Rapidly Expanding

Garment Retail Sector

By: Dr. Subrata Das

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 Rapidly Expanding Garment Retail Sector
By: Dr. Subrata Das

Consumer Testing Laboratories (India) Ltd., Inc

Bangalore

E-mail : drsubratadas2000@gmail.com

A new focus on the apparel retail sector has attracted attention in recent days. Top exporters have
introduced their own brands and are aggressively positioning themselves within segments of the domestic
market. The rising importance of branded segments in the domestic market combined with the pressure
of import competition is blurring the boundaries between exports and domestic production in countries
with large home markets, such as India. With the changing lifestyles, organized retail is playing a key role
in structuring the Indian domestic market, reinforced in particular by rising incomes and growing
purchasing power among consumers in rapidly growing sectors of the economy such as information
technology and business process outsourcing.

Retail sector in India is witnessing a huge revamping exercise as traditional markets make way for new
formats such as departmental stores, hypermarkets, supermarkets and specialty stores. The branded
apparel market represents the largest source of growth. The men’s branded apparel market is growing at
a rate of 21.8% and branded women’s apparel segments represents 35% of the total branded apparel
market and is growing at an incredible 23% annually.

Leading domestic retailers are becoming more firmly entrenched, increasing their scale of operations and
stabilizing their logistics and technology initiatives. A few significant foreign players have been selling
their branded apparel in India for number of years. But, now, just like their India counterparts, global
apparel brands are setting up their own apparel outlets, instead of just selling through departmental
stores. Though local retailers generally enjoy higher margins, they won’t be able to keep global retailers
at bay for long because of international experience, buying power, IT systems and cash flow to tolerate
lower profits. Presence of these brands will make the Indian Consumer become more aware of the
international fashion and lifestyle trends leading to a move-up of the industry in the value chain. In this
paper, the recent trend and prospect of apparel retail sector in India have been discussed.

The Global Retail Scenario

Retailing has been defined as business activities involved in selling goods and services to consumers for
their personal, family or household use (1).Although retailing has been around for millennia, the 20th
century witnessed a lot of change in the retail sector, especially in the developed countries. Modern
formats such as department stores, discount stores, supermarkets, convenience stores, fast food outlets,
speciality stores, warehouse retailers and hypermarkets have emerged. Retailing has become more
organized and chain stores have been growing at the expense of independent shops.

The chains are utilizing sophisticated information technology and communication to manage their
operations and have grown rapidly not only within their home countries like US, UK, France, Germany
and Holland but to other developed countries. Walmart Stores, the US retailer, was recognized as the
largest firm in terms of sales in 2002 in Fortune magazine’s list of 500 largest global firms. Modern retail
formats have also spread beyond developed countries and are becoming more important in the NICs and
developing countries.

Large format retail businesses dominate the retail landscape in the United States and across Europe, in
terms of retail space, categories, range, brands, and volumes. Indian retail industry cannot hope to learn
much by merely looking at the Western success stories in retail. Their scales of operations are very huge,
the profit margins that they earn are also much higher and they operate in multiple formats like discount
stores, warehouses, supermarkets, departmental stores, hyper-markets, convenience stores and
specialty stores. The economy and lifestyle of the West is not in line with that of India and hence the
retailing scene in India has not evolved in the same format as the West nor can we learn valuable lessons
from their style of operations.

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Indian apparel Retail scenario

In its market research report, “Indian Retail Sector - An Outlook [2005-2010]” RNCOS estimated that the
Indian apparel retail industry generated revenue of $2.0 billion in 2004 with a growth rate of 8.2% during
2000-04. As a result, this industry in India is second largest in the world after China. The Indian apparel
retail industry varies within even short distances, as the designs of the outfits are based on the region’s
fashion trends.

According to this year’s Global Retail Development Index India is positioned as the leading destination for
retail investment. This followed from the saturation in western retail markets and we find big retailers like
Wal-mart and Tesco entering into Indian market. AT Kearney has estimated India’s total retail market at
US$ 202.6 billion which is expected to grow at a compounded 30 percent over the next five years. With
the organized retail segment growing at the rate of 25-30 per cent per annum, revenues from the sector
are expected to triple from the current US$ 7.7 billion to US$ 24 billion by 2010.

NICHE foreign retailers are making a beeline for the Indian market. In fact, despite the FDI policy
pertaining to retail being unclear, over 10 foreign niche segment retailers have recently set up or
announced their intention to set up shop in India using the franchisee route, with several others waiting in
the wings.

International brands such as Benneton, Lacoste, Levi Strauss, Crocodile, Dockers, Lee, Wrangler, Nike,
Reebok, Adidas, Guess, Esprit, Mango, Hugo Boss, Mark & Spencers and Tommy Hilfiger have already
built a retail presence in the country, while market watchers point out that several more such as Versace,
FCUK, Zara, Mother Care, Ikea, Fendi, NEXT, Debenhams, Trussardi, and DKNY have charted out a
strategy to enter the Indian market. Most of the brands entering the market are targeted at the premium
end. According to estimates, the premium apparel segment in India is valued at about Rs 1,900 crore and
growing at 20 per cent.

In addition to the patterns above, four additional factors which are transforming supplier capacities in
ways that are blurring the boundaries between firms producing for the domestic market and those
producing for exports are as follows:

1. Enhancement of local capabilities in the area of logistics i.e. warehousing and customized
tracking systems.
2. Interesting emergence of design as a source of competitive advantage in Indian apparel
3. Growing importance of local investment by Indian apparel firms as a way to counter the
exclusion of India from all major regional trade agreements and the advantage of tariff free entry
into major markets that many of India’s competitors enjoy i.e. Mexico in the US markets, Turkey
and Bangladesh in EU markets
4. Increasing focus on domestic brands

Renowned exporters in the country such as Reliance, Arvind, Raymond, Orient Craft etc. are developing
their supply networks and distribution systems, seeking distinctive niches and generally staking out their
terrain in the domestic market to consolidate their first mover advantage. Success story has emerged in
the domestic apparel garment segments for the local brands and not limited to Pantaloon, Lifestyle and
West Side only. No wonder a heavy weight like the Reliance group is planning to do a Wal-Mart in India.

Now there is an increasing demand of branded apparel segment in the domestic retail market for the
same features that are valued in demanding export markets. These shifts in retail are fuelling the demand
for good quality and trendy apparel, which in turn deepening the importance of aesthetics and design in
the domestic market. It is worthwhile to mention that the rise of younger class of middle-class consumers,
spawned by the booming BPO and IT sector, has led to burgeoning demand for locally designed, ready to
wear clothing in Indian metros. As many surveys have established, with good salaries, strong peer
pressure and the growing availability of brands across product categories, spending in retail is being
driven by the youth segment in large and mid-sized metros (2).

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Retail concept development

With the advent of the e-commerce, new retails concepts have also been perceived. It is a necessary
component for keeping stores fresh and relevant and for staying ahead of their competitors. This is even
more important today when consumers will have considerable choices from new channels available. Now
is the time for retailers to be developing new concepts or, at the very least, rethinking and reenergizing
their current formats. An important and compelling reason for innovation is the overall compression of the
retail life cycle. Where a concept once had 30 to 40 years to progress through the retail life cycle, the
average life cycle is now greatly compressed. In the present scenario, ideas get into market faster, grow
more explosively, and face obsolescence in a shorter period.

The average retail life cycle looks like any typical bell curve. There is a period of development for an
emerging concept, followed by a period of rapid growth, maturity, and eventual decline. This life cycle is
still valid but there are major changes in the time periods involved in each stage. Concepts are growing,
maturing, and declining faster than ever.

Traditional and modern retail life cycles are shown in Figure 1 and Figure 2, respectively.

Figure 1 Traditional retail life cycle

Figure 2 Modern retail life cycle

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Contributing factors of modern retail boom in India

The driving forces towards development of apparel retail in India can be broadly classified into following
categories:

• Economic development
• Improvements in civic situation
• Changes in consumer needs, attitudes and behaviour
• Influence of fashion
• Changes in government policies
• Increased investment in retailing
• Rise in power of organized retail.

Economic development

The development of the Indian economy is a necessary condition for the development of the Indian retail
sector. The example of Thailand shows that the impetus to modernization of retail was provided by the
economic boom in Thailand (3). Development increases the disposable income in the hands of
consumers and leads to an increase in the proportion of spending on discretionary non-food items.
Economic development also enfranchises new households as potential customers for modern retail and
leads to increased ownership of personal transportation among consumers, which in turn can increase
their willingness to travel longer distances to shop in new format stores. The growth of the economy can
also provide gainful employment to those who would otherwise enter retailing in areas like hawking,
roadside vending and other similar low cost entries into the retail sector. Rapid economic development
may also positively influence the views of international retailing companies about the business prospects
and investment attractiveness in a country. A high degree of inflation in the economy is however, not
conducive to modernization of the retail sector. In Brazil, the real progress in retail was noticed only after
the stabilization of the economy and control of inflation (4). Development also has an influence on the
regions and cities where modern formats are initially set up. In the Greek, Thai and Brazilian cases,
modern formats initially appeared in the important cities. This has been noticed in India as well as the
modern formats first appeared in the metros like Delhi, Mumbai and Chennai and the mini metros like
Bangalore and Hyderabad due to the comparatively higher level of disposable incomes available in these
cities.

Improvements in civic situation

The civic situation includes factors like safety and security in the city and the various municipal
regulations governing the opening, location and operation of stores, and the nature of public transport
available. A safe and secure environment will encourage the setting up of 24 hour convenience stores
and the operation of shopping plazas and encourage shopping expeditions for the whole family. The
presence of adequate parking facilities or excellent public transportation will encourage consumers to be
more mobile in their choice of store. City or state regulations on opening or closing hours, rent control
laws, availability of adequate electrical power and regulations relating to licensing will affect both the time
required to set up a new store as well as the cost of store operation and its viability. Many of the civic
factors mentioned above would be dependent on the economic development and administrative policies
in the area. The impact of the civic situation may influence the choice of the cities, states, zones in which
the modernization investments will be made.

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Changes in consumer needs, attitudes and behaviour

The growth of modern retail is linked to consumer needs, attitudes and behaviour. Marketing channels
including retailing emerge because they receive impetus from both the supply side, and the demand side.
On the demand side, the marketing channel facilitates to provide service outputs that consumers value.
These service outputs may include but are not limited to bulk-breaking, spatial convenience, waiting and
delivery time and assortment (5). In Indian retailing, convenience and merchandise appear to be the most
important factors influencing store choice, although ambience and service are also becoming important in
some contexts (6). Modernisation will have to address convenience issues while presenting strong
alternatives to the weaknesses of traditional formats in selection of merchandise available for sale.
Modern formats need not be expensive and can offer lower prices to consumers (7). Lower prices in turn
will increase the attractiveness of modern formats and rapid growth in the preference for purchasing from
new format stores.

Store ambience includes issues such as lighting, cleanliness, store layout and space for movement.
Modern stores can offer a far better ambience compared to traditional stores. On the service front,
traditional stores offer credit and home delivery. These needs will have to be addressed by new format.
Experience from Brazil shows that the combination of entertainment and shopping provided by some
shopping centres, is attractive to consumers. This may become important in India as well because of the
limited entertainment options currently available in cities. While consumer needs, attitudes and behaviour
will influence the development in retail; it is likely that investments in retailing and the creation of new
stores offering value will in turn influence consumers. This appears to have happened in Greece,
Thailand and Brazil.

Another important paradigm shift in Indian apparel retail pertains to the rise of the purchasing power of
the younger segment in the modern society. In fact, it is fuelling demand for domestic and oversees
branded apparel at a rapid space. This demand is augmented by the arrival on the scene of retailing
formats such as malls that are providing ready outlets for goods catering to this growing market niche.
Thus, from the demand side, this preference for higher value apparel, and the growing availability of
organized distribution channels through which these products can be marketed is creating the conditions
for the rise or development of whole new segments of the apparel industry in India with higher value
capabilities on the supply side across the value chain.

Influence of fashion

Fashion has played a key role in shaping apparel consumerism. With the change in lifestyle, fashion in
India is becoming more stratified, as in the West. Technology, ideas and lifestyles are moving
concurrently, and speedily. Companies and brands that offered monotonous, mundane products for years
have now tripled their product ranges and new appealing shapes and forms are being launched each
season. Top notch professional bodies in fashion trade are now working towards developing the fashion
supply chain through backward linkages with suppliers and mills, and forward linkages with the retail and
distribution network (8).

Changes in government policies

The Indian government has clarified on a number of occasions that foreign direct investment will not be
permitted in India. Major international retailer organizations will be watching for signals of policy change
especially because China has permitted foreign investment in retail. In opening up the retail sector, the
government may consider various approaches such as insisting on joint ventures, limiting the foreign
stake, or specifying the city areas where investment is permitted. Thailand’s example shows that in case
of joint ventures, the local partner can play a significant role in the success of the joint venture. The
Brazilian experience shows that local retailing groups can successfully compete against international
chains if they adopt innovations and restructure operations in accordance with market needs. Some
policy protection can be given to consumer cooperatives which have been providing value to their
members and customers. This protection can be in the form of allowing these organizations to access
capital from the local market and operate in a more professional manner. The government can also play a
positive role in simplifying or eliminating the plethora of regulations governing retailing. Specific laws
relating to franchising will also be desirable for foreign and Indian brand owners to adopt the franchise
route in a bigger way. According to the new directive of Indian Govt, foreign chains selling single brands
were allowed in January to take up to 51% in Indian joint ventures.

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Increased investment in retailing

The prospects for significant modernization and development in retailing will depend on the nature of
investment in this sector. The investment will be of two types- foreign and domestic. The quantum and
nature of investment will depend on the factors outlined earlier namely economic development; civic
situation; consumer needs, attitudes and behaviour; and government policies.
Although FDI is been permitted selectively in retailing, a number of global retailers are testing the waters
by signing technical agreements and franchises with Indian firms. Fast food chains like McDonalds and
Pizza Hut are already operating in the metros. A Marks and Spencer store is already operational in
Mumbai. Several global retailers are awaiting a change in policy. However, the development of the Indian
retail sector is dependent not just on foreign investment but on Indian investment as well. Since the
1980’s industrial groups such as Reliance and Raymonds have been active in encouraging development
of well appointed exclusive showrooms for their textile brands. In the 1990’s industrial houses like
Rahejas, Piramals, and Tatas have entered retailing. Several Indian and foreign brands have used
franchising to establish exclusive outlets for their brands.

At present the new format stores cater mostly to households belonging to the higher income families. The
catchment area for these modern stores has to be fairly large as the number of such households is small
in relation to the total population. This limits the number of stores and constrains the growth of chains.
The modern stores have also been plagued by low conversion in relation to the number of footfalls. This
means that although a large number of people visit the store, the number of buyers and the average bill
amount is small. Due to low sales, the bargaining power of the retailers with suppliers and manufacturers
is low and this restricts their average gross margin. On the other hand the expenses involved in setting up
and maintaining a modern format store tend to be much higher than traditional store due to the additional
expenses on larger size, better locations and superior ambience. Therefore if the returns on investment in
the new formats have to be attractive, modern retailers have to develop a strong supply chain that
provides them significant gross margins while delivering merchandise at attractive prices to customers. In
order to do this, modern retailers will need to eliminate middlemen and buy directly from suppliers and
make use of technology to control inventory. These developments will impact the survival and existence
of middlemen such as wholesalers and agents who will have to find new business models to survive.
Manufacturing firms will also face pressure from strong buyers on price, delivery and service terms.

Increase in power of organized retail

Bargaining power of organized retail translates directly into higher gross margins for the retailers. At
present there are a large number of independent retailers with little bargaining power vis a vis
manufacturers, distributors and wholesalers. Manufacturers have been promoting their brands and
generating consumer demand for branded products. This makes it necessary for all varieties of stores
especially in urban areas to stock branded products. Manufacturers take advantage of the consumer pull
to limit margins to the retailers. Retailers manage their profitability by operating on a very low cost basis.
This is possible because of low rental expenses due to historical reasons and low labour costs due to
employment of family members in the store. The modern stores have somewhat higher gross margins,
but their net margins are not very significant for providing the cash flow required to fuel rapid growth in
outlets.
Retailers can increase their power in several ways. They can invest efforts in developing their own store
brands. The supermarket chain Foodworld has begun doing this in a limited way with foodgrains and
pulses. Secondly they can invest in supply chain, buy directly from the sources and eliminate middlemen.
Thirdly they can attempt to obtain volumes in buying by aggregating the requirements of various stores,
and bargaining for better prices by placing large orders. Although this strategy suits chain stores,
independent grocers may also get together by forming a cooperative or buying club in order to benefit
from scale economies in purchasing. Retailers can also obtain several benefits from using information
technology. They can monitor their stocks and sales using IT and thus manage their working capital more
efficiently. They can also analyse data about customers and their buying habits and be in a position to
develop marketing strategies and promotional offers to increase customer purchasing at the outlet.

Manufacturing firms will need to develop new strategies for dealing with powerful retailers. The first
change required will be one of mind-set. Negotiations with powerful retailers will have to be carried out at
much higher executive levels within the firm. New structures such as National account managers,

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Category managers etc. would need to be deployed. Firms will have to reconsider their brand promise,
brand promotion and their brand building policies to deal with store brands that will be introduced by retail
chains. Firms will also have to re-engineer their logistics policies to meet the demands of powerful
retailers for just in time delivery to their distribution centres or stores. New product introductions will have
to be coordinated with the retail chains so that adequate shelf space is available at launch. The firms will
need to carefully look at their product cost structures both in terms of variable cost and allocated fixed
costs in order to maintain profitability in the face of pressures for price reductions from powerful retailers.

Retail Branding versus Product Branding

A great difference between product branding and retail branding is that in many cases products have an
anonymous or even fictitious presenter, whereas in retail, consumers come in direct contact with the
company and/or product. A Cadbury’s Dairy Milk chocolate bar, for example, is a product made according
to a set recipe in a factory that is not open to the public. In addition, the people who work there never
come into contact
with the consumers because the retail channel lies in between. And those who do sell the ‘CDM’ to the
end-consumer (the retailers) do not have very much to do with it by virtue of their function. Therefore it is
possible to conceive a brand identity for the product, establish it for a specific target group and then fix it
in the minds of consumers. Compare the identities of ‘Five Star’ ‘Perk’, ‘Gems’ and ‘Temptations’: all very
different, yet they come from the same manufacturer The issue is not of retailers selling brands but
branding the retail business itself, like the fashion store. A hypermarket or department store, may offer
several well-known brands, but in today’s competitive world cannot afford to rest on its strategic product
assortment and pricing initiatives to bring in the customers. The retailer must attempt to brand himself
differently, especially when today’s product brands are being launched through their product brand’s own
shops. (Examples in the shoe segment – Nike, Adidas and Reebok. Jeans segment – Lee and Wrangler,
Perfumes –Hugo Boss)

Apparel retail will have to ensure that its own brand includes the characteristics of product brands detailed
above. Retailers need to work on three dimensions to achieve this:

(1) Brand value:

The retail brand has to translate and transmit clear values to the customer. For instance, ‘value for
money’, ‘Luxury shopping redefined’ are some of the slogans. Some companies have attempted to define
this in their mission statements but they are often too vague and not actionable. For example the U.K.
Virgin brand has the value of challenging conventions and the U.S. retailer Nordstrom has built the value
of customer service. While many Indian product brands have successfully weaved values around their
brands (Hamam on ‘trust’, Godrej on ‘quality’ and TVS on ‘service’) retailers are yet to develop a
consistent value across their businesses. Some of the brands of domestic apparel retail of Pantaloon and
Lifestyle are also attracting attention to the consumers. Pantaloon retail brands include “Honey”, “Bare”,
“Rig”, “UMM” and Big Bazar category comprises “DJ&C”, “Knighthood”, “Studio NYX” etc. Among the
Lifestyle brands, “MAX”, “KAPPA”, “BOSSINI” are becoming increasingly popular to the domestic front.

(2) Brand strategy:

It is imperative that retailers have a systematic strategy on issues like whether to develop the retail brand
or corporate brand and decisions on one product/one brand that they may be selling in their shop.
Retailers can also decide to launch high quality retailer brands (‘own labels’) backed by promotional
campaigns, reinforcing clear personalities. Pricing policies, today position retailer brands as good value
lines or premium lines (Nilgiris department stores prices its grocery lines above manufacturer brand
prices).

The view that retailer brands offer a cheaper alternative to manufacturer brand is no longer valid. There is
even scope for retailers to develop alternative types of ‘own labels’ targeted at different consumer groups
in their outlets. An essential ingredient for success, in such cases, must be consumer-relevant added
values – not just lower prices. It is only a minority of consumers, today, who are prepared to trade off
added values for lower prices. Experienced consumers are no longer primarily motivated by low prices.
There is scope to attempt a retail segmentation strategy. For example, DCM Benetton India redesigned
its stores as per its international format and also repositioned the brand from a casual wear brand to a
wardrobe option. The company is now attempting to target a niche audience through its concept stores. It

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launched a ‘Baby-on-Board' store, which targets mothers-to-be and kids, an `Accessories' stores that
sells luggage, bags, sunglasses and vanity cases and an ‘Adults Only’ store that showcases Benetton's
apparel collection for men and women.

(3) Brand structure:

Operational levels of the retail business have to be held together to integrate the whole brand proposal.
At this level, marketing, human resources, distribution, logistics, administration and sales have to work
towards a common brand value that has to be communicated to the consumer. The retail brand’s
messages must be weaved into the every day experiences that the consumer has with the retail brand.
Brand building constitutes a way in which the main value of the retail store shifts to what
has been traditionally called an intangible. Indian apparel retailing is coming of age and needs to have a
clear brand proposition to offer the discerning Indian consumer. There is no doubt that the apparel retail
business is gravitating from high street towards destination shopping (mall development) with enhanced
mall space expected to hit the metros and mini-metros across the country.

Concluding remarks :

While answering to the question “Why Indian organized apparel retail is at the brink of revolution?” the
apparel retail segment in India has come out with following notes:

(i) Scalable and profitable retail models are well established in apparel sector

(ii) Rapid evolution of new-age young Indian consumers

(iii) Retails space is no more a constraint for growth

(iv) Partnering among brands, retailers, franchisees, investors and malls

(v) India is on the radar of global retail suppliers. But domestic retailers in the sector have the
advantages in terms of knowledge of domestic retail and market, low overhead costs, support
from local community and understanding of domestic politics and economics. However,
global retailers would be ahead of them in supply chain management and technology.

References

1. Berman, B. and Evans, J.R. 2001, Retail Management, (8th edition), Upper Saddle
River, N.J., Prentice Hall.

2. Bhusan, Ratna and Sanjay Anand, 2005, “The Young and restless drive
consumerism”, Times of India, April 4.

3. Feeny, A., Vongpatanasin, T., and Soonsthan, A.,1996, Retailing in Thailand, International Journal of
Retail Distribution and Management, 24 ( 8) 38-44.

4. Alexander, N. and Silva, M..D., 2002, Emerging markets and the internationalization of retailing: The
Brazilian experience”, International Journal of Retail Distribution and Management, 30, (6) 300-314.

5. Coughlan, A.T., Anderson, E., Stern, L.W. and El-Ansary, A.I., 2001, Marketing Channels, (6th Ed).
New Delhi: Prentice Hall of India Pvt. Ltd.

6. Sinha, P.K., Bannerjee, A. and Uniyal, D.P., 2002, Deciding where to buy: Store choice behaviour of
Indian shoppers, Vikalpa, 27 (2) 13-28.

7. Rao, S.L.,2001, Foreign investment in retail trade, Economic and Political Weekly, 36 ( 41) 389-392.

8. India brand Equity Foundation, 2004, Apparel retail : Labelling the Indian market, www.ibef.org, 4.

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About the author:

Dr. Subrata Das, did his Ph.D (1997) and M.Tech (1986) from the Textile
Technology Department of I.I.T.Delhi after completion of B.Sc(Tech) in Textile
Technology(1983) from Calcutta University. He is having around two decades of
working experience in Shop floor, Research & Development, Quality Assurance
and Teaching. Dr. Das had visited abroad several times and received special
training in Social Accountability, Laboratory Management Systems and Excellence
in Retail Store Operations. He has performed more than 100 audits in
Bangladesh as a lead auditor in Social Compliance for reputed garment buyers
throughout the globe.

Dr. Das is presently heading the Consumer Testing Laboratories (India) Limited, Inc., Bangalore. He has
around 75 publications in reputed national and international textile journals and presented 20 technical
papers in various national and international conferences. He is also in the panel of referees in Indian
Journal of Fibre and Textile Research.

E-mail : drsubratadas2000@gmail.com

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