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Clamour for labels forces Indian clothing retailers to up their game

With big-name western brands in demand, domestic counterparts try to match them.
Shoppers walk past a Zara store inside the DLF Promenade shopping mall in New Delhi. Graham Crouch / Bloomberg News
Shoppers walk past a Zara store inside the DLF Promenade shopping mall in New Delhi. Graham Crouch / Bloomberg News

Ritu Sharma, 30, was delighted when Zara, the Spanish fashion chain, opened in Mumbai four years ago.

She buys most of her clothes from there these days.

“Professional women in India shop mostly for their formal workwear in these international stores,” says Ms Sharma, a public relations consultant. “I personally prefer western wear. Most of the Indian stores would not have dresses or they would not even have shirts with the right fit for Indians like me who are thin.”

Global names such as Zara and Mango are expanding in India, while others including the Swedish retailer H&M have plans to launch soon, as they aim to capitalise on the rising incomes and growing appetite for international brands.

High rental costs and a thriving counterfeit market are some of the challenges that global retailers face in India, however.

“Keen to leverage the potential presented by the Indian domestic fashion market, a significant number of international brands have forayed into India and are focusing on rapid expansion,” analysts at Technopak wrote in a recent report.

The demographics are favourable for such companies. More than half of Indians are under the age of 25 in a country of more than 1.2 billion people. These retailers are also finding that their home markets are more saturated.

“The share of apparel and footwear in household consumption is reducing steadily in the mature markets of the United States and the European Union owing to their ageing population and increasing spending on health care and leisure activities,” Technopak says.

India’s apparel retail market is expected to grow at a compound annual growth rate of 9 per cent to increase by two-and-a-half times from US$41 billion last year, according to the consultancy.

“High exposure to global trends combined with aspiration of consumers cutting across geography and socio-economic strata to engage with global fashion is further driving this growth,” it says.

Gap, the San Francisco-based casual clothing company, last month unveiled plans to open its first indian stores in Mumbai and Delhi next year, as part of a plan to open 40 shops in the country.

J Suresh, the managing director and chief executive of Arvind Lifestyle Brands, which has partnered with Gap to bring the brand to India under a franchise-operated model, says in India it will appeal to the “upper middle class and the affluent part of society”.

Arvind has licensing for other brands in India including Gant, US Polo Association and Nautica.

“The trading up category, as the consumers move up, I think that is where our dominant strength really comes in,” Mr Suresh says.

Steve Sunnucks, the global president of Gap, has described India as “an emerging, vibrant market and an important step in our global expansion strategy”.

But there are many lower-cost options available in India.

Ashvin Gidwani, 35, a digital consultant at a major software company, says he finds brands such as Zara and Gap too pricey and prefers to shop for cheaper clothes in malls, looking for good value options rather than particular brands.

“I’m not a big clothes person,” he says. “For work clothes, I’ve got a tailor across the road.”

There is a huge counterfeit market for clothes in India and many clothes bearing the names of popular brands can readily be found available in the streets and market, which also presents a challenge for international retailers.

The counterfeit luxury products market in India is worth about 25 billion rupees (Dh1.5bn) and is growing at a compound annual growth rate of 40 to 45 per cent, according to the Associated Chambers of Commerce and Industry of India (Assocham). It says about 25 per cent of this trade is conducted over the internet.

“Many aspiring consumers not able to afford originals deliberately purchase counterfeits,” says DS Rawat, Assocham’s secretary general. “More corrective measures need to be taken to lock down the emergence and continued existence of the counterfeit goods market in the form of effective intellectual property enforcement, plugging loopholes in the legal and judicial structure and higher conviction rates, since the absence of these measures collectively lead to the global brand’s equity getting diluted and reduced consumer trust in their brands.”

Retailers say that the rise of international clothing companies is definitely shaking up the industry.

Even genuine branded clothes can often be found at cheaper prices online, which is leading many Indians to buy their clothes through websites rather than shopping in malls and high streets.

Online retail sales are rising, with Flipkart, Jabong and Myntra among the major players, all offering a cash on delivery option. Sales at Flipkart, India’s largest online retailer, doubled to $1bn over the year up until the end of February compared to the year ended in July 2013.

The growing taste among young women for westernised clothes means that some traditional clothes retailers find generating business increasingly challenging.

“It’s difficult because if you see, all the girls now wear jeans and dresses,” says Namita Shah, who runs a shop in south Mumbai which mainly offers luxury vibrantly coloured kurtas and kurtis.

Indian clothes retailers are being forced to raise their game with the entry of international names.

Vitruvien, a retailer which sells men’s clothing online, is trying to differentiate itself by offering a virtual tailoring service, where customers have the ability to customise their shirts in terms of both fit and style from the collar to the cuff.

“Definitely the entry of international brands would have an impact on overall business in general,” says Rajesh Goradia, the co-founder of Vitruvien. “But the Indian apparel market is growing so there’s room for everyone there. When international brands come in, it definitely raises the standards for local brands in terms of quality and finish and expectations overall, so in that sense the market does become more competitive.”

He explains that international brands charge 1.5 to 2 times more for an item of similar quality sold by a local company.

“Another advantage of international players coming in is that customers become more comfortable spending a larger sum. It’s a benefit to us as an Indian brand because they are more comfortable with our price range once they have benchmarked it to a higher price range.”

Indians are increasingly buying clothes online, as they become more confident with shopping over the internet in general, Mr Goradia adds.

Real estate and finding the right profitable location is a major challenge for international retailers entering India.

“Given that the size of consumer spending in Indian cities is still on the threshold of growth when seen in the Asia-Pacific context, the break-even period for retailers in this country is discouragingly high,” according to Ashutosh Limaye, the head of research and the real estate intelligence service at JLL India. “Also, though the average vacancy rate in malls across India is high at 19 per cent, high-grade malls are actually still in short supply. The vacancy rate in the country’s high-grade malls does not exceed 10 per cent.

“Poor quality malls are contributing towards higher vacancy, while the vacancy level in superior malls is comparable to that of such malls in China. International mid-tier and luxury segment retailers are focused on this category of mall spaces and therefore have a challenging time while entering or expanding their businesses in India.”

But he adds that retailers are not without options.

“With the low vacancy in good quality malls, the country’s more prominent high streets offer an attractive alternative to mid-tier and luxury brands that are not averse to paying higher rentals in exchange for superior footfall and conversion rates.”


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Updated: September 27, 2014 04:00 AM