The India’s fashion consumption story has taken-off for newer heights due to demographic, cultural, psychographic and behavioural changes among Indian consumers. These changes are altering the size as well as shape of the market. Over the next 5-6 years, the fashion market is expected to grow nearly ~2 times with women’s and kids segment growing at an accelerated pace particularly in apparel and footwear categories. The aforementioned macro changes will also have an explicit impact on economy and value fashion segments. Over the next 5-6 years, both these segments will grow faster than the overall market, resulting in increasing their share to 60-65 percent – an increase of ~5 percent from current market share. For retailers, this growth demands a renewed focus on their strategy. The renewed focus will help retailers in offsetting the new challenges that they are set to face. In this chapter, Wazir has identified 3 such challenges. Further, considering these future challenges, Wazir has also suggested a growth-enabler to offset each challenge.
EVER CHANGING | EVER EVOLVING | EVER CHALLENGING
These words are best suited to Indian consumers whose fashion preferences are constantly changing. The fashion preferences which were deeply rooted to immensity and richness of Indian culture are now evolved to more refined and globally on trend fashion. Contemporary Indian consumers are seeking distinct fashion for distinct occasions. From a limited wardrobe a decade back, it now includes formal, semi-formal, casual, active, sports, ethnic, seasonal, leisure, party and many other types of fashion implying Indian consumers have become more discerning in their fashion needs and hence, more challenging to understand. This shift is due to the plenteous fashion exposure of Indian consumers.
The Indian consumers which comprises of the largest Gen Y population in the world with a median age of 27 years are more experimental by nature and more inclusive and intermingling with different cultures and social structures. They are more time poor and money rich having started to earn at a much younger age and hence more inclined to spend on better and more aspirational things in life. These cultural, psychographic and behavioural changes are also reflective across fashion product categories namely apparel, footwear and accessories.
With India’s economy expected to grow at almost 7-8 percent CAGR over the next decade, the per capita income will also increase. Increasing wallet sizes will result in consumers with more money to spend and greater enthusiasm for fashion. The per capita expenditure on fashion is expected to reach Rs 7,835 by 2023, rising from Rs 4,290 in 2017. Therefore, the total Indian fashion expenditure is expected to grow to Rs 11.4 lakh crores by 2023, making India one of the most conspicuous spots in the global fashion market.
Further, not just the size of the market, but its construct will also change. In apparel and footwear, women and kids segment will grow at an accelerated pace. However, the dominance of women segment in accessories will continue to exist.
The changes in the Indian consumers are explicit and so is the impact of these changes on the Indian fashion market. The maximum tremors of this impact will be felt across economy and value fashion segments which jointly forms the 55-60 percent market share. For pure play value and economy fashion retailers, this means a great deal because the aforementioned macro changes will drive the economy and value fashion market as well as give rise to significant challenges.
The Present Case For Economy And Value Fashion
The story of urbanisation in India is different from rest of the world. The migration to urban centers in India, is not happening as fast as it happened in China and is not limited to a few large cities as it happened in South Asian countries like Thailand or Indonesia. In India, it is the tier 3 and tier 4 cities that are expected to see maximum population growth over the next decade. As a result, the working population is rapidly increasing across Tier III and IV cities. The working population has increasing income with a need as well as willingness to dress better.
Furthermore, the rural population is also transitioning up in income levels due to availability of manufacturing based jobs, expansion of agriculture into value added farm activities and government’s rural employment schemes. As a result, urban lifestyles and services are increasingly being adopted with a combination of affordability in rural areas. This process of rural urbanisation or rurbanisation is converging rural consumption towards urban consumption pattern and NSSO rural consumption surveys are testimony to same.
Due to urbanisation, the tier 3 and tier 4 cities will begin to emerge as new growth engines for fashion retailers. These cities are currently in process of reaching a threshold level where they become suitable for the entry of these retailers. Further, urbanisation has already changed the dynamics of ready-to-stitch vs ready-to-wear in rural areas. The rural fashion consumption which was ready-to-stitch dominated, need-based and lower price points skewed has changed to more ready-to-wear centric and aspiration driven. Though price sensitivity is still existing, but it has so far benefited the ready-to-wear segment only as ready-to-wear is cheaper than ready-to-stitch and rural consumer is well aware of the same. It is this relative cost gap between ready-to-stitch and ready-to-wear that has been fuelling the rural fashion expectations. Adding to these expectations is the convenience of trying out before purchase.
Together urbanisation and rurbanisation are creating a scenario where economy and value fashion market of Rs 3.2-3.5 lakh crore in 2017 will grow to Rs 6.8-7.4 lakh crore by 2023 at a CAGR of 13-14 percent. This growth will be attributed to many facets of urbanisation and rurbanisation, key amongst them being population movement, increased spend and RTS to RTW conversion.
At present, there are few sizeable retailers that are serving the economy and value fashion market. Given the market size, this is the largest opportunity that is presenting itself for existing and new fashion retailers that can dare to think “Large Scale”. The success of fashion retailers like Pantaloons, Max Fashions, V-Mart, V2 and few others is witness to this phenomenon and what has been realised is just the tip of an ice-berg.
Challenges And Growth-Enablers For Economy And Value Fashion Retailers
While the rise of economy and value fashion segment is inevitable, the emergence of new challenges is also unpreventable. For new as well as existing economy and value fashion retailers, the situation demands a renewed focus on their growth strategy. This renewed focus will help retailers in establishing truly differentiating core capabilities to create sustainable growth in the future.
Wazir has identified 3 key challenges that retailers are set to face. Further, considering these future challenges, Wazir has also suggested a growth-enabler subsequent to each challenge. The identified challenges and growth-enablers are as follows:
CHALLENGE 1: Competition And Fashion Heterogeneities
While value fashion remains the playfield of select pan India retailers, the economy fashion is largely regional and unorganised retailers’ play, as of now.
All pan India value fashion retailers have so far managed to grow faster than the market itself. This growth was primarily being driven on the basis of targeted private labels, robust shopping experience, deep customer engagement, regular fashion freshness as well as continuous supply chain improvement without cost increase. However, all of them have now established stores in similar metro, tier 1 or tier 2 cities.
On the other hand, in economy fashion, regional retailers have established their strong foothold across different geographic pockets. These pockets are either high density areas in north and east regions or severely fashion underserved areas in north-east and other regions. These retailers have managed to hold the ground due to their in-depth understanding of local fashion preferences and relation based customer retention resulting in high customer traction and vast coverage. However, majority of these retailers have also undergone geographic expansion in similar regions like value fashion retailers in similar cities.
The next level of growth can be either achieved via geographic expansion into new Tier III and IV cities or increasing the same store sales in existing cities. In both cases, it is important for retailers to understand that fashion consumption in India does not vary only on the basis of price and subsequent quality and fashion quotient attached. It also varies within fashion segments. The fashion consumption shifts from largely homogeneous to highly heterogeneous as we go down the price ladder.
At higher price points, fashion consumption is largely based on latest trends and target consumer segment is also more homogeneous in their fashion palate. However, as we go down, the fashion consumption become more skewed towards regional preferences and fashion palate becomes more heterogeneous. As an example, super premium fashion players will have lesser SKUs and more standardised range across the country than a value fashion player. Further, the heterogeneities can exist in terms of size, fit, fabric or style preferences across regions. Therefore, economy and value fashion retailers will have to carefully manage fashion consumption heterogeneity to avoid reaching a stage of over expansion leading to merchandising and operational inefficiencies.
Growth-Enabler 1: Geographic Expansion Based On Cluster Approach
For calibrated geographic expansion in new Tier III and IV cities and higher same store sales growth across exiting cities, economy and value fashion retailers require micro rather than macro perspective because these cities are scattered across regions. Further, having a one-dimensional viewpoint in that micro-perspective will not be sufficient to manage the fashion heterogeneities. The scenario demands the adoption of cluster approach, in which retailers will have to identify how one city cluster is different from the other cluster in a region.
Retailers will have to segregate cities on the basis of commonalities like size, colour, fit or fabric preferences. Hence, the retailers will have to constantly monitor store sales data and in-store customer behaviour to strategize and customise merchandise supply as per city clusters. At the same time, the retailers also have to ensure that the cluster formation is only to manage the local fashion palate, there will be share of merchandise which will remain constant across stores along with uniform store look and shopping experience.
CHALLENGE 2: Diminishing Mid-Market Fashion Space
While fashion market is expected to grow at 12 percent CAGR over the next 5-6 years, the growth across different fashion segments will vary significantly. This is due to the changing size of the target consumer segments. Also, not all consumer segments will strictly adhere to their fashion segments because the market is becoming increasingly polarised. This polarisation exists either in terms of being brand or price oriented. As a result, for players operating in premium or higher price segments, differentiating proposition will be distinct “brand promise and experience”. On the other hand, players operating in value or below segments, differentiating proposition will be the distinct “fashion, quality and price balance”.
It is the mid-market that will be left squeezed with the unique selling proposition of discounting. Due to discounting, these players are expected to miss on both “brand promise and experience” as well as “fashion, quality and price balance”. Further, the value and premium fashion players will also try to recruit mid-market consumers with marginal shifts in their pricing. The recent launch of shirts priced less than Rs 1,700 for MBO channel by many premium menswear brands and increasing range of shirts priced higher than Rs 5,000 in their EBOs is a testimony to same. However, the economy and value fashion retailers will have to continuously improve their value offer to offset any disruption from mid-market players in either economy or value segments.
Growth-Enabler 2: Continuous Improvement In Value Offering
While the success of economy and value fashion retailers is based on their ability to plug the relative gap between aspirations and income of “Aspirer” and “Middle Class” consumers, it is also important for them to create new differentiations for offering better value proposition to consumers. With time, retailers will have to delink fashion and price to integrate fashion with aspects like convenience, fashionability, disposability, innovation, sustainability etc. This will help retailers not only in improving usability and perception value but also carving out new niches for themselves within economy and value fashion segment.
CHALLENGE 3: Fast Paced Consumer Evolution
The economy and value fashion retailers have fundamental back-end and front-end differences.
Despite all these differences, there is one common thing for both types of retailers and that is fast paced consumer evolution. With each passing day, the target consumers for economy and value fashion retailers are becoming more informed, connected, conscious and demanding. Retailers will have to constantly evolve as their target consumers are evolving. This evolution will span across upgrading the supply chain as per demand to control gross margins, to upgrading stores while tightly managing store costs, to upgrading the merchandise as per changing consumer needs to control sales per sq.ft.. Hence, continuous operational and costs improvements lie at the epicentre of retailers’ evolution.
Growth-Enabler 3: Continuous Operational And Cost Improvements
The winners in the economy and value fashion retail will be the ones that have better control over the retail value chain including sourcing, supply chain, merchandising, store operations and customer management. Such retailers will have deeper insights to undertake actionable steps on driving reduced human dependence, predicting sourcing quantities, inventory management, cluster based merchandise allocation, store operations management and much more.
Wazir believes that economy and value fashion retailers looking to scale-up their business could learn from these challenges and subsequently leverage the identified growth-enablers. The market growth will support all ventures with clear growth strategy based on category, consumer, competition, channel, and cost structure analysis.