Own and operated stores are a favoured brick & mortar channel, but heavy on investment. In comparison, partner (aka franchise) retail is a capital-light strategy and often far more profitable.
While luxury brands clearly prioritise growing own and operated retail, successful premium brands (i.e. VF or LEGO) invest in growing both. But professionalising partner retail remains a challenge for many brands.
Financial planning teams are gearing up for next year’s budget planning as well as the new three-year plan. Our new short series walks you trough different considerations and scenarios for each channel.
International sales growth remains mostly volatile post pandemic. But as financial reports show, growth rates have decreased for many. Be it in the US or in Europe, especially domestic-bound retailers and brands stumble.
Global expansion in sales and distribution competence has become a lifesaving strategy feature, but allow me a question first:
Customise or standardise? That’s perhaps the most important question a brand at the beginning of its international expansion has to answer.
Depending on who you ask, you will get very different answers. If you ask your brand and marketing management, they will vote for as much standardisation as possible. If you ask your sales force, the answer will be quite the opposite.
After a tumultuous year that almost saw the company drowned by its previous strategic investor, German vertical retailer Hallhuber found a financial investor in Robus Capital Management. Management of both firms agrees to invest in brand growth.
Shoppers love unique products and great brand stories. If on top you sell upcycled products, are a niche company from a small country, that makes all the ingredients for a great brand story. For us that delivers great learning on strategic brand management.
If someone had told you in 1993 that someone would manage to turn truck tarps into it bags in Seoul by 2019, and create a best practice brand development story in the process, you may have questioned their judgement.
This is the second installment of a short series that dives into a few uncommon KPIs for successful retail portfolio management. Learn how traffic cost and footfall per hour can help you renegotiate rental contracts.
For many years, retail expansion was the main growth strategy in the brand retail world. More recently, however, brands increasingly face an under-performing retail portfolio. Realising that retail expansion doesn’t work without like-for-like growth of existing stores, brands are busy assessing their retail portfolios in order to focus on profitable stores and stores with potential for improvement.
Is it time for brand expansion to Spain and Portugal? The economic outlook for the Iberian peninsula is currently boosting the confidence of international retailers on the lookout for new opportunities.
Spain and Portugal are back in the mindset of expansion managers! Several international brands are currently revisiting their expansion strategies or considering taking up business in Spain and Portugal. There might even be more opportunities for international brands now than there were before the crises.
What are the challenges and opportunities for brand expansion to Benelux? Learn how to best tap the full potential of the Benelux retail markets.
When considering new regions for brand expansion, Benelux countries may raise concern about their small size as well as the many different languages and other cultural particularities. But taken together, the relatively small countries of Belgium, the Netherlands and Luxembourg represent an often underestimated powerhouse.
Paul Smith has just opened his first Berlin store, and it wouldn’t be Paul Smith (or Berlin) if the store and its location were just ordinary.
Sir Paul Smith is a British designer of extraordinary fashion for men, women, children, and accessories. He has been for some 40 years, and in various collaborations he designs pretty much anything that can be designed. In an interview, he recently described himself as a ‘strange designer’. A few weeks ago, he opened his first small but nonetheless great Paul Smith store in Berlin. (more…)
Aiming for the world’s most affluent consumers in highly competitive environments: Adidas’ ‘Top City Strategy 2020’ is at halfway, what is best practice and what can you learn for your business?
It’s widely known that consumer markets and brand distribution channels have fundamentally changed over the past 25 years in more ways than anticipated. Fact is, the internet as a brand distribution channel grew from 0 to commonly 8-15% of sales. But far more relevant from a commercial and strategic perspective is that many formerly emerging countries, especially China and countries in the Middle East and Central Europe, grew to 30-40% of total sales and profits in lifestyle brand distribution.
Private consumption driven economic growth, a population of 1.3 billion with huge linguistic and social diversity… amongst other challenges and opportunities to consider before entering India’s fashion retail market!
A € 575 Billion consumer retail spending, growing to reach €975 Billion by end of 2022 and very favourable demographics make India one of the world’s most promising and exciting retail markets for years to come. With India’s fashion retail segment at about € 52 billion in 2017, and poised to cross €85 billion by end of 2022, India offers great opportunities for European and other international brands.
Select City Walk shopping centre in New Delhi (Photo: Technopak)
India’s economy has grown by over 6% CAGR over the last 25 years and is now the fifth largest in the world with a GDP of around € 2000 Billion in 2017. India is expected to deliver a real GDP growth of about 7.5% – 8.0% CAGR over the next 5 years, and a nominal GDP growth of about 12% CAGR which will make it cross € 3500 Billion by the end of 2022.
Retail in India
Private consumption remains the primary driver of economic growth, and this is reflected in the relatively high share of merchandise retail market which was about € 575 Billion in 2017 and expected to grow to about € 975 Billion by end of 2022. The split between urban and rural spending is nearly even as this graphic illustrates:
Retail market in India (Graphic: Technopak)
When it comes to retail channels, India shows a very unique characteristic. Traditional retail (mom & pop independent stores) continue to dominate the landscape with over 18 million such independent outlets spread across 5500 towns and about 600,000 villages.
Traditional India, fashion retail shops (Photo: Technopak)
Modern brick & mortar retail accounts for just about 8% of the total retail by share of channel, and e-tail merely 2.3%. This graphic shows the changes in the retail channels’ share over a 10-year period:
Share of traditional, modern and e-commerce in retail (Graphic: Technopak)
With low per capita incomes, it is no surprise that food and grocery account for the largest share of consumer spending on merchandise, followed by clothing, footwear, and accessories, which in turn are (surprisingly) followed by jewellery and watches. In absolute value, the India fashion retail market was at about € 52 billion in 2017 and is likely to cross € 85 billion by 2022.
Share of fashion in merchandise consumption (Graphic: Technopak)
The State of India Fashion Retail
In another difference from major global markets, the men’s share of the fashion market is substantially higher than that of women. Though the gap is reducing, and by 2022, both men’s and women’s share of the total fashion market is likely to be 39% each. Keeping in mind India’s demographics wherein almost 28% of the population is below 15 years of age (325 – 350 million), it is no surprise that kids account for nearly 20% of the total fashion market in 2017 and their share will actually increase marginally to 22% by 2022.
Breakup of fashion into sub-segments (Graphic: Technopak)
With a steady increase in the overall retail spending of the Indian consumer, and specifically that of the fashion segment, India has seen a rapid increase in brands, both local and international, in recent years.
Foray of International fashion brands in India (Graphic: Technopak)
In recent years, one of the biggest surprises (for Indian retailers and Indian fashion brands) has been the spectacular success of H&M and Zara in particular. Both these retail brands have seen strong acceptance from Indian consumers across all the geographies that they are currently operating in, with their growth apparently limited only by their ability to find suitable retail locations across India and therefore their ability to increase their physical footprint in India. H&M is now trying to address this challenge by launching their own online shopping portal which should help them access many more potential customers across India.
Zara store in Mumbai (Photo: Technopak)
Retail Beyond Fashion
In non-fashion retail, India is seeing an exciting battle emerging in the food and grocery segment. With modern retail accounting for less than 3% of the nearly € 385 Billion consumer spending on food & groceries and severe challenges in finding grocery-supermarket suitable retail locations in most major cities, the focus has rapidly shifted to online channels. Amazon (India), expectedly, has been making a significant investment in this space to take a strong market position.
The current leader, however, is a local start-up named Big Basket which now counts China’s Alibaba as one of its major international backers and investors. Softbank of Japan has (including Tiger Global among many others) put its weight behind another Indian start-up, Flipkart, also rumoured being wooed by Wal-Mart for a substantial investment.
Hence, by 2022, India may be one of the very few, if not the only country in the world having food & grocery the largest segment for its online retail business and where online grocery retail will be significantly bigger than modern brick & mortar supermarket retail.
Challenges & Opportunities
There are many positive drivers of growth of India’s retail (and specifically its fashion) sector. They include strong economic growth, a high share of private consumption in the total GDP of the country, very merchandise consumption friendly demographics, and a dramatic increase in ownership of smartphones, leading to extremely low-cost data access to the internet. Several challenges remain, however, both for Indian as well as International retailers and brands.
Probably the single biggest challenge of India is its sheer diversity and heterogeneity of its consumers. As mentioned above, India’s consumption is spread across 5500 towns and over 600,000 villages. While there is a strong clustering of consumption across 12-15 major metros and mini-metros, there is a very long tail for the bulk of consumption that makes it an imperative for many retailers and brands to invest in efforts (and be patient enough) to spread out far and wide geographically if they aspire to achieve large revenues from their Indian businesses.
Fabindia is the largest Indian fashion retail chain (Photo: Technopak)
The aspirations and expectations of the consumers are equally diverse, and therefore it’s difficult to create retail formats that have a near-universal appeal within India.
The country actively communicates in more than 15 languages. While English and Hindi can reach out to a very large proportion of the target market, brands cannot ignore the need to communicate their message in several other major Indian languages like Bengali or Telugu. To best reach diverse populations, it is also important to make use of the entire spectrum of media covering both ‘above-the-line’ as well as ‘below-the-line’ mediums.
Fortunately, a national Goods and Service Tax (GST) was introduced in July 2017. While it is still being refined, the multiplicity of taxation heads in no longer as big a challenge as before.
Preparation is Key
India is also seeing a rising wave of entrepreneurial activity, backed up by access to both local and global pools of capital ranging from seed-capital to private equity and the capital markets. This is leading to a further expansion of private consumption and the creation of several new consumption categories and consumer segments. At the same time, it is leading to enhanced competitive intensity, which puts greater pressure on incumbent retailers and brands to maintain or grow their market share.
With the overall economic prospects for India looking very good over the next 5 years, the entrepreneurial activity and therefore the competitive intensity is likely to further increase these coming years. Hence, not only the incumbents but also future international companies wishing to enter Indian fashion retail markets must take note and come prepared accordingly.
About the Author:
Arvind is Chairman and Managing Director of Technopak, one of India’s leading management consulting firms advising across a wide range of sectors, including retail, fashion, textiles and apparel and Education. He has previously contributed a fortnightly column for the Business Standard and a monthly column for the Economic Times. Comment below or get in touch with him via e-mail to discuss the India fashion retail market.
Milan’s CityLife Project, dm’s expansion to the Italian retail market and Starbucks’ Reserve Roastery plans indicate a revival of the Italian retail market.
A few months ago, I wrote about an apparent increase in attractiveness of the Italian market for foreign brands and asked, Is the Italian Market on the Rise Again? Meanwhile, Milan has seen a couple of important retail milestones and I would like to give you an update on the Italian retail market.
Digital distribution via marketplaces is big business. The choice of marketplaces is large. Selecting the right ones and operational execution are key.
Germany’s Bundesverband Onlinehandel (BVOH) teamed up with the agency p.digital to conduct a study about the state of the e-commerce marketplace industry. The study ‘Marketplaces Across the World’ charts 335 marketplaces in Europe alone and lists over 740 globally.
These findings alone make obvious that e-commerce marketplaces in Europe and globally have become an important channel of distribution. But there is more:
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