India’s traditional skills in textiles, intricate craftsmanship, and creativity in producing a range of design-intensive products have enticed buyers from all over the world. India retains a strong and sustainable position among the top five exporters of textiles and clothing in the world.

India’s textile exports are currently weighted in favour of raw materials and intermediate products leading to ‘value-leakage’, which is a major concern from the long-term competitiveness perspective.

Within India, Delhi holds a position of prominence and can play a significant role in capturing additional value within the country. As a sourcing destination and as a gateway to the rest of India’s textile and apparel sector, Delhi provides unique value in product development and design, and a tremendously flexible supply base.

This capability is especially critical in an unpredictable market where retailers and brands are looking to source ever-smaller quantities of product, increasingly closer to the season.

According to the Director (Merchandising) of one of the largest US retailers sourcing from India, “Delhi scores high on responsiveness, and is more enterprising. It has the capability to handle extraordinary fabrics and is strong in interpretations of artwork.”

The apparel cluster in Delhi-National Capital Region (Delhi NCR) includes locations across four states, and accounts for about twenty five percent share in the country’s current apparel exports. If Delhi’s apparel cluster were to be treated as a country, at US$ 2.6 billion (Rs. 12,000 crores) of apparel exports, it would fall within the Top-20 list, ahead of countries such as El Salvador, South Korea, Philippines, Peru and Egypt. Moreover, being a labour intensive industry, apparel cluster offers immense employment opportunities in NCR, already with current direct employment of over 1 million as per Third Eyesight’s estimate.

A study carried out by Third Eyesight has identified an additional growth opportunity of over US$ 5.5 billion (Rs. 25,000 crores) both in its current markets and products, as well as new product opportunities.

For many buyers, sourcing from Delhi NCR cluster is still restricted to beaded, sequined, and tie-dyed blouses, dresses and skirts. While Delhi remains strong in these products, it now also sells funky denim and jersey wear to young fashion brands, men’s tailored suits to American brands, and women’s undergarments to Europe.

Delhi now offers a base both to international buyers looking at buying finished products, and to Asian, European and American manufacturers looking at setting up alternative manufacturing locations that can tap international as well as the Indian market.

Going forward, the key stakeholders of the Delhi NCR apparel export cluster – individual companies, industry associations and the government need to urgently undertake adequate action steps as the competition is gearing up and the perceived strength of Delhi NCR cluster at the moment may not remain a USP of this cluster in the future.

The Delhi NCR apparel export cluster strategy report along with action steps and key implementation areas was presented at an industry seminar ‘Discovering Growth’ in New Delhi. The seminar was hosted by GTZ in partnership with Small Industries Development Bank of India (SIDBI) and Apparel Export Promotion Council (AEPC). The seminar was attended by the key stakeholders of the Delhi NCR apparel cluster including leading apparel exporters, buying agencies and retailers.

Retailwire raised a pertinent question recently about social media and marketing. In marketing as in life, it is all about timing. The question was whether retailers and brands should be concerned that they are moving to Facebook at a time when large numbers of teenagers are abandoning it? 

Having said that, I’d like also to take a different look at those stats. Demographics and physically addressable market aside, the question is what proportion of your potential customers are receptive to the brand in that environment.

At the moment, Facebook is not a medium amenable to classic interruption marketing. (Although it may become that in the future, just like Youtube, with Google ads popping up across the bottom of the video.)

Neither is the Facebook user’s primary purpose brand loyalty or looking at marketing messages. The average Facebook user has enough to keep him/her busy or distracted, without getting on to a brand’s page. That video of a mother with laughing quadruplets is far more likely to get viewed and shared than any of your marketing messages.

If your brand isn’t interesting, engaging, and open, you can’t have the conversations that a platform like Facebook facilitates. If there’s no on-going conversation, your chief Facebook officer is wasting the company’s time, money and internet bandwidth. Logout. Now.

The entire discussion on Retailwire is here: “Marketers Move to Facebook As Teens Move Away” (needs a free sign-up).

REVIEW: FLIP THE FUNNEL: Joseph Jaffe (John Wiley & Sons)

I’ve read Joseph Jaffe’s book across multiple air journeys, nationally and internationally. I agreed with the principles described and saw parallels with excellent services businesses over the past few years. However, the implications didn’t quite strike me in the gut until I realised – while writing this on board an aircraft – that the journeys I had taken with this book had also been with just one airline.

My loyalty to this airline is not because of the mileage card I hold, although their mileage programme is certainly among the best in the world. It is not because they were the cheapest or the most on-time, though they compete favourably with other comparable airlines.

My loyalty to them is because of what they did during the Mumbai floods in July 2005. Those who remember the chaos, through personal experience or through media, wouldn’t blame airline staff for abandoning their counters, and leaving the airport to try and reach home as early as they could. Certainly most of them must have felt helpless in the face of increasingly desperate passengers who couldn’t expect to depart any time soon. Jet Airways stood out as being the only one in Mumbai’s Terminal 1-B whose team felt responsible enough to stay back at the airport to be available to the passengers. Not only did they ensure that the passengers stuck in the terminal were safe, but that all waiting passengers got three meals a day! Whether or not they were flying with Jet Airways.

Now, in telling you about incident, I have closed the loop and given you a living example of the “flipped funnel” that Jaffe describes in the book.

The normal marketing funnel is described by the process Awareness, Interest, Desire and Action (or “AIDA”) which underlies the spray-and-pray approach of traditional marketing. The result of AIDA is that a lot of customers become aware of a business, brand or product. Some are interested enough to seek out the product. However the number who move on to the next stage of actually expressing desire to buy is lower, and those who actually buy are fewer still, as amply demonstrated by carts being abandoned before actually checking out.

Jaffe points out that the AIDA principle was created in times of abundant growth in the US, but is a suicidal funnel to fall into when resources are scarce. It is lopsided, with more money being spent on customers who will not buy. It is linear and does not capture the complexity of buying behaviour. It is open and incomplete because it only handles potential customers up to the point where they become actual customers, but does nothing with them thereafter. AIDA also inherently assumes customer churn, hence the opening focus on creating awareness among potentially new customers.

The alternative principles Jaffe describes are simple: getting more customers to buy from us and more often (repeat purchases), to spend increasing amounts with us (loyalty), and finally, to recommend us to their friends and associates (referrals). However, to do this requires dramatically different thinking from AIDA spray-and-pray. Jaffe’s alternative model – ADIA (Acknowledgment, Dialogue, Incentivisation and Activation) – focuses on customers more than prospects.

Acknowledging customers itself is such a major stumbling block for so many companies, such as the retailer whose front-line staff would prefer to fold and put away garments than meeting the eyes of the customer who has walked into the store. In some cases it may be about using technology effectively rather than as a barrier. When the taxi company can recognise the number you are calling from and close your order in less than 120 seconds, why does the telephone company that issued that number make you jump through burning hoops for 5-10 minutes before they will allow you to request a duplicate bill?

That acknowledgement should lead to an on-going dialogue, before, through and well after the purchase is done. This would be supported by constant incentives for the customer to buy more from you. It is not about having a loyalty programme, as Jaffe quotes studies that demonstrate that loyalty programmes alone don’t produce loyalty; in fact there are enough businesses that do not run loyalty schemes but have what can only be called fan followings.

The final link in that funnel is building that community of evangelist enthusiasts who will carry your brand message farther and far more effectively than any traditional form of marketing could. Religious organisations have known this for thousands of years – it is high time that businesses and other organisations recognised the power of the community as well.

Jaffe acknowledges that Seth Godin actually came up with the term “flipping the funnel” over 3 years ago, when he released the e-book of that name (available on sethgodin.typepad.com) primarily about using social media effectively. Jaffe, to his credit, has applied the principles more fully across the marketing and customer service process.

Jaffe recently sold his business, crayon, but has kept his title “Chief Interruptor” at the acquiring company. If you want to make your marketing really pay, you’ll find it worthwhile letting “Flip the Funnel” interrupt your normal marketing thought-process.

(This review was written for Businessworld.)

REVIEW: BEATING THE COMMODITY TRAP: Richard D’Aveni (Harvard Business Press)

In his latest book, Professor Richard A. D’Aveni focusses on a topic that most businesses should be acutely concerned with: the problem of commoditization. In interviews he has accurately described commoditization as “the black plague on modern corporations” and “a deadly disease that’s spreading like crazy”.

Certainly, if one had to pick the ultimate nightmares to keep CEOs awake at night, commoditization would definitely be among the top of the list. Specifically, given the economic uncertainties around the world in the last couple of years, business leaders who are not concerned about their products or services being turned into commodities are either supremely equipped to maintain their differentiation, or immensely deluded as to their capabilities to fight market forces. Prof. D’Aveni suggests that maintaining differentiation alone is not enough to sustain business.

A product or service becomes a commodity when it is not distinguishable from competing offerings and therefore not valued above the competition. Prof. D’Aveni views commoditization along two key attributes: the benefits or features that are being offered and the price (margin) that is available to the business. Based on his model, he has identified three types of competitive stress that a business could face:

• Deterioration: In a deteriorating market, competitors present low-cost and low-benefit offerings that appeal to the mass market. This is possibly commoditization in its “purest” sense, where the customer ends up valuing the lowest price over and above any other benefit or feature. In this scenario a business can either get stuck in the commodity trap, fighting an ever downward spiral of price and cost minimisation, or could marginalize itself to a niche where it can protect its margins.
• Proliferation:  According to Professor D’Aveni, a proliferating market constantly sees the emergence of new combinations of benefits and price that serve specific segments. This is not about the business offering turning into a true commodity, but extreme differentiation and proliferation of choice do make it difficult for businesses to create a clear value statement that can be priced above competition. Professor D’Aveni describes this as “being squeezed in the middle of a pack of piranhas” which are snapping away pieces of the market.
• Escalation: This form of commoditization is possibly the most prevalent in industries that are prone to disruptive changes (such as technology, consumer electronics and communications). Simply put, extreme competition here results in more for less, as each competitor goes one-up in terms of offering more benefits for the same price, the same benefits for a lower price, or at its most extreme, higher benefits for a lower price. Prof. D’Aveni suggests that companies try and control this downward momentum.

The book suggests competitive strategies that a business could take to avoid getting caught in the commodity trap.  These strategies can be boiled down to the biological choice: fight or flight (escape). Professor D’Aveni echoes the basic warfare strategy laid out by many military and business strategists through the ages. He suggests that businesses need to gauge the opponents, choose their battles, and pick opponents against whom they can win. He also calls for pre-emptive action: where companies can, they should either change the business environment to avoid commodity battles entirely, or initiate the battle of commoditization and control its direction and momentum.

In fact, anticipation and pre-emption is the key to avoiding the commodity trap. To help with this, Prof. D’Aveni offers a relatively simple framework to analyse a current market situation in terms of a price-benefit matrix, and to identify the advance corrective actions to be taken.

The book is short and straight-forward enough to pick through a domestic flight, or to read in the back-seat during a long commute between office and home. The easy to understand framework gets the messages across quickly. In analysing the variations of commoditization, both in consumer and business oriented industries, the Professor also offers up something for everyone.

However, the book’s strengths also turn out to be among its biggest weaknesses. The book would have benefited from more depth to each of the concepts. Skipping quickly from one area to the other, in some places the book risks losing coherence of thought.

Some short books are like downhill hairpin bends on a mountain road; Prof. D’Aveni’s book is one of those. Much as you might be tempted to go fast, it’s advisable to go slow. If you speed through it, you might miss a nugget that actually makes sense to your business.

One of the other grouses I had was with the examples quoted. The predominantly US market examples reduce the book’s relevance for a global audience – the Professor presumes the reader will know the company and its context well enough to understand the lessons being discussed. In some cases the examples are incomplete and possibly even incorrect: one such is the example of Zara. The broad-brush attributes Zara’s business success to turning fashion into commodity, and ignores the fact that fashionability and desirability are a cornerstone of Zara’s offer, not the cheapest price. Others would possibly be far more accurate examples of commoditization in the context of price.

However, if you are sufficiently concerned about the possibility of being commoditized out of profitability, or being marginalised out of market share, I would suggest that you could easily overlook these flaws. The fundamental premise of the book is far too important to ignore. [Beating the Commodity Trap on Amazon]

(This review was written for Businessworld.)

By Tarang Gautam Saxena, Chandni Jain and Neha Singhal

In Retrospect

While India was a promising market to many international brands, it was not completely immune from the global economic flu. More than its primary impact on the economy, the global downturn sobered the mood in the consumer market. Even the core target group for international brands, that had just begun to splurge apparently without guilt, tightened their purse strings and either down-traded or postponed their purchases.

In 2008 in the midst of economic downturn, skepticism and uncertainty, the international fashion brands had continued to enter India at nearly the same momentum as the previous year. Many international brands such as Cartier, Giorgio Armani, Kenzo and Prada entered India in 2008 targeting the luxury or premium segment. However, given the high import duties and high real estate costs, the products ended up being priced significantly higher than in other markets. Many players ended up discounting the goods heavily to promote sales while a few also gave up and closed shop.

As the Third Eyesight team had foreseen last year, 2009 saw a further slowdown and fewer international brands being launched during the year. The brands that were launched in 2009 included Beverly Hills Polo Club, Fruit of the Loom, Izod, Polo U.S., Mustang, Tie Rack and Timberland. Some of these had already been in the pipeline for quite some time and invested a considerable time and effort in understanding the dynamics of the Indian retail market, scouting for appropriate partners, building distribution relationships and tying up for retail space, setting up the supply chain and, most importantly, getting their operational team in place.

International Fashion Brands in India

After many deliberations, the well-known global brand Donna Karan New York set foot in the Indian market in 2009 through an agreement with DLF Brands to set up exclusive DKNY and DKNY Jeans stores India. The brand is also reported to have signed a worldwide licensing agreement with S Kumars Nationwide Ltd to design, manufacture and retail DKNY menswear in certain specific countries.

Second Chances

Amongst the international brands that have recently entered the Indian market, a few are on their second or even third attempt at the market.

For instance, Diesel BV initially signed a joint venture agreement in 2007 with Arvind Mills, and the partnership intended opening 15 stores by 2010. However, by the middle of 2008, the relationship ended with mutual consent, as Arvind reduced its emphasis on retailing international brands within the country. Within a few months of the ending of this relationship, Diesel signed a joint venture with Reliance Brands for a launch scheduled for 2010. Both partners seem to be strategically aligned with a common goal as the international iconic denim brand wants to take on the Indian market full throttle and the Indian counterpart has indicated that it wants to rapidly build its portfolio of Indian and foreign brands in the premium to luxury segments across apparel, footwear and lifestyle segments.

Similarly, Miss Sixty entered India in 2007 through a franchisee agreement with Indus Clothing. It switched to a joint venture with Reliance Brands in the same year but the partnership was called off in 2008, despite plans to open more than 50 stores in the first three years of operations. Miss Sixty has finally entered India through a franchise agreement with a manufacturer of women’s footwear and accessories. The company has currently introduced only shoes and accessories category and is looking at potential partners for its label Energie and girls’ range Killah.

Other brands that have re-entered the Indian market include Germany-based Lerros whose first presence in India was back in mid-1990s. The brand re-entered the market in 2008 through own brand stores and is growing its presence through this route as well as through multi-brand stores.

Oshkosh B’gosh is another brand that had entered India in mid 1990s, through a licensing agreement with Delhi based buying house, Elanco. The licensee found the childrenswear market hard to crack, and closed down. In 2008, Oshkosh re-entered the Indian market through a licensing partnership with Planet Retail and is now available through shop-in-shop counters at Debenhams stores. Reports suggest that it may consider setting up exclusive brand outlets.

During the turbulence of 2008 and 2009, a few brands also exited the market. Some of them were possibly due to misplaced expectations initially about the size of the market or about the pace of change in consumer buying habits. Others were due to a failure either on the part of the brand or its Indian partners (or both) to fully understand what needed to be done to be successful in the Indian market. Whatever the reason, the principals or their partners in the country decided that the business was under-performing against expectations and for the amount of effort and money being invested, and that it was better to pull the plug.

Some brands that have been pulled out of the Indian market during 2008 and 2009 include Dockers, Gas, Springfield and VNC (Vincci). Gas (Grotto SpA) is reported to remain interested in the market but has not found another partner after its deal with Raymond fell through in 2007 and all dozen of its standalone stores were shut down.

The Scottish brand Pringle and its Indian licensee did not renew their agreement upon its expiry. The Indian partner has reportedly signed an agreement to launch another international brand in India, while Pringle is said to be looking for new licensee.

The good news is that successful relationships outnumber every exit or break in relationship possibly by a factor of ten. Some of the brands that have sustained are among the early entrants having a presence in India since the late-1980s and 1990s or even earlier. These include Bata, Benetton, adidas, Reebok (now also owned by adidas), Levi Strauss and Pepe. Having grown very aggressively during 2006 and 2007 Reebok quickly became the largest apparel and footwear brand in India, while Benetton and Levi’s are expected to cross the $100-million mark for sales this year.

Entry Strategy & Recent Shifts

As envisaged in Third Eyesight’s report from a year ago, with changing market conditions and a growing confidence in the Indian market, there has been a shift among international brands in the choice of the launch vehicle. While franchising has been the preferred mode of market entry in the recent past for risk-averse brands, more brands today demonstrate a long-term commitment to the Indian market, and are choosing to exercise ownership through wholly or partially owned subsidiaries and through joint ventures.

In 2009, we have seen a noticeable shift in favour of joint-ventures as the choice for entry into the market. Even the brands already present are looking to modify the nature of their existing presence in India in order to exert more control over the retail operations, products, supply chain and marketing.

Current Operating Structure
(End 2009)

Brands that changed their operating structures and, in some cases partners, in recent years include VF (Wrangler, Lee etc.), Lee Cooper, Lee, and Louis Vuitton amongst others.

Mothercare, the baby product retailer, which is present through a franchise agreement with Shopper’s Stop has, in addition, recently formed a joint venture with DLF Brands Ltd to enable the expansion through stand-alone stores. Gucci, which had initially entered in 2006 with the Murjani Group as a franchisee, has recently changed over to Luxury Goods Retail, and is now in the process of restructuring the relationship into a joint venture.

VF has also been reported to be looking to license Nautica, Jansport and Kipling to a new partner. Until now, these brands were handled through the joint venture with Arvind Brands. Arvind has increasingly focused on its core business, closed stores and scaled down expansion plans for the international brands.

Burberry that had entered India in 2006 through a franchisee arrangement with Media Star opened two stores under this arrangement. It has now set up a new joint venture with Genesis Colors and plans to open 20 stores across the country.

More recently Esprit has also been reported to have approached Aditya Birla Nuvo to deepen its engagement by moving from its distribution arrangement into joint venture as the international brand sees excellent potential in the Indian market.

Buckling up for 2010

Throughout 2009, the one fact that became clear was that the Indian market was resilient. Now, as the global economic condition stabilizes, confidence levels of brands and retailers in India have also improved.

Several launches are already expected in 2010, and possibly many more are being worked upon. In the following 12 months, consumers can expect to find within India acclaimed brands such as Diesel, Topman, Topshop and the much-anticipated Zara. Many more Italian, British and French brands are examining the market.

Most of the international fashion brands already present in the market are also projecting a cautiously upbeat outlook in their plans, while a few are looking positively bullish.

For example, Pepe, an old player in premium and casual wear segment, has reported plans to grow its retail network further and open 50 more franchise stores by September 2010. Similarly the German fashion brand S. Oliver that entered the Indian market in 2007 is looking to grow significantly. It has already moved from a franchise arrangement with Orientcraft to a joint-venture with the same partner, and has stepped up its above-the-line marketing presence. The brand has recently reported its plans to scale up its retail presence to 77 stores by the end of 2012 while also strengthening its presence through shop-in-shop in multi-branded outlets in high potential markets.

Those international brands that have tasted success have not achieved it by blindly importing business models and formulas from other markets. Most have had to devise a different positioning from their home markets. Some have significantly corrected pricing and fine-tuned the product offering since they first launched. These include The Body Shop which decreased its prices by up to 30% this year, and Marks & Spencer which reduced prices by 20-40%. Others are unearthing new segments to grow into; for instance, Puma and Lacoste are now seriously targeting womenswear as a growth market.

On the operational side, the good news for retailers and brands is that the average real estate costs have reduced significantly, although marquee locations remain high. In several locations lease models have also moved from only fixed rent to some form of revenue sharing arrangement with the landlord. And, while the sector has seen some employee turmoil as many non-retail executives who came into the business in the last 5-7 years have returned to other sectors, employee salary expectations are also more realistic.

As customer footfall and conversions pick up, international brands are also shoring up their foundations for future expansion in terms of better processes and systems, closer understanding of the market, and nurturing talent within their team. Third Eyesight’s recent work with international brands’ business units in India highlights the international players’ concern with ensuring a consistent brand message, improved organizational capabilities right down to front-line staff, and focus on unit productivity (per store and per employee).

We may yet see a few more exits, and possibly some more relationships being reshuffled and partners being changed. However, all things considered, we can look forward to a net increase in the number of international brands in the country.

The Indian consumer is certainly demonstrating more optimism and as far as there are no major unforeseen global or domestic shocks, this optimism should translate into a healthier business outlook for international brands as well. According to early signs, 2010 could be an excellent curtain-raiser for a new decade of growth for international fashion brands in India.

[The 2009 report is available here: “International Fashion Brands – India Entry Strategies”]

(c) 2010, Third Eyesight

[Note: This report is based on information collected from a combination of public as well as proprietary sources, and in some cases may differ from press reports. However, no confidential information has been shared in this report.]