chain Operations Reference (SCOR) model is a method of benchmarking and measuring improvements in supply chain performance. The Supply-Chain Council was formed in 1996-1997 as a grassroots initiative by individuals representing companies including AMR Research, Bayer, Compaq Computer, Pittiglio Rabin Todd & McGrath (PRTM), Procter & Gamble, Lockheed Martin, Nortel, Rockwell Semiconductor, Texas Instruments etc.
SCOR, now in its fifth version, is a cross-industry reference model that contains standard process definitions, standard terminology, standard metrics, supply-chain best practices, and enabling information technology. The SCOR model defines common supply chain management process, and matches them against “best practices”. The model was designed to enable companies to communicate, compare and learn from competitors and companies both within and outside of their industry.
SCOR includes all customer interactions from order entry through paid invoice, all product transactions (whether physical or service) and all market interactions from understanding demand to fulfilling it at each individual order level.
The model works primarily with a three-level pyramid.
By Justine Doody
The Indian call centre has become an international cliché. Its employees are young, educated, English-speaking and compared with their compatriots, well-off – and their disposable income, along with that of the rest of India’s fast-growing middle class, is driving extraordinary growth in the country’s consumer goods market. Retail sales in India were worth US$455 billion in 2008, making up 38% of the country’s GDP, which leaves plenty of room for growth when compared with developed markets, and that growth is well under way: in spite of recession troubles in 2008, the retail market grew by an annual average of 11.4% valued in US dollars between 2004 and 2008.
The people responsible for this boom are a new breed in India. Liberalisation of India’s economy in 1991 gave rise to the economic success story that the world has marvelled at – and as the economy grew, a new middle class grew up alongside. The Indian middle class has more than tripled in size in the last 20 years, and today numbers between 150 and 250 million people. And like the population as a whole, the middle class skews young: around half of India’s population is below 30 years of age.
Thinking global, buying local
Raised on Western TV and media, many of them English-speaking, these young up-and-comers should make natural consumers of Western brands. But Synovate’s research shows that instead of aspiring to owning the latest international must-haves, India’s consumers are happy with their home-grown products.
In a Synovate survey, 68% agreed that locally manufactured brands are just as good as international brands, with only 13% thinking that international brands were significantly better than local brands. And for these consumers, buying Indian is not just a matter of quality comparison – 56% of those surveyed said that if a local and international brand were of equal quality and price, they would prefer to take home the local brand. Given the choice of equally good products, only 27% would favour international brands.
It wasn’t always so. Between the exit of most multinationals during India’s self-sufficiency drive in the 1960s and their return after 1991, people looked at Western brands with covetous eyes. Synovate India’s Executive Director Paru Minocha says ‘There used to be a fascination for “west” and “foreign” goods. Fifteen or twenty years ago, one cherished and sparingly used even a shampoo a visiting relative from US would bring. Besides the origin, the feel of the product was very different – right from the packaging, sensorials etc.’
But times have changed. The quality of local offerings has improved, leaving less to make international products stand out. And even as the standard of Indian products has risen, so too has the self-assurance of the Indian buying public.
Gunjan Bagla, Managing Director of Los Angeles based consultancy, Amritt, Inc. and author of Doing Business in 21st Century India, says: ‘In 2009, eighteen years after liberalisation began, Indian consumers no longer carry vestigial prejudices for or against “imported” brands. They want the best product for their needs and desires. Subway sells sandwiches because they are good, not because they are American. Titan sells watches because they are good, not because they are American. Indian consumers will buy a Nokia phone with Reliance service not thinking of Finland or India as opposed to say a Vodafone (UK) service with Samsung (Korea) handsets.’
Poised to play
While recession has cut a swathe through the economies of the West, India has come out comparatively well – the country remains the fastest growing major economy in the world after China, and average annual growth is set to be 7.8% between now and 2012. For India’s emerging middle class, many of whom are too young to remember the days before liberalisation brought economic development, the country’s achievements are a fact of life, and the future is something to be cheerful about. As many as 91% of those surveyed by Synovate were proud of what the country has achieved, with 82% agreeing that India has a bright future and 85% considering the country to be innovative.
This national optimism is not rooted in political satisfaction – of all the criteria offered in Synovate’s survey on factors important to Indians’ lifestyles, political stability ranked the lowest with respondents, with family, education and health topping the list. The Indian middle class is largely disengaged from politics. Their personal aspirations are professional, not political, and they see the country’s influence on the world stage coming through its industry; national pride is fuelled not by nuclear testing or by regional dominance but by the success of new Indian multinationals like Tata and Reliance. Incidents like the purchase of British prestige car-maker Jaguar by Tata in 2008 have fed this new economic self-confidence: in this new order, the former colony feels ready to take its place alongside, or even eclipse, the former imperial power.
Paru Minocha says ‘There is a strong sense of pride and a conviction that we are poised to become significant players (if not leaders) on the global map. And this reflects in consumer buying behaviour.’ If today’s Indian cultural pride is based not on political but on economic triumphs, it makes sense that it should be expressed not in political but in economic solidarity. As India begins to see itself as a peer of the other major players in the world economy, its new self-confidence comes out in satisfaction with Indian goods, whose quality, like the country’s, is seen to be a match for any international competitor.
Some foreign brands have managed to get Indian buyers to take them to heart. In among the local brands that scored highly in Synovate’s studies on brand image, McDonald’s, Pizza Hut, Coca-Cola, Pepsi, Nokia, Sony and Samsung all found favour with Indian consumers. However, counter-intuitive though it might seem, the greater availability of Western goods could possibly have driven desire for them down. Paru Minocha says that the once ubiquitous yearning for Western items ‘has started changing primarily due to access to these products via product launches in India. So the products one desired from abroad, like a Sony in electronics, Pantene in shampoos, Lancôme for cosmetics, Kit Kat in chocolates and so on are now very available in India, and that lust for the West has decreased.’ At the same time, local brands are being measured against the competition and bearing the comparison. Devangshu Dutta, Chief Executive of India based consultancy Third Eyesight, says ‘expressing a desire to buy local brands if the international brands are of equivalent quality and price does have something to do with pride in local manufacturing. But more than pride, there is a fundamental confidence being expressed in the strength of locally manufactured brands.’
While the lure of the West has paled a little, the line between international brands and local brands can sometimes be blurred in local perception. Although Hindustan Unilever is majority-owned by multinational Unilever, it has existed in India since 1933, and its products like Lux and Pears soap are ingrained in the national consciousness, routinely topping lists of the country’s most trusted brands. GlaxoSmithKline’s Horlicks, popular in India since the 1930s, is the country’s leading health food drink, and the country provides the brand with its biggest market worldwide.
Adapt or die
But for those Western brands without a long history in India, how can they make headway among the new Indian consumer class? Paru Minocha says ‘it is clear that they cannot just rest on their origin as a selling point. The consumer is clearly seeking value and would demand customisation.’ The Western brands that have met with success in the Indian market mostly have one thing in common – they have adapted their core offering to meet the particular requirements of the Indian consumer. McDonald’s, facing the challenge of making a beef-centred business work in a country that has historically held cows to be sacred, branched out into vegetarian fast food like the McAloo Tikki Burger and the McVeggie. Pizza Hut found a winner with their Tandoori Pizza. But both companies held onto the less tangible elements of their global success: attributes like efficient customer service, air conditioning, cleanliness and quality ingredients are as welcome in Bangalore as they are in Boston.
Synovate’s research shows that customisation is key to getting a foothold in the Indian market. Providing a product for each price point is one way in which companies can take into account the country’s national specificity, and in the country that came up with the ‘one-lakh car’, the US$2500 budget auto launched by Tata in 2008, tapping the low end of the market can open up big opportunities for companies. Nokia, the country’s mobile handset market leader, has launched a range of low-cost mobiles to go along with its high-end offerings, so as to meet the needs of as many of the country’s consumers as possible. Single serving packs of soaps and snack foods are aggressively marketed by companies like Hindustan Unilever and Nestlé, who find the smaller size and cheaper price attracts consumers who would otherwise steer clear of their product lines. Gunjan Bagla says ‘International companies need to appeal to uniquely Indian values and messages to achieve volume in India. You can sell to a few Indians because of Japanese or American appeal. But Levi’s make Spykar jeans for Indian ways of buying. Tropicana sells juices in India for India’s unique needs. The global reach of international brands brings quality, consistency and scale. Local formulation and prices brings sales volume in India.’
To court the Indian consumer, international companies need to embrace flexibility. Devangshu Dutta says ‘global brands that have made themselves relevant to broad segments of their audience have done so not by diluting their international appeal, but by adapting it to the local customer’s needs.’ Well aware of their country’s progress, India’s new consumers expect respect and acknowledgement from the world, and from the international companies that want their business. Recognising and adapting to the individual character and requirements of the rising middle class can be seen as a way of paying tribute to the worth of the Indian consumer – and to make progress in a market that by some measures almost equals the entire US population, international companies might find themselves remembering that the customer is always right.
By DEVANGSHU DUTTA, chief executive, Third Eyesight
Since the most recent “mall boom” that began in 1999, with the launch of Ansal’s Plaza in Delhi and Crossroads in Mumbai, much has been written and said about organised retail, the growth of the middle class, and virtually every alternate person you meet professes to be an expert in retail.
What is not acknowledged is the fact that fashion retail began
to get modernized many decades ago, with the authorized dealerships
of textile companies such as DCM, Bombay Dyeing and Raymond.
Among footwear companies, Bata also organized its network of
Bata and BSC outlets. Food companies such as Spencer have operated
as chains even before RPG changed the name to Foodworld, and
now back again to Spencer. So, the new revolution is only a
stage in the 50-year evolution of the retail business in India.
So, why the sudden interest? Third Eyesight believes there are multiple reasons creating a “tipping point”.
INDIA AT A TIPPING POINT
One of the key factors in creating a self-fulfilling growth cycle is the development in the economy that has seen sustained high rates of growth for the last one-and-a-half decades. This has created a virtuous loop of increasing salaries and increase in disposable income deeper into the population, and this is spreading beyond just the big cities.
Secondly, billions of dollars and thousands of crore of investment are being poured into real estate, removing the bottleneck of good sites for new retail stores, and creating a platform for brands to roll out their chains.
Thirdly, companies that began growing the larger formats of retail, such as department stores, in the early 1990s, have begun to reach critical mass. Retailers such as Shoppers’ Stop and Pantaloon today provide multiple points of launch for new brands.
Fourthly, and possibly the most important among these factors, is the growth of the young consumers. They were born after the advent of colour television in 1982, have known more choice than the earlier generation, and are just entering the workforce amidst soaring salaries, with a freer attitude towards spending than their parents.
These factors are providing an unprecedented platform for retail growth in general – very much like the United States andEurope in the 1950s – and for the fashion retail market, it is a tremendous opportunity to rejuvenate.
THE MARKET OPPORTUNITY
People from within the industry, as well as analysts, provide estimates of the total apparel market that vary widely, between Rs 90,000 crore and Rs 120,000 crore (US $20-27 billion). Annual growth rates also vary, estimated overall at 13-15 per cent, but depending on the product category, from 5 per cent in mature categories to 30-50 per cent in categories that are just emerging.
Given the overall economic growth rate and development of the consumer base, if a retailer has a strong brand and distinctive product offer, individual companies are able to gain annual growth rates that outstrip the overall market many times over.
The opportunity has attracted the attention of both Indian and international companies, and, increasingly, also of the export community in India.
Among Indian companies, Liberty is credited with the launch of the first ready-to-wear shirt brand in the 1950s, and Raymond with the first ready-to-wear trouser brand in the 1960s. Exporters such as Intercraft (with brands like FU’s), also tried their hand, as did corporates such as Indian Organic Chemicals through the launch of “Little Kingdom” stores. Thereafter, several other brands launched, most of which have faded into the lost pages of history.
Among the survivors have been Raymond (through their chain of around 300 stores and a clutch of brands), as well as relatively new entrants like Madura Garments (originally a part of the UK-based Coats Viyella, now wholly owned by the Aditya Birla Group) and Arvind (formerly a licensee and now a jointand venture partner for the US-based VF Corporation).
For all the talk of organization, the apparel market remains highly fragmented. For an idea of just how fragmented the market is, look at the top two players: Madura Garments and Arvind Brands. If we assume a market size of Rs 90,000 crore (US $20 billion), the largest player, Madura Garments, only has 0.7 per cent of the market, while the second largest, Arvind Brands, holds a 0.5-per-cent share.
In the context, differentiating between “branded” and “unbranded” players is no more than an academic exercise.
The market is wide open – more open than it has ever been – and the opportunity is ripe for new companies to enter.
A quick look at a table of some of the largest companies among fashion retailers and brand distributors includes companies like Raymond, which has invested cash from divestment of unrelated businesses into launching or acquiring new brands, as well as upstarts such as ITC, who launched their first Wills store just about five years ago. Among the companies that are of a respectable size, most have spent between 10 and 15 years nurturing the brand – these include Mohan Clothing (Blackberrys) and ColorPlus among brand owners, and Shoppers’ Stop and Pantaloon, who have moulded themselves into constantly evolving retail models.
Indians have known international brands in apparel and footwear for as long as those brands have existed, courtesy the historical British linkages, the erstwhile Indian royalty who were among the biggest customers for brands such as Louis Vuitton, as well as the mass brands that made an early entry (such as Bata).
During the late-1980s and through the ’90s, several international companies entered the Indian market, initially through licensees or franchisees (with exceptions such as Littlewoods, who set up their own — and only — Indian store in Bangalore). Some of these companies are beginning to show greater interest in India – and also a desire to exert more control over the growth of the brand in this strategic market. Companies such as VF (owners of Lee, Wrangler, Vanity Fair and Healthtex) have converted their interests from licenses to joint ventures, while Benetton has gone from a license relationship in the first five years (until 1993), to a 50:50 joint-venture, and then to a 100-per-cent subsidiary in 2005.
In the last couple of years, especially with India being in the press, interest among international brands has grown to a new peak, and this is now manifested in the growing list of brands available in the market.
In early 2006, the government allowed foreign investment again in the Indian retail sector. Depending on who you speak to, this is a complete non-event, or at the other extreme, it is a vital step. The details are the subject of another article, but one could say that while this is not an earth-shattering change of policy, it is an important step in the further evolution of the market, and we will see the evidence within the next 12 months.
WHO DARES, WINS!
It is clear that the Indian market is going through a phase that is unprecedented in its recent history, and the opportunity exists for existing producers of garments (including exporters), Indian companies from other sectors, international brands, as well as individual entrepreneurs, to create a brand presence from scratch or grow their existing business.
The qualifying factors for entry into the contest are the desire to create new brands, and deep pockets to sustain investment in branding and market-building.
However, the success factors to win in the contest are higher drive and enthusiasm to take the hits that will invariably come, an ability to tap the consumer’s sense of adventure and differentiation, the talent to develop a product-service offer that is distinctive, and a pool of common sense to minimize the losses during the initial period of investment, which may be months or years.
With all the challenges that retail offers, to those who have the courage to venture in, let’s say, “happy retailing!”
TIMES NEWS NETWORK, PANAJI, 8 September 2006
Goa, once a haven for holidaymakers looking for a break, is
now set to zoom up top retailers’ charts. The union territory
will soon see an influx of major brands, with real estate giants. Not surprisingly, land prices are ready to shoot through the roof.
Goa is going through a ‘revamp’ with companies buying large spaces in its cities with ‘vast potential to grow’ to set up malls and shopping arcades. Builders like Gera developers, Parasvanath and DLF (all first time entrants to Goa) plan to develop offices-cum-shopping malls.
In addition, many branded retailers are mulling exclusive showrooms here. As a result, land value has shot up with average prices of Rs 2,500 to Rs 3, 000 per sq ft having doubled. In places like the capital Panjim, prices have increased five-fold. Land prices are expected to rise further in the next ten years.
“The Goa market is expanding very fast, much beyond our expectations,” says Sudipta Sen Gupta, senior general manager (marketing), Cafe Coffee Day (CCD), which now plans to shift its regional head office for Karnataka and Goa from Mangalore to Goa.
The company, which had initially planned to stay open only for the nine tourist months (late September to May) has received ‘tremendous response from locals’ with sales increasing to 175% of national sales. CCD plans to open more outlets, apart from setting up bases en route to Goa at places like Karwar and Hubli.
Subway too has decided to add six more outlets to its existing one at Baga beach — a stark contrast to a few years back when coffee giant Barista shut shop soon after opening in Goa. The hosting of International Film Festival (IFFI) since December ’04 has created a ‘brand image’ for Goa, say market analysts, adding Goans are brand conscious. So, no time is wasted in ‘educating people about various products’.
IFFI, which brought the state’s only two multiplexes, has created a movie-going culture. Says Manoj Bhatia, CEO, Inox Leisure, “Flexible pricing and attractive schemes has helped sales move from 600 to 800 patrons to over 5,000 on weekends.”
Goa has the highest per capita income in India along with English speaking cosmopolitan set-up that allows people to experiment, thereby making it attractive to businessmen. In addition, the state government’s initiative to start SEZs is expected to move a large chunk of high-spending Indians from large cities to Goa.
Amar Yadav FMCG head of Vishal Mega Mart that recently opened the state’s only retail mall is overwhelmed by the response. “The spending capacity is very high here, we plan to open one more mall in south Goa,” he adds. Market analysts feel that influx of domestic tourists to Goa is driving the state’s growth story (18 lakh Indians visited Goa last year).
Indians’ familiarity with brands, coupled with lower land rates than big cities is attracting investors. But Devangshu Dutta, chief executive, Third Eyesight, feels investments into smaller places is a natural trend since expansion in larger cities has reached near saturation.