INDIAN FASHION BRANDS AND RETAIL INDUSTRY

Presented By:Gaurav P Thakkar (Roll no. 17)

Glancy D’silva (Roll no. )

Jinesh Dedhia (Roll no. 1)

Viky Sangoi (Roll no. )

TOPICS TO BE DISCUSSED

Introduction to industry Demand drivers and determinants. Overview of Arvind Limited Product Categories and its forecasting Brand Sale

INTRODUCTION

Fashion is serious business, everywhere. Admittedly, India was a late comer in the scene, but the pace now is scintillating. This is testified through the escalating figures of the garment market as also by the growing tally of fashion brands and retailers who have occupied substantial share of the country’s retail space. Truly, the clock cannot be turned back now. Over the past year, the garment industry has been building up on its capacities at various levels, expanding its product base, incorporating innovative technology, and engineering newer avenues of business. This sector, being one of the largest industrial sectors of the country, is a major propellant of the economy’s growth.

GROWTH OF INDIAN APPAREL INDUSTRY:

The industry has already given ample hint of ingenuity, as is evident from the revival of consumer enthusiasm in the seemingly stagnant menswear segment, besides remarkable growth in categories like sportswear, casual wear and party wear. The apparel market has grown 15.50% to INR 1,224 billion. There has been a rapid increase in the market size of ready-to-wear clothing and lifestyle apparel brands. With about 65% of these consumers below 35 years of age, apparel retail can only reign supreme in the marketplace.

RETAIL IN INDIA: India has been ranked as the top retail destination globally for retail investment attractiveness among 30 emerging markets in the world. The Indian retail sector is the second largest untapped market after China. Retail business contributes around 11 percent of India‘s GDP. Retailing as a sector is witnessing revolution in India. Retailing in India is gradually becoming the next boom industry. Indian Fashion Retail is poised for high growth with multiple short and long term catalysts - revival in economic growth leading to increase in disposable income, favorable demographics, GST implementation and changing fashion consumption trends. Wazir Advisors, a renowned sector consultant expect fashion retail to grow at a Compound Annual Growth Rate (CAGR) of 12.2% over next 10 years.

At present, it is amongst the fastest growing industry segment and is also the second largest foreign exchange earner for the country. The apparel industry accounts for 26% of all Indian exports. The Indian government has targeted the apparel and textiles industry segments to reach $50 billion by the year 2015. The growth of India's retail sector is not only limited to urban areas but also growing in rural areas. In the next five years, it is expected that, India's retail industry will expand more than 80%. Higher disposable income coupled with favorable demographic changes (Increase in working women population, rise in nuclear family, largest young population and higher growth in urban and sub-urban population), changes in consumer needs, attitudes and behavior, and increased credit friendliness are some of the key growth drivers for modern retail in India.

DEMAND OUTLOOK: According to Prof. Bober, “By demand we

mean the various quantities of a given commodity or service which consumers would buy in one market in a given period of time at various prices or at various incomes or at various prices of related goods.”

The demand for a commodity is its quantity which consumers are able and willing to buy at various prices during a given period of time. So, for a commodity to have demand, the consumer must possess willingness to buy it, the ability or means to buy it, and it must be related to per unit of time i.e. per day, per week, per month or per year.

DEMAND DETERMINANTS:

The demand of a product is influenced by a number of factors. An organization should properly understand the relationship between the demand and its each determinant to analyze and estimate the individual and market demand of a product.

FAVORABLE DEMOGRAPHICS: Indians amongst most fashion conscious people

globally. In a Neilson Global Luxury Brands survey conducted in 2008, India was the 3rd most brand conscious country globally. We do believe the same holds true today across all strata of society.

Urban India’s demographics are quite favorable for growth in fashion retail. Even without accounting for any increase in urbanization, the current urban population in age group 16–60, which consumes maximum fashion products, will increase from 244mn to 285mn by 2020 and 293mn by 2025.

Per capita spend of Urban India on fashion apparels is much lower at USD 124 vs. China’s Urban consumption of USD 206, let alone the comparison with US and Europe.

UNIQUE CHARACTERISTICS:Fashion products have very unique characteristics in amongst the consumer products, which we believe will make the category the fastest growing. The reasons for the same are; Fashion is very personal: Fashion Products, unlike most consumer

products, are very personal and hence, the consumer is less likely to downgrade its consumption pattern. For eg. A man who wears Louis Philippe will never wear Peter England.

1st point of lifestyle up-gradation: Of all the B2C durable products, fashion products are the most visible communicators of one’s status. Hence, whenever there is an up-gradation in the consumer’s lifestyle, the 1st category they will upgrade is fashion products either by way of variety or in terms of brand premium or both.

Lower end of discretionary spending: Fashion products are least costly in B2C durable products category and hence, the marginal cost of any up-gradation is the least compared to other discretionary B2C products viz. electronics, automobiles, holidays, etc.

Highest frequency of consumption after staples. In the B2C products category, consumer would purchase electronic items and automobile once in 3 years, but would purchase a fashion product atleast once in 3-6 months period of its last purchase.

TRENDS AND ECOLOGY:

The economic revival will add to the higher disposable income. We expect higher share of this disposable income to be spent on fashion products due to Changes in consumption pattern across all

strata of society and Evolving ecology enticing consumer to a

better lifestyle. Apart from both these key factors, there are many other soft factors which are adding to towards consumption of fashion products.

CHANGING CONSUMER MINDSET:India’s consumer base is widely distributed on the basis of socio-economic standing and buying capacity. We categorize them as Low Income Group (LIG), Mid Income Group (MIG) & High Income Group (HIG). Each of these groups are constantly progressing up the - ‘The Fashion Value Chain’. Readymade Garments: India’s first major transition into

fashion retail (in 1990s) was moving from stitched to readymade apparels. This transition, which took over a generation, strengthened the concept of branding in the fashion retail industry. It also brought in the bulk manufacturing of garments and aided huge investments in apparel manufacturing.

Multiple Ownership: The next stage of the fashion retail transition was evolved seen in 2000s, when with the high economic growth came a phase of higher disposable income and hence, higher spending. People not only spent on branded products but also started owning multiple products in the same product category. Footwear, watches and accessories are categories are the biggest beneficiaries of this transition.

Brand Up-gradation: Higher economic growth and higher disposable income also led to upgrade in the lifestyle, which led to up gradation to premium brands. In this stage volumes remain more or less intact, but there is a sharp increase in the price one pays for. This leads to change to increase in the value spent on fashion products, with volume remains more or less intact.

Seasonal Fashion: India is still at a very promising stage of this transition, wherein a change in the seasonal fashion leads to higher churn in the consumers’ wardrobe. This stage affects both volume and value as the churn of fashion consumption increases.

EVOLVING ECOLOGY:

The change in consumer mindset is changing the ecology and vice versa. The key factors contributing to the change in fashion retail ecology are: Mall Culture: The 1st positive change in the fashion retail

ecology was advent of malls and organized retail in India. Malls changed the shopping experience of an Indian, which led to a friends and family outing destination. Although mall culture and organized retail do not really lead to consumption growth, it enhances the shopping experience, making it more organized and less tedious.

Changing lifestyles: Media, social media and even cinema has had a huge influence on ones lifestyle leading to change in consumption pattern. Increase in travelling and outings has led to increase in consumption of fashion products, which is further augmented by higher fashion awareness and peer pressure. For eg. Higher outings has led to higher ownership of dresses, shoes, watches, etc.

International Brands: International brands are entering India, which is adding to the evolving ecology of fashion. These new brands are bringing in global fashion products, creating trends and awareness through media campaigns, creating huge awareness and acceptance of fashion products not only in super metros but also in tier-2 towns. We believe the fashion awareness and industry will only grow from here, as was seen in mid-2000s when these brands had entered China.

E-Commerce: Fashion brands and products are a prominent part of the evolvement of E-commerce in India. After electronics, fashion products have found highest acceptance in the E-commerce medium. Again, as e-commerce is evolving, it is contributing hugely to the fashion industry in terms newer brands, newer products, newer trends, newer experience and most important newer reach and penetration. Through E-commerce, brands can reach wider consumer base as there no location constraints.

GDP SSG ROCES (RETURN ON CAPITAL EMPLOYED) High co-relation between GDP and SSG trend: Same Store-

Sales-Growth (SSG) is a better indicator of consumption driven growth as it shows growth on like-to-like basis and does not consider growth through network expansion. As a result SSG in fashion retail has strong linkage and trend co-relation with India’s GDP growth, clearly depicting the impact of economic revival on consumption. As seen in the exhibit below, the SSG of Shoppers Stop, Westside and FLFL, rose to double digit as India’s GDP grew above 6%. Even in FY14, when GDP growth saw marginal revival, the SSG saw an uptick.

Higher SSG leads to much higher RoCE: Higher SSG mainly means that the investments already incurred churn higher revenue and growth. Retail business is highly fixed cost driven leading to high operating leverage. Hence, any growth in topline leads to much higher growth in EBITDA. Also, since working capital cost is constant in nature, higher profitability translates into higher operating cash inflows as well. Finally, with capital employed remaining constant on like to like basis, higher EBITDA leads to higher RoCEs.

ARVIND LIMITED

Incorporated in 1931, Arvind Ltd. (ARVND) is part of one of the oldest business houses, Lalbhai Group, in India with leading presence in textiles. The company is led by Mr. Sanjay Lalbhai, 3rd generation of family, along with his sons Punit and Kulin. Promoters held 43.5% stake in the company as on June 2014.

The company broadly has three large business segments – textiles, fashion brands and fashion retail. Textiles is the largest segment, contributing 68% to the topline in FY14, while brands and retail contributed 28%. The balance came from company’s other initiatives comprising of real estate.

Company aspires to be a brand power house in India clogging revenue of Rs 180bn by FY19, with share of brands and retail increasing substantially.

The brand and retail business are managed as different business units altogether, head-quartered at different locations. Mr. J Suresh heads the Arvind Lifestyle Brands Ltd. He is an MBA from IIM Bangalore with over 30 years of experience in the FMCG, Lifestyle Brands & Retail industries. Prior to joining ARVIND in 2005, he has worked in HUL for 18 years.

Expansion across textile value chain: Arvind Ltd. (ARVND) is an integrated textile manufacturer with presence across the value chain from fabrics, woven's and garmenting. It is the largest manufacturer of denim fabric in India. It has also diversified into woven, where it manufactures shirting fabrics mainly for domestic market and into garmenting wherein it manufactures readymade garments for top global brands. The overall textile vertical is doing well leading to expansion in capacities, which will see commencement of operations from H2FY15E onwards.

Brand portfolio to start paying: ARVIND has a strong fashion brand portfolio of 30 brands, of which 17 are licensed mainly from US, which caters to premium-to-luxury segments across the gender and age groups. The segment currently is at high investment stage leading to lower profitability and RoCE. Going forward, we believe this segment will be the core contributor to company’s growth and profitability.

Transformation of Mega-Mart: ARVIND had entered into multi-brand retail format, Mega Mart, in 1995 positioned as a 365-day discount store for its brands. In 2012, company transformed and repositioned the format into a value store, wherein its value brands (mainly owned) are sold. The company restructures its non-performing stores by either downsizing it or right sizing it, which will be completed by FY15.

Other initiatives to aid growth: ARVIND has ventured into newer areas with minimalist investments viz. joint development of legacy land bank, specialty retail chains and e-commerce. Company recently launched customized clothing concept on online platform under brand ‘Creyate’.

PRODUCT CATEGORIES

ARVIND entered the multi-brand retail format in 1995 under Mega Mart brand mainly to monetise its unsold inventory by providing discounts. Arvind has presence into two retail formats – exclusive brand

outlets (EBOs) for its brand portfolio and multi-brand departmental store under Mega Mart brand, which it entered in 1995.

While the former is part of the brand business, latter is where the true fashion retail focus lies. Mega Mart was initially launched as a discount store with the mindset of monetising the unsold inventory of the brands.

Mega Mart has seen huge growth deterioration with SSGs in FY14. Company has implemented three-pronged strategy to revive the same; 1) trim down the loss making stores through closures or downsizing the area 2) re-position Mega Mart from a discount store to a value store wherein value brands are sold and 3) right-size and re-furbish some key stores

Company has shut down nearly 75 Mega Mart stores over the last 2-3 years and plans to further consolidate. Going forward, the plan is to relaunch 25 stores for which it intends to spend Rs 300 mn. The whole restructuring is expected to be competed by FY15E

Mega Mart has 12 value brands sold through the store, of which some of the key brands are Excalibur, Ruggers, New Port, Cherokee, Geoffrey Beene, etc.