Shikha Kumar, DNA
Mumbai, June 16, 2013
When American brand Forever 21 launched in India three years ago, Delhi-based Mehak Sagar was most excited. She hit the store on the opening day with her friends only to get a rude shock. “The prices were nearly double the prices in the US. Forever 21 was always my favourite brand when I went to New York since it was fast fashion yet reasonably priced. But I can’t say the same of the India outlets,” says the 26-year-old, who blogs at peachesandblush.com.
As the retail sector booms, global fashion names like Mango, Zara, Forever 21 and Vero Moda have an established presence in India (the third-largest global economy after the US and China) and are even looking to expand. Higher disposable incomes and availability of credit have significantly enhanced consumers’ buying power and this is good for these brands. But the catch is that their customers are well-travelled, Internet savvy and more aware than ever before. This means they are acquainted with prices of labels abroad and in typical Indian style, tend to compare prices of the label abroad to prices in stores in India. What they find out doesn’t make them happy.
“It’s a fact that prices differ. I got a pair of shoes from Zara abroad for $30 (approx Rs1740). In India, they wouldn’t cost less than Rs3,000,” says Samidha Sharma, a business journalist and blogger at Street Style India, who shops extensively in India and abroad.
Sagar claims that in India, Forever 21 retails under the ‘luxury’ category for youngsters (like pocket-money receiving students), while in the US it is a budget brand that retails dresses that cost as little as $10 (less than Rs 600).
This phenomenon is not restricted to clothing labels alone. Aashumi Chudgar, an accessories merchandiser in Mumbai, says brands like Accessorize and Claire’s known for their shoes, bags and jewellery also price themselves higher than they do in stores abroad.
“When I was in the UK, Accessorize was an affordable brand. Here, it’s quite expensive with an average bag costing Rs3,000,” says Chudgar. Claire’s launched in India last year and is also priced more than at its stores in the West.
Shoppers say that purchasing power is also a very big factor here. “Bringing brands at the same prices doesn’t make sense since our purchasing power is lower. So, if an outfit costs 20 Euros abroad and Rs1,500 here, it’s still expensive for us. I don’t understand the economics of that,” rues Sagar.
Local taxes extra
One of the main explanations for higher prices is that local taxes and other costs tend to be higher in India. This is passed on to the customer.
Higher costs because of import duties and real estate prices lead to brands being more highly-priced in India as compared to in their home markets, agrees Tarang Saxena, lead consultant at Third Eyesight, a leading retail consultancy firm.
Inflation and occupancy costs in India are a cause for great concern, says Vishal Trehan, the India business head of clothing brand Forever New, that entered India in 2007, just a year after it was founded in Melbourne.
“Occupancy costs in Australia are around 12% while in India they’re 18 to 20%. All this adds to the costs and even profits take a hit.” He adds that Forever New merchandise in India is actually 5 to 10% cheaper, a fact that is confirmed by comparing the prices on the brand’s India and Australia websites.
Ayush Tainwala, brand head, Accessorize, echoes Trehan somewhat. Higher taxation and customs policies in India lead to higher prices he says. “We don’t get deductions in India.
Also, the rupee has been depreciating against the pound by 10 per cent every year.”
Similarly, Kristin Strickler, the spokesperson for Forever 21 in India says that a difference in prices, if at all, is only due to VAT because the brand offers merchandise in India at roughly the same prices as in the US.
Bring on the competiton
The flurry of brands opening in India may be a good thing for the customers as more competition means reduced prices. “I recently noticed that Mango has reduced prices by nearly 20-30% since its launch several years ago. Brands do feel the pressure of competition,” says Sharma.
And with H&M (a budget brand in Europe) also slated to enter the Indian market soon, the customer will eventually be the winner.
“Initially, international brands positioned themselves at a higher level in India as compared to their home markets, charging a premium for being a "foreign" (read "desirable") brand,” says Third Eyesight’s Saxena, "But with an increased awareness amongst shoppers now, brands are feeling the pressure to align their pricing in India to global prices. Some have also realised that higher prices restrict their access to a larger market in India."
Will FDI be the game changer?
With FDI now being allowed for single-brand retail, will prices
“With liberalised FDI, the brand may decide to take a hit and reduce prices so that entry-level prices draw the target audience. But whether the brand chooses to reduce the prices or not depends on their individual strategy in India,” says Saxena.
Accessorize’s Tainwala says the new FDI rules won’t really change pricing.
But Prashant Agarwal, MD, of Bestseller India that owns labels like Vero Moda, Only, Jack and Jones, is diplomatic when he asserts that Bestseller will always try to reach price points that appeal to their targeted consumer segment.
Media professional Nikita Shah, whose favourite brands are Promod and Zara, has a better idea. She says that while it’s great to see more and more global brands coming to India, the country needs to develop its own high-street brands to take on those from abroad.
“We need more homegrown brands here. Indian brands should take a cue and start designing fabrics and styles keeping in mind Indian sensibilities especially since they know that customers are ready to pay.”