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Organized Clothing Retail In India
Mumbai | Saturday, 16th November | By Shruti Karthikeyan
Adapting strategies to meet Indian consumer demand
Over the last decade, the Indian retail sector has witnessed an unprecedented expansion driven by robust economic growth, rapid
urbanization and changing lifestyles and aspirations of the Indian retail consumer. From less than 1 mln sq. ft. of mall space in 2001, the
Indian organized retail sector has increased manifold. The growth of organized retail in India is not only limited to urban areas but is
growing rapidly in rural areas too. Indian clothing and apparel sector accounts for 33% in modern retailing. Clothing & Apparel
followed by the Food & Grocery sectors make up for a large share of the organized retail market, and are also the areas where foreign
retailers are entering the fastest.

Indian apparel market

The Indian apparel market has demonstrated resilience in an environment characterized by slow economic growth. The domestic
apparel market, which was worth Rs 2074 billion in 2012, is expected to grow at a compound average growth rate (CAGR) of 9%
over the next decade. Further, the recent omission of excise duty on branded apparel has provided an impetus to retailers in terms of
the overall market sentiment. With a market size of Rs 875 billion in 2012, menswear is the largest segment in India's apparel market,
accounting for 42% of the overall market. In comparison, womenswear makes up 38%, while kidswear comprises 20%, of the market.

Since the opening up of India's economy in the late 1980s, fashion is one consumer sector that has drawn the largest number of global
brands and retailers. International brands that have been drawn to India by its large "willing and able to spend" consumer base and the
rapidly growing economy, have benefitted in attaining quick acceptance in the Indian market and given their high desirability meter, most
international brands have positioned themselves at the premium-end of the market, even if that is not the case in their home markets.

In addition, Indian companies - manufacturers and retailers - have been more than ready to act as platforms for launching these brands
in the market and today there are over 200 international fashion brands in the Indian market for clothing, footwear and accessories alone,
and the numbers continue to soar, as higher disposable incomes and the availability of credit significantly enhance the consumers'
buying power. Growth in good quality retail real estate and large format department stores also allowed companies to create a more
complete brand experience through exclusive brand stores in shopping Centers and shop-in-shops in department stores.

Entry of international brands in India

International brands are making a beeline for India, targeting the luxury segment. However, high import duties and high real estate costs
pushed up the prices of these brands, making them significantly costlier than in other markets. Many brands ended up discounting the
goods heavily to promote sales, while a few moved out of the market. This was true in 2008 and 2009 when India too came under the
influence of the global economic slowdown. Over the years, the markets have matured, infrastructure has improved, FDI policies have
improved, with the result that many brands entered India in 2010, and some re-entered the market. The year 2010 indicated a fresh
round of optimism as the pace of new brands entering the market picked up, and those already present in the market began adapting
their strategies to grow their India business, including lowering prices, entering new segments, and in select cases, reducing the size of
some stores.

Though the number of new brands entering the Indian shores in 2011 and 2012 may not have matched the numbers in the peak years,
both years have been healthy and the list of new brands ready to enter in 2013 already seems promising. Retailer demand strengthened
across the country in the first half of 2013, and the period saw significant enquiry levels from international retailers and also several major
new store openings. Recent months also witnessed a number of well-established international mass market brands enter Tier II
locations, partly due to the lack of space options in Tier I markets.

Many groups are eyeing the new retail supply set to come on stream this year and in 2014, which will give them opportunities to further
expand their footprint. On the legislative side, while clarity has been provided on sourcing and city spread, there is still confusion over the
regulations concerning limitations on minimum investments and creation of back-end retail infrastructure as pre-conditions. It is expected
that the government will continue to resolve the concerns of overseas retail groups willing to invest in the country.

Top players record higher returns

Almost all leading retailers and brands have recorded higher returns in the second quarter of the current fiscal. Many are in expansion
mode. One of the leading retail chains in the country, Shoppers' Stop will expand its retail footprint by adding stores in existing and newer
cities, informed Govind Shrikhande, managing director. "We will open two more stores this year that will require investment of Rs 160
million, in additional to 10 already opened this year," he added. The company has 61 stores across 30 cities in India. International and
domestic retailers continued to open stores along high streets and prime malls despite concerns over the domestic and global economic
outlook. Although several overseas groups took up space in new developments in anticipation of a future supply crunch, few retailers
remained slightly cautious as the domestic economic outlook remained subdued.

Supply infusion was sporadic, with only about 2.6 million sq ft of new retail space being added, concentrated in Chennai and Mumbai
only. New completions included Viviana Mall in Thane (Mumbai), Phoenix Market City (Chennai) and Forum Mall (Chennai); these mall
developments became operational with healthy commitments from prominent anchor tenants such as Starbucks, Shoppers Stop, Big
Bazaar, Lifestyle and Globus. Few large scale mall completions were further delayed to the subsequent quarters as developers remained
focused upon attracting tenants in completed properties and reducing existing vacancy levels.

Rental trends in India

Delhi-NCR will continue to remain on the radar of retailers with global brands such as Japan based Uniqlo and UK based Bobbi Brown
and Super dry expected to set up operations in the region in the second half of 2013. The city is also expected to witness the entry of
luxury brands such as Burberry Brit and Mont Blanc during the latter part of the year. Rentals across certain key high streets witnessed
appreciation in the first half of the year in Delhi. Limited availability of space coupled with a sustained interest from leading brands
resulted in rental increment in this micro-market.

Mumbai witnessed considerable activity in its retail segment in the first half of 2013, with an increase in absorption of retail space across
high streets and prominent mall developments. In the organized retail segment, values appreciated by 6-9% in West Bengaluru and
South Bengaluru, largely due to an increase in demand for retail space in this region. Rental values were stable in South Bengaluru and
ORR stretch due to limited retail enquiry in these micro-markets.In the organized segment of Chennai, rental values across most of the
mall developments remained stable as compared to the second half of 2012. However, values in Express Avenue Mall declined by 5-6%
as compared to H2 2012, largely as a consequence of retailers preferring to expand in mall developments located in the cost-effective
emerging micro-markets of the city.

The year 2013 seems positive for most brands

Amongst the international brands that one can look forward to shopping in 2013 are "Uniqlo" of Fast Retailing, Japan's largest apparel
retailer, Sweden's H&M, Emilio Pucci and Billabong. But India is not merely a destination anymore for the international brands to grow
their business. The country is also increasingly becoming the innovation- platform or testing ground for new concepts and trends. World
Co. a Japanese retailer with more than 3,000 stores in Japan and 200 stores in other parts of Asia is also test-marketing women's
apparel and accessories brands such as Couture Brooch, Opaque. Clip, zoc, Tk Mixpie and Hot Beat to gain insights into consumers'
psyche. Italian brand United Colors of Benetton has recently introduced a global retail interior design concept which is present in major
European cities but is the first-of-its-kind store in Asia and may well set the trend for the rest of Asia.

Gucci recently opened its largest store in India's Delhi-NCR after two failed joint ventures. All of its five stores are now run directly by the
company and the Indian business is reported to have turned profitable this year. Brands such as Mango who have chosen the franchise
route are tying up with additional partners (e.g. DLF) in the hope of making the Indian business contribute significantly to the overall
revenue of the company. UK-based apparel chain Marks & Spencer is accelerating its expansion in India with plans to add ten stores in
the next six to eight months in the country. The company has identified India as one of the key markets to become the world's most
sustainable retailer by 2015. It plans to increase the number of stores in India from 24 currently to over 30 through the 51:49 joint venture
with Reliance Retail.

Puma SE, the global sports lifestyle company for athletic shoes, footwear, and other sportswear aggressively set out to gain 30% of the
Indian organized retail sportswear market within a year, from a share of 18-20%, and was among the top four branded sportswear
segments in 2011. To this end the company targeted opening nearly 100 more stores during 2012. While the actual numbers are
reportedly short of target, the brand has been opening amongst the largest stores during the year.

India is different than other Asian markets

The confidence in the India opportunity is rising again, with existing global brands expecting the contribution from India business to grow
multi-fold in a few years. However, the approach is of careful consideration and brands realize that India is a unique market, different not
only from the West but also from other Asian economies such as China. Rather than adopting a "cut-and-paste" approach one needs to
seriously consider the appropriate business model for India. Many of the global players have had to create a different positioning from
their home markets. Some have significantly corrected pricing and fine-tuned the product offering since they first launched; these include
The Body Shop and Marks & Spencer. Others are unearthing new segments to grow into; for instance, Puma and Lacoste are now
seriously targeting womenswear as a growth market.

It is not only international brands that are more optimistic. Indian partners are also reviewing their approach. For instance, the Arvind
Group that had looked at reducing its emphasis on international fashion brands in 2007-08 has recently acquired the business operations
of Planet Retail which operated the franchises of British fashion retailers Debenhams and Next, and American lifestyle brand Nautica in
India. Arvind Limited, one of the largest integrated textile and branded apparel players posted a 44% growth its standalone net profit for
the second quarter of current fiscal 2013-14. From Rs 648 million in the second quarter of previous financial year 2012-13, the textile
conglomerate's standalone net profit grew by 43.95% to Rs 932. 8 million for the Q2 ended September 30, 2013.

The company termed Debenhams' franchise as a significant acquisition as it provided an entry into the department store segment. Arvind
plans to increase the India presence of Debenhams from two stores to eight over the next three years. It also plans to grow the network
of Next, the large-format speciality stores, from 3 to 12 in the same period. As customer footfall and conversions pick up, international
brands are also shoring up their foundations for future expansion in terms of better processes and systems, closer understanding of the
market, and nurturing talent within their team. India shows signs of a healthier business outlook for international brands but with
increased competition and government norms, it seems like a roller-coaster ride ahead.

(Inputs from Third Eyesight, CBRE Global Research and Consulting)

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