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Targeting the savvy shoppers in India

Pia Heikkila

The National , November 13, 2011

It is Saturday afternoon at Mumbai’s posh Phoenix Mills mall and the place is buzzing.

Giggling girls sit by the central courtyard sipping cold drinks, taking a breather. International labels such as Zara, Mango and French Connection adorn their shopping bags.

Very soon a new brand could tempt these marathon shoppers. Kenneth Cole – the US apparel retailer – has entered into a deal with India’s Reliance Brands to launch retail and wholesale operations in India.

Analysts say Kenneth Cole’s market entry comes at an opportune time.

"The timing is right for them because this is a market segment which is expected to grow fast. India has a young population which wants to spend on clothes, the increased urbanisation trend and growing disposable income are also contributors," says Amit Gugnani, the vice president for apparel operations at Technopak research house.

The market is expected to grow from US$65 billion (Dh238.7bn) to $200bn by 2020, according to Technopak. The sector’s value has more than trebled since 2005 and it is expected to grow a steady 25 to 30 per cent annually, it said.

One of the shoppers Kenneth Cole may want to target is Supriya, 24, a television executive who spent 5,500 rupees (Dh404) on an outfit from the Spanish fashion house Zara. "I would definitely visit Kenneth Cole,’ she says. "I know the brand from my visit to the States and like their stuff."

The American company wants to attract the young, brand-aware sector – shoppers with plenty of cash to splash. The US group’s plan is to open 25 stores across the country over the next five years.

The appetite for western-style clothing is growing and the market looks promising, says Devangshu Dutta, the chief executive of Third Eyesight.

"In the last four to five years over 100 brands have been launched that are all targeting this space, whether across genders or for any single gender," he says. "Typically these brands would be targeted at consumers in households that have annual income of 1 million rupees or more, and the income and spend levels are also growing rapidly in this segment. Therefore, I would say that the market is far from saturation, despite the competition."

Apparel is the country’s second-largest sector, behind food and beverages. And its size has not gone unnoticed from overseas players who have been lining up to land on India’s shores. Brands such as Diesel, Vero Moda, Tie Rack, Promod, s.Oliver, French Connection, Guess, Next and Calvin Kleinhave been present in most of India’s big cities for several years now, luring the middle-class rupee.

But it has not always been like this. Shoppers can thank India’s decision to join World Trade Organization (WTO) in 1995, which meant a reduction in import duties on clothes. The government’s decision to allow foreign direct investment of 51 per cent in single-brand stores in January 2006 has also helped the big brands to establish a presence.

Foreign companies were allowed to set up shop in the country, provided they had found a local partner. And more recently, the government has said it is considering raising the 51 per cent cap, which would mean a choice of even more foreign brands for Supriya and her friends.

Not all foreign ventures have been roaring successes.

Take the UK’s high street retailer Marks & Spencer (M&S). When it launched in India in 2002 M&S positioned itself as a premium brand despite being a mid-market brand in Britain. But middle-class consumers did not flock to its Indian shops, turned off by the high prices, nor did the wealthy consumers, because they knew the brand was a middle-class phenomenon from their trips abroad.

M&S tills did not sing to the tune of the sitar and a few years later the company admitted defeat and decided to turn its ship around. It reduced its prices and made its stores more middle-class friendly. Today the group is working hard to attract the mid-to-premium shoppers in India and sales are rising steadily.

For Kenneth Cole India is still a blank canvas.

Analysts say its success will be based on how it positions its brand. "It depends upon the brand-product value offer that is designed for the Indian market and how well can the international brand differentiate itself from the competition in terms of the product width and depth and the customer’s experience at the various touch-points," says Mr Dutta. "In addition, the product sourcing and supply-chain strategy will greatly impact the brand’s responsiveness and the margins."

Pricing can be a problem for mid-market brands, he adds, because the mid-market segment in India is very different from mid-market in Europe. Income and spending habits vary greatly.

"A brand has two choices: either to be consistent in its pricing, or to change its merchandise and shift pricing downwards to fit into the very different Indian mid-market."

If pricing is kept consistent with European markets, then direct translation of European pricing into Indian rupees immediately places all mid-market brands into the premium segment.

"On top of that, import duties ensure that there is less margin to manoeuvre on the retail price," says Mr Dutta.

Reliance knows this because it is an old hand at handling foreign brands. Its stable has some of the most well-known global brands such as Ermenegildo Zegna, Diesel, Timberland, Quiksilver, Roxy and Steve Madden.

So to make it in India, Kenneth Cole’s marketing, advertising and product people will need to be able to appeal directly to people such as Supriya and her friends.

"India’s consumer base can be read as ‘many countries in one’, and the key to the success of any international brand in India at the outset is to be clear about its target customer," says Mr Dutta.

"Both Indian consumers and the business environment are demanding, which reduces the margin for error and increases the time to break even dramatically."

No financial details of the agreement between Kenneth Cole and Reliance Brands were revealed and neither company responded to queries from The National.

(This article appeared in The National on 13 November 2011.)

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