International brands know what it takes to succeed in India ? going local. But apparel brands are taking it to the next level, by also sourcing from within the country. This not only saves them import duty and helps price products more competitively, but also ensures that latest fashions hit the Indian markets faster.
Take Marks & Spencer, which sources about 40% of its stock sold in India locally, and is targeting 60% domestic sourcing in the next couple of years. Similarly, Italian fashion brands Boggi Milano and Alcott, which partnered with DLF Brands to enter India, are also initiating local sourcing. Other players like Cadini too have plans to step up local sourcing.
As Dipak Agarwal, CFO, DLF Brands, retail and lifestyle arm of DLF, says, ?Around three years back, import duties were to the tune of 10-15%. Now they are 35-40%, so it makes sense to source locally.? He adds that even though manufacturing in China is cheaper, import duty makes those products expensive. So domestic sourcing strategy is essentially about making premium brands more affordable for Indian consumers. Another brand in the DLF portfolio, Mothercare, sources about 40% of its stock sold in India locally.
The head of buying and merchandising for Marks & Spencer Reliance India, Luke Banks, also says local sourcing helps them sell at attractive price points and also cater more to local tastes. Marks & Spencer, which currently has 19 stores in India, has reduced prices by 20% since it started local sourcing two years back.
Purnendu Kumar, AVP, Technopak Advisors, says the trend will only see an upswing, as more international brands enter the Indian market or expand here. ?India is a price-sensitive market. For most European brands, importing means selling at 20% higher prices as compared to the UK market. With local sourcing, their prices in India will come down.? he says.
These premium brands are taking a lesson from other international brands like Levis, which was able to sell at attractive price points in India after it started sourcing 90-95% of its products locally. Likewise for United Colors of Benetton, which sources its entire merchandise from India.
This spells a big opportunity for Indian manufacturers too. For Mumbai-based textile manufacturer Mandhana Group, which supplies to brands like Tommy Hilfiger, FCUK, Giorgio Armani and others, not only has its export business witnessed a growth in the past year, the company has also seen a 40% year-on-year increase in sales made to international apparel biggies that have opened shop in India.
And there are more queries pouring in. ?Looking at the increasing number of queries that we are getting from international brands in India, our company is targeting at least 50% growth in domestic sales (to international players) in FY11,? says Mitesh Shah, VP-finance, Mandhana Industries. The company added Inditex Group (which has brands like Zara and Bershka), Mango and a couple of more brands to its kitty last year. Just like Mandhana, textile players in Tirupur in Tamil Nadu and Ludhiana are also witnessing a similar trend.
Technopak predicts the Indian domestic textiles and apparel market size is expected to grow at 11% CAGR to reach R6,56,000 crore by 2020. This trend will only act as a booster.