Propelled by steady rise in income levels and greater penetration of organised retail, India’s branded apparel market is expected to grow strongly in the next few years.
Total apparel sales volumes fell 2 per cent in 2011 and grew by a modest 2-3 per cent in 2012. Imposition of excise duty on branded apparels in 2011 along with a concurrent slowdown in economic growth badly hurt consumer sentiment and thereby impacted apparel purchases. However, volume growth has picked up since April 2013, attributable to the removal of excise duty and growth in demand from smaller towns.
We forecast apparel demand (in volume terms) to grow by 4 per cent annually in 2013 as well as 2014. Branded apparels would grow at a much stronger pace, driven by increased presence of organised retail, rising disposable incomes, changing demographics and increasing brand consciousness. CRISIL Research estimates the domestic apparels market to be around Rs. 1,250 billion in 2012, of which branded apparels (defined as brands having a strong national or regional presence) contribute about 40 per cent. A decade ago, the corresponding percentage would probably have been closer to 25 per cent.
The share of organised retail in apparel sales in India is estimated at about 18 per cent, lower than countries like the U.S. and EU where the share of organized retail is over 80 per cent. Amongst the various categories, branded apparels penetration is probably the highest in men’s formal wear and women’s western wear. In other categories such as women’s traditional wear, casual wear (jeans and t-shirts) and kid’s wear, branded apparels still have a fledging presence.
The robust growth in branded apparels demand is reflected in sales numbers of some players in this space. Over the past 5 years, sales of Madura Fashions and Lifestyle Ltd. (main brands – Louis Philippe, Van Huesen, Peter England, Allen Solly) grew at 25 per cent CAGR, while that of Kewal Kiran Clothing Ltd (which owns the Killer and Lawman brands) rose by 14 per cent annually. Revenues of Page Industries (licensee of the Jockey brand) grew at 35 per cent CAGR in the same period. Growth recorded by these players has been much faster than the expansion in the apparels market – growth of 5 per cent CAGR in the past 5 years.
Branded apparel players typically earn operating margins in the range of 15-20 per cent, but returns can vary significantly depending upon the strength of the brand and business model followed.
The growing demand for branded apparels has also encouraged many of the domestic players to enter into marketing tie-ups with well-known foreign apparel brands (for example, Cherokee, and Tommy Hilfiger) for sale of their branded apparels in India.
Many established foreign apparel brands are also present in India on their own.
We project domestic branded apparel sales to grow at a CAGR of 10-15 per cent over the next 5 years, much faster than the 6-7 per cent annual growth in the overall market. Consequently, by 2017, branded apparels would account for over 50 per cent of the domestic apparels market.
However, players looking at making a mark in this space will have to learn from the past and judiciously assess customer preferences and calibrate expansion plans. Adequate investments in product differentiation and branding will be equally critical. In the past 3-4 years, a number of players who were overzealous in their expansion plans were caught on the wrong foot due to their inability to assess demand and increasing inventories choking cash flow.
Over the next decade, we are likely to see a number of strong multi-million brands emerge in branded apparels, but some of them will fall by the wayside, given the critical importance of understanding changes in customer tastes and preferences as well as managing cash flows.
The author is Director,
a division of Crisil Ltd.