Is the sleeping giant, India, about to wake? There have been many false starts over the years predicting that India would become a major player economically. It’s certainly got the numbers of people, and, its middle class, with its growing disposable income, is expanding fast. Depending on the measures used, the estimated size of India’s middle class ranges between 78 million (Economist, Jan. 2018) to 604 million (Krishnan and Hatekar, EPW June 2017). Even on the lowest estimates this is a huge amount of potential consumers and retailers and brands are moving in.
Japan’s ‘Fast Retailing’ opened its first Uniqlo store in India this month in New Delhi. The company is planning to open two more stores in Delhi’s metropolitan area this autumn. Uniqlo said the three stores will be testing grounds before the company decides its long-term strategy in the country, The company says high import duties imposed in India have impacted the brand’s pricing, but no doubt it will remain competitive against other western chains.
Up until May, this year, India was the world’s fastest growing economy. It has a population of 1.3 billon with 65% under 35. There are an estimated 530 million people online and an 491 million smartphones by 2022.
Apple is rumoured to have finalised a short list of locations for its first retail store in India and Ikea finally opened in 2018 after 12 years of trying. It was prevented from opening stores because of government restrictions on foreign investment. The company says it aims to have 25 outlets across the country by 2025.
Aiming to tap into the young and affluent Indian consumer and become the ASOS of India is Koovs.com. Its corporate site says it “brings western fashion authority though the Koovs Private Label, curated global and local fashion labels and designer & celebrity collaborations to create and build the leading online western fashion brand for young, style-conscious Indian customers.”
Waheed Alli founded the company in 2012. He was previously Chairman of ASOS plc between 2000 and 2012. Based in London, it had full year sales of INR1,178m/£12.8m year to March 2019. While a relative retail minnow, recent forecasts show the ecommerce market in India growing from $24billion in 2017 to $84billion in 2021 and $200billion in 2026. Online fashion is expected to grow from a $4billion market in 2017 to a $15billion market by 2022.
Koovs concessions have opened in three central stores in Delhi over the period. They are now rolling out this concession model to another five stores in Bangalore (two stores), Hyderabad, Pune and Noida. The company has struggled recently because of the disruptions in India caused by demonetisation and the introduction of the Indian Goods and Sales Tax (GST).
Vibhuti Vazirani, founder of new Indian-made fashion start-up, Zavi, specialising in less environmentally impactful fashion, says, “A couple of years ago H&M and Zara entered India and have seen a great response. Such fast fashion brands are a hype in India now when a large part of the world has reached its peak of fast fashion. Within India too, there are many domestic players that cater to a large fast fashion industry.”
Zara currently has 16 stores in India and H&M has 47. The huge Tata Group which has been Inditex SA's - Zara's parent company - partner running Zara stores in India is building its own apparel empire as trend-focused as Zara, but at half the price. As per a Bloomberg report, Tata’s retail arm, Trent Ltd, has fine-tuned its local supply chain to deliver “extreme fast fashion” which can get runway styles to customers in just 12 days. Trent now plans to open 40 outlets of its flagship 'Westside' chain every year and hundreds of its mass market 'Zudio' stores, where nothing costs more than $15. “The middle class is growing, incomes have grown, Indians are travelling more and they have more money to spend,” Tata said. “Now that we’ve built this capability and this model that’s working so well, it’s time to grow faster.” it says. Zara is still expensive to the average Indian consumer and Tata Group is tapping into that cheaper demand for western fashion.
Zavi is being marketed at eco-conscious Western consumers rather than the domestic market. “I see Zavi entering the international space rather than India at this time because there are already some well informed countries that have made sustainability a priority and so that market is clear to respond better to what Zavi has to offer.” she says.
According to the World Economic Forum, by 2030, India is on course to witness a 4x growth in consumer spend. It will remain one of the youngest nations on the planet and will be home to more than one billion internet users. By 2030, India will move from being an economy led by the bottom of the pyramid, to one led by the middle class. Nearly 80% of households in 2030 will be middle-income, up from about 50% today. The middle class will drive 75% of consumer spending in 2030.
The Indian market isn’t straightforward due to government restrictions and import taxes, but, the size of the growing middle class should be both tempting and terrifying for many international brands dealing with saturation and maturity in their established markets. They should have learnt their lessons from their early days in China and will be no doubt want to time their entry right to start making money early on. Brands can no longer afford to heamorrhage money for years on a speculative market. What is clear is that India is getting richer and there is a demand for international brands from Indian consumers with more money in their pockets. But is this the right time?
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They say the Chinese only buy the cheapest or the best. It’s simplistic, but it is the direction all retail markets seem to be headed in. The British market has been evolving into this for a while, now, and those stuck or stranded in the middle are suffering or dying.
The middle has been squeezed or forced to choose their direction of travel as we all race to the bottom or top.
The cheapest often requires huge volumes and multinationals and the best requires a perception of quality, luxury and good service.
As a brand or retailer, you have two questions to ask yourself, today: are we the cheapest? This can be split into different categories depending on where the brand sits and, are we the best? This is more complex and can mean many different things and is subjective. If you can’t say yes to both or either, they you need to start making some serious changes.
Imagine a Venn diagram: two circles, one the cheapest, one the best and price running up and the down the side axis. Any brand coming into the area where the two circles overlap is in a safer and strong position. Those within one of the circles has a focus, while those floating somewhere out of either need to work out which one they want to be in, and fast.
Let’s look at the cheapest option. This is why Sainsbury’s is getting into bed with Asda. The larger scale promises savings of around 10% to the consumer, and will help them compete with Booker/Tesco and the German food retailers, Aldi and Lidl. It’s an example of mid-market retailers needing to pair up or die.
In fashion, New Look revenue to the year 24th March 2018 was down -7.3% to £1,347.8m. New Look has not only announced store closures, but it’s also just said in its recent financial report and turnaround plan, that ‘Pricing (will be) lowered to offer significantly better value with 80% of product to retail under £20’.
Eighty percent of product under £20 will really put the brand toe-to-toe with Primark and, I think, it’s the right move for them. You have to go down fighting, but they’ll going to have to shift more product at these cheaper prices. Before, New Look wasn’t the cheapest, and it wasn’t the best in terms of being the most fashionable or desirable fast-fashion retailer. It used to be one of the cheapest, but then Primark came along.
It tried to be more fashionable, but at a time Boohoo, ASOS were growing and offering high fashionability at ridiculously low prices.
New Look says it wants to 'return to (a) value-led fast fashion and wardrobe basics offer with full price focus’. The margins will be so small they’ll need all the full price they can get.
H&M, long one of the darlings of fast retail, has seen its shares down nearly 20% this year and the company has said it will need to slash prices to reduce inventories, damaging profit margins. It has an $4.3 Billion in unsold stock and needs to be careful that its size won’t be its downfall.
It also explains its focus on different, ‘best’ sister brands like Arket and COS. H&M isn’t in the same position as New Look, yet, but they need to make sure it’s still seen as one of the best in terms of affordable fashionability and also offering value.
Marks & Spencer is another one trying this new best and cheapest approach. The clothes have arguably got much cheaper and the food is still perceived as the best, but it’s this balance that is hard to achieve within the same brand, especially knowing what consumers come to you for.
House of Fraser’s recent announcement to close 31 stores is a reflection of the growth of John Lewis both offline and online. John Lewis has continued to open in towns, in or near those House of Frasers, and House of Fraser isn’t cheaper or better. It probably explains the closure of the huge Birmingham store as John Lewis opened a shiny new shop at the railway station just a couple of years ago.
House of Fraser will need to pair up with somebody (maybe Debenhams?) or disappear altogether. Sports Direct, Mike Ashley, has shares in both and will no doubt be pushing for it and then they really can compete on price and dominate their local markets.
So, who is getting it right? Zara, for the best in fashionability and speed and John Lewis in customer service and being ‘Never Knowingly Undersold’. But, like a game of musical chairs, it’s changing all the time.
As for the ‘best’, this is what many luxury brands rely upon. This could be quality, use of materials, origin etc. Many ‘luxury’ brands have lost control of these in the race for large quantities and bigger margins. They have to be careful because a few poorly made, overpriced products will ruin the perception of any brand.
But, you can also find the cheapest within this market. For example, Johnstons of Elgin, one of the best Scottish producers of scarves and blankets. It makes for everybody from Hermès to Burberry. While a scarf from them is not cheap, say £100, it’s far cheaper than one with a designer name on. They are also the best at what they do and the reason why these brands use them.
Or, a brand like Paul Smith. When looking at a multi brand website like Mr Porter, it feels like one of the most affordable brands on there. I think its recent troubles has seen it get more competitive and tread that fine line between affordable and exclusivity. They are also the best at colour.
Or, you could can look at the total top, at the most expensive and exclusive. This is the pinnacle of the market and to be true to both would only be made in very limited numbers. This is chasing a very small number of big-fish consumers and, as such, it limits the size of the business. But, this can also to used to sell ranges of cheaper products, such as perfume or sunglasses, but even these categories are harder, now that people aren’t so hung up on brands.
This simplistic approach to the market cuts through some of the wood to see the trees in a highly competitive and changing retail landscape. So, the next time you look at your own brand or somebody else’s, you know which two questions to ask.
If the headlines were to be believed you’d think the high-street was in terminal decline and everybody was withdrawing at the speed of knots. Store closures across the board and brands shrinking to survive, it’s armageddon on the high-street, they scream!
The retail market has always seen brands or chains crash and burn over the years. It’s part of the retail renewal cycle and allows others to appear and grow.
Left - River Island's new expanded store at Milton Keynes' Centre:MK
"As consumers, we are becoming more and more demanding, each new level of service experienced serves to simply raise the bar even higher. In the UK in February 2018 online accounted for 17.2% of total sales (source ONS). Whilst this is still increasing (15.6% in February 2017) it is still a relatively small proportion of total sales meaning that over 80% is from the high-street. So, it is clear that the high-street is far from dead but it is evolving at a rapid rate - Darwinism on the high-street if you like, where the process of evolution naturally culls the weak whilst the strong prosper and survive,” says Andrew Busby, Founder & CEO Retail Reflections.
Continuing to grow, online retail sales leapt to 18.8% last month - April 2018 - and it won’t be long before it hits 20% and maybe even 30%. For the offline retail optimist, though, it means 80% is left for the taking offline in physical stores.
But, while the focus has been on chains closing stores - M&S announced 100 stores closing by 2022 - there are a few strong and growing brands stealthily tightening their hold and grip on the high-street. The focus is on bigger and better stores in premium locations: less stores but better.
As brands vacate premium sites other brands can cherry-pick and expand into the gaps, but only in the top tier of shopping centres and cities.
For example, both Zara and River Island are carrying out major expansions of their stores at Intu Lakeside. River Island will be doubling the size of its store to 21,000 sq ft while Zara will treble its store size to 35,000 sq ft making the stores among the largest in the retailers’ portfolios. They are the latest retailers to invest in flagship stores at Intu Lakeside since H&M doubled the size of its store to 36,000 sq ft and Next opened an expanded 70,000 sq ft store in Spring 2017.
When Banana Republic vacated Westfield White City, Zara took the opportunity to create the biggest branch in the UK. River Island recently doubled the size of its store in Centre:MK in Milton Keynes. The retailer doubled its existing unit to 20,000 sq ft to accommodate the brand’s full range of womenswear, menswear and children’s fashion ranges.
Nick Tahir, River Island, Head of Menswear Buying says, “We have over 280 stores in the UK. In an increasingly competitive high street, it is important to keep River Island stores looking fresh, relevant and exciting. With 30 years heritage, naturally some stores will require a makeover and in some towns/cities and that has been a key focus for us, we have also been increasing our square footage, to accommodate the needs of our customer and our growing divisions (for example we launched RI Kids and RI Mini only a couple of years back and the demand is consistently growing).”
“Although retailers are seeing an impact on bricks and mortar due to mobile and online, retail is still the biggest mix of sales for us. With our heritage, stores will always play an important role. They are the heartbeat of the River Island. The challenge for us and our peers in the industry, is to keep our customers coming back again and again. We do this by enhancing their shopping experience – whether that’s through pop-ups and exclusive events, or through offering something that our customers can’t find with some of our competitors; take Style Studio for example, our complimentary Personal Shopping service. It is vital for us to keep revamping and improving our store aesthetic to draw footfall, creating theatre through VM and windows and of course constantly refreshing our product offering to stay relevant and exciting.” says Tahir.
As stores grow larger at key shopping hot spots, retailers can give fewer locations more attention and fine tune, update and invest in those locations. But, what this will also mean is many towns will lose their well known names and become secondary as the money is sucked into fewer, bigger places.
“Most retailers with a large store estate have too much space so what we're also seeing (landlord rent restrictions aside) is an expected re-sizing and in some cases re-purposing of space eg. Debenhams considering renting out space to WeWork.” says Busby.
“All this means that the stores which survive will need to be far better than those we currently experience. For example, the poor quality of the Toys R Us stores was a major factor in it collapsing into administration.” he says.
“But the fascinating dynamic is that quality and customer experience in store is largely dependent upon the particular shopping journey ie. if it's a distressed purchase then the customer just wants to get in, find what they need, pay and leave - as seamlessly as possible. However, if it's for say a luxury item they may well welcome, indeed, seek out engagement and advice; being quite happy to spend far longer. Both journeys will be judged by different criteria. The trick for retailers is to recognise what journey we're on and act accordingly. Facial recognition and AI is going a long way to be able to tell what mood we are in when we enter the store.” says Busby.
Right - Zara's new store at Westfield Stratford
The shopping centre companies know this too. The recently abandoned £3.4bn tie-up between Hammerson and Intu failed, I think, because Hammerson were probably only interested in a handful of their top sites like Manchester’s Trafford Centre. Trying to offload or revive the others would be costly and a distraction and knowing where the market is heading, it knows it’ll probably be able to bid on what it wants individually if Intu starts to wobble in the foreseeable future.
In order to survive it’s going to be about fewer players with less but stronger sites. As more close, it strengthens those which are left. If you believed the newspapers you’d think that every retailer had given up on physical stores, but the clever ones are only getting started. When the growth in online slows or plateaus, these proactive retailers will be positioned to take full advantage of the eventual return to the high-street.
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Left - Harry Styles giving good Elvis in an bespoke Edward Sexton suit
Left - River Island - Pink Slim Fit Suit Jacket - £85
Left Below - River Island - Pink Slim Fit Suit Trousers - £40
Below - Hugo - Ebros Stretch Cotton Shirt - £100 from HarveyNichols.com
Left - ASOS - Super Skinny Suit In Mid Pink - £85
Left - Topman - Rose Pink Ultra Skinny Fit Suit - £130
Below - Ted Baker - Rosest Tailored Fit Shirt - £65 from John Lewis
Left - Opposuits - Mr Pink - £64.95
Below - The original, Elvis Presley
Left - Zara - Sartorial Suit Blazer - £99.99, Trousers - £49.99
Left - Zara - Basic Blazer - £39.99
Left - Actor Aidan Alexander at the Billboard Awards
Left - Marks & Spencer - Autograph - Pure Cotton Tailored Fit Shirt - £35
Left - Moss Bros - Moss Esq. - Regular Fit Black Single Cuff Non Iron Shirt - £25
Left - 1950s Cliff Richard
Below - New Look - Deep Pink Suit Jacket - £64.99, Deep Pink Suit Trousers - £29.99
Below - Be the king, this prom season