The Indian retail industry has been at the helm of India’s growth story. The sector has evolved manifold, traversing the ‘mom and pop’ store era to reach today’s sophisticated large domestic and international brand dominated scenario. One of the key drivers for global brands to enter India has been the measures taken by the government to liberalise the Indian retail sector for foreign investment. Many single-brand retailers like Louis Vuitton and Tommy Hilfiger were the first to take advantage of this opportunity. The cash-and-carry format has been adopted by global multichannel retailing giants like Metro and Walmart to enter the fray. Recent brands to join the Indian market include Zara (2009), H&M (2015), Gap (2016) and IKEA (set to open its first store in Hyderabad in 2017).
While most global brands plan their entry through cities like Mumbai and Delhi, they are targeting the Indian tier II cities to plan their phased growth. However, brands like H&M have found more success in this strategy than the likes of Zara, as they operate on a lower price point which makes them more attractive to buyers in tier II cities. Brands like Muji, which entered India recently, realise that there is a small but growing segment amidst the Indian consumers which is curious and interested to experiment with innovative products.
Most international brands entering the Indian market are doing so with the strategy of providing an attractive portfolio to the middle class population, which forms the major chunk of consumers. This is evident not only in the prices offered, but also the variety in the portfolio.
In the last decade, a number of international brands in India have either packed their bags to exit or have restructured their partnerships and market strategies. A fundamental reason has been that while these brands devised their strategies with only cities like Delhi and Mumbai in mind, they soon realised that doing business with India is much different from doing business in Hindustan. Market strategies need to be local. For example, while West and South have more or less one season in a year, North India has four seasons.
India will be an interesting arena in the next few years for global retailers. With new large format malls providing anchor space to many international fashion retailers, the consumer will benefit with a plethora of choices. The retailers will be fighting for these footfalls and conversion of potential customers who are aware, educated and brand conscious.
Besides the success and failure of international brands in India, what remains to be seen is the patience and endurance of these brands to remain invested in India because shopping here is still viewed as a means of entertainment and not lifestyle. Brands will need to drive this cultural change which may get a parallel boost through general economic development in terms of improved infrastructure and increase in consumption expenditure. Further, the current and expected real estate correction along with economic reforms such as GST and infrastructure development schemes will also offer the brands an added incentive to stay invested in India.
The author is partner, Grant Thornton India LLP