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Fashion at the Forefront – from the IMAGES YEARBOOK 2007

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.

INTERNATIONAL BRANDS

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!”
 

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