Transcript Globalization of Fashion Retailing – Opportunities and

Globalization of Fashion Retailing
–
Opportunities and Challenges
for India
Dr. Tarun Panwar
Pearl Academy of Fashion, India
Global Retail Scenario
 Size of World Retailing – (2003)
US $ 8 trillion ( Rs. 360,700 billion)
 47 of the global Fortune 500 companies and
25 of Asia’s Top 200 companies are retailers.
 Retailing is currently generating 18%
shareholders returns (higher than banking
and insurance)
Source – Images Year Book 2005
 Out of US $ 8 trillion (2003), one third share is
dominated by 250 global powers of retailing.
 There is increasing trend to retailing internationally
amongst top 250 global retailers; in 1997 average
retailer was present in 4.5 countries which have
increased to 5.5 countries in 2003 .
 Overseas retail sales play a critical role in total sales
of global retailers. For instance Tesco reported 30%
growth in sales overseas compared to 7% in Britain
and Wal-Mart’s one fifth of sales is from overseas
operations.
Source : Stores/Deloitte 2005
 Asia is becoming increasingly important market with
Japan occupying no. 1 position in the world with US
$ 9309 per capita retail sales.
 Two other most attractive economies China and
India though low in per capita retail sales (US $411
and US $267 respectively) offers fastest emerging
markets in the world.
 Internationally retail plays very critical role in
employment, the share of retailing in total
employment in US is 11% compared to India and
China which is 6% each.
Source : Planet retail 2003 and KSA CII
 “In the realm of fashion, there have been
some notable successes in taking retail
concepts to new markets.”
 These include Sweden’s H&M, Spain’s Zara,
and US retailer Gap.
 The scope for apparel specialty chains to
expand globally is vast for several reasons
such as finding appropriate space is less
challenging for them, can leverage the
existing supply chain in new markets ( as
they are vertically integrated) , the most
successful apparel retailers usually have
universal appeal.
Source : (Deloitte 2005).
Indian Retail Scenario
 Recent study by NIC (2005) predicts
India and China as Superpower by the
year 2020.
 Their likely emergence as new major
global players— similar to the rise of
Germany in the 19th century and the
United States in the early 20th
century—will transform the geopolitical
landscape.
 India is the fourth largest economy in the world in
Purchasing Power Parity (PPP) terms after USA,
China and Japan.
 Growth largely fuelled by rapid increase in consumer
spending which is predominated by a young
population profile.
 GDP has averaged a growth of 6% p.a. in the last 10
years.
 In 2003, India became the second fastest growing
economy in the world with a growth rate of 8.2%.
Source – Images Year Book
 Retail sector contributes 10% of GDP and 67 % of employment in the country
( Bajpai 2004).
 Retailing scene is unorganized with 98 % of
retailing dominated by small size mom and
pop stores.
 Size of Organized retail market has shot past
US $ 4.44 billion.
 Approx. 15 million retail outlets
 Highest number of retail outlets per capita in
the world.
 Retail space per capita at 2 sq. ft. per person
is amongst the lowest. (USA = 16 sq. ft.)
 Average size of retail outlets only 50 sq. ft.
 Only 4%of the retail outlets are more than
500 sq. feet ( Assocham 2004 ) .
Source – Images Year Book
 Clothing and Footwear consumption
expenditure in 2003-04 was US $ 17.7 billion
which is 5% of total expenditure.
 Clothing, Textiles and Fashion Accessories
are 39% of the total organized retail.
 Organized retail is projected to grow at the
rate of 25-30% p.a. and would grow to 9% of
the total retail sales by 2010.
Source – Images Year Book
 Growth of large format chain stores throughout the
country lead by local players like Pantaloons Retail
(I) Ltd, RPG Retail, Shoppers’ Stop Ltd., Trent (India)
Ltd. (Westside), Ebony, Vishal Mega Mart,
Pyramidetc and International retailers like Lifestyle
and Metro.
 Entry of leading fashion brands through licensing or
joint ventures like Levis, Benetton , Lee, Marks n
Spencers and Mango.
 Leading Brand Chains like Bata, The Raymond
Shop, Tanishq, Titan, Liberty, Samsung DigitAll,
Reebok India Ltd.
The Present Study
• The study attempts to map the likely
impact in terms of problems and
prospects for India in the wake of
globalization of Fashion Retailing
(entry of retail multinational
corporations) .
Scope of this Study
To map the impact of internationalization
of retailing in the following areas :
(a) employment
(b) small unorganized Indian retailer
(c) organized retailer
(d) wholesale intermediaries
(e) sourcing
(f ) pricing and
(g) consumer .
Findings of Secondary
Research
McKinsey Study
Source : McKinsey Global Institute
Summary of the McKinsey Study
The overall impact of FDI on host country is
positive on the following fields :
•
•
•
•
•
Economic impact
Distribution
Employees
Consumers
Government
“On average, a doubling of FDI inflows
leads to a 1.5-2 percent fall in
migration."
World Bank Policy Working Paper No.
3600 by Patricio Aroca Gonzalez and
William F. Maloney (May 2005, PDF).
MEXICO
o Walmart’s entry into Mexican retail
market has driven down prices to
consumers
o It has also driven down average
margins in the industry.
o As revealed by Toktali and Boyaci’s (1998)
analysis in Turkey, it is likely that the fast
acquisition of market share by foreign retailers
will be squeezing few local retailers out, and
also creating a pressure towards consolidation
for the retailers that remain large.
o Similarly, there is emerging evidence concerning
the emulation of sourcing and supply chain
operations and store formats of the retail by
indigenous retailers (Goldman, 2000; Lo et al.,
2001).
Thailand and Malaysia
Global retailers spelt doom for the
traditional mom & pop stores.
Thai govt. had to step in to save local
retailers from annihilation.
It set up “Allied Retail Trade” – a
network of franchised stores, which
brought small stores together to fight
the big chains.
Source : Business World , Oct 2005
China
Foreign retailers present in China
 4 out of top 10 global retailers
 35 out of top 50
 78 out of top 250
Combined market share of top 17
foreign retailers in China
 $13.8 billion out of China’s retail sales of
$628 billion ( i.e. only 2.2%)
Source : Business World , Oct 2005
Potential implications for retailers
Foreign retailers entering China are faced
with not single but multiple cultures,
resulting in a never-before-kind of cultural
stretch.
Not understanding local consumers, different
labour laws and work ethics, unfamiliar local
competition and their style of operations are
some of the key challenges a retailer
entering a new market faces.
FDI in India
Potential Impact
Why is India Worried?
 Global retailers will kill the local
‘kirana’ industry.
 FDI in retail could lead to millions of
job losses.
 Global retailers will put pressure on
farmers and suppliers.
 Predatory pricing policies will lead to
monopolies and harm the consumer.
 Global retailers will trigger growth in
cities, causing skewed urban
development.
Source : Business World , Oct 2005
o The multinational fast-food chains have not
displaced the roadside dhaba.
o Foreign apparel brands have not put
Mumbai's Linking Road or New Delhi's South
Extension garment stores out of business.
o Other than employment creation, better
wages, wastage reduction, disintermediation,
and so on, foreign retailers will provide small
businesses and franchises opportunities like
never before.
Findings of Primary
Research
EMPLOYMENT
Entry of foreign retailers in India
will lead to an overall increase in
employment in this industry.
Majority of Respondents Agree
Overall employment in the
country will increase due to
growth of related/allied
industries like IT & tourism.
Majority of Respondents Agree
The quality of employment in
terms of salaries, working
conditions etc will improve.
Majority of Respondents Agree
Employee attrition rate will go
up due to availability of greater
choice and the existence of
limited resources.
Majority of Respondents Indecisive
Greater employment
opportunities will attract the best
of talent into the industry and on
the whole the quality of
employees will improve.
Majority of Respondents Agree
SMALL UNORGANIZED
RETAILERS
Entry of foreign retailers will
drive the small unorganized
players out of business.
Majority of Respondents Indecisive
There are too many restrictions
on the foreign players who want
to enter the Indian market. So the
small scale players will be largely
unaffected by the few who are
currently present.
Majority of Respondents Agree
Small unorganized retailers will
have to improve the quality of
their retailing if foreign players
are allowed to enter the
business.
Majority of Respondents Agree
Small unorganized retailers will
be forced to reduce the prices of
their product offerings due to
competition from organized
players.
Majority of Respondents Disagree
Convenience is too important a
factor for the Indian consumer,
hence the small unorganized
retailers will continue to hold a
large percentage share in the
retail market.
Majority of Respondents Agree
Retailing is taste driven and
hence it is difficult for foreign
retailers to understand a
complex market like India.
Majority of Respondents Agree
There will be a wave of M&A
which will eventually lead to
the elimination of small
unorganized retailers.
Majority of Respondents Disagree
Technology will trickle down
to smaller retailers.
Majority of Respondents Agree
Competition will force regional
retailers to increase scale of
operations.
Majority of Respondents Agree
Regional retailers will merge
with other regional players to
increase scale of operation.
Majority of Respondents Agree
Regional retailers will allow
larger organized players to
acquire their business.
Majority of Respondents Disagree
Regional retailers will seek
suitable JV partners among
interested foreign players.
Majority of Respondents Agree
Regional retailers will seek
protection from government.
Majority of Respondents Indecisive.
ORGANIZED RETAILERS
Organized Retailers will be
forced to compete with the
foreign players on their terms.
Majority of Respondents Agree
They will enter into partnership
with foreign players in order to
sustain their business.
Majority of Respondents Agree
They will be forced to set up
global sourcing networks and
supply chain.
Majority of Respondents Agree
They will be forced to
consolidate their operations &
improve their pricing structure.
Majority of Respondents Agree
The margins of local
manufacturers will be squeezed
and many will be forced to exit
from business.
Majority of Respondents Disagree
National brands will suffer due to
proliferation of in-house brands
of foreign retailers.
Majority of Respondents Indecisive
Overall productivity, performance
& efficiency of organized retailers
will increase.
Majority of Respondents Indecisive
Following strategies for
organized domestic retailers
to combat the threat from
foreign players :
Domestic organized retailers will
adopt key differentiating
strategies based on past
regional experiences
Majority of Respondents Agree
Domestic organized retailers
would seek JV partners
Majority of Respondents Agree
Domestic organized retailers
would acquire smaller
unorganized players to increase
the scale of operations
Majority of Respondents Indecisive
Domestic organized retailers
would enter foreign markets to
expand business opportunities
and operations
Majority of Respondents Indecisive
WHOLESALE
INTERMEDIARIES
Wholesale employment will
decline.
Majority of Respondents Agree
Organized retailing will lead to
streamlining and consolidation
of the sourcing function. This
will adversely impact wholesale
intermediaries.
Majority of Respondents Agree
Supplying to large scale players
would be a good business
opportunity for wholesalers.
Majority of Respondents Disagree
As all players vertically
integrate in order to meet
competition, wholesale
intermediaries will slowly lose
their relevance.
Majority of Respondents Agree
Presence of unions will
hinder the global players from
entering the market.
Majority of Respondents Disagree
SOURCING
The increased presence of
foreign players in our domestic
market will lead to expansion of
sourcing raw materials from India.
Majority of Respondents Agree
The efficiency of procurement
will go up as the small scale
traders interact with professional
global buyers.
Majority of Respondents Agree
PRICING
Organized retailing will be
successful only in the
premium category.
Majority of Respondents Disagree
Competition from foreign
players will augment
competition which will drive
down the profits.
Majority of Respondents Indecisive
Overall costs of retailing will go
up and thus unnecessarily
burden the consumer with
higher prices.
Majority of Respondents Indecisive
CONSUMER
The entry of foreign retailers will
increase the choice set of product
offered to the consumer.
Majority of Respondents Agree
The end consumer will
benefit from the proliferation
of organized retailing.
Majority of Respondents Agree
It is difficult to understand
the Indian consumer.
Majority of Respondents Disagree
Consumer behavior in India
varies from region to region.
Hence they are likely to be better
serviced by regional retailers.
Majority of Respondents Indecisive
Conclusion
The study reveals that globalization of
retail in India will result in improving
employment opportunities, consolidation
of existing retailing through mergers and
acquisition, loss of relevance of
wholesale intermediaries and benefits to
the consumers.
Thank You!