Theadoption of e-commerce has created a transparent market wherein a brand cannotbe sold at differential prices or discounts across channels. And, it will notbe long before online players start targeting market share rather than grow themarket. But where Indian brands underestimate themselves is their ability toadapt to trends, and to bounce back, says Jaydeep Shetty.
Liberalisationmade its advent on Indian shores 25 years ago, and 45 per cent of Indians noware under the age of 30. Little wonder then that most youngsters today don'tfind foreign brands alien to their lifestyles as some of us old fogeys arguablydo. In the last three decades, there has been a plethora of fashion andlifestyle brands that have met with different fates. In many cases, therespective destinies were written the moment they boarded their flights toIndia.
Thereasons for the success or failure have been the same: choice of location,choice of local partner, ability to adapt to Indians, the arrogance or temerityof brand leaders, and the pricing of the product.
Recentforays by foreign entrants into the women's fashion segment have found thatsuccess is a low-hanging fruit, and the reason for this has been the sweetrental deals with malls, equivalent global pricing models, and a youngerpost-liberalisation demographic.
Indianbrands have upped the ante as far as quality is concerned and across allcategories, Indian-made premium products are taking the fast fashion foreignersto the cleaners. And this has improved over the years for Indian brands. Takethe example of Thailand where the best departmental stores see success in verypowerful local brands that can match the quality of European brands. Andforeign brands have existed in Thailand for over four decades. The foreigninflux in many categories is restricted to power brands only. You can namethose within the limits of the digits on your hands and feet.
WhereIndian brands underestimate themselves is their ability to adapt to trends, andto bounce back. We tend to be lemmings that buy into seasons like the West, andride the full price-deep discount phenomenon that the ERP implementations ofthe departmental stores pushed us to believe in.
Let'sface it! Two-thirds of India does not care about seasons; we are a tropicalcountry. The less we worry about seasons, the better we can price our productsand also evade the high-margin, high-discount cycle that disrupts our cashcycle as well. The other key factor that affects the landscape is thedistribution matrix: independent stores, wholesale, department store concessions,and online.
The shifting sands of retail
Mall
rentals are easing, and suddenly there is ample space in retail available at a
reasonable price. Only the very brave are building malls. There is a white
space to be exploited in the independent store space.
Departmental store spaces are getting crowded. In womenswear, more
space is being allocated to westernwear and the brands introduced over the last
two years have increased. However, store chains have wizened up and are trying
to appropriate space for their own private labels, and also rationalising the
brands. This will put demand on higher trading densities while continuing to
increase the number of options available for each brand. There we are - caught
between the devil and the deep sea.
Wholesale
business with the local multi-brand stores in any region of the country has
stayed obstinately straight like the Indian kirana stores have. Brands doing
wholesale have rarely blinked, and their cashflow streams have been assured and
are growing each year. It is time that departmental store brands too look at
the wholesale trade with variants of their own brands.
Finally,
to the perceived disrupter of the ecosystem: online retail. There are many
upstarts in fashion that have created entire markets while running a small
workshop of less than 500 square feet. However, for the widely distributed
pan-India brands, the e-commerce opportunity has been 10- 15 per cent of the
market. This metric changes suddenly when it comes to discounted products.
Online sites have been gateways for liquidating unsold products and are likely
to remain extremely strong players in this space.
Very
few brands claim to have more than 30 per cent of inventory sold at full price
online. The skew of consumption online is still in the metros and mini-metros,
which is why the media spend on billboards by sites are centred around these
cities. Personally, I do not think the online euphoria will last. It'll not be
long before online players start targeting market share rather than grow the
market, and we shall see another version of the 'Cola-Wars'.
Problems and disruptors
The
product development cycle is an area where Indian brands really need to
improve. In India this takes months instead of weeks. Developing programmes
with mills in India is a tedious exercise. Clothing job workers can be
unreliable on delivery schedules, with absenteeism varying with weather, power
availability, festivals, holidays, wedding seasons and the like. World Company
and Uniqlo are fine examples of companies that exert extreme control on the
entire process - from design and fabric to the production of the garment. An
integrated approach can only happen if all stakeholders are in alignment, and
this has been an issue in India.
On the
consumer side, brand loyalty is more likely to decline than grow. The main
reason is the similarity in the offerings between brands and their overall
proposition to customers. Much as I would like to believe that customers will
get more quality conscious, the proliferation of fast fashion brands proves
otherwise. Hedonistic consumption of disposable fashion will continue to grow.
This is now the excuse to lower the barrier on quality however.
Changing
lifestyles is the next disruptor. We moved toward dual income families, and the
adoption of e-commerce has created a transparent market so that a brand cannot
be sold at differential prices or discounts across channels. Women continue to
spend on choices that work best for them, unconcerned about spousal or parental
guidelines and preferences. As they say, women dress for other women. That will
only grow.
This is
the decade when mall fatigue will begin to set in. Many malls that have crossed
a decade in existence are finding their catchments shrinking. The thrill of
spending the weekend at the mall is now declining, unlike what it was a decade
back. Customers may actually flock back to the departmental stores as it is
time-saving and more efficient. This is being seen in many other countries as
well.
Cost
re-engineering is the new mantra. Costs that are being incurred across all
functions without adding sufficient value at the end of the value chain need to
be curtailed to attain better profitability and margins. Excessive packaging,
multiple product labels, bells and whistles to fit out stores, expensive
fixturing, over-employing staff and express transportation are all costs that
will need correction. GST should help ease many woes if the GST levels are
reasonably mandated by the Centre.
The
short-term will be the new long-term. There is mounting pressure on financing
retail businesses and simultaneously the burden of inventory levels that squat
in warehouses and often don't even stand to be counted. Investors, promoters
and shareholders expect things to improve in the short-term and expect to see
the sunrise in the middle of the night. This can only be solved with better
sell-throughs and more inventory turns. There is a lot to be learned from a
Uniqlo or a Zara.
Marketing
spends may have to reduce as an effect of heavy discounting. Net margins are
under pressure, and this has left little money for advertising or marketing.
This is a tragedy but pretty much evident among brands around the globe. Sadly,
fashion that is in essence an image business has forgone advertising to accommodate
reductions in net margins. It will need a rare kind of gumption to get this
changed in the next few years.
Lastly,
the China bogey. It continues to hover over all Indian industry and is not very
different in fashion retail. Brands increasingly play the China card on
sourcing as the product is more reliable on time and quality and is also
available at better prices. This will hurt Indian exporters and mills hard
since not only are they already losing foreign buyers but losing the domestic
opportunity as well.
Last word
In
growing Mineral as a brand, these are the factors that have guided most of our
decision-making. We moved from what would have been largely an own store
independent brand business model to a departmental store brand, supplemented with
an own store presence. Besides the leading departmental store chains, we are
available online with all leading portals, but we could do that better. We are
now in 70 locations across 19 Indian cities and continue to grow at more than
twice the pace we did last year.
Mineral is a brand that is fiercely Indian in provenance, and we would not have it any other way.
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