Foreign fashion brands play the pricing game

In May this year, Spanish fashion brand Zara opened its first Indian store. A month later, it was the turn of Chinese clothing giant Yishion to follow suit. They were preceded by at least three more – Diesel, Vero Moda and 7 For All Mankind – all of them set up shop in India this year.

What began as a trickle in 2004-05 has now become a deluge – foreign apparel brands are lining up to enter the Indian market. While the large Indian consumer base is an obvious reason, what also played a big role is the sharp reduction in import duties on apparel and the government’s decision to allow 51 per cent foreign direct investment in single-brand stores.

For Spanish fashion brand Zara — a part of $10 billion Inditex Group — India can easily be one of the key markets for the group. “We see huge potential for fashion brands and are opening two stores in Delhi and one in Mumbai. By the year end, we plan to have a couple of more stores in Bangalore and some other cities,” says Jesus Echevarria, Chief Communication Officer, Inditex Group.

There are enough reasons for his optimism. The Rs 2,000 crore premium fashion retail segment is expected to grow at 25-30 per cent annually over the next five years to Rs 6,000 crore, according to estimates made by consulting firm Technopak.

After the initial mistakes when they priced their products beyond the reach of the Indian consumer, foreign fashion brands have become more prudent to cash in on the boom. Most of them have taken what they call the “competitive price” route to cement their presence in the Indian market.

“India is a unique market and if we can provide garments which are competitively priced, we see our brand making a significant impact in this country. Our plan is to earn 10 per cent of our revenue from India in the next five to seven years,” says Zhou Juntao, Vice President, India, Yishion Group.

Yishion is a $12 billion company with presence in 24 countries and has menswear, womenswear and kid’swear priced between Rs 699 and Rs 3,499.

They have basically learnt from the experience of others such as Marks & Spencer, Benetton and Mango, all of whom cut prices to suit the Indian wallet.

Indian garment companies see this as a big threat. “There is no doubt that with the entry of multinational brands, Indian firms are bound to lose their grip. If Chinese firms also start entering India, things could be worse as they have the cost advantage and can provide clothes at a very competitive price,” says Shobhit Tyagi, spokesperson, Arvind Ltd.

The major focus for Indian garment firms thus will be to focus on costs and design. “The labour cost is also increasing in India, so even if one has a manufacturing base it doesn’t guarantee an advantageous position. One has to constantly look at cutting down on costs and try and leverage the design capabilities that India has,” adds Tyagi.

Retail players like Aditya Birla Retail feels that Indian companies really need to improve their standards if they want to sustain their edge in the marketplace. “There are some major garment players which are entering India and this is very good from the customer perspective. If Indian players want to survive, they have to improve their design capabilities and enhance their quality. Otherwise it is going to be very difficult to compete with the multinational brands,” says Thomas Varghese, CEO, Adita Birla Retail.

Moreover, there are a lot of multinational garment giants which are waiting for India to open up multi-brand retailing. Once that becomes a reality, Indian garment companies will face the ultimate challenge.

“Multi-brand retailing will soon become a reality and Indian companies are aware of that. There are a lot of multinational players who are just waiting for a clearance for multi-brand retailing. It will be a major challenge for companies like us,” says Tyagi.