The colour of India’s fashion revival
Visiting an Indian shopping mall is a different experience than just five years ago. Foreign and domestic retailers and F&B outlets compete for customers, and the central atriums host vibrant brand showcases, fashion shows and consumer events. India’s retail market continues to evolve as rising urban incomes and changing patterns of consumption make India attractive to international retailers. Urbanisation is catalysing much of this new consumer activity.
According to the 2011 census conducted by the Government of India, it counts 46 cities with a population of over one million, 45 cities with a population between 500,000 – 999,999 and 56 cities with a population between 300,000 – 499,999. In the past four years, global retailers have entered India’s retail landscape by opening stores in the affluent metro cities, Delhi, Mumbai, Kolkata, Chennai, Hyderabad and Bangalore. The established players are now eyeing new opportunities in secondary and tertiary cities.
Investment challenges for foreign retailers
Although the demographics are appealing, significant challenges exist, notably retail investment restrictions, high import costs, a slowdown in the supply of new retail space and the voracious appetite for online shopping among Indian consumers.
Inbound investment rules, in particular, are inhibiting retail expansions. In 2011, the Indian government permitted 100 percent ownership for foreign single-brand retailers, who must sell their products under the same single brand name in one or more countries other than India, and source 30 percent of their products from Indian manufacturers over a five-year period.
Multi-brand retailers, however, are only permitted 51% ownership of their operations in India, with a local joint venture partner required to invest 49 per cent. This can cause difficulties as Indian investors struggle to raise capital. Despite sustained lobbying from retailers, the government appears unlikely to grant 100 percent foreign ownership of multi-brand retail operations this year.
Moving beyond the metro cities
The Indian fashion retail market is ready for greater brand diversity, but expanding beyond the metro cities requires careful due diligence. India’s vast size is intrinsic to its allure, but the overall market is still growing slowly. Each Indian city should be considered as a unique market because consumer behaviour, product preferences, and style and sizing requirements vary considerably.
Some general conditions apply, however. Sales per square feet are generally low, rents are high, and international retailers often secure smaller spaces than in other Asian countries to improve performance.
Indian consumers are increasingly aspirational in their purchase decisions, but are very price-conscious. “Seasonal fashion cycles also exert less influence. Indians do not mind buying fashions at the end of a season, and wearing these items across one, two or even three seasons,” says Shubhranshu Pani, Regional Director & Managing Director Retail India.
Another differentiating factor is a passion for distinctive colours. “Clothing in India, especially for women, is characterised by a broad colour palette, and while the western wear segment is increasing, traditional Indian clothing is an important component of a woman’s wardrobe,” says Shubhranshu Pani. Western wear segment is a small segment of the
wardrobe of Indian Women.
The e-commerce conundrum
In addition, domestic and international retailers are figuring out how to respond to the tectonic shift in e-commerce over the past six months. Key players in India’s online shopping sector, such as Flipkart, Snapdeal and Amazon, have moved towards a marketplace model, and are offering heavy discounts and same or next-day delivery services in some areas to enhance the appeal of their sales platforms.
The strongest online sales are being recorded for books, electronics and fashion wear, and exponential month-on-month growth in total online sales is predicted throughout 2015. Inevitably, offline retailers are feeling the impact. Sales at physical outlets are dropping as a result of the aggressive discounting by e-tailers to gain market share.
“We expect a period of pain for store retailers over the next 12-24 months, but the market will recalibrate. In the meantime, we are seeing a downsizing of offline stores and a slowdown in the opening of new malls. Brands are also starting to launch their own online stores and offer different product ranges online compared to offline,” says Shubhranshu Pani. Omni-channel retailing as a concept is gaining momentum around the region.
For retail brands preparing to expand beyond the metro cities, online retailing may offer an unexpected benefit, however. “E-tailing is a tremendous market equaliser. It enables consumers to buy products in cities where brand stores have not yet opened. The familiarity with branded items is rising in tier 2, 3, 4 and even tier-5 cities, and this should be beneficial to retailers when they eventually open stores in these locations,” says
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