The apparel retail sector worldwide thrives on change, on account of fashion as well as season.
In India, for most of the country, weather changes are less extreme, so seasonal change is not a major driver of changeover of wardrobe. Also, more modest incomes reduce the customer’s willingness to buy new clothes frequently.
We believe pricing remains a critical challenge and a barrier to growth. About 5 years ago, Third Eyesight had evaluated the pricing of various brands in the context of the average incomes of their stated target customer group. For a like-to-like comparison with average pricing in Europe, we came to the conclusion that branded merchandise in India should be priced 30-50% lower than it was currently. And this is true not just of international brands that are present in India, but Indian-based companies as well. (In fact, most international brands end up targeting a customer segment in India that is more premium than they would in their home markets.)
Of course, with growing incomes and increasing exposure to fashion trends promoted through various media, larger numbers of Indian consumers are opting to buy more, and more frequently as well. But one only has to look at the share of marked-down product, promotions and end-of-season sales to know that the Indian consumer, by and large, believes that the in-season product is overpriced.
Brands that overestimate the growth possibilities add to the problem by over-ordering – these unjustified expectations are littered across the stores at the end of each season, with big red “Sale” and “Discounted” signs. When it comes to a game of nerves, the Indian consumer has a far stronger ability to hold on to her wallet, than a brand’s ability to hold on to the price line. Most consumers are quite prepared to wait a few extra weeks, rather than buying the product as soon as it hits the shelf.
Part of the problem, at the brands’ end, could be some inflexible costs. The three big productivity issues, in my mind, are: real estate, people and advertising.
Indian retail real estate is definitely among the most expensive in the world, when viewed in the context of sales that can be expected per square foot. Similarly, sales per employee rupee could also be vastly better than they are currently. And lastly, many Indian apparel brands could possibly do better to reallocate at least part of their advertising budget to developing better product and training their sales staff; no amount of loud celebrity endorsement can compensate for disinterested automatons showing bad products at the store.
Technology can certainly be leveraged better at every step of the operation, from design through supply chain, from planogram and merchandise planning to post-sale analytics.
Also, some of the more “modern” operations are, unfortunately, modelled on business processes and merchandise calendars that are more suited to the western retail environment of the 1980s than on best-practice as needed in the Indian retail environment of 2011! The “organised” apparel brands are weighed down by too many reviews, too many batch processes, too little merchant entrepreneurship. There is far too much time and resource wasted at each stage. Decisions are deliberately bottle-necked, under the label of “organisation” and “process-orientation”. The excitement is taken out of fashion; products become “normalised”, safe, boring which the consumer doesn’t really want! Shipments get delayed, missing the peaks of the season. And added cost ends in a price which the customer doesn’t want to pay.
The Indian apparel industry certainly needs a transformation.
Whether this will happen through a rapid shakedown or a more gradual process over the next 10-15 years, whether it will be driven by large international multi-brand retailers when they are allowed to invest directly in the country or by domestic companies, I do believe the industry will see significant shifts in the coming years.
My first brush with Zara and Inditex (Zara’s parent company) was in the 1990s, when we were comparing product development and supply chain best practices for another European retailer.
In 2002, after writing a case study on the Zara business model, I was (and continue to be) surprised at the number of downloads from the website (referenced at the bottom of this article).
In 2004, the interest at the Images Fashion Forum was so intense that the Q&A after the presentation exceeded the allotted time, to the extent that I was almost declared persona non grata by the organising team!
I’m glad to say that we’re all still friends and, together, witness to the logical next phenomenon: the much anticipated Zara store launch in India in May 2010. And what a phenomenon! On a high-footfall day, at full price, the Delhi store looks as if the merchandise is being given away for free.
In 2006, India was the 8th highest source of traffic to the Inditex website (more than half a million, almost 2 per cent of the total); incredible, considering that the other Top-10 countries already had Inditex stores. Although Zara finally signed a joint-venture with the Tata Group, I’m pretty sure that those thousands of other rejected prospective Indian licensees and franchisees must be getting their Zara-fix now as customers.
What does the Zara launch mean for the Indian fashion and retail sector? Is this the beginning of a new era? Should we expect Zarafication of the market, where the customer is driven by fashion, and the supply chain will turn and churn products faster than ever before? Should other international brands and Indian fashion brands be worried?
A peek at history is useful here. It is said that when Spanish conquistadors landed on the shores of the Americas they managed to conquer the land and the people through a combination of guns, germs and steel. [Credits to Jared Diamond for that evocative phrase.] That is, the Spanish carried guns and fine steel swords but, most importantly, they also carried diseases that were alien to the local population. In many places, the weakened and leaderless indigenous people were simply too battered psychologically and physically by disease, to fight the colonisers.
Keeping that in mind I would say, Zara’s entry is a warning bell only if your business is suffering from recent financial and operational illnesses. It is only dangerous if your team are psychologically weak, and would be overwhelmed just by the thought of the supply chain wizardry that Zara has deployed in its business internationally. It may be fatal for sleepy marketing teams whose only strategy has been to spend lots of money on advertising in season and on mark-downs after the season.
But it’s not doom and gloom for brands and businesses that have a competitive spark of life. If you’re prepared to learn, Zara’s business can provide lessons on how to create a product mix that doesn’t stay on the shelf for months, and on how to create the buzz and excitement around the brand.
Zara’s business success in India is not a foregone conclusion. Let’s look at the facts.
Zara’s business model in its home market was built on getting up-to-date fashion into the market before anyone else, and at lower costs. Its prices encouraged fashion-conscious consumers to buy more frequently, and though its limited production quantities were a way of reducing risk, it added to the allure of the brand. In most overseas markets, however, Zara is a somewhat more premium brand. The “value-for-money” for the brand rests on fashionability rather than product quality.
The Indian consumer base, on the other hand, is less fashion-sensitive than the European consumer. This is not equivalent to being less sensitive aesthetically – Indian consumers can tell good design from bad; allowing, of course, for varying taste! However, value consciousness drives many consumers to buy during discount sales with delay of 2-3 months, rather than buying current fashions at full price. This can be a problem for a brand that thrives on change.
Zara will initially have a limited physical footprint. It is targeted at the premium to luxury end of the market, fitting a certain physical profile of customer. Its products that are imported are disadvantaged by a hefty import duty and shipping costs, as well as the shipment lead time. So, there is time available to Indian businesses that want to adapt their business model, and learn from this new competitor.
With the product development strengths and the agility that Indian apparel companies have displayed in the past, there is no reason why Indian brands cannot compete effectively with Zara on their home turf. When it comes down to it, I think Indian businesses (the small ones, with less “organisation” and “process” orientation) are fast on their feet in identifying design trends and are able to responding to the trends with products being available in the market very quickly. I would call them the Indian “baby Zaras”.
So the real question is this: can these Indian “baby Zaras” learn to be disciplined and structured, and learn to scale up their businesses?
Could we, perhaps, even see some people creating copies of Zara’s styles and bringing them to the market quickly at much lower prices (in effect doing a Zara on Zara)? Let’s not forget, what is today an 11-billion Euro business was once a contract manufacturer to other retailers, and Zara started with one shop carrying low-priced versions of products inspired by those of high-fashion designer brands.
The coming years promise to be interesting and I think we should watch out for an Indian version of an Inditex emerging in the next few years. It remains to be seen whether it will be from among the existing players in the domestic market, an exporter who is a contract manufacturer for western retailers (as Inditex once was), or someone totally new.
The people who should be really worried are those international brands whose product mix in India is weak, whose prices make you want to marry a rich banker, and whose brand ethos is totally unclear. To them I would say: Zara has you in its gun-sights.
The Third Eyesight Knowledge Series© comprises of workshops designed and developed to help functional heads, line managers and executives refresh and upgrade functional and product expertise.
The Soft Goods Series is specially focused at the Clothing, Textile and the Fashion Industry. Within this, the Textile Facts & Fabric Sourcing module is aimed at developing a working knowledge of fabrics commonly used by the apparel industry; identifying the domestic and international source markets for these textiles; understanding the costing of textiles based on the value add and finishing processes; and familiarizing participants with the common and varied end uses of these fabrics.
Dates: 4th & 5th July 2008
Duration: 10 a.m. to 5 p.m.
Venue: PHD Chamber of Commerce
August Kranti Marg, New Delhi.
Workshop Fee: Rs. 5,500 per participant (plus service tax)
Other modules in the Series cover topics related to Product Development, Supply Chain Management, Merchandise Buying and Planning, Business Communication and Fashion Brand Management. The workshops have been designed as an integrated series. However, each module is complete and self contained and participants have the flexibility to select independent modules based on their training requirement.
Participant profile: Production Managers and Coordinators, Merchandisers, Retail buyers and Product Developers, Buying House Merchandisers.
For further information please contact us at +91 (124) 4293478, 4030162.
India has a rich tradition of textiles which dates back many centuries. The history of the Indian readymade garment industry, however, is very recent and can be traced back to the Second World War.
During the Second World War, as a contribution to the wartime needs of British rulers, clothing units for mass production were set up to manufacture military uniforms. With India’s independence in 1947, the industry stagnated as the policies of the Government were now diverted towards building a new nation. However, the industry began to expand after 1959 with the revision of the textile policy to allow the import of machinery for manufacturing.
The 1960s witnessed social shifts as a whole generation of young people questioned the very basis of their existence, and the hippie movement was born. Tired of their materialistic ‘man-made’ lifestyle, these young people began to seek answers in communing with all things natural, love and peace being the anthem. They began traveling, to explore, to seek the ancient philosophies of the East.
This voyage of discovery not only led to a change of lifestyle, but also the way they dressed. Natural fibres were rediscovered, and principally amongst them “Cotton”. India, with its natural abundance of this fibre, was an automatic choice of a supply source. Simultaneously, the growing settlement of Indian abroad led to a ready outlet for a variety of India merchandise and clothing textiles as an article of trade because of its growing demand.
This sudden demand for cotton garments resulted in the Indian industry growing by leaps and bounds in a very short period. Export of “High Fashion” garments from India started off with the cheap cotton kurtas and hand-block vegetable dye printed wrap-around skirts in cotton sheeting to meet the demands of the western youth.
Cashing in on the boom any and everybody got into the manufacture of clothing. The Government, realizing the potential of earning foreign exchange for the country, announced incentives and tax exemption for exporters. The fallout was an industry that grew in an unorganized manner and developed a reputation for producing low cost, low quality, volume merchandise.
The 1980s established that the industry was here to stay but, in terms of product profile, India still had not been able to move out of the lower end of the world market and continued to have an average unit value of under US$ 5.
The 1990s saw the industry make a conscious effort to shake off the image of being producers of cheap, low-quality merchandise with unreliable delivery schedules. The second generation had begun coming into the business, and contributed to reorganizing their firms for clearer structure and professionalism. Funds were ploughed back into the business with the emergence of large and modern production facilities. Even though most of the export houses were family-owned, trained professionals were inducted into the business for clear-cut departments and areas of functions. Consolidation and retention of business was the focus of the late nineties as the abolition of quotas planned for the new millennium became a reality.
The industry was euphoric but at the same time apprehensive of what the post quota era would bring. Many of the producers looking for a synergy in the business and also to sustain the large production facilities began tentative forays into domestic retail. The face of the Indian consumer was changing. Exposure to the western society via the electronic media helped in creating a ‘borderless’ world for lifestyle products, and contemporary fashion merchandise found a ready market in domestic retail.
The new global consumer over the years has evolved as a demanding and yet discerning individual. The novelty factor along with price and quality has become the watchword of the new millennium consumer. As consumers around the world change, so does the product strategy to keep consumer interests alive and ensure loyalty.
The new millennium has seen the emergence of the ‘Quick Response’ or ‘Real Time’ merchandising in fashion as a strategic solution to nurture, retain and grow the business. ‘Fast Fashion’ was born. Retailers could no longer work on the concept of two major retailing seasons with a couple of promotions thrown in. Product planning and the merchandise on the racks had to be constantly current and trendy.
Fast Fashion is not simply a solution to increase consumption by introducing greater product variety but a strategy to retain, consolidate and sustain the market through proactive product development and efficient product delivery to consumers, and thereby grow the market by increasing market share or developing new markets.
However, fast fashion has been tried and tested in different avatars through the years. In the 1960s and 1970s it was present in the quick reaction time of the unorganized sector to service the demand for block-printed ethnic clothing merchandise. In the 1980s and 1990s it was represented in the proactively researched product development at the source market level by wholesale importer/designer buyers (like Rene Dehry, Giorgio Kauten, Diff and Steilmann). Today it is technology-aided product research and development techniques (practiced by Anthropologie, Rampage, Zara and H&M), coupled with responsive buying processes.
In product design terms, India has moved on from producing and selling ‘fashion basics’ to ‘basic’ merchandise, and now back to ‘fashion basics’ once again. History says that this is where India’s inherent talents and strengths as a source market lie. Rather than reinventing the wheel or try to catch up with other competitors strengths, India should cash in on its strengths to practice and master fast fashion.
In the business of fashion, time has always been important. However, speed and efficiency are now both a strategic imperative and a tactical necessity. With greater unpredictability in the market, it is critical to have the correct product at the correct time in the right quantity. Fast fashion requires completely different thinking in the way product is developed, how pre-production processes are undertaken and how production is organised. The Fast Fashion Seminar will draw upon the live experiences of leading practitioners from the area of product development and supply chain. It will be structured as an interactive session. This Third Eyesight Fast Fashion Seminar will provide you with a valuable insight into how to effect rapid changes in the market to your benefit.
Among other aspects, it will:
Describe in detail the concept of fast fashion
Identify key strategic actions to meet fashion consumer demand
Detail how leading brands such as Zara operationalise the concept
Discuss how to achieve less than 1% inefficiencies in their processes from design to delivery, including inventories and markdowns substantially below the industry average.
Understand the underlying principles of the fast fashion model and how these might be applied to retail and fashion business models in India
Attendance is strictly by pre-registration. Registration information is also available over phone (please contact on phone +91-124-4293478 or +91-124-4030162).