Gap, H&M and Uniqlo are among the international heavyweights turning their attentions to India following economic reforms that have finally opened up this potentially lucrative market.
With a youthful population, and growing affluent middle class that is projected to grow tenfold by 2025, retailers have long eyed up this vast country as one ripe for expansion, but it has remained a complex proposition with
“There is still a lot of low-hanging fruit in India,” says Ira Kalish, head of consumer business at consultancy Deloitte. “But the retail market is still dominated by family-owned stores. Only about 15% of the market
is modern retailing.”
This slow growth has been due to India previously being closed to foreign direct investment. Until the beginning of 2012, retailers interested in opening in India had to do so with a partner, as regulations only allowed them to own 51% of their Indian business.
While such regulations remain in place for multi-brand retailers, single-brand retailers can now own 100% of their operation, although there is a stipulation that the Indian arm of the business sources 30% of its stock from small to medium-sized Indian suppliers.
Devangshu Dutta, chief executive of management retail consultancy Third Eyesight, says India accounts for about 10% of total sourcing for most international fashion brands: “We shouldn’t expect any dramatic changes, though we do expect the growth in joint ventures and subsidiaries to continue in the coming months and years.”
Having a local partnership can also be key to navigating India’s complex foreign trade and legal regulations, says Jonathan Coates, relationship director for fashion, retail and wholesale at Natwest/RBS banks. “Local expertise is key if you’re looking to export to India but you must research potential partners properly first.”
According to Dutta, there are about 10 groups that work as franchisees, licensees and joint-venture partners to a substantial number of international brands in the market, including franchise operator Future Group, retail giant Reliance, textile business Arvind and smaller entrepreneurial companies such as Genesis Luxury.
Footwear retailer Clarks formed a joint venture with Future, India’s largest retailer, for its launch into the market in 2011. Although that predates the regulation change, Andrew Martland, Clarks’ president for Asia Pacific, says
it has no plans to change strategy: “We wanted a partner that understood the dynamics of the market, such as where to actually locate the stores. There was so much mall development at the time - we wanted to make sure we picked the right malls. Plus a local partner has bargaining power with the landlords.”
Clarks has 26 stores across nine major cities, including Delhi, Mumbai and Bangalore. The majority are located in shopping malls, although it does have some high street locations. Its first store opened on a big shopping destination street in Delhi, which Martland said was a statement location for Clarks when it opened.
Clarks’ experience mirrors the kind of property availability there is in India, with malls and shopping centres increasingly popular. During the boom years, from 2004-08, retailers had to speculatively rent space to
ensure they would get into the right locations, but real-estate costs have risen and more conservative growth in recent years means retailers have become more selective.
Meanwhile, Dutta adds: “I would say the ability to evaluate site feasibility is a bigger issue than availability of sites.”
Clarks’ partnership with Future also gave it access to its logistics business, FutureLogistics, which handles its physical stores. This allowed Clarks to avoid dealing with India’s fragmented logistics market. Although, the footwear retailer recently appointed a specialist ecommerce logistic partner to service its website, which launched at the end of last year.
Dutta says it is common for retailers and brands to use a combination of logistics operators. “A majority of retailers blend services of large and small third-party logistics operators, especially if their store network is dispersed across the country.”
There are mixed reports on the reliability of India’s infrastructure, with the majority suggesting it is comparatively poor, although Martland contests it is developing quickly with a motorway network “of sorts” and improved airlines.
Anita Balchandani, partner at OC&C Strategy Consultants, believes the non-food infrastructure is at an early stage, which means there are difficulties in the last-mile service for retailers considering online as a way of testing the market. India has a nascent ecommerce business, which is expected to be driven by mobiles rather
than desktop PCs.
Import duties are quite high, particularly for footwear because it has a big domestic manufacturing market and is seeking to protect it. “Customs and import is complicated,” says Martland, who adds that it is a difficult regulatory market, even for getting shops and establishment licences for each store. There is also a complex
tax structure and, for many retailers, the level of bureaucracy can be overwhelming.
To succeed in India, there are certain things specific to Indian consumers such as the demand for a range of styles driven by the regional differences in weather, says Martland. “There are lots of brands that have come to
India - some that are successful and some that aren’t,” he explains. “It is those willing to adapt that survive.”
Pankaj & Nidhi
Design duo Pankaj (above, right) and Nidhi Ahuja (above, left) launched their label in 2006 and have become well known in India for their wearable designs, which capture the vibrancy and culture the country is known for.
This year, the duo made it to the finals of the 2013 International Woolmark Prize, representing their country with one of the most colourful and intricate collections in the final six.