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Business News/ Companies / News/  Forever 21 plans investing $50 mn in India to expand retail

Forever 21 plans investing $50 mn in India to expand retail

The company is planning to add close to 35 stores in India over the next five years

The company, which posted revenue of $3.4 billion in 2012, also plans to increase its sourcing from India. Photo: Pradeep Gaur/Mint (Pradeep Gaur/Mint)Premium
The company, which posted revenue of $3.4 billion in 2012, also plans to increase its sourcing from India. Photo: Pradeep Gaur/Mint
(Pradeep Gaur/Mint)

New Delhi: US apparel retailer Forever 21 plans to invest $50 million in the Indian market over the next few years to expand its retail operations after having switched its local partner.

The privately held company, which posted revenue of $3.4 billion in 2012, also plans to increase its sourcing from India.

“Look at the population of both India and China, it’s huge... and... young too. This is a big opportunity," said Do Won Chang, the Korean founder and chief executive of Forever 21 Inc. He was in India for the launch of the company’s second flagship store in the country and its first in the capital on Friday. The company is in partnership with DLF Brands Ltd in India.

Chang, 58, an immigrant to the US, opened his first retail store in Los Angeles in 1984, going on to establish Forever 21 as an affordable fashion and accessories brand for young adults. The company operates in 20 markets across America, Europe, Latin America and Asia with more than 500 large format retail stores.

Forever 21 first entered the Indian market in 2011 under a franchise agreement with the Dubai-based Sharaf Retail, launching a store that shut earlier this year.

The change in partner to the unit of real estate developer DLF Ltd was announced in October last year.

The company is looking to increase its sourcing for global operations from India.

“We are looking for vendors to take sourcing to between 7% and 10% over the next three-four years" from 3% now, said Jatin Malhotra, director of global expansion at the company.

Forever 21 is popular for its cheap, trendy clothes and rapid changes in inventory, typical of the way fast fashion works.

“We keep changing (fashion and offerings) everyday. We are always thinking of customers," said Chang, who prefers Christian Dior business suits but also sports Forever 21 T-shirts.

Despite being affordable, it won’t be easy for Forever 21 to crack the Indian market, retail experts said.

“Such brands are actually positioned as premium brands in India even though the positioning might not be the same in their home countries. They hence target a niche audience and require premium locations in malls and high streets to grow," said Rachna Nath, leader, retail and consumer, at consulting firm PricewaterhouseCoopers.

Analysts said Forever 21 didn’t get its India strategy right the first time around as the pricing and merchandise weren’t right.

“They really should focus on the right merchandise for the market now," said an analyst on condition of anonymity.

India’s retail market for western wear has, over the past few years, attracted a clutch of the world’s largest private labels that are banking on the country’s young consumers to spur business. Consumption expenditure on apparel is expected to increase 3.8 times to $225 billion in India over the next seven-eight years, according to a 2012 report by Boston Consulting Group.

The government relaxed the rules for foreign direct investment in single-brand retail in September last year, spurring interest on the part of several brands.

Zara, owned by Spanish retailer Inditex SA, has been the most successful of the fast-fashion labels to have entered India. Inditex now wants to bring higher-end label Massimo Dutti to the country through a proposed JV.

Sweden-based Hennes & Mauritz AB has proposed an investment of 700 crore to launch 50 stores in the country as part of its FDI proposal. Japan’s Uniqlo and American retailer GAP are meanwhile in the process of finalizing their India entry plans.

Even as foreign single-brand retailers have benefited from the FDI policy, sustaining a profitable business model is still a challenge, experts said.

The market for such brands, according to the analyst cited earlier, is typically tier-1 cities.

“Where do you grow beyond that? Plus, high rentals and lack of suitable malls can restrict growth for foreign brands," he said.

A weakening rupee is bound to squeeze the margins of retailers who rely on imports. Subsequently, domestic and existing foreign retailers, barring a few, continue to see muted consumer sentiment bolstered by discounts and offers.

Chang is optimistic about Forever 21’s prospects.

“We hope to add 300-500 stores in Asia in the next five-seven years," he said. Of these, 30-35 stores are envisaged in India.

Having catered to young consumers for close to three decades, Chang has learnt that success in fashion is all about timing. “You can never be too early or too late with fashion, you have to be always on time."

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Suneera Tandon
Suneera Tandon is a New Delhi based reporter covering consumer goods for Mint. Suneera reports on fast moving consumer goods makers, retailers as well as other consumer-facing businesses such as restaurants and malls. She is deeply interested in what consumers across urban and rural India buy, wear and eat. Suneera holds a masters degree in English Literature from the University of Delhi.
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Published: 15 Jul 2013, 08:16 PM IST
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