Gorisha Sapra, 22, a chartered accountancy student, loves shopping for clothes and footwear, but finds high value brands such as Marks & Spencer, Zara or H&M, expensive. "I look for products that are both of decent quality and reasonably priced," she says. "I want fashion brands where I can get five to seven pieces of clothing within Rs 5,000." She is currently saving to buy thigh-high boots.
Sapra typifies the kind of customer who has given value fashion brands in India a fillip. For long, the Indian apparel market had broadly two kinds of products - those sold by premium brands and those that were unbranded, often sold at pavement stalls or in local shops in markets such as Rajouri Garden and Lajpat Nagar in Delhi, or Lokhandwala and Fashion Street in Mumbai. Barring exceptions like Vishal Mega Mart, there was very little available in between.
In the last few years, several companies have moved in to fill this gap - the Future Group launched Fashion at Big Bazaar (FBB), the Dubai-headquartered Landmark Group started Max Fashion and Reliance Retail began Reliance Trends. Newcomers, such as Gurgaon-based V-Mart Retail, Kolkata-based CityLife Retail and Delhi-based CityKart Retail, also made a mark. Though V-Mart dates from 2002, the other two began in 2013 and 2016, respectively. A few selling only premium brands earlier now have value brands as well, such as TCNS Clothing's that owns W For Women, has launched Aurelia.
Reliance Retail's joint venture with Marks & Spencer - Marks & Spencer Reliance India - is considering lower priced offerings, too. Other global players are also venturing into this space - private equity giants Kedaara Capital and Partners Group recently bought Vishal Mega Mart reportedly for Rs 5,000 crore. Many of the premium ones have been successful too. Zara's revenue, for example, has increased by 578 per cent from FY '11 to Rs 1,012 crore in FY '17.
But they left a large market segment untouched.
The enthusiasm is natural as many of the value retailers are doing very well, indeed. V-Mart Retail, which is listed, saw its average market cap grow 130.4 per cent in the March 2017 to March 2018 period, from Rs 1,488 crore to Rs 3,429 crore. Its sales rose 22 per cent to Rs 1,222 crore in 2017/18 over the previous year, with net profit margin of 6.23 per cent. Max's sales grew 22 per cent to Rs 2,861 crore, and FBB's by 23 per cent, during this period.
Value retailers can be divided into two kinds - those which target middle and upper middle class customers, and those aiming at lower middle and middle class ones. Max, FBB and Reliance Trends cater to the former. Their stores and labels are mostly in metros and Tier-II cities. The second sort, with stores predominantly in Tier-II and Tier-III cities, include V-Mart (the pioneer), CityKart Retail and CityLife Retail.
"Within the middle class, there are 10 different layers and each value player is tapping a different market, converting a part of the unorganised market into organised," says Harminder Sahni, Founder, Wazir Advisors - a retail consultancy firm.
The retailers broadly agree. "We target small towns and people in the income group of Rs 15,000-20,000 per month," says V-Mart Founder Lalit Agarwal. CityKart Retail has so far notched up 36 stores, all of them in Uttar Pradesh and Bihar. "We are not competing with the likes of Max and FBB, but with the unorganised market," says Sudhanshu Agarwal, Founder, CityKart Retail.
CityLife has 120 stores across 13 states. However, distinctions are blurring with Max, for instance, launching another brand EasyBuy, whose products are 30-40 per cent cheaper than those sold at its parent stores. "With two brands, we have a two-pronged approach to value fashion, one with exceptional value and the other offering good value," says Shital Mehta, CEO, Max Fashion India. EasyBuy has 64 stores so far, of which 36 are in metros.
Democratisation of Fashion
Even globally, after the recession of 2008/09, people have become discretionary in their spending, questioning the premium prices paid for top brands. "The latest fashion trends were earlier the turf of brands which charged a premium for them," says Ankur Bisen, Senior Vice President, Retail and Consumer Products, Technopak. "But fast fashion brands have since deconstructed this and started selling fashion at lower prices." India, too, has followed this trend. "There has been a democratisation of fashion where the latest cuts and silhouettes are now accessible to the masses," says Rajesh Seth, Chief Operating Officer, FBB. "If, say, lycra is in vogue, we will ensure that lycra apparel is available at one-third the cost the premium segment is charging."
Those selling mostly in metros take branding very seriously, those in the smaller towns less so. V-Mart, for instance, sells all kinds of trade labels. Among the former, some like Max, believe in a single label, while FBB has promoted a series of them, such as Buffalo, Morpankh, Spunk and Srishti. "Given the volume of business we do, we are developing each line into a brand so that customers have an emotional connect with it, apart from the rational one of it being competitively priced," says Seth.
"Each brand must have its own identity." The likes of Max and FBB have international design teams creating new products. "We have a team of 60 in-house designers in India along with a design office at London that spend a considerable amount of time in trend spotting," says Seth. These designers scout trade shows, European markets and global fashion shows for the latest in fabrics and trends. Max, too, has 300 vendors across countries, and most of them design clothes exclusively for them.
Pricing products low means keeping close control on overheads such as rental, power consumption and manpower, while also having a tighter grip on the supply chain. This is crucial as all the three key players, Max, Reliance Trends and FBB, say their stores get new stock every 45-60 days. Seth says they have been able to do that through their 'unseason strategy' where the trigger for fashion is not seasons but occasions such as weddings and festivals.
Developing one's own products also helps. "Owning product lines gives retailers almost 20 per cent higher margins in certain categories than buying them," says Pinaki Ranjan Mishra, Partner and National Leader, Retail and Consumer Products, EY. Thus all FBB's brands are company-owned.
Rents in Tier-II and III cities are also progressively lower than in the bigger ones, which explains their attraction for retailers. "In smaller towns, rent is covered by 3-5 per cent of sales," says Agarwal of CityKart. "In Allahabad the cost would be Rs 20 per sq.ft., in Lucknow Rs 40, but in Gurgaon it would be Rs 65 per sq.ft., while the revenues are more or less similar."
But the towns and locations for the stores are also chosen with care. With each market in this diverse nation having its own special characteristics, value retailers prefer to invest in clusters. CityKart has stores only in UP and Bihar. V-Mart also opens new stores within a 150-200 km radius of another. "We started in North India and are gradually moving east," says Lalit Agarwal of V-Mart. Every market has a different assortment strategy that is based on local clothing preferences and tastes.
What works in West Bengal might not necessarily work in its neighbouring state of Odisha. "We locate our stores close to one another because we understand the market in that region better. Every market is different, if only a little different." However, Agarwal points out to one key difference. He says people in rural markets prefer brighter colours. They refer to the black and white and shades of grey - popular in urban pockets- ki yeh vardi hai.
CityLife also prefers towns which do not already have another major retailer. "It gives us first mover advantage to tap into latent demand," says Ritesh Kedia, Director, CityLife. "We can also choose the best locations." However, it is not an advantage that lasts long - if latent demand is discovered, competition will soon intensify. "There will be comparison of product quality, prices, range of choices offered, customer service, and more, and companies should be prepared for that," says Mishra of EY.
Value retailers are, indeed, making an effort to perform well on these metrics. Earlier, V-Mart and FBB stores often looked overstuffed, but no longer. Data analyst Shivani Sharma particularly likes shopping at Reliance Trends as the store executives help her create an entire look, showing her different products that match her initial purchase. "The attitude is the same at every store of theirs," she says. "I always end up buying more than I need." All retailers agree that the shopping experience they provide is vital. "Customers have started demanding a good experience, so we have to improve our game," says Seth of FBB.
There is also the growing competition from online retailers to combat which stores have their own websites on which orders can be placed directly. They are also providing other value-added services. "It is not enough to open stores anymore," says Mehta of Max. "We need to connect with customers in an omni-channel format where online and offline work seamlessly together so customers have 24x7 access to the brand."
As the number of value retailers grows, there are bound to be winners and losers and consequent consolidation. "Brands which have been built over years are now trying to create entry barriers for others by building their own brand equity, visibility and customer connect," says Bisen of Technopak. Whether new players can stand up against the existing goliaths remains to be seen.