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Business News/ Industry / Retail/  Cheaper brands pick up pace as slowdown hits retail segment
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Cheaper brands pick up pace as slowdown hits retail segment

Max Fashions expects sales to jump 35-40% in the year ending March, Reliance Trends expects sales to rise 70-80%

Value fashion is a new concept in organized retail in India that started with the launch of Max Fashions and Reliance Trends in the mid 2000s. Photo: Hemant Mishra/MintPremium
Value fashion is a new concept in organized retail in India that started with the launch of Max Fashions and Reliance Trends in the mid 2000s. Photo: Hemant Mishra/Mint

Bangalore: Clothing chains Max Fashions and Reliance Trends are growing significantly faster than retailers such as Shoppers Stop Ltd and Madura Garments that offer pricier labels as slowing economic growth and rising prices force shoppers to curb spending on apparel.

After increasing sales by an average 25-30% for several years, many apparel retailers have seen growth slow to less than 25% over the past 18 months as high prices hurt demand even as economic growth slowed to 5% in the year ended 31 March, the weakest in a decade. Many shoppers have shifted some of their apparel spending to cheaper brands offered by chains such as Max Fashions and Reliance Trends, according to analysts. These chains sell products priced at 200-800, 50-100% lower than those sold at retailers such as Shoppers Stop and Lifestyle.

“A slowdown helps us. In 2008-2009, when we saw a jump in sales, there was a slowdown and consumers started coming to us because of the value proposition. That is happening now," said Vasanth Kumar, executive director at Max Fashions. “Real estate developers also looked at us favourably because they know that this is a safe format whether times are good or bad. We’re getting more options in terms of property because of the same reason."

Max Fashions, which is owned by department store chain Lifestyle International (Pvt.) Ltd, expects sales to jump 35-40% to 1,000-1,100 crore for the year ending March, and to grow twice as fast as its parent company, which runs the Lifestyle clothing chain, over the next five years.

After the global economic recession of 2008, demand for premium apparel slowed not just in India, but the world over, said Akhilesh Prasad, chief operating officer at Reliance Trends, which expects sales to rise 70-80% this year. “Whereas global value fashion or fast-fashion brands such as H&M, Primark and Uniqlo have shown strong results and continued to grow in what is essentially still a recessionary market, in India, too, the apparel market is following a similar trend," he said.

In India, the first wave of large organized apparel retailers such as Shoppers Stop and Madura Garments mostly sold premium apparel.

Some of these retailers later tried to cater to the mass market, but none was able to launch brands at prices that were affordable for the middle class.

Kishore Biyani’s hypermarket chain Big Bazaar has identified fashion as one of the company’s three key businesses. The chain is fast expanding its apparel offerings and trying to change its brand image so that people come to shop first for the attractiveness of the clothes rather than just cheap prices.

“We’ve gone through a major transformation this year. Instead of showing deals in our marketing, we are promoting our fashions—basically what you expect to see in a department store," said Akshay Mehrotra, chief marketing officer at Big Bazaar. “We have the expertise in fashion within the group. A lot of people are moving in from the group to help build the fashion category and we are promoting the category aggressively. And this is a good time because consumers have realized they need to conserve cash, and apparel buying has picked up significantly in our stores over the past few months."

Value fashion is a new concept in organized retail in India that started with the launch of Max Fashions and Reliance Trends in the mid 2000s, while the likes of Sweden’s H&M, Japan’s Uniqlo and Spain’s Zara have made a similar concept—fast fashion—popular globally.

These products typically offer margins that are 20-30% lower than that of premium brands. Building a profitable value fashion business depends on keeping costs low and selling a higher number of clothes than what premium brands sell.

Value fashion brands keep offering new product lines every one-two months, while other retailers, on an average, launch new lines four-five times a year.

While Max’s target audience are in India’s top 40 cities, others such as Reliance Trends and V-Mart Retail Ltd are also reaching out to shoppers in smaller cities.

“These consumers (in tier II cities) are hugely exposed to media and thus know about the latest trends, but their pockets or spends are fairly restricted. They want similar looking apparel or fashion clothing, but at lower prices," said Lalit Agarwal, chairman and managing director of V-Mart.

Amit Gugnani, senior vice-president (fashion, textile and apparel and engineering) at retail consultant Technopak Advisors Pvt. Ltd, estimates the value fashion market in India to be worth $10 billion, mostly comprising unorganized retailers and tailors. He estimates that value fashion accounts for 28-30% of the overall retail market.

The strong growth of the few organized value fashion retailers in India highlights the lack of competition in this large apparel retail segment—an anomaly in the wider consumer goods space since organized players control a majority of mass products such as biscuits and phones.

“People looking for value—those who buy shampoo sachets, Nano cars, cheap mobile phones—these people buy fabrics and get them stitched. It’s very hard to compete with them," said Harminder Sahni, managing director of Wazir Advisors. “If you have to have an organized play in value, it’s a big challenge because once you enter tier II-III cities, managing the distribution with so many SKUs (stock-keeping units) is very complex. The cost just keeps increasing."

Max Fashions’ Kumar said it’s expensive to keep changing product offerings and keep up with the latest fashions. “You have to do everything that a brand does, but keep the price much lower. This category by nature will have a lot of attrition and failures. If you aren’t very cost-conscious, you will end up increasing prices. And if you are going too low on value, you will end up missing the fashion. So you can trip very easily either way," he said.

Analysts predict that value fashion brands will continue to grow faster than the rest of the apparel retail market as these products would be the first choice for millions of Indians who shift to buying readymade clothes rather than getting them stitched by tailors.

Analysts, however, are divided on whether companies can build a profitable business outside the metros and other large cities due to the complexities as well as the costly nature of sourcing and distribution in apparel.

“I don’t think the Max and Reliance Trends of the world will be able to go successfully to the hinterland. Their cost structures are just too high. There are hundreds of regional labels which are not visible, but they generate 50-70 crore in sales, and these brands are also value players," Sahni of Wazir Advisors said.

Suneera Tandon in New Delhi contributed to this story.

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Published: 19 Nov 2013, 12:16 AM IST
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