Analyze the Distribution Format of Garment Retailing and Design a Channel Format

8/6/2019 Analyze the Distribution Format of Garment Retailing and Design a Channel Format

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IIPM

Desk ProjectOn

Analyze the distribution format of Garment Retailing and

Design a channel Format

Subject: Sales

Submitted To: Submitted By:

Prof. Pabitra Ranjan Bhavin RaykaIIPM,Ahemedabad. FW/9-11/ISBE/FIN


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ABSTRACT

A new focus on the apparel retail sector has attracted attention in recentdays. Top exporters have introduced their own brands and are aggressively

positioning themselves within segments of the domestic market. The risingimportance of branded segments in the domestic market combined with the

pressure of import competition is blurring the boundaries between exports anddomestic production in countries with large home markets, such as India. Withthe changing lifestyles, organized retail is playing a key role in structuring the

Indian domestic market, reinforced in particular by rising incomes and growing

purchasing power among consumers in rapidly growing sectors of the economysuch as information technology and business process outsourcing.

Retail sector in India is witnessing a huge revamping exercise astraditional markets make way for new formats such as departmental stores,hypermarkets, supermarkets and specialty stores. The branded apparel marketrepresents the largest source of growth. The mens branded apparel market isgrowing at a rate of 21.8% and branded womens apparel segments represents35% of the total branded apparel market and is growing at an incredible 23%

annually.

Leading domestic retailers are becoming more firmly entrenched,

increasing their scale of operations and stabilizing their logistics and technologyinitiatives. A few significant foreign players have been selling their brandedapparel in India for number of years. But, now, just like their India counterparts,global apparel brands are setting up their own apparel outlets, instead of justselling through departmental stores. Though local retailers generally enjoyhigher margins, they wont be able to keep global retailers at bay for long

because of international experience, buying power, IT systems and cash flow to

tolerate lower profits. Presence of these brands will make the Indian Consumerbecome more aware of the international fashion and lifestyle trends leading to amove-up of the industry in the value chain. In this paper, the recent trend and

prospect of apparel retail sector in India have been discussed.


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The Global Retail Scenario

Retailing has been defined as business activities involved in sellinggoods and services to consumers for their personal, family or household use(1).Although retailing has been around for millennia, the 20th century witnesseda lot of change in the retail sector, especially in the developed countries. Modern

formats such as department stores, discount stores, supermarkets, conveniencestores, fast food outlets, speciality stores, warehouse retailers and hypermarketshave emerged. Retailing has become more organized and chain stores have beengrowing at the expense of independent shops.

The chains are utilizing sophisticated information technology andcommunication to manage their operations and have grown rapidly not only

within their home countries like US, UK, France, Germany and Holland but toother developed countries. Walmart Stores, the US retailer, was recognized asthe largest firm in terms of sales in 2002 in Fortune magazines list of 500 largestglobal firms. Modern retail formats have also spread beyond developedcountries and are becoming more important in the NICs and developingcountries.

Large format retail businesses dominate the retail landscape in theUnited States and across Europe, in terms of retail space, categories, range,

brands, and volumes. Indian retail industry cannot hope to learn much by merelylooking at the Western success stories in retail. Their scales of operations arevery huge, the profit margins that they earn are also much higher and theyoperate in multiple formats like discount stores, warehouses, supermarkets,departmental stores, hyper-markets, convenience stores and specialty stores. Theeconomy and lifestyle of the West is not in line with that of India and hence theretailing scene in India has not evolved in the same format as the West nor canwe learn valuable lessons from their style of operations.

Indian apparel Retail scenario

In its market research report, Indian Retail Sector - An Outlook [2005-2010] RNCOS estimated that the Indian apparel retail industry generated revenueof $2.0 billion in 2004 with a growth rate of 8.2% during 2000-04. As a result, thisindustry in India is second largest in the world after China. The Indian apparelretail industry varies within even short distances, as the designs of the outfits are

based on the regions fashion trends.


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According to this years Global Retail Development Index India is

positioned as the leading destination for retail investment. This followed from thesaturation in western retail markets and we find big retailers like Wal-mart andTesco entering into Indian market. AT Kearney has estimated Indias total retailmarket at US$ 202.6 billion which is expected to grow at a compounded 30 percentover the next five years. With the organized retail segment growing at the rate of

25-30 per cent per annum, revenues from the sector are expected to triple from thecurrent US$ 7.7 billion to US$ 24 billion by 2010.

NICHE foreign retailers are making a beeline for the Indian market. Infact, despite the FDI policy pertaining to retail being unclear, over 10 foreign nichesegment retailers have recently set up or announced their intention to set up shop inIndia using the franchisee route, with several others waiting in the wings.

International brands such as Benneton, Lacoste, Levi Strauss, Crocodile,Dockers, Lee, Wrangler, Nike, Reebok, Adidas, Guess, Esprit, Mango, Hugo Boss,Mark & Spencers and Tommy Hilfiger have already built a retail presence in thecountry, while market watchers point out that several more such as Versace,FCUK, Zara, Mother Care, Ikea, Fendi, NEXT, Debenhams, Trussardi, and DKNY

have charted out a strategy to enter the Indian market. Most of the brands enteringthe market are targeted at the premium end. According to estimates, the premiumapparel segment in India is valued at about Rs 1,900 crore and growing at 20 percent.

In addition to the patterns above, four additional factors which aretransforming supplier capacities in ways that are blurring the boundaries betweenfirms producing for the domestic market and those producing for exports are asfollows:

1. Enhancement of local capabilities in the area of logistics i.e. warehousing andcustomized tracking systems.2. Interesting emergence of design as a source of competitive advantage in Indian

apparel3. Growing importance of local investment by Indian apparel firms as a way tocounter the exclusion of India from all major regional trade agreements and theadvantage of tariff free entry into major markets that many of Indias competitorsenjoy i.e. Mexico in the US markets, Turkey and Bangladesh in EU markets4. Increasing focus on domestic brands


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Renowned exporters in the country such as Reliance, Arvind, Raymond,Orient Craft etc. are developing their supply networks and distribution systems,seeking distinctive niches and generally staking out their terrain in the domesticmarket to consolidate their first mover advantage. Success story has emerged in thedomestic apparel garment segments for the local brands and not limited toPantaloon, Lifestyle and West Side only. No wonder a heavy weight like theReliance group is planning to do a Wal-Mart in India.

Now there is an increasing demand of branded apparel segment in thedomestic retail market for the same features that are valued in demanding exportmarkets. These shifts in retail are fuelling the demand for good quality and trendyapparel, which in turn deepening the importance of aesthetics and design in thedomestic market. It is worthwhile to mention that the rise of younger class ofmiddle-class consumers, spawned by the booming BPO and IT sector, has led to

burgeoning demand for locally designed, ready to wear clothing in Indian metros.As many surveys have established, with good salaries, strong peer pressure and thegrowing availability of brands across product categories, spending in retail is beingdriven by the youth segment in large and mid-sized metros

Retail concept development

With the advent of the e-commerce, new retails concepts have also been

perceived. It is a necessary component for keeping stores fresh and relevant andfor staying ahead of their competitors. This is even more important today whenconsumers will have considerable choices from new channels available. Now isthe time for retailers to be developing new concepts or, at the very least,rethinking and reenergizing their current formats. An important and compellingreason for innovation is the overall compression of the retail life cycle. Where a

concept once had 30 to 40 years to progress through the retail life cycle, theaverage life cycle is now greatly compressed. In the present scenario, ideas getinto market faster, grow more explosively, and face obsolescence in a shorter

period.

The average retail life cycle looks like any typical bell curve. There is aperiod of development for an emerging concept, followed by a period of rapidgrowth, maturity, and eventual decline. This life cycle is still valid but there aremajor changes in the time periods involved in each stage. Concepts are growing,maturing, and declining faster than ever.


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Traditional and modern retail life cycles are shown in Figure 1 and Figure

2, respectively.

Contributing factors of modern retail boom in India

The driving forces towards development of apparel retail in India can be broadlyclassified into following categories:

Economic development.Improvements in civic situation.Changes in consumer needs, attitudes and behavior.Influence of fashion .Changes in government policies.Increased investment in retailing.Rise in power of organized retail.


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Economic development

The development of the Indian economy is a necessary condition for thedevelopment of the Indian retail sector. The example of Thailand shows that theimpetus to modernization of retail was provided by the economic boom inThailand (3). Development increases the disposable income in the hands ofconsumers and leads to an increase in the proportion of spending ondiscretionary non-food items. Economic development also enfranchises newhouseholds as potential customers for modern retail and leads to increasedownership of personal transportation among consumers, which in turn canincrease their willingness to travel longer distances to shop in new format stores.The growth of the economy can also provide gainful employment to those who

would otherwise enter retailing in areas like hawking, roadside vending andother similar low cost entries into the retail sector. Rapid economic developmentmay also positively influence the views of international retailing companies

about the business prospects and investment attractiveness in a country. A highdegree of inflation in the economy is however, not conducive to modernizationof the retail sector. In Brazil, the real progress in retail was noticed only after thestabilization of the economy and control of inflation (4). Development also hasan influence on the regions and cities where modern formats are initially set up.In the Greek, Thai and Brazilian cases, modern formats initially appeared in theimportant cities. This has been noticed in India as well as the modern formatsfirst appeared in the metros like Delhi, Mumbai and Chennai and the minimetros like Bangalore and Hyderabad due to the comparatively higher level ofdisposable incomes available in these cities.

Improvements in civic situation

The civic situation includes factors like safety and security in the city andthe various municipal regulations governing the opening, location and operationof stores, and the nature of public transport available. A safe and secure

environment will encourage the setting up of 24 hour convenience stores and theoperation of shopping plazas and encourage shopping expeditions for the wholefamily. The presence of adequate parking facilities or excellent publictransportation will encourage consumers to be more mobile in their choice ofstore. City or state regulations on opening or closing hours, rent control laws,availability of adequate electrical power and regulations relating to licensingwill affect both the time required to set up a new store as well as the cost of


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store operation and its viability. Many of the civic factors mentioned abovewould be dependent on the economic development and administrative policiesin the area. The impact of the civic situation may influence the choice of thecities, states, zones in which the modernization investments will be made.

Changes in consumer needs, attitudes and behaviour

The growth of modern retail is linked to consumer needs, attitudes andbehavior. Marketing channels including retailing emerge because they receiveimpetus from both the supply side, and the demand side. On the demand side,the marketing channel facilitates to provide service outputs that consumersvalue. These service outputs may include but are not limited to bulk-breaking,spatial convenience, waiting and delivery time and assortment (5). In Indianretailing, convenience and merchandise appear to be the most important factors

influencing store choice, although ambience and service are also becomingimportant in some contexts (6). Modernisation will have to address convenienceissues while presenting strong alternatives to the weaknesses of traditional

formats in selection of merchandise available for sale. Modern formats need notbe expensive and can offer lower prices to consumers (7). Lower prices in turnwill increase the attractiveness of modern formats and rapid growth in the

preference for purchasing from new format stores.

Store ambience includes issues such as lighting, cleanliness, store layoutand space for movement. Modern stores can offer a far better ambiencecompared to traditional stores. On the service front, traditional stores offer creditand home delivery. These needs will have to be addressed by new format.Experience from Brazil shows that the combination of entertainment andshopping provided by some shopping centres, is attractive to consumers. Thismay become important in India as well because of the limited entertainment

options currently available in cities. While consumer needs, attitudes andbehaviour will influence the development in retail; it is likely that investments inretailing and the creation of new stores offering value will in turn influenceconsumers. This appears to have happened in Greece, Thailand and Brazil.

Another important paradigm shift in Indian apparel retail pertains to therise of the purchasing power of the younger segment in the modern society. Infact, it is fuelling demand for domestic and overseas branded apparel at a rapidspace. This demand is augmented by the arrival on the scene of retailing formatssuch as malls that are providing ready outlets for goods catering to this growingmarket niche. Thus, from the demand side, this preference for higher value


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apparel, and the growing availability of organized distribution channels throughwhich these products can be marketed is creating the conditions for the rise ordevelopment of whole new segments of the apparel industry in India with highervalue capabilities on the supply side across the value chain.

Influence of fashion

Fashion has played a key role in shaping apparel consumerism. With thechange in lifestyle, fashion in India is becoming more stratified, as in the West.Technology, ideas and lifestyles are moving concurrently, and speedily.Companies and brands that offered monotonous, mundane products for yearshave now tripled their product ranges and new appealing shapes and forms are

being launched each season. Top notch professional bodies in fashion trade arenow working towards developing the fashion supply chain through backward

linkages with suppliers and mills, and forward linkages with the retail anddistribution network (8).

Changes in government policies

The Indian government has clarified on a number of occasions that

foreign direct investment will not be permitted in India. Major internationalretailer organizations will be watching for signals of policy change especially

because China has permitted foreign investment in retail. In opening up theretail sector, the government may consider various approaches such as insistingon joint ventures, limiting the foreign stake, or specifying the city areas whereinvestment is permitted. Thailands example shows that in case of joint ventures,the local partner can play a significant role in the success of the joint venture.The Brazilian experience shows that local retailing groups can successfullycompete against international chains if they adopt innovations and restructureoperations in accordance with market needs. Some policy protection can begiven to consumer cooperatives which have been providing value to theirmembers and customers. This protection can be in the form of allowing theseorganizations to access capital from the local market and operate in a more

professional manner. The government can also play a positive role insimplifying or eliminating the plethora of regulations governing retailing.Specific laws relating to franchising will also be desirable for foreign and Indian

brand owners to adopt the franchise route in a bigger way. According to the newdirective of Indian Govt, foreign chains selling single brands were allowed inJanuary to take up to 51% in Indian joint ventures.


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Increased investment in retailing

The prospects for significant modernization and development in retailingwill depend on the nature of investment in this sector. The investment will be oftwo types- foreign and domestic. The quantum and nature of investment willdepend on the factors outlined earlier namely economic development; civicsituation; consumer needs, attitudes and behaviour; and government policies.

Although FDI is been permitted selectively in retailing, a number of globalretailers are testing the waters by signing technical agreements and franchiseswith Indian firms. Fast food chains like McDonalds and Pizza Hut are alreadyoperating in the metros. A Marks and Spencer store is already operational inMumbai. Several global retailers are awaiting a change in policy. However, thedevelopment of the Indian retail sector is dependent not just on foreigninvestment but on Indian investment as well. Since the 1980s industrial groups

such as Reliance and Raymonds have been active in encouraging developmentof well appointed exclusive showrooms for their textile brands. In the 1990sindustrial houses like Rahejas, Piramals, and Tatas have entered retailing.Several Indian and foreign brands have used franchising to establish exclusiveoutlets for their brands.

At present the new format stores cater mostly to households belonging tothe higher income families. The catchment area for these modern stores has to

be fairly large as the number of such households is small in relation to the totalpopulation. This limits the number of stores and constrains the growth of chains.The modern stores have also been plagued by low conversion in relation to thenumber of footfalls. This means that although a large number of people visit thestore, the number of buyers and the average bill amount is small. Due to lowsales, the bargaining power of the retailers with suppliers and manufacturers islow and this restricts their average gross margin. On the other hand the expensesinvolved in setting up and maintaining a modern format store tend to be muchhigher than traditional store due to the additional expenses on larger size, betterlocations and superior ambience. Therefore if the returns on investment in thenew formats have to be attractive, modern retailers have to develop a strong

supply chain that provides them significant gross margins while deliveringmerchandise at attractive prices to customers. In order to do this, modernretailers will need to eliminate middlemen and buy directly from suppliers andmake use of technology to control inventory. These developments will impactthe survival and existence of middlemen such as wholesalers and agents whowill have to find new business models to survive. Manufacturing firms will alsoface pressure from strong buyers on price, delivery and service terms.


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Retail Branding versus Product Branding

A great difference between product branding and retail branding is that inmany cases products have an anonymous or even fictitious presenter, whereas inretail, consumers come in direct contact with the company and/or product. ACadburys Dairy Milk chocolate bar, for example, is a product made according to

a set recipe in a factory that is not open to the public. In addition, the peoplewho work there never come into contact with the consumers because the retailchannel lies in between. And those who do sell the CDM to the end-consumer(the retailers) do not have very much to do with it by virtue of their function.Therefore it is possible to conceive a brand identity for the product, establish itfor a specific target group and then fix it in the minds of consumers. Comparethe identities of Five Star Perk, Gems and Temptations: all very different, yet

they come from the same manufacturer The issue is not of retailers sellingbrands but branding the retail business itself, like the fashion store. Ahypermarket or department store, may offer several well-known brands, but intodays competitive world cannot afford to rest on its strategic productassortment and pricing initiatives to bring in the customers. The retailer mustattempt to brand himself differently, especially when todays product brands are

being launched through their product brands own shops. (Examples in the shoesegment Nike, Adidas and Reebok. Jeans segment Lee and Wrangler, PerfumesHugo Boss)

Apparel retail will have to ensure that its own brand includes thecharacteristics of product brands detailed above. Retailers need to work on threedimensions to achieve this:

(1) Brand value:

The retail brand has to translate and transmit clear values to the customer. Forinstance, value for money, Luxury shopping redefined are some of the slogans.Some companies have attempted to define this in their mission statements but

they are often too vague and not actionable. For example the U.K. Virgin brandhas the value of challenging conventions and the U.S. retailer Nordstrom has

built the value of customer service. While many Indian product brands havesuccessfully weaved values around their brands (Hamam on trust, Godrej onquality and TVS on service) retailers are yet to develop a consistent value acrosstheir businesses. Some of the brands of domestic apparel retail of Pantaloon andLifestyle are also attracting attention to the consumers. Pantaloon retail brands


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include Honey, Bare, Rig, UMM and Big Bazar category comprises DJ&C,Knighthood, Studio NYX etc. Among the Lifestyle brands, MAX, KAPPA,BOSSINI are becoming increasingly popular to the domestic front.

(2) Brand strategy:

It is imperative that retailers have a systematic strategy on issues like

whether to develop the retail brand or corporate brand and decisions on oneproduct/one brand that they may be selling in their shop. Retailers can alsodecide to launch high quality retailer brands (own labels) backed by promotionalcampaigns, reinforcing clear personalities. Pricing policies, today positionretailer brands as good value lines or premium lines (Nilgiris department stores

prices its grocery lines above manufacturer brand prices).

The view that retailer brands offer a cheaper alternative to manufacturerbrand is no longer valid. There is even scope for retailers to develop alternativetypes of own labels targeted at different consumer groups in their outlets. Anessential ingredient for success, in such cases, must be consumer-relevant addedvalues not just lower prices. It is only a minority of consumers, today, who are

prepared to trade off added values for lower prices. Experienced consumers are

no longer primarily motivated by low prices. There is scope to attempt a retailsegmentation strategy. For example, DCM Benetton India redesigned its storesas per its international format and also repositioned the brand from a casual wear

brand to a wardrobe option. The company is now attempting to target a nicheaudience through its concept stores. It launched a Baby-on-Board' store, whichtargets mothers-to-be and kids, an `Accessories' stores that sells luggage, bags,sunglasses and vanity cases and an Adults Only store that showcases Benetton'sapparel collection for men and women.

(3) Brand structure:

Operational levels of the retail business have to be held together tointegrate the whole brand proposal. At this level, marketing, human resources,

distribution, logistics, administration and sales have to work towards a commonbrand value that has to be communicated to the consumer. The retail brandsmessages must be weaved into the every day experiences that the consumer haswith the retail brand. Brand building constitutes a way in which the main valueof the retail store shifts to what has been traditionally called an intangible.Indian apparel retailing is coming of age and needs to have a clear brand

proposition to offer the discerning Indian consumer.


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There is no doubt that the apparel retail business is gravitating from high streettowards destination shopping (mall development) with enhanced mall spaceexpected to hit the metros and mini-metros across the country.

Channels Of Distribution

Producer

Wholesaler

Retailer

Consumer


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Channels Of Distribution

The distribution channel is how your customers will get access to your

products and this will also effect how they will view your brand. The most

common method, and one that we discuss in length in the book, is to sell yourclothing seasonally as a wholesaler to stores. However, you do not have to

surrender to these conventions and you may want to operate your business

differently in a way that suits your product or business set up.

Wholesale

Many clothing lines sell their clothing by wholesale, although it is also

common to do this alongside retailing their clothing to the public online.

Wholesale is when you you sell your clothing to other businesses only, know as

business to business (B2B). These businesses are usually the stores that your end

users will purchase your clothing from but can also be distributors that will then re-

sell your clothing to stores.

Retail

By selling as retail, you are selling directly to the end user of the product

which is the people that will actually wear the clothing. This can be done in two

ways. The first way would be to own an actual physical brick and mortar store that

your clothing will be sold in. This can be seen with such brands as Gap andHolister. The second method of retailing your own clothing brand would be to run

a non-physical online store which is the most realistic option for most of us when

starting out .

Market trading

If you are trying to promote a classy feel to your brand then you will

probably not ever consider selling your clothing from a stall. However, for anyone

that wants to give themselves an underground edge traveling around setting up a

store could be a good outlet for your clothing. This does not necessarily mean that

you have to set up next to a man selling fish and another selling souvenirs,


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although I have known some to do very well selling custom made shirts at

destinations for vacations, but there are a lot of music festivals and indoor shows

that could be an ideal place to sell your clothing.

Documents

Analyze the Distribution Format of Garment Retailing and Design a Channel Format