LAL BAHADUR SHASTRI INSTITUE O
LAL BAHADUR SHASTRI INSTITUE OF MANAGEMENTF MANAGEMENT
ZARA
ZARA
-Marketing Analysis With Respect To Indian
Marketing Analysis With Respect To Indian
Apparel Industry
Apparel Industry
Group 2 Group 2Kriti Mehan
Kriti Mehan
– –217
217
Neetesh Bansal
Neetesh Bansal
– –230
230
Prashant Aggarwal
Prashant Aggarwal
– –232
232
Deepti Saluja
Deepti Saluja
– –252
252
Subhav Budhia
Subhav Budhia
– –262
262
Submission Date:Table of Contents
Table of Contents
Zara
Zara
Zara Overview and History ...
Zara Overview and History ... ... ... ... 33
Zara in India... 4
Zara in India... 4
Mission and Vision ... 5
Mission and Vision ... 5
International Timeline ... 6
International Timeline ... 6
Apparel Industry Analysis
Apparel Industry Analysis
Market Characteristics ... Market Characteristics ... ... 8... 8 Market Size ... 8 Market Size ... 8 Future Outlook ... 9 Future Outlook ... 9 Demand Projection ... 10 Demand Projection ... 10Market Structure and Segmentation ... 12
Market Structure and Segmentation ... 12
Distributio Distribution n Structure Structure ... ... 14... 14
Trade Channels ... 14 Trade Channels ... 14 Sales Network ... 14 Sales Network ... 14 Distribution Network ... 15 Distribution Network ... 15 Competitio Competition ...n ... ... 16... 16
Michael Porter’s 5 Forces Model Michael Porter’s 5 Forces Model ... ... .... 20.... 20
Threat of New Entrants ... 21
Threat of New Entrants ... 21
Bargaining Power of Suppliers ... 24
Bargaining Power of Suppliers ... 24
Bargaining Power of Buyers ... 25
Bargaining Power of Buyers ... 25
Threat of Substitutes... 26 Threat of Substitutes... 26 Intensity of Rivalry ... 27 Intensity of Rivalry ... 27 SWOT Analysis ... SWOT Analysis ... ... 28... 28
Consumer Behavior and Preferences... Consumer Behavior and Preferences... ... 30... 30
Zara Marketing Analysis
Zara Marketing Analysis
Entry Strategy ... Entry Strategy ... ... 35... 35 Business Model ... Business Model ... ... 36... 36 STP Analysis ... STP Analysis ... ... 38... 38
Marketing Mix Analysis ... Marketing Mix Analysis ... ... 40... 40
Product ... 41 Product ... 41 Pricing... 42 Pricing... 42 Place ... 43 Place ... 43 Process ... 44 Process ... 44 Promotion ... 46 Promotion ... 46 Physical Environment ... 47 Physical Environment ... 47 People ... 48 People ... 48 Competitive Advantage ... Competitive Advantage ... ... 49... 49 Strategic Drawbacks Strategic Drawbacks ... ... 54... 54 Conclusion ... Conclusion ... ... 55... 55
ZARA Overview and History
ZARA Overview and History
Amancio
Amancio Ortega Ortega Gaona, Gaona, the the founder founder of of Inditex, Inditex, thought thought that that consumers consumers would would regard regard clothes clothes as as aa perishable
perishable commodity commodity just just like like yogurt, yogurt, bread bread or or fish fish to to be be consumed consumed quickly, quickly, rather rather than than stored stored inin cupboards, and he has
cupboards, and he has gone about building a retail gone about building a retail business that provides “freshly baked clothes”.business that provides “freshly baked clothes”.
Zara is one of Spain's primary fashion and clothing line companies with regards to profit and salesZara is one of Spain's primary fashion and clothing line companies with regards to profit and sales volume.
volume.
In 1975, Zara begin its activity with the opening in A Coruna (Spain) of its first store, although theIn 1975, Zara begin its activity with the opening in A Coruna (Spain) of its first store, although the origins of the Group date back to 1963, the year in which Amancio Ortega Gaona, chairman and origins of the Group date back to 1963, the year in which Amancio Ortega Gaona, chairman and founder, begins his business activity. Its headquarters are situated in Arteixo, Spain.
founder, begins his business activity. Its headquarters are situated in Arteixo, Spain.
In the year 1985, INDITEX was created as head of the group and later on ZARA opened its first storeIn the year 1985, INDITEX was created as head of the group and later on ZARA opened its first store outside Spain in December 1988 in Oporto (Portugal). Since then, ZARA has continuously expanded outside Spain in December 1988 in Oporto (Portugal). Since then, ZARA has continuously expanded its market globally year on year with its stores present all over the world. Also, the INDITEX group its market globally year on year with its stores present all over the world. Also, the INDITEX group launched new brands like Pulls and Bear, BERSHKA and expanded its business by acquiring launched new brands like Pulls and Bear, BERSHKA and expanded its business by acquiring MASSIMO DUTTI and STRADIVARIUS groups.
MASSIMO DUTTI and STRADIVARIUS groups.
ZARA launched e-commerce for the first time in September, 2011 in EUROPE and later on expandedZARA launched e-commerce for the first time in September, 2011 in EUROPE and later on expanded its online operations to US and other European and Asian countries that helped in boosting up the its online operations to US and other European and Asian countries that helped in boosting up the revenues.
revenues.
ZARA now has 1,830 stores in 82 markets and 5 continents including 107 new stores opened lastZARA now has 1,830 stores in 82 markets and 5 continents including 107 new stores opened last year all of which have criteria of eco-efficiency. With little over 80% of its 109,000 employees year all of which have criteria of eco-efficiency. With little over 80% of its 109,000 employees working in stores, the Group has
working in stores, the Group has almost 80% of its workforce as almost 80% of its workforce as Females.Females.
Over 50% of INDITEX’Over 50% of INDITEX’s manufacturing takes place in suppliers from proximity. At the end of 2011,s manufacturing takes place in suppliers from proximity. At the end of 2011, INDITEX had 1,398 active suppliers with whom it maintains stable relationships based on ethics and INDITEX had 1,398 active suppliers with whom it maintains stable relationships based on ethics and responsibility governed by the Code of Conduct for External Manufacturers and Suppliers, which responsibility governed by the Code of Conduct for External Manufacturers and Suppliers, which must be accepted in order to
must be accepted in order to maintain commercial relatmaintain commercial relations with the Group.ions with the Group.
The company has also one of the most extensive presences among all international fashion andThe company has also one of the most extensive presences among all international fashion and clothing companies. This is done through the use of a marketing strategy of global networking of clothing companies. This is done through the use of a marketing strategy of global networking of distributors.
distributors.
The business system that had resulted was particularly distinctive in that Zara manufactured itsThe business system that had resulted was particularly distinctive in that Zara manufactured its most fashion-sensitive products
most fashion-sensitive products internallyinternally
Zara Company utilizes the prestigious name of both the company and its excellent clothing labels,Zara Company utilizes the prestigious name of both the company and its excellent clothing labels, and this strategy has enabled the company to fulfill an integrated marketing approach which gives and this strategy has enabled the company to fulfill an integrated marketing approach which gives emphasis to the company name.
emphasis to the company name.
There are There are also a also a wide range wide range of integrateof integrated d Marketing Marketing CommunicatioCommunication (IMC) strn (IMC) strategies avategies availableailable that Zara Company could utilize of in
ZARA IN INDIA
ZARA IN INDIA
In 2009, Spanish retailer INDITEX and Trent Limited, a Tata group company signed an agreement toIn 2009, Spanish retailer INDITEX and Trent Limited, a Tata group company signed an agreement to form a joint venture to develop Zara stores in India. Perhaps, considering the Indian regulations for form a joint venture to develop Zara stores in India. Perhaps, considering the Indian regulations for business by foreign retailers in India, it
business by foreign retailers in India, it was the best way was the best way to start the venture.to start the venture.
With INDITEX holding 51% stake, the partnership planned to open its first stores starting in 2010 inWith INDITEX holding 51% stake, the partnership planned to open its first stores starting in 2010 in New Delhi, Mumbai and other major cities of
New Delhi, Mumbai and other major cities of India.India.
Presently, there are 9 ZARA stores in 4 cities of India viz. Delhi, Mumbai, Bangalore and Pune.Presently, there are 9 ZARA stores in 4 cities of India viz. Delhi, Mumbai, Bangalore and Pune.
Zara has been a hot favorite among Indian shoppers because it offers trendy styles. The day itZara has been a hot favorite among Indian shoppers because it offers trendy styles. The day it opened a South Delhi outlet the store recorded the largest single-day sale by an international opened a South Delhi outlet the store recorded the largest single-day sale by an international retailer in the country.
retailer in the country.
In India, the brand sells its products in the range of 1500-2300 which is premium segment looking atIn India, the brand sells its products in the range of 1500-2300 which is premium segment looking at the economic stature of India.
the economic stature of India.
With ZARA sales expecting over 12% contribution in sales from Asian stores, India appears to be oneWith ZARA sales expecting over 12% contribution in sales from Asian stores, India appears to be one of the
of the potential markets.potential markets.
Zara owner INDITEX, the world's largest clothes retailer, has beaten forecasts by reporting a 10%Zara owner INDITEX, the world's largest clothes retailer, has beaten forecasts by reporting a 10% rise in profits, helped by expansion in Asia and online sales which further strengthens the rise in profits, helped by expansion in Asia and online sales which further strengthens the opportunity for ZARA in India.
ZARA Mission and Vision
ZARA Mission and Vision
Through Zara’s business model, we aim
Through Zara’s business model, we aim to contribute to the sustainable development of society and to contribute to the sustainable development of society and thatthat of the
of the environment with which we interactsenvironment with which we interacts..
Following are some of the objectives and actions included in the framework of the group's Following are some of the objectives and actions included in the framework of the group's environmental commitment:
environmental commitment: At the Eco-friendly Store At the Eco-friendly Store
We save energy- by implementing an eco-friendly management model in our shops that reduceWe save energy- by implementing an eco-friendly management model in our shops that reduce
energy consumption by 20% energy consumption by 20%
We produce less waste and recycle- Ms of hangers and alarms are processed each year,We produce less waste and recycle- Ms of hangers and alarms are processed each year,
cardboard and plastic used for
cardboard and plastic used for packaging are also recycled.packaging are also recycled.
Our commitment extends to all our staff. An environmentally aware team- We hold In-companyOur commitment extends to all our staff. An environmentally aware team- We hold In-company
awareness campaigns and specific multimedia-based training programmes to educate our staff awareness campaigns and specific multimedia-based training programmes to educate our staff in sustainable practices, such as limiting energy consumption, using sustainable transport and in sustainable practices, such as limiting energy consumption, using sustainable transport and modifying behaviour patterns.
modifying behaviour patterns. With the Product
With the Product
We use We use ecological fabrics.ecological fabrics.
Organic cotton.Zara supports organic farming and makes some of its garments out of organicOrganic cotton.Zara supports organic farming and makes some of its garments out of organic
cotton (100% cotton, completely free of pesticides, chemicals and
cotton (100% cotton, completely free of pesticides, chemicals and bleach)bleach)
We manufacture PVC-free footwear- No petroleum derivatives or non-biodegradable materialsWe manufacture PVC-free footwear- No petroleum derivatives or non-biodegradable materials
are used in
are used in the production of our footwear.the production of our footwear. In Transport
In Transport
We use biodiesel fuel- Zara's fleets of Lorries, which transport more than 200 M items ofWe use biodiesel fuel- Zara's fleets of Lorries, which transport more than 200 M items of
clothing a year, use 5%
Zara International Timeline
Zara International Timeline
1975:1975:
ZARA begins its activity with the opening in A Coruna (Spain) of its first store,
ZARA begins its activity with the opening in A Coruna (Spain) of its first store,
although the origins of the group date back to 1963, the year in which Amancio Ortega
although the origins of the group date back to 1963, the year in which Amancio Ortega
Gaona, chairman and founder, begins his
Gaona, chairman and founder, begins his business activity.
business activity.
1976:1976:
GOASAM is founded by the
GOASAM is founded by the owner of the ZARA stores and continues with the opening
owner of the ZARA stores and continues with the opening
of the first stores in Spain.
of the first stores in Spain.
1985:1985:
The creation of INDITEX as head of
The creation of INDITEX as head of the corporate group.
the corporate group.
1988:1988:
The opening of the first ZARA store outside Spain occurs in December 1988 in Oporto
The opening of the first ZARA store outside Spain occurs in December 1988 in Oporto
(Portugal).
(Portugal).
1989-1990:1989-1990:
The United States and France are the next markets in which the Group begins
The United States and France are the next markets in which the Group begins
its activity with the opening of outlets in N
its activity with the opening of outlets in New York (1989) and Paris (1990).
ew York (1989) and Paris (1990).
1991:1991:
The birth of the PULL&BEAR chain and the purchase of 65 per cent of the MASSIMO
The birth of the PULL&BEAR chain and the purchase of 65 per cent of the MASSIMO
DUTTI Group.
DUTTI Group.
1992-1994:1992-1994:
INDITEX continues to open new international markets: Mexico in 1992, Greece
INDITEX continues to open new international markets: Mexico in 1992, Greece
in 1993 and Belgium and Sweden in
in 1993 and Belgium and Sweden in 1994.
1994.
1995:1995:
INDITEX acquires the whole of the share capital of MASSIMO DUTTI. This year also
INDITEX acquires the whole of the share capital of MASSIMO DUTTI. This year also
sees the opening of the first store of the Group in Malta and in the following year in Cyprus.
sees the opening of the first store of the Group in Malta and in the following year in Cyprus.
1997:1997:
Norway and Israel join the list of
Norway and Israel join the list of countries in which INDITEX is present.
countries in which INDITEX is present.
1998:1998:
The BERSHKA chain, targeting the younger female market,
The BERSHKA chain, targeting the younger female market, commences its activity in a
commences its activity in a
year which also sees the opening of stores in new countries: Argentina, Japan, United
year which also sees the opening of stores in new countries: Argentina, Japan, United
Kingdom, Venezuela, Lebanon, United Arab Emirates, Kuwait and Turkey.
Kingdom, Venezuela, Lebanon, United Arab Emirates, Kuwait and Turkey.
1999:1999:
The acquisition of STRADIVARIUS makes it the fifth chain of the Group and stores are
The acquisition of STRADIVARIUS makes it the fifth chain of the Group and stores are
also opened in new countries: the Netherlands, Germany, Poland, Saudi Arabia, Bahrain,
also opened in new countries: the Netherlands, Germany, Poland, Saudi Arabia, Bahrain,
Canada, Brazil, Chile and Uruguay.
Canada, Brazil, Chile and Uruguay.
2000:2000:
The opening of stores in four new countries takes place in 2000: Austria, Denmark,
The opening of stores in four new countries takes place in 2000: Austria, Denmark,
Qatar and Andorra. INDITEX installs its headquarters in a new building located
Qatar and Andorra. INDITEX installs its headquarters in a new building located in Arteixo.
in Arteixo.
2001:2001:
On 23
On 23
rdrdMay 2001 Inditex goes public and is listed on the Spanish Stock Market.
May 2001 Inditex goes public and is listed on the Spanish Stock Market.
During this year the group begins its activity in the following markets: Puerto Rico, Jordon,
During this year the group begins its activity in the following markets: Puerto Rico, Jordon,
Ireland, Iceland, Luxemburg, Czech Republic and Italy.
APPAREL INDUSTRY
APPAREL INDUSTRY
ANALYSIS
ANALYSIS
Market Characteristics
Market Characteristics
India’s textile clothing and apparels sector has opened up significantly with the dismantling of quotas. India’s textile clothing and apparels sector has opened up significantly with the dismantling of quotas. Global apparel market is gradually shifting from western countries to Asia on account of cost Global apparel market is gradually shifting from western countries to Asia on account of cost competitiveness. India has also the added advantage of low labor cost along with other countries like competitiveness. India has also the added advantage of low labor cost along with other countries like Bangladesh, Indonesia and China.
Bangladesh, Indonesia and China.
Market Size Market Size
Apparel is the second largest retail category in India. There are a number of factors that haveApparel is the second largest retail category in India. There are a number of factors that have contributed to a definite swell in apparel market size. The rising affluence of the middle class due to contributed to a definite swell in apparel market size. The rising affluence of the middle class due to rising disposable income and strong per capita income have considerably helped the industry to rising disposable income and strong per capita income have considerably helped the industry to move ahead from a
move ahead from a commodity level garment purchcommodity level garment purchasing to a asing to a life style or life style or a branded level product.a branded level product.
India’s domestic market for clothing is currently worth Euro 20,219India’s domestic market for clothing is currently worth Euro 20,219 M in 2008. It has registered aM in 2008. It has registered a steady compounded annual growth rate (CAGR) of 13.6% in the past 5 years. Volume wise, apparel steady compounded annual growth rate (CAGR) of 13.6% in the past 5 years. Volume wise, apparel market has grown from 4.8 billion units in 2004 to 5.9 billion units in 2008 at a CAGR of 5.3%.
market has grown from 4.8 billion units in 2004 to 5.9 billion units in 2008 at a CAGR of 5.3%.
India's Apparel Market Size India's Apparel Market Size
Category Category 2004 2004 2005 2005 2006 2006 2007 2007 20082008 Volume Volume (M (M units) units) Value Value (M Rs.) (M Rs.) Volume Volume (M (M units) units) Value Value (M Rs.) (M Rs.) Volume Volume (M (M units) units) Value Value (M Rs.) (M Rs.) Volume Volume (M (M units) units) Value Value (M Rs.) (M Rs.) Volume Volume (M (M units) units) Value Value (M Rs.) (M Rs.) Menswear Menswear 1328 1328 284800 284800 1379 1379 318400 318400 1443 1443 358720 358720 1516 1516 408384 408384 1600 1600 444032444032 Women's Women's wear wear 1368 1368 246784 246784 1443 1443 283712 283712 1523 1523 326784 326784 1609 1609 379072 379072 1676 1676 410496410496 Uniisex Uniisex apparel apparel 466 466 64896 64896 486 486 73728 73728 519 519 93504 93504 548 548 108480 108480 579 579 116224116224 Kids'
Kids' wear wear 1222 1222 117504 117504 1269 1269 130880 130880 1323 1323 149312 149312 1381 1381 172928 172928 1468 1468 190400190400 Uniforms
Uniforms 423 423 63424 63424 457 457 76736 76736 498 498 93504 93504 543 543 115008 115008 581 581 132928132928 Total
Total 4807 4807 777408 777408 5034 5034 883392 883392 5306 5306 1021824 1021824 5597 5597 1183872 1183872 5905 5905 12940161294016
CAGR
India's Apparel Market Size: By Volume India's Apparel Market Size: By Volume
India's Apparel Market Size: By Value India's Apparel Market Size: By Value
Assessment of Demand and Market Potential in India Assessment of Demand and Market Potential in India
Indian textile clothing and apparel industry has been one of the worst affected under the impact of Indian textile clothing and apparel industry has been one of the worst affected under the impact of financial meltdown that has impacte
financial meltdown that has impacted the economies of US and EU. d the economies of US and EU. As a fall-As a fall- out, India’s domesticout, India’s domestic textile textile and apparels market
and apparels market suffered some set-back.suffered some set-back.
However, India’s economy during the past 2/ 3 months has shown signs of recovery. Government of However, India’s economy during the past 2/ 3 months has shown signs of recovery. Government of India has projected GDP growth rate of 6.5% for 2009-10. This is much better economic situation when India has projected GDP growth rate of 6.5% for 2009-10. This is much better economic situation when one compares with the
one compares with the developed western countriedeveloped western countries.s.
Future Outlook for Clothing and Apparels sector Future Outlook for Clothing and Apparels sector
0 0 1000 1000 2000 2000 3000 3000 4000 4000 5000 5000 6000 6000 2 2000044--0055 22000055--0066 22000066--0077 22000077--0088 22000088--0099 Menswear Menswear Womenswear Womenswear Unisex apparel Unisex apparel Kidswear Kidswear Uniforms Uniforms Total Total 0 0 5000 5000 10000 10000 15000 15000 20000 20000 25000 25000 2 2000044--0055 22000055--0066 22000066--0077 22000077--0088 22000088--0099 Menswear Menswear Womenswear Womenswear Unisex apparel Unisex apparel Kidswear Kidswear Uniforms Uniforms Total Total
Reflecting the huge opportunity in this segment, AT Kearney's 'Retail Apparel Index' ranks India asReflecting the huge opportunity in this segment, AT Kearney's 'Retail Apparel Index' ranks India as the third most attractive market for apparel retailers.
the third most attractive market for apparel retailers.
According to the CIIAccording to the CII – –Ernst & Young Textiles and Apparel Report 2007, the Indian sourcing market isErnst & Young Textiles and Apparel Report 2007, the Indian sourcing market is estimated to grow at an annual average rate of 12 per cent from an expected market size of US$ 22 estimated to grow at an annual average rate of 12 per cent from an expected market size of US$ 22 billion-25 billion in 2008 to US$ 35
billion-25 billion in 2008 to US$ 35 billion-37 billion by 2011.billion-37 billion by 2011.
More international brands have started queuing up to source from India, More international brands have started queuing up to source from India, through vendors or whollythrough vendors or wholly owned units. German kids wear
owned units. German kids wear brand Kanz, Ireland's biggest linen manufacturer Baird McNutt, andbrand Kanz, Ireland's biggest linen manufacturer Baird McNutt, and Finnish textile major Ahlstrom are buying into the India garment story.
Finnish textile major Ahlstrom are buying into the India garment story.
Consumer spending on apparel in India has grown over the last five years, touching the globalConsumer spending on apparel in India has grown over the last five years, touching the global benchmark of 5 per cent of the total income, according to Consultancy firm MCKinsey.
benchmark of 5 per cent of the total income, according to Consultancy firm MCKinsey.
Growth in consumer spending has been sustained on the strength of macro-economicGrowth in consumer spending has been sustained on the strength of macro-economic fundamentals, Economic recession has, however, indirectly helped India to retain some of its fundamentals, Economic recession has, however, indirectly helped India to retain some of its exports in the EU and US market. The latest import data from both the countries seem to exports in the EU and US market. The latest import data from both the countries seem to substantiate the fact.
substantiate the fact.
In the wake of depression, US which was earlier sourcing from Mexico and Central and LatinIn the wake of depression, US which was earlier sourcing from Mexico and Central and Latin America is moving to Asian countries particularly from China and also India and other countries. EU America is moving to Asian countries particularly from China and also India and other countries. EU which was concentrating mainly from other EU countries has also
which was concentrating mainly from other EU countries has also taken the same strategy of movingtaken the same strategy of moving towards Asian region.
towards Asian region.
Demand Projection Demand Projection
The domestic demand is projected to go up at a CAGR of 10.5% by value over the next 3 years. In The domestic demand is projected to go up at a CAGR of 10.5% by value over the next 3 years. In volume terms the growth rate is expected to be 5% per year in the next three years.
volume terms the growth rate is expected to be 5% per year in the next three years.
Demand
Demand Projection Apparel Projection Apparel Market: By Market: By Volume Volume Demand Demand Projection Apparel Projection Apparel Market: By Market: By ValueValue
Key Market Drivers
Key Market Drivers – – Domestic market Domestic market
Changing demographic profile works as a major stimulus to market development. India has a young Changing demographic profile works as a major stimulus to market development. India has a young consumer profile with over 65% of the population below 35% years of age. The composition of the consumer profile with over 65% of the population below 35% years of age. The composition of the Indian population is shifting more towards the age
purchasing power. It seems to indicate that consumer life
purchasing power. It seems to indicate that consumer life style and preferences are changing fast whichstyle and preferences are changing fast which is a
is a prominent driving factprominent driving factor.or.
Rising Income Level Rising Income Level
A large number of households are getting added to the consuming class with growing income levels.A large number of households are getting added to the consuming class with growing income levels.
This has been a significant rise in high income group households from 5.5 M in 1995 to 18 MThis has been a significant rise in high income group households from 5.5 M in 1995 to 18 M households in 2005 and from 18
households in 2005 and from 18 M households to 31 M households to 31 M households for high middle income group.M households for high middle income group.
There has also been increase in the nuclear family structure, a growing number of educated andThere has also been increase in the nuclear family structure, a growing number of educated and employed women, media proliferation and growing consumerism, have all contributed to the employed women, media proliferation and growing consumerism, have all contributed to the growth of
growth of organized retailing.organized retailing.
There is increase in awareness of the tier II cities and this is eroding the difference between theThere is increase in awareness of the tier II cities and this is eroding the difference between the metros and the tier II
metros and the tier II cities in terms of urban aspirations.cities in terms of urban aspirations.
Retail Space Retail Space
Quality retail space has been one of the key hurdles for the development of organized retail. In 2007Quality retail space has been one of the key hurdles for the development of organized retail. In 2007 there were 375 shopping centers / malls covering 90 M sq.ft quality retail space.
there were 375 shopping centers / malls covering 90 M sq.ft quality retail space.
Even though this still constitutes a small fraction of total retail in India, this growth in quality retailEven though this still constitutes a small fraction of total retail in India, this growth in quality retail space is expected to impact the growth in the apparel market as there will be considerable change space is expected to impact the growth in the apparel market as there will be considerable change in the shopping habits.
in the shopping habits.
Impulse shopping is expected to go up to 40% of total mall shopping. Awareness and sensitivity ofImpulse shopping is expected to go up to 40% of total mall shopping. Awareness and sensitivity of brands will also be heightened.
brands will also be heightened.
Mall Culture Mall Culture
The emergence of mall culture and rapid development of malls would act as a catalyst in this retailThe emergence of mall culture and rapid development of malls would act as a catalyst in this retail growth story.
growth story.
Drivers of Exports Drivers of Exports
Rising outsourcing budgets of retail Rising outsourcing budgets of retail giantsgiants
Indian companies evolving from mere converters to vendor partners of global buyersIndian companies evolving from mere converters to vendor partners of global buyers
Large outsourcing orders helping Indian companies build capacities, lower their per unit cost andLarge outsourcing orders helping Indian companies build capacities, lower their per unit cost and become more competitive
Market Structure and
Market Structure and SegmentationSegmentation
Indian apparel market is vast, and fragmented and yet growing, characterized by presence of large Indian apparel market is vast, and fragmented and yet growing, characterized by presence of large number of players, widely dispersed across the country. The market is segmented in three different number of players, widely dispersed across the country. The market is segmented in three different ways:
ways:
Segmentation by User categorySegmentation by User category
Segmentation by UseSegmentation by Use
Segmentation by PriceSegmentation by Price
The market, well dispersed and fragmented on considerations of quality and price may be classified The market, well dispersed and fragmented on considerations of quality and price may be classified under three
under three broad categories.broad categories.
The low end market:The low end market: Lower and economy (marginally improved product segment in relation to the Lower and economy (marginally improved product segment in relation to the lower category), solely volume driven, products are mostly unbranded and dominated by large lower category), solely volume driven, products are mostly unbranded and dominated by large number of manufacturers. The manufacturers operating in these segments are beset with problems number of manufacturers. The manufacturers operating in these segments are beset with problems of high competition, limited capacities, inadequate logistics and paucity of funds. Essentially the of high competition, limited capacities, inadequate logistics and paucity of funds. Essentially the manufacturers are regional or even local players.
The mid-range market:The mid-range market: This segment features medium range of products, though primarily volume This segment features medium range of products, though primarily volume driven caters to diverse sections of Indian consumers across all regions, its quality is by and large driven caters to diverse sections of Indian consumers across all regions, its quality is by and large acceptable to all sections. Majority of manufacturers, large and medium, have products on offer for acceptable to all sections. Majority of manufacturers, large and medium, have products on offer for these categories of
these categories of consumers.consumers.
The high end market:The high end market: MNCs and large Indian players operate in the premium and super-premium MNCs and large Indian players operate in the premium and super-premium product categories. Exclusivity in product features such as high quality raw materials, product categories. Exclusivity in product features such as high quality raw materials, embellishments, design developments and above all branding of products for years make the embellishments, design developments and above all branding of products for years make the products very special. Elitist categories of consumers pay for the
products very special. Elitist categories of consumers pay for the products on demand.products on demand.
Regional Characteristics of the Market Regional Characteristics of the Market
The consumer behavior of a particular region which is economically not so developed is The consumer behavior of a particular region which is economically not so developed is different asdifferent as compared to developed ones. The consumers in the less developed region are understandably, compared to developed ones. The consumers in the less developed region are understandably, more price-conscious. Always on the lookout
more price-conscious. Always on the lookout for quality products, theirfor quality products, their guiding principle is ’value forguiding principle is ’value for money’. A lower per capita income, in eastern region for
money’. A lower per capita income, in eastern region for example, compared to western and example, compared to western and northern India leads to a
northern India leads to a lower per capita purchasing power.lower per capita purchasing power.
Additionally, Delhi being centrally located and Mumbai, being the financial capital have certainAdditionally, Delhi being centrally located and Mumbai, being the financial capital have certain advantages. The consumers who live in these cities are more exposed to latest apparel collections advantages. The consumers who live in these cities are more exposed to latest apparel collections and are more familiar with design, quality and latest trendy fashion, as well as the luxury of greater and are more familiar with design, quality and latest trendy fashion, as well as the luxury of greater choice.
choice.
The relatively undeveloped region offers several in-built advantages as well. Fashion contendersThe relatively undeveloped region offers several in-built advantages as well. Fashion contenders setting out to do businesses in these regions find to their advantage that the region has not been setting out to do businesses in these regions find to their advantage that the region has not been exploited commercially and is prone to competition? The market, therefore, offers much but it exploited commercially and is prone to competition? The market, therefore, offers much but it needs to be
needs to be cultivated in an organized manner.cultivated in an organized manner.
Local ready availability of products also influences a consumer. The decision to stick to a particularLocal ready availability of products also influences a consumer. The decision to stick to a particular vailable brand seems to govern the purchase decision than the rarely available choicest product. vailable brand seems to govern the purchase decision than the rarely available choicest product. Logistics, convenienc
Logistics, convenience and e and easy availability are easy availability are important consideratimportant considerations for ions for a local a local consumer.consumer.
Regional considerations, such as climatic conditions etc., play a major role in so far as the purchaseRegional considerations, such as climatic conditions etc., play a major role in so far as the purchase decision of apparels is concerned. For instance, a consumer in Northern region would spend more decision of apparels is concerned. For instance, a consumer in Northern region would spend more on woolen apparels and clothing than his counterpart in the west or south where the winter is much on woolen apparels and clothing than his counterpart in the west or south where the winter is much milder. Similar is the case with linen products. It has not found much acceptance among Indian milder. Similar is the case with linen products. It has not found much acceptance among Indian consumers. Besides being expensiv
consumers. Besides being expensive, linen has not e, linen has not become popular in a tropical country like India.become popular in a tropical country like India.
There are certain common considerations for consumers regardless of locations. The consumers byThere are certain common considerations for consumers regardless of locations. The consumers by and large are becoming increasingly more and more conscious of
and large are becoming increasingly more and more conscious of value of value of money. Price sensitivity ismoney. Price sensitivity is a common concern. Purchase decisions of consumers anywhere are more guided a combination of a common concern. Purchase decisions of consumers anywhere are more guided a combination of demographic and psychometric factors, such as, disposable income, age-distribution, pattern of demographic and psychometric factors, such as, disposable income, age-distribution, pattern of income distributi
Distribution Structure
Distribution Structure
Trade channels Trade channels
There is a There is a commonalitcommonality of y of approach adopted by manufacturers / importers for marketing theirapproach adopted by manufacturers / importers for marketing their wares. Large manufacture
wares. Large manufacturers maintain an exhaustive marketing set-up at an rs maintain an exhaustive marketing set-up at an all India level to all India level to reachreach maximum geographical spread and service customer requirements through various mechanisms. maximum geographical spread and service customer requirements through various mechanisms.
Major functions of Major functions of the marketing department include:the marketing department include: •
• Organizing sales promotion measures through interface with potential / existing customersOrganizing sales promotion measures through interface with potential / existing customers •
• Production of company literature, brochures, related ad materialsProduction of company literature, brochures, related ad materials •
• Organizing marketing campaignOrganizing marketing campaign – – domestic & overseas market domestic & overseas market •
• AppointmenAppointment of t of dealership net-work & servicing the requirements of dealership net-work & servicing the requirements of distributidistribution network.on network.
Structure of
Structure of Marketing DepartmentMarketing Department
The structure of marketing department varies with size and scale of oThe structure of marketing department varies with size and scale of operations, as well as theperations, as well as the product range of individual companies. There is no
product range of individual companies. There is no uniform hierarchy in the marketing departmentuniform hierarchy in the marketing department..
However the typical commonly used structure is as under:However the typical commonly used structure is as under:
Sales Network Sales Network
The products are mostly sold through a
The products are mostly sold through a variety of cannels.variety of cannels.
These include Sales throughThese include Sales through exclusive company owned retail outletsexclusive company owned retail outlets. One of the major players. One of the major players using this channel as a major route is Arvind Mills Ltd, Color Plus, (Raymond Ltd). Increasing use of using this channel as a major route is Arvind Mills Ltd, Color Plus, (Raymond Ltd). Increasing use of retail space in various malls fo
retail space in various malls for showcasing products and maximizing sales.r showcasing products and maximizing sales.
Outright sales to retailersOutright sales to retailers: Majority of the players are using this channel. Prominent among them: Majority of the players are using this channel. Prominent among them are Louis Philippe, Aditya Birla Group.
are Louis Philippe, Aditya Birla Group.
Operating through franchisee arrangementOperating through franchisee arrangement: Foreign players without any : Foreign players without any joint venture collaborationjoint venture collaboration or technology tie-up in India prefer this route. Major advantage of this system is that one need not or technology tie-up in India prefer this route. Major advantage of this system is that one need not make substantial investment for popularizing the brand. The main onus for development of the make substantial investment for popularizing the brand. The main onus for development of the market lies with the franchisees. If the product does not sell well or there is a danger to brand market lies with the franchisees. If the product does not sell well or there is a danger to brand reputation, the franchise agreements are terminated. This is a cost effective measure.
reputation, the franchise agreements are terminated. This is a cost effective measure. Brand Manager
Brand Manager (Retail) (Retail)
Sales
Sales BusinessBusiness Development
Development MarketingMarketing
Dy.
Distribution Network Distribution Network
More than 60% of products in the domestic market are sold through distribution network. Most More than 60% of products in the domestic market are sold through distribution network. Most extensively used and popular network is presented as under:
extensively used and popular network is presented as under:
Major strategy of the manufacturers is creation of widest distribution network for reaching out to Major strategy of the manufacturers is creation of widest distribution network for reaching out to maximum customers across the country. In view of the expanding market demand, the manufacturers maximum customers across the country. In view of the expanding market demand, the manufacturers are streamlining and revamping their distribution net-work across various cities, hitherto untapped. are streamlining and revamping their distribution net-work across various cities, hitherto untapped.
Distribution Distribution
Network Network
Own
Own Outlets Outlets StockistStockist
Distributor Retailer Distributor Retailer
Competition
Competition
Characteristics Characteristics The market is
The market is characterizcharacterized by:ed by:
Branding and Branding and sub-brandingsub-branding
Offering variety: current trend and varietyOffering variety: current trend and variety
Quality standardsQuality standards——in material, stitching and cutsin material, stitching and cuts
Moving up the value chain- ensuring better returns.Moving up the value chain- ensuring better returns.
Export market: sticking to delivery schedules, conforming to quality and Quantity commitment,Export market: sticking to delivery schedules, conforming to quality and Quantity commitment, ability to
ability to interpreinterpret fashion changes.t fashion changes.
Highly dynamic market- design changing frequentlyHighly dynamic market- design changing frequently
Product Range, Brand and Category Product Range, Brand and Category
Market Highlights Market Highlights
Despite substantial growth, Indian clothing market is still in the early developmental phase. DespiteDespite substantial growth, Indian clothing market is still in the early developmental phase. Despite presence of foreign players, domestic players are not much scared of
presence of foreign players, domestic players are not much scared of any competition from outside.any competition from outside.
The main impediment to the organized players is the presence of huge unorganized sector. In aThe main impediment to the organized players is the presence of huge unorganized sector. In a move to compete, organized players have started their own strategy of standardizing the products. move to compete, organized players have started their own strategy of standardizing the products.
Indian ‘women’s wear’ market is largely influenced by international fashion trend. InternationalIndian ‘women’s wear’ market is largely influenced by international fashion trend. International companies sell their apparels to retailers owned by international companies or retail through local companies sell their apparels to retailers owned by international companies or retail through local franchisees.
franchisees.
Forward Integration:Forward Integration: Several fabric manufacturers have now started venturing in to garmentSeveral fabric manufacturers have now started venturing in to garment production. Major fabric company Siyaram is a precursor to this trend in India. Madura Garments production. Major fabric company Siyaram is a precursor to this trend in India. Madura Garments have entered the apparel market with successful brands like Van Heusen, Allen Solly, Peter England have entered the apparel market with successful brands like Van Heusen, Allen Solly, Peter England and Louis Philippe. Textile leader, Bombay Dyeing also tied up with Proline to enter the sportswear and Louis Philippe. Textile leader, Bombay Dyeing also tied up with Proline to enter the sportswear
segment, as well as adding Vivaldi range to its formal menswear. The brand has been targeted segment, as well as adding Vivaldi range to its formal menswear. The brand has been targeted towards the young group, offering a wide range of style with perfect fitting.
towards the young group, offering a wide range of style with perfect fitting.
Acquisition:Acquisition:Another strategy major textile players are adopting is acquisition’. Raymond's acquiredAnother strategy major textile players are adopting is acquisition’. Raymond's acquired ColorpIus to jump in
casual-ColorpIus to jump in casual-wear, adding brands like Raymond’s, Parx and Park Avenue. Using awear, adding brands like Raymond’s, Parx and Park Avenue. Using a similar strategy, Indian Rayon acquired garments division o
similar strategy, Indian Rayon acquired garments division of Madura Coats.f Madura Coats.
LicensingLicensing has also been established as a major business strategy. A number of domestic Indian has also been established as a major business strategy. A number of domestic Indian brands have become licensees of popular international brands such as Disney, Barbie and Powerful brands have become licensees of popular international brands such as Disney, Barbie and Powerful Girls to market both garments and other products under these brands.
Girls to market both garments and other products under these brands.
Traditional tailor-made garmentTraditional tailor-made garment is continually being relegated in to the background. More and is continually being relegated in to the background. More and more
more working women look for ‘ready to wear’ dresses.working women look for ‘ready to wear’ dresses.
Attitude towards casual wearAttitude towards casual wear at the work place is gradually transforming. Some companies ask at the work place is gradually transforming. Some companies ask their employees to come to office in casual dress for some days
their employees to come to office in casual dress for some days in a week /month. The liberalizationin a week /month. The liberalization of casual wear at the work place is
of casual wear at the work place is also drivingalso driving growth in the share of women’s growth in the share of women’s share in total apparelshare in total apparel retailing.
retailing.
Men’s and women’s wear were traditional established market segments. Kids’ wear retailing was anMen’s and women’s wear were traditional established market segments. Kids’ wear retailing was an offshoot of men’s and women’s apparel. The
offshoot of men’s and women’s apparel. The growing importance of the opinion of childrengrowing importance of the opinion of children has has propped up demand for kids’ wear brands. With increasing affluence of lesser number o
propped up demand for kids’ wear brands. With increasing affluence of lesser number of childrenf children per urban couple, urban couples now are not only spending more on their children but are also per urban couple, urban couples now are not only spending more on their children but are also seeking quality products, including branded goods for children as well.
seeking quality products, including branded goods for children as well.
Competition by Segment: Competition by Segment:
The premium and super-premium segments of the industry are gaining, following a consumer shiftThe premium and super-premium segments of the industry are gaining, following a consumer shift from economy and mid-market segments to the premium segment, while the low and economy from economy and mid-market segments to the premium segment, while the low and economy segment is gaining from the industry becoming more organized
segment is gaining from the industry becoming more organized
2% 2% 14% 14% 18% 18% 21% 21% 44% 44% 3% 3% 11% 11% 24% 24% 36% 36% 26% 26% 5% 5% 19% 19% 31% 31% 26% 26% 19% 19% 0 0%% 1100%% 2200%% 3300%% 4400%% 5500%% 6600%% 7700%% 8800%% 9900%% 110000%% Super Premium Super Premium Premium Premium Medium Medium Economy Economy Low Low
Market Share of Leading Players Market Share of Leading Players
Major Foreign Collaborations in Indian Apparel Industry Major Foreign Collaborations in Indian Apparel Industry Name
Name of of IndiaIndian n CompanCompany y Foreign Foreign ManufactManufacturer urer Nature Nature & & Area Area of of CollaboratCollaborationion
Trent Ltd, Tata Group
Trent Ltd, Tata Group InditeInditex x SA SA (Zara(Zara) ) JV JV to to promote promote Zara Zara Stores Stores inin India
India Arvind Mills Ltd
Arvind Mills Ltd VF Corporation Lee, Wrangler,VF Corporation Lee, Wrangler, Vanity Fair, Nautica,
Vanity Fair, Nautica, JanSportsJanSports and Kipling
and Kipling
JV JV
Arvind Mills Ltd
Arvind Mills Ltd CF CF ITALIA, ITALIA, Italy Italy Technical Technical CollaborationCollaboration Raymond India Ltd
Raymond India Ltd Gruppo Gruppo Zambaiti, Zambaiti, Italy Italy JVJV Raymond India Ltd
Raymond India Ltd Lanificio Lanificio Fedora, Fedora, Italy Italy JVJV Raymond India Ltd
Raymond India Ltd UCO UCO NV, NV, Belgium Belgium JVJV Madura Garments Ltd, Group
Madura Garments Ltd, Group Company of Aditya Birla Novo Company of Aditya Birla Novo Ltd
Ltd
Espirit
Espirit Global Global Ltd, Ltd, USA USA JVJV
DCM Benetton India Ltd
DCM Benetton India Ltd Benetton Benetton InternationInternational al JV JV for for developmendevelopment t of of knitsknits Future Group
Future Group Lee Lee Cooper Cooper Ltd Ltd JVJV Fabindia
Fabindia East, UKEast, UK JV to include women’s wearJV to include women’s wear (retailing skirts, trousers, dresses (retailing skirts, trousers, dresses and tops)
and tops) Reliance
Michael Porter’s 5 forces model
Michael Porter’s 5 forces model
Theoretical Framework
Theoretical Framework
Porter's five forces analysis
Porter's five forces analysis is a framework for industry analysis and business strategy development is a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon industrial organization formed by Michael E. Porter of Harvard Business School in 1979. It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore (IO) economics to derive five forces that determine the competitive intensity and therefore attractivene
attractiveness of ss of a market.a market.
Porter's five forces include - three forces from 'horizontal' competition: threat of substitute products, Porter's five forces include - three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition
THREATS OF NEW ENTRANTS THREATS OF NEW ENTRANTS
New companies often bring new resources and
New companies often bring new resources and can drive down product prices and can drive down product prices and reduce profitability ofreduce profitability of the industry. Therefore, existing firms try to raise the threats for new entrants.
the industry. Therefore, existing firms try to raise the threats for new entrants. The threats for new entrants are increased when
The threats for new entrants are increased when 1.
1. Incumbent players have achieved economies of Incumbent players have achieved economies of scalescale 2.
2. Switching costs are high,Switching costs are high, 3.
3. There is a There is a limited access to distribution channels,limited access to distribution channels, 4.
4. There is a cost disadvantage,There is a cost disadvantage, 5.
5. Government policy is favorable to the domestic firms.Government policy is favorable to the domestic firms. Entry barriers for foreign players planning to
Entry barriers for foreign players planning to enter Indian apparel retailing industry:enter Indian apparel retailing industry: 1.
1. Scale EconomiesScale Economies
When existing firms achieve significant scale economies, it becomes difficult for new entrants to be When existing firms achieve significant scale economies, it becomes difficult for new entrants to be competiti
competitive. Two types of ve. Two types of scale economies that can act as scale economies that can act as barrier to entry are:barrier to entry are:
Supply-side scale economySupply-side scale economy
These arise when firms with large production volumes enjoy lower costs per unit by spreading fixed These arise when firms with large production volumes enjoy lower costs per unit by spreading fixed costs over more units, utilizing more efficient technology, or demanding better terms from costs over more units, utilizing more efficient technology, or demanding better terms from suppliers.
suppliers.
Although Indian retail sales are dominated by unorganized retailers, they are mostly small stores Although Indian retail sales are dominated by unorganized retailers, they are mostly small stores which have little buying power or ability to achieve scale economies. In contrast, the large domestic which have little buying power or ability to achieve scale economies. In contrast, the large domestic retailers have achieved supply-side scale economies through their large order volume and extensive retailers have achieved supply-side scale economies through their large order volume and extensive market presence.
market presence.
Demand side scale economyDemand side scale economy
Demand-Demand-side scale benefits arise with the increase in customers’ willingness to pay for a company’sside scale benefits arise with the increase in customers’ willingness to pay for a company’s products. Buyers (customers) tend to trust larger firms due to their large customer base, preferring products. Buyers (customers) tend to trust larger firms due to their large customer base, preferring to be part of a large network of customers.
to be part of a large network of customers.
Large domestic retailers in India have safeguarded their position in the increasingly competitive Large domestic retailers in India have safeguarded their position in the increasingly competitive market by aggressively expanding their geographic presence or by building relationships with market by aggressively expanding their geographic presence or by building relationships with foreign brands to identify niche segments for further expansion.
foreign brands to identify niche segments for further expansion.
Thus, foreign retailers may enter the market on a large scale or penetrate the market by marketing Thus, foreign retailers may enter the market on a large scale or penetrate the market by marketing
2.
2. Switching costsSwitching costs
The costs incurred when a customer changes from one supplier or marketplace to another. TheThe costs incurred when a customer changes from one supplier or marketplace to another. The higher these costs are, the more difficult it is to execute the switch.
higher these costs are, the more difficult it is to execute the switch.
High switching costs deter new entrants from entering in the market.High switching costs deter new entrants from entering in the market.
However, apparel manufacturing is labor intensive and usually does not require heavy investmentHowever, apparel manufacturing is labor intensive and usually does not require heavy investment leading to low switching costs. Moreover, foreign apparel retailers may be encouraged to switch to leading to low switching costs. Moreover, foreign apparel retailers may be encouraged to switch to local suppliers because the Indian textile industry has vendors capable of catering to the local suppliers because the Indian textile industry has vendors capable of catering to the sophisticated needs of foreign retailers.
sophisticated needs of foreign retailers.
A number of foreign retailers have chosen India as a sourcing destination for their products. ForeignA number of foreign retailers have chosen India as a sourcing destination for their products. Foreign apparel firms currently sourcing from India include GAP, Wal-Mart, Tommy Hilfiger, and Nike.
apparel firms currently sourcing from India include GAP, Wal-Mart, Tommy Hilfiger, and Nike. 3.
3. Access to Distribution channelsAccess to Distribution channels
Access to distribution channels refers to accessible resources that a new entrant can use toAccess to distribution channels refers to accessible resources that a new entrant can use to distribute its product. The primary distribution channel for apparel retailers is retail space in the distribute its product. The primary distribution channel for apparel retailers is retail space in the form of specialty stores, departmental stores, or shopping malls. While all these formats are present form of specialty stores, departmental stores, or shopping malls. While all these formats are present in India, mall space has grown rapidly in big cities. To meet fast growing demand for global luxury in India, mall space has grown rapidly in big cities. To meet fast growing demand for global luxury brands among Indian consumers, many projects are in the pipeline to attract more foreign brands. brands among Indian consumers, many projects are in the pipeline to attract more foreign brands.
Although the specialty store format has steadily increased, the growth rate of malls has shadowedAlthough the specialty store format has steadily increased, the growth rate of malls has shadowed its development. Retailers who wish to operate in a standalone specialty format may face a its development. Retailers who wish to operate in a standalone specialty format may face a challenge due to high real estate costs
challenge due to high real estate costs in Indian cities as in Indian cities as well as multiple regulations on land usage.well as multiple regulations on land usage. 4.
4. Cost Disadvantages (Independent of Size )Cost Disadvantages (Independent of Size )
Regardless of size of a firm, new entrants may have cost disadvantages in terms of access to rawRegardless of size of a firm, new entrants may have cost disadvantages in terms of access to raw material, location, government subsidies, and experience. The most prominent cost disadvantage material, location, government subsidies, and experience. The most prominent cost disadvantage for foreign retailers in India relates to
for foreign retailers in India relates to retail locations and local experience.retail locations and local experience.
Domestic retailers have gained incumbency advantages due to their better understanding andDomestic retailers have gained incumbency advantages due to their better understanding and cumulative experience of serving the culturally diverse Indian market.
cumulative experience of serving the culturally diverse Indian market. 5.
5. Government PolicyGovernment Policy
Government policy can be a direct or indirect entry barrier. For example, licensing requirements andGovernment policy can be a direct or indirect entry barrier. For example, licensing requirements and restrictions on foreign investments can be direct barriers, whereas regulations on land, restrictions on foreign investments can be direct barriers, whereas regulations on land, environment, or
environment, or safety may safety may be be indirect barriers. indirect barriers. Therefore, foreign Therefore, foreign companies e.g. companies e.g. Adidas,Adidas, Benetton, Levis and Reebok could operate in the Indian market via high control entry modes such as Benetton, Levis and Reebok could operate in the Indian market via high control entry modes such as joint ventur
joint ventures or whes or wholly owned suolly owned subsidiaries.bsidiaries.
In 2006, the government introduced relaxed FDI policies in retail sectors, allowing joint venturesIn 2006, the government introduced relaxed FDI policies in retail sectors, allowing joint ventures with up to 51% ownership in retail trade of single brand products, and wholly owned subsidiaries for with up to 51% ownership in retail trade of single brand products, and wholly owned subsidiaries for wholesale trade in the cash and carry retail format.
Wal-Wal-Mart entered India in 2007 via a joint venture with India’s leading business Bharti Enterprises.Mart entered India in 2007 via a joint venture with India’s leading business Bharti Enterprises. ZARA entered India in 2010
BARGAINING POWER OF SUPPLIERS BARGAINING POWER OF SUPPLIERS
It depends on the level of supplier concentration, importance of volume, and threats of forwardIt depends on the level of supplier concentration, importance of volume, and threats of forward integration. Suppliers are powerful when they are concentrated and there is a high threat of forward integration. Suppliers are powerful when they are concentrated and there is a high threat of forward integration, affecting the buyer’s ability to achieve profi
integration, affecting the buyer’s ability to achieve profitability.tability.
TheThe fragmented structurefragmented structure of these sectors diminishes the power of Indian suppliers due to the lack of these sectors diminishes the power of Indian suppliers due to the lack of capability to achieve scale economies. However there are few large domestic suppliers who have, of capability to achieve scale economies. However there are few large domestic suppliers who have, over the years, accrued the power and capital to pose a threat to the retail apparel industry. They over the years, accrued the power and capital to pose a threat to the retail apparel industry. They also pose a
BARGAINING POWER OF BUYERS BARGAINING POWER OF BUYERS
Buyer power accrues with lower buyer-to-supplier ratio, large purchase volume, and high threat toBuyer power accrues with lower buyer-to-supplier ratio, large purchase volume, and high threat to integrate backward. The Indian retail sectors are approximately 15 M outlets, of which 12 M are integrate backward. The Indian retail sectors are approximately 15 M outlets, of which 12 M are unorganized retailers.
unorganized retailers.
Retailers in theRetailers in the organized sectorsorganized sectors in India are characterized in India are characterized by large size, differentiated products,by large size, differentiated products, high purchase volume, and greater geographical spread and revenue
high purchase volume, and greater geographical spread and revenue, , thus thus creating creating a a buyers’buyers’ market
market
By contrast, unorganized retailers are characterized by small size, undifferentiated products, andBy contrast, unorganized retailers are characterized by small size, undifferentiated products, and small purchase volume and revenues, factors limiting their market capability and the number of small purchase volume and revenues, factors limiting their market capability and the number of suppliers from which to
suppliers from which to choose, thus creating a sellers’ market.choose, thus creating a sellers’ market.
Although the Indian retailing sectors have been deregulated since 2006, the complexity of the IndianAlthough the Indian retailing sectors have been deregulated since 2006, the complexity of the Indian market and lack of experience with diverse local markets may
market and lack of experience with diverse local markets may discourage foreign retailers’ capitaldiscourage foreign retailers’ capital investment in backward integration
investment in backward integration. However, the government’s encouragement of local sourcing. However, the government’s encouragement of local sourcing and manufacturing, together with the availability of low cost labor and raw materials, are likely to and manufacturing, together with the availability of low cost labor and raw materials, are likely to increase foreign apparel firms’ intentions of backward vertical integration
increase foreign apparel firms’ intentions of backward vertical integration as the Indian economy is as the Indian economy is rapidly growing and providing great
THREAT OF SUBSTITUTES THREAT OF SUBSTITUTES
The threat of substitute products can be evaluated in terms of the availability and performance ofThe threat of substitute products can be evaluated in terms of the availability and performance of substitutes, switching costs incurred by the consumer, and propensity of the consumer to substitutes, switching costs incurred by the consumer, and propensity of the consumer to substitute.
substitute.
There is a high threat of substitutes in the Indian apparel sector due to its unique market structure.There is a high threat of substitutes in the Indian apparel sector due to its unique market structure. Indian apparel consumers have an array of options to shop, including small unorganized retailers Indian apparel consumers have an array of options to shop, including small unorganized retailers and large o
and large organized retailerrganized retailers for s for domestic and foreign brands.domestic and foreign brands.
Proliferation of a gray market for domestic and foreign brandsProliferation of a gray market for domestic and foreign brands poses a serious threat of substitutes poses a serious threat of substitutes for both existing players and new entrants. Foreign retailers (e.g., Benetton and Levis) have reduced for both existing players and new entrants. Foreign retailers (e.g., Benetton and Levis) have reduced the threat of substitutes by providing strong brands and differentiated products and store the threat of substitutes by providing strong brands and differentiated products and store environments.
environments.
Small domesticSmall domestic retailers are also taking steps to increase their competitiveness by embracing a self- retailers are also taking steps to increase their competitiveness by embracing a self-service
service format to appeal to changing Indian consumersformat to appeal to changing Indian consumers these indicators also demonstrate the these indicators also demonstrate the increased competition among existing players and a need for new entrants to deliver better and increased competition among existing players and a need for new entrants to deliver better and unique value to attract the Indian consumers.
