On the wave of the new changes that are occurring in India, owing to Government’s policy improvements and its agreement with the World Bank for an investment of $200 million directed towards the development of India's industrial and technological skills, International companies are planning their own moves to either enter or increase their presence in the Indian Apparel market.
Foreign companies already established in Indian Apparel market have the intention to increase the number of stores in India.
For example Zara is planning to open 18 new stores and H&M is scheduling 50 new stores in India, while other brands plan to soon enter into the market.
But why is India’s retail market so attractive for International companies? According to a study by the UK India Business Council in 2014, the retail industry in India is valued at £309 billion and is expected to grow by 2023 to £545 billion. Of this amount just 8% is estimated to be from organised retail, but it is forecasted to outperform and to account for 24% of the overall retail market by 2024. Moreover, 60% of this segment is constituted by the Food and Grocery segment, followed by the Apparel segment (8%).
The Indian apparel industry, both organised and un-organised, in 2013 was estimated at £24 billion and is exected to reach £57 billion by 2023. Some very large numbers, and certain to get even the most conservative companies interested in the market. Beyond the size of the market, there are several factors that influence the attractiveness of the sector,
A shift in consumer preferences towards branded apparel products (expected to be the 50% of the overall Apparel market in 2025)
Luxury sector growth by 30% in 2013
India’s overall GDP growth forecasted at 5.4% for 2014
Young population (people under the age of 25), which is now at 500 million and joining the workforce
Emergence of semi-urban centres that are growing everyday, giving rise to new needs and desires that must be satisfied
The help provided to branded retail by the liberalisation in FDI norms and new reforms by reducing the taxes for both multi and single brands
Increased access to the Internet and widespread mobile phone penetration that are pushing the opportunities for online retailers
The increasing amount of credit and debit cards around the country, with higher limits that result in a greater consumer disposition to shop online
However while the advantages are numerous, they are also compensated by some challenges that companies must take into consideration. The usual susects like difficult local laws, poor infrastructure, low technical skills and high rental costs, that we already discussed in previous articles are the ones that the Government is already trying to fix, but another important barrier is that of high domestic competition in the Indian Apparel industry.
One of the Largest Online Retailers in India - Flipkart
To avoid the high competition with the well established local brands (mainly because these brands exploited first mover advantages and quality of service offered), foreign brands can act in three different ways: partnership agreements with local businesses, opening subsidiaries and changing their models to align with the country or finally exploiting the advantages of the e-tailing route.
The last option is the least risky (arguably) and represents the fastest growing segment field for moment, but the other two options can also account for a large proportion of the marketplace if exploited in the right way. Those options give a chance to tap into different customer segments possibly tapping into higher profits and more possibilities of enlarging the business.
Foreign brands must plan their strategy carefully and keep perspective of the local players. While the organised retail industry is young, there are local players who have managed to garner a steady base of loyal customers, and these companies are a serious threat to new entrants.
The Indian Apparel industry is fast-growing and Indian consumers deeply appreciate International brands, thus investing in India could be a truly great and almost a secure bet for the future of Interntional companies. The method of entry is going to shape their experience, and fortunes, in the Indian arena.