Globalization of Fashion Retailing – Opportunities and Challenges for India

1. Globalization of Fashion Retailing – Opportunities and Challenges for India Dr. Tarun Panwar Pearl Academy of Fashion, India

2. Global Retail Scenario

3. 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

4. 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

5. 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

6. “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).

7. Indian Retail Scenario

8. 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.

9. 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

10. Retail sector contributes 10% of GDP and 6-7 % 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.

11. 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

12. 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

13. 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.

14. The Present Study

15. 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) .

16. 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 .

17. Findings of Secondary Research

18. McKinsey Study

19. Source : McKinsey Global Institute

20. 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

21. “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).

22. MEXICO

23. Walmart’s entry into Mexican retail market has driven down prices to consumers • It has also driven down average margins in the industry.

24. 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. • 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).

25. Thailand and Malaysia

26. 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

27. China

28. 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

29. 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.

30. FDI in India Potential Impact

31. Why is India Worried?

32. 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

33. The multinational fast-food chains have not displaced the roadside dhaba. • Foreign apparel brands have not put Mumbai's Linking Road or New Delhi's South Extension garment stores out of business. • Other than employment creation, better wages, wastage reduction, disintermediation, and so on, foreign retailers will provide small businesses and franchises opportunities like never before.

34. Findings of Primary Research

35. EMPLOYMENT

36. Entry of foreign retailers in India will lead to an overall increase in employment in this industry. Majority of Respondents Agree

37. Overall employment in the country will increase due to growth of related/allied industries like IT & tourism. Majority of Respondents Agree

38. The quality of employment in terms of salaries, working conditions etc will improve. Majority of Respondents Agree

39. Employee attrition rate will go up due to availability of greater choice and the existence of limited resources. Majority of Respondents Indecisive

40. 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

41. SMALL UNORGANIZED RETAILERS

42. Entry of foreign retailers will drive the small unorganized players out of business. Majority of Respondents Indecisive

43. 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

44. 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

45. Small unorganized retailers will be forced to reduce the prices of their product offerings due to competition from organized players. Majority of Respondents Disagree

46. 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

47. Retailing is taste driven and hence it is difficult for foreign retailers to understand a complex market like India. Majority of Respondents Agree

48. There will be a wave of M&A which will eventually lead to the elimination of small unorganized retailers. Majority of Respondents Disagree

49. Technology will trickle down to smaller retailers. Majority of Respondents Agree

50. Competition will force regional retailers to increase scale of operations. Majority of Respondents Agree