Breaking into India’s apparel market is not as easy as it seems
Sheer size a definite lure for international brands but intense competition demands heavy investments over the long term
A Zara store in a central Mumbai mall is thronging with customers on a Thursday morning as the latest sales begin.
Long lines form at the fitting rooms with people clutching piles of discounted clothes, eager to try them on. Tills are buzzing with queues in a clear sign nobody wants to miss a bargain.
“I can't afford Zara's regular prices, so whenever they have a sale, that's my opportunity to shop,” says Shweta Jain, a student, as she browses through a rack of T-shirts.
There is an increasing appetite for "fast fashion" in India amid the growing popularity of western wear in the country. A rise in disposable income and expanding access to social media is fuelling the demand, not only allowing people to know what's trending and what's not, but also giving them the means to buy what's in vogue, analysts and industry observers say.
India's avergae per capita income peaked to $2,041 (Dh7490.5) in the past financial year, macroeconomic analyst CEIC data shows. However, despite reaching the an all-time high, a large segment of the country's more than 1.3 billion inhabitants still cannot afford to buy foreign brands such as Spanish-based Zara.
Other European chains such as Sweden's H&M and US-based Forever 21 are also trying to break into the market, which offers the potential of immense growth. Indian homegrown brands such as Tata Group-owned Westside and women's clothing chain Cover Story are also aware of the fact and and are trying to compete with their foreign counterparts. They have the cost advantage and are selling merchandise significantly cheaper. Competition in the Indian apparel market is fierce and despite prospects of potential future growth, it is highly challenging place to exist at the moment.
“I really think the biggest challenge would be competition,” says Vaishnavi Mandhaniya, a research analyst for the consumer sector at Anand Rathi, a financial services company based in Mumbai. “There's also a lot of competition that comes in from the unorganised sector (small, unbranded sellers), and discounting on e-commerce is something that impacts these companies a lot.”
The rise in competition comes at a time when analysts expect consumer demand to cool down a bit in the wake of a broader slowdown in the country's economy, after gross domestic product hit a five-year low of 5.8 per cent in the first quarter of the current financial year, official figures show.
The longer-term outlook for both the economy and apparel market is attractive, though.
A report by the global consultancy McKinsey estimates India's apparel market to be worth $59.3 billion by 2022. That brings it into the market league that includes the UK, where the apparel sector is worth $65bn. Given the fact that India has a far larger population and disposable income is on the rise, there is a good chance it can overtake major European markets in the future and it makes sense for the international brands to enter India as early as possible.
“India is increasingly a focal point for the fashion industry, reflecting a rapidly growing middle-class and increasingly powerful manufacturing sector,” analysts at McKinsey write in the report. “These, together with strong economic fundamentals and growing tech-savvy [population], make India too important for international brands to ignore.”
Anuj Arora, the general manager of Oberoi Mall, one of the major shopping destinations in India's financial capital Mumbai, says that given the demand for fast fashion, “malls across India are gradually giving more importance to fast fashion brands as they see these brands driving footfall”. Oberoi Mall features US-based GAP and Zara stores.
“Most consumers, especially the millennials, have a strong affinity to these brands and we have provided prime spaces with exciting store fronts to them,” says Mr Arora.
The mall, he says, has plans to bring in more apparel brands in the future.
McKinsey says that more than 300 international fashion brands are expected to open stores in the country over the next two years, which bodes well for the shopping centres such as Oberoi Mall.
Among the new entrants due is the Japanese high-street chain Uniqlo, which operates more than 2,000 stores globally across 20 countries. It plans to open its first store in India in the country's capital, New Delhi, later this year. In an interview with the Indian business publication Economic Times last week, Tadashi Yanai, the chief executive and founder of Uniqlo's parent company Fast Retailing, said India has the potential to be the “number one and the most exciting market in the world” for the company. “The budget is unlimited when it comes to investment” in the country, according to Mr Yanai.
When Uniqlo enters India, it will go into direct competition with Zara, owned and operated in the country by Intidex – the world's largest fashion retailer - in a joint venture with Indian conglomerate Tata Group.
Zara posted a 13.4 per cent net profit drop for the financial year to the end of March 2019 to 714 million rupees (Dh39m) for its Indian operations, just one sign that competing in apparels space is not easy in Asia's third-largest economy.
Zara operates 22 stores in India, in cities including Mumbai, Bangalore, Surat in Gujarat and Chennai.
However, rival H&M, which entered Indian market five years after Zara in 2015, already has more than 40 stores in the country.
Analysts say that is likely to have been helped by the fact that H&M's products are generally cheaper than Zara's.
“It's probably due to the unaffordability of Zara for a lot of people in India,” says Ms Mandhaniya
The Indian market is still very much dominated by Indian clothing, and there's additional pressure on foreign chains of finding suitable retail space.
While Tata group is maintaining its ties with Zara in India, it is hedging bets by expanding its home-based Westside brand for people who can't afford Zara prices. Tata Group is rapidly building up Westside with prices around half those of Zara's. It does, however, follow the mantra of an ever-changing range of apparel and, like Zara, brings new lines to its stores every few weeks.
Tata Group's retail division, Trent, has plans to open 40 Westside stores a year, as well as hundreds under its mass market Zudio brand, chairman of Trent, Noel Tata, told Bloomberg.
“The middle class is growing, incomes have grown, Indians are travelling more and they have more money to spend,” Mr Tata said. “Now that we’ve built this capability and this model that’s working so well, it’s time to grow faster.”
Judging by Mr Tata's statement, rival international apparel chains are in for a rough ride.
“Local rivals offering a mix of western wear and Indian styles at lower prices are a major challenge in the current fashion market,” says Manoj K Agarwal, a spokesman for Viviana Mall, a shopping centre in Thane, a city close to Mumbai dominated by Indian clothing brands. Mr Agarwal says “everyone” is interested in getting a foothold in India, and that “both Indian and foreign brands see India as a latent market”.
The trend towards more foreign companies entering the retail sector is being helped by the country's relaxation of foreign direct investment (FDI) rules, Mr Agarwal adds.
India's government last year relaxed regulations to allow 100 per cent FDI in single brand retail - which only sell products under their own label, rather than selling multiple brands - via the automatic route, whereas earlier overseas firms had to approach the Department of Industrial Policy and Promotion for permission to fully own their operations, making it a more drawn-out and cumbersome process to set up.
As steps like these encourage companies to try on the Indian market for size, brands will have to make sure they keep up with the latest trends and find their niche segments sooner rather than later, analysts say.
Updated: June 29, 2019 02:01 PM