Leonie Barrie, just-style.com
November 15, 2013
Marks & Spencer has so far failed to make much of a dent in the Indian clothing sector since it first stepped into the country in 2001. It currently operates 36 stores in there since forming a joint venture with local conglomerate Reliance Retail in 2008.
But it’s easy to see why India appeals.
The Indian apparel and footwear market is valued at US$51bn and is the third-largest market in Asia-Pacific following China and Japan, according to data supplied to just-style by market research company Euromonitor International.
With a compound annual growth rate (CAGR) of 7.6% from 2012-2017, India is set to be one of the fastest growing markets globally – and by 2017 it is expected to have overtaken European markets such as Italy and France, with sales forecast to reach US$73bn.
"There is general consensus that India is an attractive market for new investment, especially for the world’s leading fast-fashion retailers," explains Magdalena Kondej, head of apparel research at Euromonitor.
Shifting its focus from being a British retailer to an international player comes at a time when M&S is struggling in its efforts to stem a decline in its domestic clothing sales.
Earlier this month the company recorded its ninth consecutive quarterly drop in like-for-like general merchandise sales in the UK – which includes clothing and footwear – despite the much-publicised re-launch of its autumn/winter women’s wear ranges in September.
M&S, which currently has more than 770 stores in the UK and over 430 across Europe, the Middle East and Asia, plans to expand its store count in India from 36 to around 80 by 2016.
India is already its fastest-growing market in Asia – and the move to grow its store count there is a realistic one, experts say. But they also question whether India should be its top priority.
"Looking at per capita spending, an average consumer in India spends US$41 on apparel and footwear compared to US$200 in China and almost US$300 in Brazil," Kondej explains.
"Although the demand for international brands is there, it will take a while for both disposable incomes and consumer spending to catch up with other emerging markets. This immediately makes India a more challenging market to operate in."
She also highlights the state of modern retail development in India among the other hurdles it faces.
"Many recently opened shopping malls are currently struggling, and rents in Mumbai are one of the highest globally. Taking all this into consideration, it is quite surprising to see M&S putting India on top of their priority list," Kondej says.
Plans by many international retailers to expand in India have been tempered by concerns about requirements to source 30% of their supplies locally. The Indian government imposed these conditions as part of efforts to open the sector up to foreign investment.
But sourcing locally has important benefits, allowing products to be tailored specifically for the Indian market "in terms of style [and] fit as well as to price points," according to Devangshu Dutta, chief executive of consumer products consulting firm Third Eyesight.
"A supply chain dependent on imports raises costs even further, potentially pricing the brand out of the market," he says.
It’s a point also picked up by Kondej. "This is a big deal because – outside their production hubs – the world’s leading fast fashion retailers are heavily dependent on imported merchandise. Both H&M and Uniqlo are now understood to be deferring their first store openings [in India], blaming exchange rate volatility."
She notes: "Gap in India arguably has an advantage over its rivals in that the company already operates a large sourcing base there.
"Any brand planning to embark on a big store network expansion in India would be comparatively well insulated from the devaluation of the rupee if they had localised production as well. For one thing, it would help M&S in developing a more tailored (country-specific) retail strategy and for another, it would provide protection against exchange rate volatility."
M&S highlights its sourcing operation in India and South Asia as crucial its expansion plans. Currently, 33% of its general merchandise products sold around the globe are made in the region, whilst 64% of M&S products sold in India are sourced from local suppliers.
It also says sourcing locally has enabled it to "stretch the seasons," by offering products like linen clothing – of which it sells over half a million pieces every year in India, accounting for 15% of sales – all year round.
To succeed in India’s apparel market, M&S must get its positioning right and communicate this clearly to the consumer – issues that, worryingly, it also seems to be struggling with at home.
"Does it want to be considered a premium/aspirational brand with a focus on high quality apparel, or an affordable brand for the family with attractive price/quality ratio, or does it want to compete with the likes of Zara in the fast fashion segment?" Euromonitor’s Kondej asks. "It seems like the second option would be the best way forward for M&S in India given its product range and India’s family-centric culture."
Dutta also points out the a direct investment arrangement, whether through a joint venture or a wholly owned subsidiary, "creates more commitment on the part of the brand and also allows it to steer the business with a longer-term approach in mind."
Indeed, he adds, since moving into a joint-venture with the Reliance group, "M&S has committed to investing in larger stores, and also tweaking the product mix to suit its reading of the upper middle income consumers in India.
"While it is feasible to grow the business significantly in India, it needs to create a balance between seeking volumes and maintaining its premium ‘international’ positioning."
(Sourced from just-style.com.)