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The Indian fashion apparel market – 2017 & beyond

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Amit Gugnani, Senior Vice President, Fashion – Textile & Apparel, sizes the Indian fashion retail market, its key categories and analyses the current and future growth prospects and trends, with research inputs from Goutham Jain, Principal Consultant, Fashion – Textile & Apparel, and Saima Nigar, Associate Consultant, Fashion – Textile & Apparel, Technopak.

The Indian fashion apparel market – 2016 & beyond
Indian apparel industry which is the second largest contributor in the retail industry after food and grocery is seeing some major shifts

1. Market Overview

Indian economy, one of the fastest growing economies of the world, is witnessing major shifts in consumer preferences. Increasing disposable income, brand awareness and increasing tech-savvy millennial population are the driving factors of corporatized retail within the country. Overall, Indian retail scenario has shown sustainable long-term growth compared to other developing economies.

The Indian retail market was worth Rs 41,66,500 crore (US $641 billion) in 2016 and is expected to reach Rs 1,02,50,500 crore (US $1,576 billion) by 2026, growing at a Compound Annual Growth Rate (CAGR) of 10 per cent. It is envisaged that the current fashion retail market worth Rs 2,97,091 crore (US $46 billion) will grow at a promising CAGR of 9.7 per cent to reach Rs 7,48,398 crore (US $115 billion) by 2026.

Indian apparel industry which is the second largest contributor in the retail industry after food and grocery is seeing some major shifts. Entry of international brands, changes in preferences from non-branded to branded, the fast growing economy, large young consuming population in the country has made India a highly lucrative market. India has the world’s largest youth population, which is becoming fashion conscious owing to mass media and social media penetration. This has opened unprecedented retail market opportunities. The promising growth rate of 9.7 per cent makes the Indian fashion industry prominent in the retail sector. With a GDP growth rate of 7 per cent, India has an edge over developed markets of the US, Europe and Japan which are expected to grow at a rate of 2-3 per cent. Favourable trade policies and increased penetration of organised retail among other factors contribute in making Indian fashion industry attractive for investors.

Within the retail categories, apparel retail has demonstrated comparatively high receptivity towards corporatized retail. High penetration of corporatized retail in apparel has also paved the way to introduce more formal and systematic processes and procedures in operations, procurement and distribution. As a consequence, apparel retail market has managed to harness the advantages offered by modern management concepts leading to improved product offering, better customer management and scientific supply chain management techniques. It is expected that apparel retail will continue to witness deeper penetration of corporatized retail beyond the major urban clusters and the increase in the demand of branded products.

Intersegment Analysis

The Indian apparel market can be broadly classified into men’s wear, women’s wear and kidswear. Currently, men’s wear holds major share in the apparel market. It accounts for 41 per cent of the total market. Women’s wear contributes almost 38 per cent, while kidswear contributes 21 per cent of the market. It is estimated that over the next decade women’s wear and kids wear will demonstrate high CAGR of 9.9 and 10.5 per cent respectively, resulting in rise in market share of these categories. Both, men’s wear and women’s wear is expected to contribute 39 per cent each to the total market in 2026, with kidswear accounting for the rest 22 per cent.

2.1 Men’s wear

With the market size of Rs 1,24,423 crore (US $19 billion), men’s wear is the largest segment in apparel market and is expected to grow at a CAGR of 9 per cent for next 10 years to reach Rs 2,95,795 crore (US $45.5 billion) by 2026. The various product categories of men’s wear segment include shirts, trousers, suits, winter wear, t-shirts, denim, daily wear, active wear, ethnic, innerwear, etc. Shirts are the single largest category in men’s wear, followed by trousers and denim.

In recent years, denim, activewear and t-shirts have shown promising growth and are expected to grow at high CAGRs of 14 per cent, 14 per cent and 12 per cent respectively, owing to changing preference of the consumers. While denim and t-shirts have matured as categories and have shown a consistent growth over a considerable period of time, activewear has recently evolved and has high growth potential. This is due to the boom in fitness and healthcare. In addition, the consumers in India have evolved and now understand that clothing for fitness is different from everyday clothing. These factors contribute to high growth projections of 14 per cent over the next decade. The growth in this category is not just restricted to metros and Tier -I cities and has shown growth in Tier –II and –III cities as well.

The acceptance of smart casuals in corporate has boosted growth of western wear among working professionals. Formal wear is not restricted only to shirts and trousers but has a wide range of other options such as smart jackets, brightly coloured or patterned shirts complemented with loafers, etc.

Men’s denim wear is expected to grow at a rate of 14 per cent per year. The young population of the country is the key demand driver of this segment. Due to rise in media penetration in the country and global fashion awareness among youth, a shift in consumer’s choice of denim wear has been witnessed in the country. Penetration of international brands in denim has provided consumers with ample product options.

2.2 Women’s wear

The women’s wear market in India contributes 38 per cent of the total apparel industry. It is estimated to be worth Rs 1,11,467 crore (US $17.5 billion in 2016) and is expected to grow at a CAGR of 9.9 per cent to reach Rs 2,86,456 crore (US $44 billion in 2026). Globalization coupled with fast fashion has resulted in awareness on fashion trends and styling. Further, the increase in number of working women has fuelled the women’s wear market. The demand is expected for western wear, fusion wear and occasion specific ethnic wear. Women’s wear in India comprises of ethnic wear, western wear, Indo-western, innerwear, etc. Ethnic wear is the single biggest category in women’s wear segment with a share of 66 per cent. In ethnic wear, the saree is perhaps the most common traditional Indian dress for women and has a market of Rs 37,837 crore. It is expected to grow at a CAGR of 5 per cent and reach Rs 61,632 crore by 2026. Though a market shift is expected from saree to salwar kameez and western wear in urban and semi-urban markets, saree will still remain as the predominant category among elderly and middle aged women across urban and rural India.

Salwar kameez is another dominating category in ethnic wear, especially among the working women because of its comfort level. With a market share of Rs 35,804 crore, it is expected to grow at a CAGR of 12 per cent to reach Rs 1,11,203 crore by 2026. But, it has started facing stiff competition from the western wear owing to increased number of working women in the country, especially in urban areas. The increased competition from western wear has resulted in a new category — Indo-western (fusion-wear).

The innerwear category is another promising category in the women’s wear market. It is growing at a CAGR of 14 per cent and is expected to reach Rs 60,277 crore in 2026 from the current market size of Rs 16,259 crore. Branded innerwear presently contributes about 35- 40 per cent of the total women’s innerwear market and is expected to reach to 40-45 per cent in 2020.

Denim is another high growth category among women’s wear and is expected to grow by a promising rate of 17.5 per cent for the next ten years to become a market of Rs 10,209 crore from Rs 2,035 crore currently. Initially, the denim brands used to focus primarily on men, but with the change in the demand and preferences of women, they started catering to women consumers as well. Stretch denims have seen a huge demand among women.

Women’s t-shirts and tops categories are also growing fast owing to generic inclination for western wear categories. The women tops and shirts market is of Rs 2,236 crore and is expected to grow at a CAGR of 14 per cent to reach Rs 8,291 crore by 2026. The women’s t-shirts market of Rs 933 crore is growing in tandem with the growth of other casual wear categories and is expected to grow at a CAGR of 17 per cent to reach Rs 4,484 crore by 2026.

2.3 Kidswear

The kidswear segment is one of the fastest growing segments in the Indian apparel market. The Indian kids wear market in 2016 was estimated to be worth Rs 61,201 crore and accounted for 21 per cent of the total apparel market of the country. It is expected to grow at a CAGR of 10.5 per cent to reach Rs 1,66,147 crore by 2026. With such market potential, a number of national and international players have entered this segment. India, being one of the youngest nations in the world with 29 per cent of its population less than 14 years is a lucrative market. The competition between the new entrants and existing players has ultimately benefited the Indian consumers as the firms have shifted their focus to improve the quality while reducing costs at the same time.

Awareness about latest kidswear is not only limited to metro cities but it is widespread among Tier -II and -III cities also due to access to various media such as televisions, smart phones, movies etc. With growing disposable income, exposure to global fashion trends and entrance of foreign brands in the country – spending on kidswear by Indian populace has increased.

The kids wear market can be categorised into boy’s wear and girl’s wear.

Boy’s wear

The Indian kidswear market is slightly skewed towards boy’s wear which accounts for 51 per cent of the total kidswear market. In 2016, boy’s wear was estimated to be worth Rs 31,552 crore and is expected to grow at a CAGR of 10.3 per cent and reach Rs 84,678 crore by 2026.

The various categories among boy’s wear are t-shirts, denims, bottom wear, ethnic, winter wear and uniforms. Uniforms, t-shirts and bottom wear are the dominating categories among boy’s wear. They together contribute around 78 per cent of the total boy’s wear market. However, t-shirts and denims are considered high growth potential categories in the segment with a CAGR of 12 per cent and 15 per cent respectively. The increased fashion awareness among kids has made western wear such as denims and t-shirts popular.

Girl’s wear

Girl’s wear market, which accounts for remaining 49 per cent of the kidswear market, comprises of bottom wear, ethnics, t-shirts, denims, dresses, winter wear and uniforms. Like boy’s wear, uniforms are the dominating category among girl’s wear as well. It is worth Rs 9,013 crore and is expected to grow at a CAGR of 11 per cent to reach Rs 25,591 crore by 2026. Another dominant category in this segment is ethnic wear, which comprises 23 per cent of the girl’s wear market. But, a major shift has been seen in trend among girls wear in recent years. Western wear categories such as denims and t-shirts are growing faster than traditional categories. These categories are expected to register CAGRs of 16 per cent and 14 per cent respectively.

3. Region-Wise Distribution of Apparel Market

Demand for various apparel categories varies substantially across the country. The urban market that mainly comprises of metro cities such as Delhi/ NCR, Mumbai, Bengaluru, Chennai, etc., are the biggest markets for apparel in India and contribute 23 per cent to the Indian apparel market. Considering the fact that almost 70 per cent of the population resides in villages, the major contribution of urban cities to the apparel market indicates the higher purchasing power of the people in urban cities, their frequency of purchases and tendency to purchase premium and quality products. The metro cities house almost all the big national and international brands, driven by the well informed and employed population. The metros also witness huge penetration of women’s western wear as compared to Tier -I or Tier -II cities of the country. The well informed and trend conscious female customer base has led to deeper penetration of brands and private labels in the metros.

But lately, many global brands have started penetrating into Tier -I and -II cities, while domestic brands are also strengthening their position in these markets. Many fashion retailers and apparel brands have already established themselves in smaller cities. High real estate costs, competition among branded players and saturation in metro cities of the country have made big brands to move towards the smaller cities of the country. The increasing purchasing capacity and awareness of fashion and trend in small cities has resulted in providing a huge market to the organised players of the country.

The rural apparel market in India is still primarily catered by unbranded and unorganised local players. Need based clothing and price sensitivity among people of rural India does not make it a lucrative market for branded players.

4. Price Segmentation of Apparel Market

The apparel market can be broadly divided into super premium, premium, medium, economy and low price segments. The medium price segment holds majority of the share among apparel segment by holding 29 per cent followed by economy which holds 28 per cent of the share of the apparel market of the country. The price sensitive rural population forms a major chunk of 54 per cent of the low and economy price segments of apparel market.

Customers across income groups purchase medium priced apparel at varying frequencies. Sometimes the customers of the premium and super premium segment wish to trade down to medium segment while in some other cases the low income customer prefers to trade up to medium segment depending on the requirement of the attire and look. Many Indian consumers of the medium income level prefer medium price segments as it offers the assurance of certain minimum quality standards at a reasonable and affordable price.

The super-premium and premium price categories are value driven categories and the product offerings of these segments come from established brands.

5. Select Trends of Indian Apparel Market

In India’s high-growth, fast-changing retail apparel market, with significant new growth opportunities for both foreign and domestic players. As a result of it, Indian apparel industry is witnessing some specific trends.

5.1 Sustainable and eco-friendly manufacturing

As the country is confronted with pollution issues, it has become adopt eco-friendly strategies. The industry is focusing on reducing water consumption and techniques to avoid usage of organic colours in apparel manufacturing. Consumers are sensitive and are increasingly getting aware about environmental issues, resulting
in growing inclination towards eco-friendly and organic apparels. Brands/ private labels have started catering to this market especially in babies, kidswear and premium adult wear category segments.

5.2 Increased inclination towards smart garments

With technological penetration in everyone’s lives, garments too are witnessing some major up-gradation in technology. After smart phones, smart televisions, smart watches, etc., ‘smart shirts’ have emerged as a new trend in apparel industry. Companies are trying to woo the customers by providing smart shirts to the growing tech freak population of the country.

Right now, the wearable technology market mainly consists of wearable devices such as fitness bands, smart watches etc. But, recently there has been a shift towards smart garments among premium and luxury customers.

5.3 Smart casuals

Corporate dressing these days is not restricted to strict formal wears in pastel colours and minimal designs but has gone under a transition. In women’s wear the concept of smart casuals has carefully replaced traditional formal wear such as sarees, western formals and salwar-kameez. Increasing inclusion of smart casuals or semi-formals has resulted in acceptance of chinos and other relaxed trousers along with half sleeved shirts or t-shirts.

5.4 Continued rise of ‘organised retail’

The Indian fashion retail industry is transforming rapidly and is seeing shift from unorganised to organised retail. The transformation is due to increase in income, increased penetration of branded wear in country and awareness of fashion trends among consumers But, nowadays couture is not limited to metros only. Tier -II cities and semi-urban cities have emerged as huge potential markets for these organised players. Penetration of organised retail chains has contributed to the growth of apparel market in these markets. Market expansion in non-metros seems an lucrative opportunity for domestic and international brands. Once considered value conscious consumers of Tier -II cities are now open to spend more on fashion and look good. Apparel retail in non-metros is growing exponentially due to which more brands are entering hinterlands.

5.5 Apparel sales in e-commerce

Online shopping in India is not a new phenomenon anymore, although it is in nascent stage but blooming very rapidly. E-commerce has grown in recent years and has touched every person’s life. It has played a very vital role in bridging the gap between consumers residing in Tier -II and Tier -II cities and premium wear sellers. It has made availability of premium brands in semi urban areas where these brands have no retail outlets.

In India, e-commerce portals and marketplaces have established themselves by providing huge discounts to lure customers thus changing the consumers’ mindset and providing wider range of products to choose from. According to Technopak Analysis, currently there are 431 million Internet users which is expected to reach 750 million by 2026. Cash crunch due to demonetisation along with improvement in net banking facilities will fuel the growth of e-commerce in the country. The government’s initiatives to develop cash less, inclusive and digital citizens has provided further boost to e-commerce industry. The e-tailers have started launching their private fashion labels to increase their profit margins.

6. Challenges for Fashion Retail in India

Despite of growing at a promising rate, Indian fashion retail is facing its own challenges. Some of the major challenges faced by fashion industry in the country are as follows:

6.1 Infrastructural bottlenecks and efficiency

Indian fashion retail industry faces challenge of inadequate infrastructure such as poor conditions of roads, highways etc., which results in becoming roadblock in growth of apparel fashion industry. India, to grow to its fullest potential, would have to invest heavily in infrastructure such as proper connectivity of roads, inland waterways, etc.

According to World Bank’s Logistics Performance Index 2016, India ranks at 35 when compared to 160 countries. It scored 3.42 on a scale of 5, thus showing a huge scope of improvement in infrastructure which is a major hurdle in logistics of the apparel industry.

6.2 Poor Internet penetration in the country

Despite e-commerce blooming in the country, India has poor Internet connectivity as compared to other growing economies. In India, e-commerce is in its nascent stage but has grown significantly in the last fifteen years and is set to grow at a high rate in the next decade. However , the quality of Internet services provided is poor due to lack of infrastructure. To ensure long term growth of e-commerce in India, it is essential to upgrade the Internet services. Unless, the government takes initiatives in this direction, e-commerce industry would not be able to reach its fullest potential. In addition, Cyber security is another major threat in e-tail industry.

6.3 Changing consumer behaviour

In today’s business environment, consumer is the king. It has become imperative for the manufacturers tocater to the consumers according to their taste and preference. With mass media penetration and growing disposable income, Indian consumers have become more demanding and adaptable to change in fashion. With the rapidly changing profile of consumers, it has become challenging for retailers to keep up with shifting shopping demands. Shoppers today are well informed about fashion trends and demand accordingly. Thus, it becomes challenging for retailers to cater their customers with constant change in preferences.