The Indian apparel market has experienced unprecedented changes over the past decade. Leading domestic and international brands have invested time and capital to learn doing business the Indian way. Further, a large part of these learnings are driven by partnerships with local partners and performance of peers in the market place.
International players are driving uptrade and aspiration
The early foreign entrants typically adopted premium pricing which was largely driven by their international brand positioning and high cost of goods due to import model.
Leading players are increasingly making their premium brands affordable for the Indian pocket. This adaptation of pricing strategy has led to the phenomenal success of leading international brands such as Zara, Marks and Spencer’s amongst others. Further, these brands have successfully targeted the aspirating yet value-conscious Indian consumer. Select international brands have been able to crack the Indian puzzle, by focusing on ‘fast’ fashion and affordability at the right operating cost.
Global branding with local merchandising
Over time leading international brands have adopted an India led merchandising strategy. Increasingly players have shifted parts of designing and manufacturing functions to suit the Indian consumer. This was largely led by catering to the diverse and unique requirements for colours, sizes, fits and seasons in the Indian micro-markets. Though the domestic brands may have better understanding of the Indian consumers, the international players are investing more time in looking at the merchandise in the Indian stores.
A few domestic brands have established their own forte
Despite leading foreign brands entering the Indian market, the women’s ethnicwear segment continues to be the exclusive domain of Indian brands. Since this segment is largely unorganised, Indian brands such as Biba and Fab India have tapped the market opportunity in ‘desiwear’. This could be a big opportunity for Indian companies to build big brands in the future as international brands will neither have the knowledge nor the inclination to invest in building Indian brands.
Partnership model– an opportunity for both Indian and foreign brands
International brands which forayed in India over the last decade, preferred franchising or licensing route to enter the Indian market. This was largely driven by the regulations restricting FDI in retailing, which served as a key constraint for international brands while developing their Indian entry strategy.
While local partnerships help foreign brand owners obtain valuable consumer insight; for domestic players it opens a window to understanding international retailing processes, especially supply chain operations. Domestic players such as DLF and Major Brands have tied up with international brands for foray in retail at the outset and later launched their own brands in the market.
Sourcing challenges spur ‘Made in India for India’
Leading international apparel brands typically adopt the import route for entering the Indian market. However, the high import duty structure has forced international brands relook at their sourcing strategies and evaluate an India based sourcing model.
High import duties, adversely affect the overall price of products, whereas local sourcing helps players to set attractive prices to achieve high margins, cater to local tastes in reduced lead time and even create additional sourcing bases for international operations. Leading international brands such as M&S, Arrow, Lacoste among others now source significant portion of its merchandise (sold in India) locally.
The domestic apparel market presents a huge opportunity for garment manufacturers, leading export oriented apparel houses are increasingly investing in setting up manufacturing facilities to cater to the requirements of apparel brands in India. However, brand owners continue to face challenges in domestic sourcing namely, high and complex taxation rates, unorganised suppliers, poor delivery commitments and quality issues among others.
Grey market challenges impact international brands
Counterfeiting is one of the biggest challenges faced by apparel brands in India. With increase in brand acceptance and equity, there is a greater incidence of counterfeiting. The rising demand for branded merchandise, combined with the continued price consciousness of Indian consumers, has led to the growth of this parallel channel, which is sold at heavy discount. Lack of adequate regulations has led to proliferation of counterfeiting. To counteract the loss from fake products, several companies have been striving to reduce their lead time from the design to market.
Real estate challenges — opening doors to new retail locations: The challenge posed by lack of relevant retail space and high rentals at prime locations has led to delays in opening stores and high cost of operations. Given the constraints in metropolitan and tier I cities, international brands increasingly penetrating into tier II and below cities, where rentals are lower than former. However, a penetration in these smaller cities requires an overhaul of the strategy which may elongate the learning curve further.