Currently, India ranks sixth in the world in terms of nominal Gross Domestic Product (GDP) and is the third largest economy in the world in terms of Purchasing Power Parity (PPP). The country is estimated to be among the top three global economies in nominal GDP by Fiscal 2050. India is expected to fare better than developed economies and recover to a high growth path in the coming years.
By Amit Gugnani, Senior Partner & Head, Fashion, Technopak Advisors
India’s real GDP has sustained an average growth between 6% and 7% since FY 1991. India has been the fastest-growing G20 economy since FY 2015, with an annual growth rate hovering around 7%. The Indian economy grew at ~7% in FY 2019. The real growth rate declined to 4% in FY 2020 and witnessed a de-growth of 7.3% in FY 2021 due to the outbreak of the COVID-19 pandemic, which led to the imposition of lockdowns towards the last quarter of FY 2020 and a major part of the first quarter of FY 2021 causing a contraction in the economy. India is projected to have the highest real GDP growth rate as compared to other key economies affected by COVID-19. The country witnessed a strong recovery in H2FY22, especially after relaxation of lockdown and other restrictions post the second wave of COVID-19. An increased demand from consumers fuelled the recovery of the economy.
Since FY 2005, the Indian economy’s growth rate has been twice as that of the world economy and it is expected to sustain this growth momentum in the long term. In the wake of COVID-19, India’s nominal GDP contracted by approximately 4% in FY2021 but expected to bounce back and reach US$ 4.05 Tn by FY 2025. It is also expected that the growth trajectory of the economy will enable India to be among the top 3 global economies by FY 2050.
Several structural factors are likely to contribute to economic growth in the long run. These include favourable demographics, reducing dependency ratio, rapidly rising education levels, steady urbanization, growing young & working population, IT revolution, increasing penetration of mobile & internet infrastructure, increasing aspirations and affordability, etc.
India’s share of domestic consumption, measured as private final consumption expenditure, in its GDP was ~60.5% in FY 2020. This private consumption expenditure comprises both goods (food, lifestyle, home, pharmacy, etc.) and services (food services, education, healthcare, etc.). In comparison, China’s domestic consumption share to GDP in 2019 was 36.8%. High share of private consumption to GDP has the advantage of insulating India from volatility in the global economy. It also implies that sustainable economic growth directly translates into sustained consumer demand for goods and services. India’s domestic consumption has grown at a CAGR of 7.3% between FY 2016 and FY 2021, compared to 2.8% and 4.7% in the USA and China, respectively, during the similar period of CY 2015 and CY 2020.
However, with the outbreak of COVID-19, there has been a depression in demand with an estimated loss of revenue worth US$ 117 Bn in merchandise retail in FY 2021. With the economic environment becoming uncertain, not only are consumers more thoughtful about their consumption but also more conscious of their savings and investments. The consumption priorities are also driven by the health and safety concerns and the other behavioural changes adopted because of the pandemic.
India’s medium to long-term growth and its positive impact on private consumption will be determined by inter-play of demographics, urbanization, and policy reforms. India has one of the youngest populations globally compared to other leading economies. The median age in India is estimated to be 28.1 years in 2021 as compared to 38.1 years and 37.4 years in the United States and China, respectively, and is expected to remain under 30 years until 2030.
India is the world’s 6th largest economy and expected to be in the top 3 global economies by FY 2050.
The share of women workforce in the services sector has increased from 17.5% in CY 2010 to 28% in CY 2019. The overall share of working women increased from approximately 14% in 2000 to approximately 17% in 2010 and to approximately 24% in 2018. This increase of women in the workforce has seen a shift of patterns in terms of household activity, including an upward trend towards purchase of branded products including fashion and lifestyle.
India has the second largest urban population in the world in absolute terms at 472 Mn. in FY 2019, second only to China. However, only 34.5% of India’s population is classified as urban compared to a global average of 54%. It is the pace of India’s urbanization that is a key trend to note for implication on India’s economic growth. Currently, the urban population contributes 63% of India’s GDP. Going forward, it is estimated that 37% (541 Mn.) of India’s population will be living in urban centres by FY 2025.
Overview of the Indian Retail Industry
The retail market in India was valued at US$ 748 Bn (Rs56,10,000 crore) in FY 2021 and is expected to grow at a CAGR of 9.5% to reach US$ 1,077 Bn (Rs80,77,500 crore) by FY 2025.
In Fiscal 2020, India’s retail basket was approximately 48.5% of its private consumption and it is expected to maintain roughly this share in private consumption for the next five years. The food & grocery (F&G) segment forms the major share of India’s merchandise retail expenditure (~66%) and has jumped to ~73% amid the disruptions caused by COVID-19 in fiscal 2021. While other sectors in retail have contracted by 25-30% during FY 2021 due to the impact of COVID-19, need-based categories like food & grocery and Pharma retail have witnessed growth.
Apparel & accessories, jewellery & watches, and consumer electronics are the other three key categories which accounted 7.9%, 7.9% and 6.4% of retail, respectively, in 2020. The share of apparel & accessories is expected to grow to 9% in FY 2025, growing at a CAGR of 8.8% from FY 2020 to FY 2025. Apparel & accessories is one of the fastest growing categories amongst all other retail categories and is expected to grow at a CAGR of 22.4% in the period FY 2021 to FY 2025.
Fashion Retail Market in India
The apparel market size in FY 2020 was Rs4,47,666 crore (US$ 59.69 Bn) and expected to grow at a CAGR of ~8.95% between FY 2020 and FY 2025 to reach Rs6,87,263 crore (US$ 91.64 Bn) by FY 2025 on the back of factors like higher brand consciousness, increasing digitization, greater purchasing power and increasing urbanization.
While the apparel market has de-grown by ~32% to reach a value of Rs3,06,225 crore (US$ 40.83 Bn) in FY 2021 due to negative impact of the COVID-19 pandemic, the market is expected to recover at a higher pace of 22.4% between FY 2022 and FY 2025.
While the CAGR of total apparel market between FY 2020 and FY 2025 is expected to be ~8.95%, branded apparel and organised apparel retail are expected to grow at CAGR of ~10% and ~11%, respectively, in the same period. In other words, growth of both branded apparel’s share and organised apparel retail’s share in the apparel category will outpace the overall category growth. COVID-19 gave impetus to the growth of e-commerce which is expected to become a significant growth driver for the organised market.
The total organised apparel retail in FY 2020 was Rs1,43,429 crore (US$ 19.1 Bn) which is expected to grow to Rs3,09,044 crore (US$ 40.9 Bn) in FY 2025 at a CAGR of 16.4%. The share of organised retail, which was 32% (14.5% B&M+18% E-commerce) in 2020 is expected to increase to 45% (23% B&M+22% E-commerce) in 2025.
The total unorganised apparel market in the FY 2020 was Rs3,04,236 crore (US$ 40.56 Bn) which is expected to increase to Rs3,78,219 crore (US$ 50.8 Bn) in FY 2025. However, its overall share in the apparel market is expected to decrease from 68% to 55%.
Channel-Wise Segmentation
The share of sales from EBOs in total organised apparel retail is expected to increase from ~22% in FY 2020 to ~29% in FY 2025. The share from LFS is expected to stay the same at ~16.5%. Online sales contribution is expected to reach ~49% in FY 2025 from ~55% in FY 2020.
Intersegment Analysis
The Indian apparel market can be broadly classified into menswear, women’s wear and kids’ wear.
Men’s apparel constituted ~41% and women apparel’s share was estimated to be ~36% of the total apparel market in FY 2020. The balance ~23% is contributed by kids’ apparel. Out of the total apparel market, Indian wear accounted for approximately 31% or Rs1,40,964 crore (~US$ 19 Bn) (FY 2020) and the balance 69% of the market comprised Western wear. The high share of Indian wear in the total apparel is a unique feature of the apparel market in India. In the women’s wear market, Indian wear contributed ~71% to the total market. However, for men and kids, the contribution of Western wear is significant.
Menswear Market Split
Menswear market is expected to grow at a CAGR of 8.7% – from US$ 24.4 billion in FY 2020 to US$ 37 billion in FY 2025. Shirts and trousers are the largest categories within the menswear segment, contributing 27% and 20%, respectively. Denim and T-shirts are large categories, and continue to grow at a high growth rate. Activewear combined with athleisure has increased its share in the total menswear market, as a result of COVID lockdowns and work-from-home policies.
Innerwear and Indian wear are also high growth categories. With a number of branded players getting into the innerwear segment, the segment has got a big boost. Indian wear, while accounting for 6% of the total market, is gaining share.
Women’s wear Market Split
Women’s wear market, at a CAGR of 9.2%, is expected to grow faster than menswear. The market, estimated at US$ 21.8 Bn in FY 2020 is expected to grow to US$ 33.8 Bn in FY 2025. Factors such as increase in number of working women, rise in discretionary buying, innovation in designs, many new D2C brands, among others, are contributing to the higher growth for women’s wear.
While Indian wear, including sarees and salwar kameez have always been the largest category in women’s wear in India, new segments are being adopted at a rapid pace; jeans and activewear are two such categories.
Fusion clothing, including kurtis, is another segment which is growing across all geographies and consumer segments. Lingerie, which till a few years ago was largely unorganised, has also grown as a segment, largely due to a number of international brands entering the India market with relevant pricing.
Kids’ wear Market Split
Kids’ wear market as of FY2020 is estimated at US$ 13.2 Bn and is projected to grow at CAGR 9% to reach US$ 20.8 Bn by FY2025. The kids’ wear category occupies a market share of 23% in India’s apparel market with boy’s wear contributing 12% and girl’s wear occupying 11% market share.
With nearly 29% of India’s population below 14 years of age, it is natural for the kids’ wear segment to grow. Coupled by exposure to global fashion trends, increasing disposable incomes, many single-child households and growing presence of Indian and international brands in the segment, kids’ wear is projected to grow within the branded segment.
Retailers have also introduced private labels in this segment for the price-conscious consumers. Popular fashion trends are translated into goods at sharper price points to attract the consumers.
Indian Wear Market in India
The Indian wear market comprised 31% of the total apparel market in FY 2020 with Rs1,40,964 crore (US$ 18.8 Bn) in size. This market is dominated by the unorganised sector which was 77% of the Indian wear market.
In men, India accounted for 7% of the total menswear market of Rs1,83,258 crore (~US$ 24.4 Bn), while in women, Indian wear held a significant share of 71% of the total Rs1,63,291 crore (~US$ 21.8 Bn) women’s wear market. This implies that women Indian wear is the mainstay for Indian wear in India. The men Indian wear market is expected to reach Rs17,496 crore (US$ 2.3 Bn) in FY 2025, from the Rs12,754 crore (US$ 1.7 Bn) in FY 2020, growing at a CAGR of 6%. The women Indian wear market is expected to reach Rs1,68,222 crore (US$ 22.4 Bn) in FY 2025, from Rs1,15,139 crore (US$ 15.4 Bn) in FY 2020, growing at CAGR of 7.9%.
The disproportionate size of Indian wear in women’s wear is an outcome of the distinct positioning of Indian wear for women compared to that for men in India. For Indian women, Indian fashion is a mainstream need for daily wear use (in addition to strong occasion wear) whereas for men it is currently restricted to occasion wear viz. weddings and festivals. Within Indian wear, for kids, Indian wear for boys accounts for 7% of overall apparel for boys, while Indian wear for girls is ~21% of the overall apparel market for girls.
Western Wear Market in India
The Western wear market accounted for close to 70% of the overall apparel market, with FY 2020 market size of Rs3,06,702 crore (US$ 40.1 Bn). The organised sector forms 36% share of the Western wear market, while the unorganised sector was 64%.
While Western wear accounted for more than 93% of the total menswear market of Rs1,83,258 crore (~US$ 24.4 Bn), the segment held ~29% of the total Rs1,63,291 crore (~US$ 21.8 Bn) women’s wear market. Western wear for kids accounted for ~87% of the total Rs1,01,117 crore (US$ 13.5 Bn) kids’ wear market. This implies that men and kids’ Western wear is the mainstay for Western wear in India.
Key Trends in Indian Apparel Retail
- DIGITAL ENABLEMENT OF ALL RETAIL CHANNELS:
Activating digital enables multiple channels, and this became even more important during and post COVID. Brands accelerated towards digital channels faster than originally planned, and the whole ecosystem is leading towards digital enablement. Offline channels are also using digital in some form for sales through social commerce with WhatsApp, mailings, etc. Digitally enabled commerce will become important that will subsume both brick retail and e-commerce, therefore, activating these channels and harnessing their potential will become important for the growth of the brand and the sector. This also allows the sector to address dispersed demand, meet consumer needs across different purchase drivers and purchase triggers.
- ONLINE PURCHASE OF APPAREL:
Apparel has traditionally been a category which requires trial for size, and touch-feel of the fabric to assess and make a purchase decision. However, it saw an increase in e-commerce uptake during COVID, and led to change in consumer behaviour. There was an increased adoption of online channels for apparel purchase, too. Companies and consumers alike adapted to this change and there was use of various mediums like Apps, websites, and social commerce channels like WhatsApp, video-shopping from home, etc.
Companies also accelerated their online adoption plans, and use of AI and software that would enable consumers to see how they look in a garment, have seen an increase. - TECHNOLOGY INTERVENTION:
In the Indian apparel sector, technology deployment in manufacturing, sourcing, retailing, marketing and data management is becoming the biggest value creator.
In-store Experience: Apparel players are implementing in-store technologies in congruence with the growing number of tech-savvy, knowledgeable and demanding customers. Some of the technological components being used are Augmented Reality (AR), Virtual Reality (VR), video screens and kiosks for in- store ordering, Beacon technology or Apps, checkout-free scan & go services.
Customer Data Mining: Apart from generating valuable insights on consumer behaviour through analysis of data collected, these technological experiences are engaging shoppers from product discovery to product delivery. They assist customers at every stage of shopping.
Apparel & accessories is one of the fastest growing categories amongst all other retail categories and is expected to grow at a CAGR of 22.4% in the period FY 2021 to FY 2025..
- DIGITAL MARKETING:
Use of digital media as a marketing tool is being adopted by all key players. Its wider reach and relatively lower cost of customer conversion makes it a medium of choice. Adoption of social media by youth has given an opportunity to brands to reach the consumers directly through targeted campaigns. WhatsApp is expected to emerge as a super-App with messaging, business, news, payment services combined. Everyone who owns a smartphone uses WhatsApp, which makes it a useful business tool. Brands & local businesses alike are using this medium to reach out to consumers belonging to every age group. - CATEGORY EXTENSION & CUSTOMIZATION BY PREMIUM BRANDS:
Premium brands have extended portfolios by adding new categories like innerwear, accessories, footwear, luggage, etc. Similarly, new sub-brands allow premium brands to get into new segments like sports, luxury, etc. Customisation is another trend in premium brands. Currently, premium Indian apparel brands are providing this exclusivity and uniqueness to high-end customers in a limited manner, but the trend is catching up. - GROWTH OF PRIVATE BRANDS:
Acceptance of private brands among multi-brand retailers is on the rise across product categories. Some reasons that can be attributed to this growth are:- Higher Margins: Due to low advertising and promotional costs, they offer higher margins.
- Customer Loyalty: Private brand buyers are more store loyal as this merchandise is generally sold only in their respective Large Format Stores.
- Value Offerings: Private brand players generally operate in the value-segment offering catering to a larger customer base.
- Differentiation: Provide opportunity to retailers to differentiate themselves from other stores.
- Higher Bargaining Power: A successful retailer with high share of private brands gets higher bargaining power to negotiate with suppliers.
Westside, Max, Pantaloons and other retailers that have achieved scale and profitability will naturally progress towards building their private brand portfolio that will give incremental gross margin additions. Similarly, both offline and online retailers in India have been aggressive with their private brands.
VALUE FASHION-LED GROWTH BEING ACCELERATED BY THE PANDEMIC:
Going forward, value fashion will continue to be the mainstay of growth of apparel retailers and brands in both Indian and Western wear segments. This growth can be attributed to movement from unbranded to branded, Ready to Stitch (RTS) to Ready to Wear (RTW), and migration from rural to urban centres. This value sensitivity has been accelerated by COVID, leading to demand for core offerings. As a result of this growing demand, value fashion-focused brands, private brand-led retailers, LFS and online aggregators will continue to benefit.
The apparel market size in FY 2020 was Rs4,47,666 crore (US$ 59.69 Bn) and expected to grow at a CAGR of ~8.95% between FY 2020 and FY 2025 to reach Rs6,87,263 crore (US$ 91.64 Bn) by FY 2025 on the back of factors like higher brand consciousness, increasing digitization, greater purchasing power and increasing urbanization.
Key Restraints in the Indian Apparel Sector
- ENVIRONMENTAL SUSTAINABILITY
The fashion industry is one of the most polluting industries. Brands and companies are working to incorporate more sustainable practices into their businesses. Governments of various countries are bringing out policies in trying to reduce the pollutants of the apparel industry. Consumers are showing an inclination towards sustainable fashion.
But, a lot needs to be done in the direction to improve sustainability in the apparel segment. There has been a rise in new and upcoming apparel brands that are sustainable by using second-hand and recycled fashion. The thrift industry, although currently negligible, is also on the rise. - ADVERSE CONSUMER SENTIMENTS
Post COVID-19, macro-economic factors like inflation and fuel prices have dampened the consumer sentiments. This in turn has had an impact on the ability of consumers to spend on discretionary categories, including products and services. Quite a few of these economic factors are a result of both global and India-specific economic conditions, and it estimated that these factors will be under stress in the near future impacting consumer sentiments.
- RISING RAW MATERIAL COST
Inflation has been a global issue in the recent past in both developed economies like US & UK and developing economies like India.
Wholesale Price Inflation ran into double digits in the period April 2021 to December 2021, and Consumer Price Inflation was ~5-6% during the same period. This has led to rising costs of raw materials for apparel manufacturers and suppliers. High inflation is expected to be a challenge in the short to medium term, impacting cost of manufacturing and thereby, margins.
