The adoption of e-commerce has created a transparent market wherein a brand cannot be sold at differential prices or discounts across channels. And, it will not be long before online players start targeting market share rather than grow the market. But where Indian brands underestimate themselves is their ability to adapt to trends, and to bounce back, says Jaydeep Shetty.
Liberalisation made its advent on Indian shores 25 years ago, and 45 per cent of Indians now are under the age of 30. Little wonder then that most youngsters today don't find foreign brands alien to their lifestyles as some of us old fogeys arguably do. In the last three decades, there has been a plethora of fashion and lifestyle brands that have met with different fates. In many cases, the respective destinies were written the moment they boarded their flights to India.
The reasons for the success or failure have been the same: choice of location, choice of local partner, ability to adapt to Indians, the arrogance or temerity of brand leaders, and the pricing of the product.
Recent forays by foreign entrants into the women's fashion segment have found that success is a low-hanging fruit, and the reason for this has been the sweet rental deals with malls, equivalent global pricing models, and a younger post-liberalisation demographic.
As owner of a brand called Mineral that caters to the modern Indian woman with westernwear and has just moved beyond the start-up mode, I find that the conundrums are varied and numerous. We straddle the space between European westernwear and the Indian variants that at times borders on fusionwear. The point is whether we Indian brands will find the future to be disruptive - with foreign entrants and with a consumer who is constantly pining for more choice.
Indian brands have upped the ante as far as quality is concerned and across all categories, Indian-made premium products are taking the fast fashion foreigners to the cleaners. And this has improved over the years for Indian brands. Take the example of Thailand where the best departmental stores see success in very powerful local brands that can match the quality of European brands. And foreign brands have existed in Thailand for over four decades. The foreign influx in many categories is restricted to power brands only. You can name those within the limits of the digits on your hands and feet.
Where Indian brands underestimate themselves is their ability to adapt to trends, and to bounce back. We tend to be lemmings that buy into seasons like the West, and ride the full price-deep discount phenomenon that the ERP implementations of the departmental stores pushed us to believe in.
Let's face it! Two-thirds of India does not care about seasons; we are a tropical country. The less we worry about seasons, the better we can price our products and also evade the high-margin, high-discount cycle that disrupts our cash cycle as well. The other key factor that affects the landscape is the distribution 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.
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.