The retail business is as much about what you don't sell as it is about what you sell," says Ram Narayan Iyer, Chief Operating Officer, Madura Garments Lifestyle Retail Co. He is supervising the final touches to the third store of The Collective in India, at the Ambience Mall in New Delhi's Vasant Kunj neighbourhood. The Collective was launched as a retail brand in 2008 in Bangalore aimed at the young industrialist and entrepreneur with a selection of international brands such as Ralph Lauren and Calvin Klein.
As he walks through the store, Iyer says, "If you buy right and buy tight then you do not have to discount either the brands or your own equity." Higher discounts equal lower margins, which is lethal when the investment per store for The Collective can run up to Rs 8 crore. So Iyer tries to squeeze every ounce of efficiency he can from the back-end.
| Fashion: Fast facts|
Organised retail in India is expected to increase from 5% in 2008 to 14-18% of the total retail market and reach $450 billion by 2015
Driven by the expanding retail market, the third party logistics market is forecast to reach $20 billion by 2011
Apparel, along with food and grocery, will lead organised retailing in India
For the fourth time in fi ve years, India ranked as the most attractive destination for retail investment among 30 emerging markets
Source: India Brand Equity Foundation
That means scrutinising the entire value chain. "Rather than carrying inventory at different locations, for a multi-brand store like us it is wiser to carry inventory only in one location," he says. The Collective stocks more than 100 brands of apparel and accessories, and Iyer buys four times a year from the fashion capitals. Most of his consignments come from Milan, some from Hong Kong and China, and one from a factory in Bangalore. Aggregation takes place in a Mumbai warehouse.
Iyer prefers to spend on air freight rather than add to capital costs and inventory holding costs. "We are really not concerned where we get the products from. For us time to market has to be as short as possible. Hence, we airlift most of our supplies," he says.
Many global brands, which buy their apparel from manufacturers in India, follow an even more complicated model. So the clothes can sometimes go from India, Bangladesh and Sri Lanka to Europe and the US, get aggregated there and sent back to India. And, right now, this convoluted system is cheaper and more efficient than getting it straight from the factories.
One reason for this, says Ashok Dalal, the CEO of Brandhouse Oviesse, is India's poor physical infrastructure for logistics and the lack of scale for retailers. His company, a venture between S. Kumars Nationwide and Italy's OVS, aims to provide fast fashion to the young at mid-to-premium prices. OVS opened its outlet at the Ambience Mall a few days before The Collective, and plans to have 190 stores within the next five years.
Dalal believes it is more efficient for retailers like him to connect to the global supply chains of foreign brands than to link up with the manufacturers locally. Point to point trucking time in Europe is much less than what it takes in India, he says, and this can shave up to 25 days from the design to store-shelf journey.
Since the chain's proposition is fast fashion, such efficiencies dictate its success or failure. Typically, retailers place advance orders and then wait for the cargo to arrive by ship, since air freight is too expensive for normal consignments.
Convenience is also a big reason. Dalal explains, "While we have to spend a few rupees more, we have been saved the murderous task of consolidation." Consolidation as in tracking 6,000 stock-keeping units or SKUs, 150 shipments, invoices, custom duties and two months in transit.
For global brands, sourcing is a critical business. And the ones who have come to India and formed joint ventures are re-thinking their models as they try to balance good margins against customer satisfaction.
One company's challenge is another's opportunity. So DHL Global Forwarding, a division of DHL, the world's largest logistics company, has set up a fashion and apparel centre for excellence at the export hub of Tirupur in Tamil Nadu. DHL's services cover the entire logistics value chain of the fashion industry-from material purchasing to sending samples, from quality control to delivering the products directly to the boutiques of fashion companies.
With more premium and luxury brands coming in, logistics providers are allocating larger spaces for fashion and apparel in their multipurpose warehouses. "There is an incipient demand for sophisticated logistics. And that does not just mean trucking the cargo from one point to another, but clean, secure and air-conditioned warehouses and the likes," says Gagan Seksaria, Associate Director, Transportation and Logistics at KPMG India.
Yes, warehouses with humidity and temperature control systems. After all, as Juzar Mustan, Chief Executive, Logistics, AFL, says, "You cannot treat an Armani jacket in the same way as a pair of ordinary trousers. Too much moisture can irreparably spoil some of these high value items."
Bangalore-based Gokaldas Exports sends winterwear and formal suits to western markets in containers - with the suits slung on hangers, not stacked. "Such facilities were unthinkable some years ago. Even now they come at a cost," says Rajendra J. Hinduja, Managing Director.
Transporting an empty container from a port to the Bangalore facility of Gokaldas costs Rs 50,000-60,000, he points out. "It is cheaper to move cargo from Chennai to Hamburg than it is to move it from Delhi to Chennai," he complains. That is a sample of the now infamous infrastructure deficit which hobbles businesses and exporters in particular.
While logistics service providers consider investments in the better facilities, do the brands that demand such facilities have the volumes needed? AFL's Mustan points out one retailer has a 20,000 sq ft warehouse with it. "We have the capability to scale it up to 60,000 sq ft within weeks, but there is no demand as yet," he says. Also, many domestic fashion retailers do not view logistics as a competitive advantage yet.
Some brands also get discouraged by poor last-mile connectivity. After all, a sophisticated warehouse by itself cannot be a solution, if all other links to the warehouse are sub-optimal.
However, as fashion becomes an imperative and garments get outdated in weeks, some of these moving parts will fall into place naturally. An important signal is that Zara and Forever 21 recently launched in India. Long live economic growth.