With relaxations by the Indian government in foreign direct investment — 51% for multi-brand and 100% for single-brand — the retail arena couldn’t be more enticing
A stroll in the mall has just got more exciting, with internationally renowned brands, new stores and new experiences courting the Indian consumer. India, a dear market for many international companies, is once again seeing a whole host of global retail brands making a beeline for real estate inside plush malls across the country. A phase that one can call Shopper’s Paradise 2.0. The early 2000s saw the entry of fast-fashion brands like Mango amongst others, and then later Zara, which has since changed the way urban Indian youth shops.
In 2015, American apparel brand GAP, Swedish fast-fashion brand Hennes and Mauritz AB (H&M), Japanese retail brand Muji and Swedish furniture giant IKEA made headlines in India as they made inroads or announced plans to enter the retail map of the country.
With growth in per capita expenditure and increase in disposable income of our rapidly growing urban population, India presents lucrative potential for global brands. E-commerce proved to be the perfect platform to test waters for many retail brands looking to enter India, and top names here include Dorothy Perkins, TopShop, etc.
But the traditional charm of brick-and-mortar isn’t something to be given a miss for most of these giant lifestyle/fashion/home products retailers. There are enough brands out there in love with the concept of serpentine queues outside their stores on the opening day, which has become quite a fixture for India specific first store launches these days.
With relaxations by the government in foreign direct investment — 51% for multi-brand and 100% for single-brand — the arena couldn’t be more enticing.
Indian brands too aren’t laying low either, launching products to counter the global onslaught. For instance, Future Group’s Future Lifestyle Fashions recently launched fast-fashion brand Cover Story, aimed at bringing global design sensibilities led by Future Design Lab set in London.
So how will the retail experience change for Indian consumers with this second wave of global influx?
In October last year, when H&M opened its first India store in Delhi’s Select CityWalk mall, it clocked more than Rs 1.75 crore in sales on day one — an amount almost the double that of what Zara managed correspondingly a couple of years back at the same mall.
The landscape of the retail business has clearly changed in India. Says Anurag Mathur, partner & leader — retail and consumer, PwC, “The Indian retail market has been evolving for years now. From United Colors of Benetton earlier to H&M now, the Indian consumer is becoming more and more fashion conscious.”
Well-travelled urban Indians are well exposed to global lifestyles and aspire to see more of this in their home country, which is fuelling the growth of global labels here. From the retailer’s perspective, here is a market that will add on to the volume aggregation already being done by large players. Such incremental volumes will not only help them expand but also give them system-wide benefits in terms of better sourcing costs.
Recent statistics show that Indian urban buyers are shopping for apparel at least 10-12 times in a year, which is an increase from five years back. International brands such as Zara and H&M are making immense headway into this brand and price conscious new Indian market. Zara is reported to have
recorded $100 million in sales in its six years in India with over 18 stores and has become profitable in a shorter span compared to Levi’s which took over 20 years to breakeven.
“The Indian market is a supply constrained one where demand arrives far ahead of the supply,” highlights Darshan Mehta, president and CEO, Reliance Brands, which runs stores of 19 international brands in India including Kenneth Cole, Steve Madden, Diesel and Brooks Brothers. Stationery, apparel and home products brand Muji had first connected with Reliance Brands in February 2012 and after a long courtship of more than four years, they opened the first Muji store at Palladium Mall in Mumbai this August. Its next store will be at VR Mall, Bengaluru and will enter Delhi in 2017.
IKEA India, which laid its foundation stone in August, and H&M, which opened doors to its fifth store in New Delhi at Connaught Place recently, entered India after the government approval for 100% single-brand retail trade. Both believe that with the world’s youngest population and a favourable economic environment, it’s a great time to be in India.
IKEA India’s deputy country manager Patrik Antoni sees the country’s future as a bright one. “IKEA is a trusted brand and is always about affordability,” says Antoni on behalf of the brand that claims to offer ‘something for everyone’.
IKEA is currently investing close to R10,500 crore in India to set up 25 stores by 2025, but is aware of the growing reach and popularity of e-commerce in the country. “We want to be available to our customers 24×7, and hence e-commerce and a mobile app are on the agenda. But the first priority are the stores,” explains Antoni. Similarly, though H&M’s expansion strategy is to always open at the best business location, it sees online shopping as a natural expansion of business.
“During the launch phase, Muji’s focus was on exclusive brand outlets (EBOs) since it believes they are crucial to create an authentic brand experience for customers. Having said that, we are closely monitoring the increasing trend of Indian consumers shopping online. Internationally, Muji has a strong expertise in selling online,” reveals Mehta.
So is there a right formula for distribution? “Online would continue to be a part of the offering. The new buzz word is omni-channel. However, it is not easy to execute,” points out independent retail and shopper behaviour expert V Rajesh.
The growth of e-commerce has played an important role in expanding the fast fashion culture, with many international brands selling exclusively online. Some brands are also taking the plunge into the brick and mortar format. For instance, after selling exclusively on Myntra, Dutch apparel brand Scotch & Soda has now struck a deal with Reliance Brands to open stores in India.
Though most plan their entry through cities like Mumbai and Delhi, some are targeting the Indian tier II cities for a phased growth. “Apart from the metros, we also believe there is a huge opportunity in the tier II and III markets to open stores,” asserts Dhatri Bhatt, head — communications, H&M.
Not a rosy path
Lack of relevant retail spaces, complex supply chain processes made even more so by the regulatory framework and lack of world-class retail professionals are the three key challenges that the sector faces. Multiple points of taxation is a fourth, but with the upcoming regime of a uniform GST, most brands are hopeful of this problem resolving itself. That’s not enough. Understanding of the Indian consumer and the major and minor nuances with regard to Indian consumption and shopping patterns, remains a task too.
The brands which have failed to understand the pulse of this segment have had to take a hit on their topline as well as profitability. The 2000s did see a number of brands shutting shops — Future Group ended agreements with Italian brands Etam and Replay after running the operations for a couple of years. But lessons learnt, and the company recently launched Cover Story to challenge the likes of H&M and Zara. Indian counterparts today understand that customers are looking for fresh merchandise much more frequently and across multiple channels. To that effect, many retailers have strengthened their portfolio of brands.
Not too worried about the increasing competition, Shoppers Stop MD and customer care associate Govind Shrikhande says, “The entry of international brands has heralded the concept of fast fashion in India. Hence, we are seeing a near-simultaneous mirroring of global fashion trends on Indian shores.”
Shoppers Stop has a diverse portfolio of international brands such as Estee Lauder Group of Companies, Desigual, Tommy Hilfiger, CK Jeans, French Connection and Forever New, apart from its own range of private brands like STOP, Life, Haute Curry, Kashish and Vettorio Fratini.
In many cases, Indian brands have a much better understanding of the consumer, context and the complexities of the ecosystem. And can find a solution much faster than most international brands. “One month into the business, and we knew that furniture logistics cannot be handled by a third party player because of the infrastructure and quality of solution available in the country,” says Rajiv Srivatsa, COO and co-founder, Urban Ladder. “We decided to build our own logistics team. This learning curve was much faster for us because of an understanding of the ecosystem and the infrastructure complexities.”
Experts believe that any international player which can offer fashion and variety at an affordable price and sees itself as more of a national brand rather than a metro-centric one, will perhaps take the lead in the Indian retail game.
The Indian market is a supply constrained one where demand arrives far ahead of the supply: Darshan Mmehta, President & CEO, Reliance Brands
The learning curve was much faster for us because of an understanding of the infrastructure complexities: RAJIV SRIVATSA, COO & Co-founder, Urban Ladder