The Indian retail industry witnessed a bolstered growth curve after the advent of e-commerce and its impact on the fashion industry is very eminent. Among the several significant changes that the industry has witnessed in recent years the fact that businesses are embracing technology and innovation at a pace unfamiliar to date is a testament to the country’s evolving retail market.
The Indian retail market is expected to grow at CAGR of 13 per cent to reach US $1,080 billion in 2020 with current market size of US $585 billion. The share of apparel in Indian market is 8 per cent. Organised apparel retail contributes to 21 per cent of the total apparel retail while organised lifestyle contribution in total lifestyle retail varies from 32 per cent in footwear to 49 per cent in watches.
Indian fashion retail market has witnessed several significant changes in recent years, which indicate the country’s evolving fashion retail market. One of the significant changes is advancing online retail or e-tail of fashion products across the country. The current online retail accounts to about 1.2 per cent of total retail market.
E-tail in India
World over, e-tailing took-off around 2007 driven by advancements in quality of Internet access, payments and computing on mobility platforms that dramatically changed consumer behaviour towards Internet consumption. This ecosystem creation has altered the consumer behaviour of a sizeable consumer mass (referred to as active Internet user base). This active Internet user base is a key consumer of online retail.
Online retail growth has followed a disruptive trajectory across markets. In relatively mature markets, like USA where organised retail penetration is high, multi-channel retail chains lead the online market. In a relatively newer market like India (with 10 per cent organised retail) and China (with 20 per cent organised retail) web-only players are dominating the market, given the low organised retail penetration. The e-tailing opportunity in India is expected to unfold as per the two scenarios in 2020: e-tail at 4 per cent of retail (US $43 billion) or e-tail at 6 per cent of retail (US $65 billion).
Contribution of Fashion in E-tailing
The e-tailing evolution started in India with books and media as a key category. Electronics got adopted next and apparel, lifestyle gained acceptance at the next level. The other categories that have found traction include baby care, home and living, etc. E-tailing market at present is led by electronics category with a share of 45 per cent followed by apparel and lifestyle that contributes 30 per cent of the market with the rest being captured by others. The category split of e-tail is projected to remain same in 2020 with electronics contributing to 44 per cent of the total e-tail market in India followed by apparel and lifestyle at 30 per cent.
Currently, men’s wear dominate the fashion and lifestyle space with contribution of 52-54 per cent followed by women contributing to approximately 38-42 per cent and contribution of kids ranges from 5-10 per cent. However, in light of increasing women in the workforce with more financial independence, the share of women in e-tail is expected to increase to 45-48 per cent, whereas men’s segment is expected contribute 45-47 per cent, with kid’s section to remaining constant around 5-10 per cent.
Key Growth Drivers of E-tail in India
India online retail will grow from 1.2 per cent of the total retail market in 2015 to 4-6 per cent of total retail by 2020. This will be driven by a number of factors that can be classified under four broad categories: growth of digital penetration, limitation of brick-and-mortar formats, growth of Internet habitual customers and improved supply side.
Digital Penetration: As physical and digital retail space converges, the shopping experience finds more places. Digital retail has reached critical costs where interactive displays and mobile connected stores are now able to actualise at much lower cost.
Smartphones and Internet penetration are boosting online retail industry. The Internet penetration in 2015 is estimated to be 25 per cent and is expected to reach 43 per cent by 2020 (Source: Internet and Mobile Association of India, Technopak Analysis). This shall lead to increased penetration of fashion e-tailing.
Growth of Internet Habitual Customers: Internet habitual consumers are rapidly growing in India. An Internet habitual consumer is a consumer who is adept and comfortable conducting complex tasks on the Internet. With growing niche of Internet habitual customers, e-tailing shall grow at a faster pace. Online portals for social e-commerce for fashion enthusiasts are an added advantage to these Internet habitual fashion customers that let users post pictures of their outfits, which are then surfaced and showcased to others, who are also given details of where they can go to buy them — both online and at offline outlets near them.
Limitation of Brick-and-Mortar Formats: Organised retail (primarily brick-and-mortar) has been in India for two decades now, it’s contribution to total retail is still low (~10 per cent in 2015) due to structural issues faced by brick-and-mortar retail. Organised retail (brick-and-mortar) is concentrated in top 25-30 cities (where retail consumption is concentrated). Majority of the brick-and-mortar brands are concentrated in larger cities and are unable to meet the rising aspirations in smaller cities across India. This skew in retail presence is fuelling the growing demand through online channel owing to wide reach and delivery to even smaller cities and towns where brick and retail stores are either not viable or will take years to reach.
Owing to fast penetration of the e-tail, many brick-and-mortar fashion retail brands have started entering online retail.
Improved Supply Side: The availability of discounts and promotions, cash on delivery, wider product range, better product details, easy returns, faster delivery, option for EMIs and mass media campaigns and events have contributed towards further penetration of e-tail in the fashion industry. Also, 3D trail room concept is developing across fashion e-tailing portals to provide experience of virtual trials for apparel and lifestyle products.
Key Concerns and Challenges
Fashion is a fast evolving segment. As customers progress from research to purchase to fulfilment stages, their expectations change fast. E-commerce companies need to understand these change drivers and adapt their proposition accordingly. Also, there is a need to focus on new brands and products and simultaneously tackle a hyper competitive pricing environment.
Another key challenge is ensuring the quality of the product. There is higher percentage of Customer Initiated Returns (CIR) in apparel and lifestyle segment in comparison to other segments. This increases the cost of reverse logistics. Higher CIR is the result of dissatisfactory product quality and size. This adds to concern of e-tailers dealing with apparel and lifestyle.
The digital advancement is becoming eminent in the fashion retail industry where online businesses are embracing technology and innovation at a pace never evident in the past. With a growth rate of 44 per cent online retail is estimated to contribute 4-6 per cent of total Indian retail market in 2020. Apparel and lifestyle is estimated to contribute 30 per cent of the total online retail market in 2020, same as in in 2015.
However, category spilt for women apparel and lifestyle is expected to increase from 38-42 per cent to 45-48 per cent, whereas men’s segment is expected to contribute 45-47 per cent to the category, with kid’s section remaining constant around 5-10 per cent. This shift accounts to increase in women entering the workforce, which shall lead to increased demand for different retail categories.
With financial independence, more women will have higher discretionary spending power. This can have an impact across multiple categories (clothing, personal care and grooming, accessories, etc.).