31 January 2007

After FMCG, now the second biggest retail category – the Rs 19,000 crore branded apparel sector is sizing up the changing retail scenario. While retail brands like Pantaloon are upping brand spends and big chains like Reliance are expected to launch private labels, branded players like Wills need to look at ramping up distribution strategies and tap new segments like women’s wear and accessories.

Pantaloon’s mass casual wear brand DJ&C, endorsed by Himesh Reshammiya was one of the big winners at this year’s Republic Day Sale. Within three months of its launch, Pantaloon claims DJ&C has become a Rs 150 crore brand. Not surprisingly, it and 27 other Pantaloon-owned brands like Jealous 21 & UMM will by getting a big marketing push. A sizeable chunk of its Rs 200 crore advertising budget will be earmarked for them. This is also because Pantaloon wants to stock these brands in stores and chains beyond its own.

Managing Director, Pantaloon Retail, Kishore Biyani told CNBC-TV18, “We want to do Rs 30,000 crore by 2010, Rs 10,000 crore needs to come out of the fashion business. It can’t come by only selling other people’s labels – we want to build up our own labels into brands, which can compete with any national brand in the country.”

In the last 10 years, retailers have seen volumes come in courtesy private labels or store brands. This pads up the bottomline, as well as offers 15%-20% higher margins than regular brands. Tata-owned Westside built its business on the back of private labels. The multi-branded Shoppers’ Stop rakes in 1/5th of apparel sales through store brands. It has moved up from the competitively priced shirt to fashionable and upmarket designs. It even claims to be making headway in western menswear, the original bastion of branded apparel.

Managing Director, Shoppers’ Stop, BS Nagesh explains, “Tradtionally, more branded players in the men’s category are advertised. So, it’s difficult to move up in private labels in the men’s category. We felt so in the first 5-6 years of operations but in the last two years, we actually find we have a brand called Vittorio Frattini that has done well; Life’s done well in casuals for men, so now we find it easier because the customer is trusting us – not only for basics but also for fashion – and we are competing with the brands in the stores.”

With an obvious shift in the balance of power in favour of big retailers, apparel brands from groups like Raymond and Arvind are expanding their retail operations. While a brand like Van Heusen may not increase its adspends, but will invest on a tailor-made shopping experience at shop-in-shop counters or exclusive stores.


BRAND Retail Turnover (Rs Cr)

Pinched by high rentals in metros, brands like Cottons by Century, are also looking at smaller cities to expand their retail footprint. They are wooing mom-and-pop apparel stores and small multi-brand outlets to become their sole franchisee. Also, the brands are broadbasing. Wills Lifestyle launched a premium range under a tie-up with designer, Manish Malhotra. Louis Phillipe has entered sub-segments like luxury, formal and casual wear, Allen Solly is offering accessories like bags and shoes, and Arrow has started womenswear. Clearly, in the middle of this retailer-manufacturer tussle lies a fashion product, that needs innovation every season. Analysts say, there’s scope for brands to survive and thrive.

CEO, Third Eyesight, Devangshu Dutta says, “Women’s wear and children’s wear are difficult categories. Therefore, given a choice, I think the retailer would let suppliers handle the category and create a brand. So there exists an opportunity for branded players to create a footprint across markets, using the retail footprint of larger retailers for the launch.”

But analysts expect a shakeout in the branded space, which remains pretty fragmented. The largest player, Madura commands barely 2% of the market. Here again, retailers like Pantaloon and Reliance are snooping around for buyouts or strategic alliances.

Both retailers and standalone brands are also trying to outdo each other by roping international brands into their stable, whether it’s Shoppers’ Stop tying up with Mothercare or Madura getting Esprit on board. Going by the market buzz, as and when Reliance and Bharti-Wal-Mart start apparel retail, brands will be squeezed further. But given that brands have just 1/5th of market sewn up – there’s a good way to go.

Retail – the Revolution Yet to Come

Fresh out of a meeting with a large international retailer this morning, I would like to share something that I mentioned to them: that the Indian market is not as large as it seemed to most people 2-3-5 years ago (whatever base figures they may be using to calculate potential market size); neither is it as small as it seems today to brands that entered the market 10-15 years ago.

There are significantly different dynamics at play, which make the Indian market totally different from the growth curve you might have been accustomed to in the history of the US, Europe, or even more recently, China.

However, some fundamental realities remain common on the consumer side:

  • Given choices, consumers will choose

  • Given better environments, consumers generally will migrate to them

  • Given lower prices for comparable products, consumers will compare, and choose not to spend beyond what is necessary

  • A better merchandise mix will win out over a narrow / poor mix

The realities of real-estate costs are the same for everyone–whether the retailer is domestic or international. Domestic retailers may have an advantage in being able to move quicker on closing deals but foreign retailers may have deeper pockets to play with.

Politics remain the same as well–China opened its markets to investment by foreign retailers after allowing its domestic retailers to grow in scale; Eastern European countries may raise the occasional stink about the lack of competition when two foreign retailers decide to swap assets; even in their home markets, Wal-Mart and Tesco face determined opposition. In India we’re seeing just another version being played out.

All this, while everyone is mostly fighting for the top-tier consumer. There is a wider market out there, my friends, a very different one that needs to be understood well, together with its implications for your business model.