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September 9, 2006
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!”
