India’s Fashion & Retail Sector: An Overview

brand-experts.com/brand-expansion/india-fashion-retail

Arvind Singhal 12 April 2018

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.

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 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
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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

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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)

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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)

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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.

(Screenshot: www.bigbasket.com)

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
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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
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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.

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