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Challenges for fashion retail in India


The apparel retail industry of the country derives its strength from the high degree of vertical integration of the industry. It is estimated that the US $45 billion Indian fashion apparel market will grow at a CAGR of 10 per cent to touch US $122 billion by 2025.

Challenges for fashion retail in India
It is estimated that the US billion Indian fashion apparel market will grow at a CAGR of 10 per cent to touch US 2 billion by 2025

The promising growth opportunities of fashion retail in India come with its own set of issues and challenges. The most daunting challenges for fashion retail in the country includes rapidly changing customer demands, infrastructural bottlenecks, a complex tax regime, inherent heterogeneity of the market, supply side limitations and shortage of skilled manpower.

Rapidly Changing Customer demands

shopping-1With the rapidly changing profile of consumers, it remains a challenge for retailers to keep up with shifting shopping demands. Fashion awareness has greatly increased because of social media, blogs and forum discussions.

Customers’ fashion interests can change very quickly, making it difficult for fashion retailers to produce according to the demand. Shoppers today are more discerning and better informed about products and services than ever before, expecting a certain standard of shopping experience from retailers.

Lack of Adequate Infrastructure


Indian fashion retail industry is hit by infrastructural bottlenecks due to the poor conditions of roads, highways, etc., which creates supply chain constraints and increases lead time, inventory holding cost and inventory carrying cost. India has a huge scope of improvement in the basic aspects of infrastructure like quality of roads, ports and quality of electricity supply.

Indian online retail is hampered by poor infrastructure, low Internet penetration and difficulties with basic enablers like online payments. Even after, so many years of operations, all the major e-retailers are yet to start making profits. In the wake of wafer-thin margins and sub-optimal infrastructure resulting in higher delivery cost, the long-term profitability still seems a distant possibility. Also, cyber security is another key issue with e-tailing.

Supply Chain


The apparel industry supply chain includes retailers, contractors, merchandisers, buyers, suppliers, logistics players, warehouses, and customers. The entire supply chain needs to be integrated, as managing logistics requires close coordination across the network of suppliers, manufacturers, co-packers, distribution centers, transportation providers, and stores.

Traditional supply chains generate sequential and isolated plans for inventory, production, distribution, and procurement. Supply chain practices for reducing slow moving inventory and thereby improve stock turnover, reducing clearance inventory, improving the process of ordering, receiving, packing out from receiving, improving the process of product markdowns, improving the sales per footfall, sales per employee, reduce out-of-stock inventory, guarantee accurate store sales or inventory data, and improve merchandise availability needs to be implemented.

Economic Trends and Complex Tax Regimes


Fashion retail industry depends on economic trends. Economic factors such as increase in personal income, interest rates, and job growth play significant roles in the fashion retail industry and consumer spending. Due to their economic constraints, consumers are more vigilant about the prices set on each product, and they have easy access to the internet to compare pricing information.

The fashion retail industry in the country is grappling with the issues of a complex tax structure with taxes being levied by both state and central governments and the nature and amount of tax varying extensively from state to state. Multiplicity of tax enforcement authorities leads to duplication of taxes are various point of the fashion retail value chain.

The most commonly applied taxes include excise duty on domestically produced goods, service tax on any kind of service offered, value added tax (VAT) on goods undergoing interstate sales or purchase, entry tax for goods entering into defined local areas of particular states, Octroi and local body tax by certain state governments.

Though the central government has announced the enforcement of a uniform tax regime in the country through Goods and Services Tax (GST), at this point the enforcement of GST is under severe jeopardy. Some of the subject matter experts are of the opinion that the GST could come into effect only in April, 2016.

Heterogeneity of the Market


With population more than 1.25 billion India fosters variety cultures, geographies and regional trends which inherently promotes heterogeneity of Indian retail market. This forces apparel retailers to search for local optima in their business strategy. To add the complexity, consumer groups in these heterogeneous markets are evolving continuously owing to increasing exposure to fashion trends and rising income level.

The women’s wear market in India is an interesting example that demonstrates the inherent differences within a consumer group. The wardrobe of urban woman could include the best of the international brands along with the local unbranded/street fashion. On one hand, the urban woman could be found dressed in the traditional sarees and on the other, she could be in latest western wear fashion items like dresses and denim. This inherent heterogeneity of the market requires the apparel retailer to micro-segment the market so that the peculiarities and uniqueness in consumer buying patterns of each micro-segment could be understood and product offering could be tailored to the specific needs of the micro-segments.

Shortage of Skilled Manpower


The Economic Survey, 2014-15, stated that as per the Labour Bureau Report 2014, the present skilled workforce in India is only two percent, which is much lower when compared to the developing nations. Indian apparel industry is also staggering due to lack of skilled manpower.

There is a huge scope of improvement in business performance of apparel retailers through deployment advance management practices related to merchandising, supply chain management, customer relationship management, data analytics etc. However, the industry is grappling with the challenge of skilled manpower who could implement the right practices in business operations. This translates to a shortfall in quality human resources at both the front- and back-end of the industry.

The lack of experienced people at the back-end usually translates into poor merchandise management in the form of either inadequate or excessive inventory. As a result, there are lost sales and increased capital requirements. On the other hand, the absence of well-trained staff at the front-end results in a poor customer experience which indicates incompetence and further hampers the brand’s sales. The sector is still at a very nascent stage of corporatisation. It is expected that with the increasing corporatisation and introduction of international players the opportunities for both international and external training for the employees will increase substantially. Courses and training modules tailored to specific job requirements is expected to help the industry to address the issues of skilled manpower.