Winning Themes - Indian Fashion and Lifestyle Market include apparel accessories, bags, wallets, belts, fashion jewelry, time wear and eyewear Source: Images Fashion Yearbook, Industry

Debashish Mukherjee Partner Head, Consumer & Retail, India

Winning Themes - Indian Fashion and Lifestyle Market

March 15, 2016

A.T. Kearney IN/Winning in Fashion Lifestyle/Perspective 2

The Fashion & Lifestyle market is estimate to be ~INR 221,000 Cr and is poised to grow ~12% CAGR over the next 5 years

Market Sizing

Projected growth of Fashion & Lifestyle in India

1. Note: Of the total apparel market, approx. 40% is Fashion & Lifestyle, arrived at by excluding rural apparel spend, RTS, uniforms and sarees

2. Accessories include apparel accessories, bags, wallets, belts, fashion jewelry, time wear and eyewear Source: Images Fashion Yearbook, Industry and company reports, A. T. Kearney analysis

Key Drivers

• Changing Demographics

– Increase in disposable income

– Increase in urbanization

• Increasing Fashion Consciousness

– Youth/Westernization, influence of Bollywood/ Hollywood

• Premiumization

– Increase of international players, expansion of luxury brands

• Internet retailing (access, impulse buys)

– Increase in product mix, access to tier 2,3 cities

66

35

+15%

2020

Footwear

+12%

Accessories1

236 (59.9%)

394

221

Apparel

103 (26.1%)

55 (14%)

2015

128 (57.2%)

73 (34%)

19 (8.8%)

2010

109

8

(INR ‘000 Cr) CAGR

(’15-’20)

23%

7%

13%


Growing income, middle-aged population and urbanization will drive future shopping trends

Population split by annual household income

3%

2025

89

15%

34%

23%

24%

2015

44

9%

33%

34%

9% 15%

Deprived (<0.9 Lakh)

Aspirers (0.9 - 2 Lakh)

Seekers (2 - 5 Lakh)

Strivers (5 - 10 Lakh)

Global (>10 Lakh)

Demographic Shift

Population Profile

25%25%23%

2025 2015 2010

Proportion of Women in Workforce

Source: World bank, news articles, Census data

Brand

Women buyers

Casualization

New customers

2015 Population = 1.31 bn

0-4

5-14

15-24

25-34

35-44

45-54

55+

Population split

13.0%

10.5%

13.4%

16.5%

18.3%

18.8%

9.5%

15.7%

11.5%

14.5%

16.2%

16.8%

16.9%

8.3%

2025 Population = 1.46 bn

Age Bracket

Market Trends

72.6% 71.5% 70.4% 69.4%

27.4% 28.5% 29.6% 30.6%

2005 2010 2015 2020 (E)

Urban population Rural population

Rural vs. Urban Population Split (%)


To win in this context, there are six key themes for fashion and lifestyle players

Key Winning Themes

1 Create new fields of play

2 Differentiate

3 Tailor

4 Expand access: win in Digital / rural reach

5 Build capabilities to deliver on ‘fast fashion’

6 Design for low cost


1. Are Indian organized retailers paying attention to Women’s? India is one of the few (only?) countries where Men’s apparel share is higher than women’s and that is changing

1. Create new field of play & exploit “white” spaces

India dynamics: Women’s still under

indexed in MT

• Women’s apparel growing faster than Men’s… expected to similar in size in 2015-2016 (around 40% each)

• Share of women’s apparel in organised retailers still lesser than men’s

• Several women’s only brands (W, Biba etc.) but relatively small compared to demand


1. Leading lifestyle players are able to identify the “white” spaces or create new play areas in the market

1. Create new field of play & exploit “white” spaces

Identify White Spaces

Source: A.T. Kearney analysis, Forbes

Segments like Kidswear, Ethnic, once “white” spaces, are now well penetrated by players like Gini & Jony, FabIndia, Biba. Players are exploring newer niches to carve out space for themselves

White Space

“Sport”

Plus Sizes

Teen (Age: 14-18)

Women Ethnic Fusion

Create New Play

• Exploit broadening clothing needs

• Create new occasions

– E.g. Premium men’s club wear and party wear

– Active wear and sportswear

– Fusion wear

• Play the educator role to create demand (push)

Example: Leading players in the space

Specific sport / semi formal range by Van Heusen and Louise Philippe


2. Fashion players need to create a differentiation (= focus) in line with their value proposition

Value Proposition Elements

Source: A.T. Kearney analysis

Super Premium Apparel

Mass Department Store

Fast Fashion

Quality Price Brand

Image

In-Store

Exp

Assortment Fit Fashion

2. Differentiate

Extent of Differentiation

Low

High

Elements of Differentiation


2. For example, there is significant room to improve differentiation “focus” for Indian fashion brands

Uniqlo Primark Indian Brand 1 Indian Brand 2

Revenues (USD Bn)

8-9 3-4 0.4 0.3

Formal Shirts

# Designs1 18 14 431 144

Fabric Type

• 100% cotton, PC, linen-cot

• Multiple colours / style (upto 16)

• Very few 100% cotton

• Few colour options

• Cotton, linen, PC

• Varying colour options

• 100% cotton

• Few styles with colour options

Casual Shirts

# Designs1 1 5 678 55

Fabric Type • Treating formal

and casual shirts as common

• Denim, PC

• Few colour options

• Cotton, linen, PC

• Varying colour options

• 100% cotton

• Few styles with colour options

Knitwear2

# Designs1,2 13 6 1575 136

Design Type • ~160 graphic tees

– 2 price points

• Few changes between options

• Few prints in graphic tees

• High variety with minor variations in design

• High variety in t-shirts with minor variations in styling

Product Range Example – Tops (Mens)

1. Design at a cut-make level – multiple colour / pattern (solid / check / stripes) options within a design, style level for PFRL and all denims, knits 2. Graphic tees removed from design – no visibility into changes in cut-make (except in Brand 1) Source: Company websites, annual reports, Brand 1 and Brand 2 internal data for AW14, A.T. Kearney

2. Differentiate


3. Retailers need to customize their brand and product offering across different regions and city tiers

3. Tailor C

usto

me

r re

leva

nce

Performance

Brand 8

Brand 4 Brand 5

Brand 3

Brand 1

Brand 2

Defining retailer’s overall strategy

Retailer’s

overall

strategy for

each brand

needs to be

reflected in

the brand

assortment

choices made

at a store

level

Example: Offering customization

Footwear: E.g. Metro

• Heel height: High heels in Chandigarh, while much smaller in Kolkata

• Shoe Color : Higher range of “white shoes” in the South

Destination Preferred

Occasional

Convenience

Apparel fabric, sizes

• Lighter fabric top-wear in South

• Larger kids’ size clothes in East

Metro

Tier 1

Tier 2

Tier 3

Small store

Medium store

Large store

Apparel assortment

• Higher fashion focus in metro, Tier 1 cities

Source: Press Search, A.T. Kearney analysis

Assortment customization




4. Connected consumers in India has clear preference for online shopping… this cannot be ignored anymore

62%

54%

India Global

% Respondents who prefer to shop online

Online Shopping Destinations (% respondents)

18%

24%28%28%30%30%32%

39%

84%

8%

20%

41%44%

32%

45%

32%

23%

8%

Drug store

Department store

Mass merchat

Travel aggregator

Ticket Airline or hotel

Specialty store

Pure-play online retailer

Flash sale

Global

India

4. Access: win in digital / Expand Reach


4. There is strong potential for Fashion brands to expand reach and gain scale in India

Total

~430

Tier III

~300

Tier II

~65

Metro

and Tier I

~65

8 16 95

Potential catchment areas in India (No. of catchment areas)

No of cities

147147190206304

363

Ralph

Lauren

Nike Banana

Republic

Coach Sears GAP

Scale example from other regions (no. of stores)

140143210

Zara H&M Uniqlo Meters-

bonwe

~1,800

Semir

~4,300

Anta

~7780 Global brands Chinese brands

Emerging market (China):

Developed market

1. Number of stores data as on July 2013, except Anta (as on 31st Dec, 2011) Source: Outletlocation.com, Company Websites, A.T. Kearney Analysis

1519

2225

Next Clarks

Bostonian

Nike GAP

USA: UK:

• Access to newer markets, including first mover advantage in select cases • Improvements in cost structure at store level & corporate level : larger scale in sourcing

& media spend, efficient operations & other overheads, etc. Advantages

Market reach

4. Access: win in digital / Expand Reach


5. Agility in the market, to drive fast fashion gives significant competitive advantage… integration of all functions is critical

Speed and Agility in Apparel Market

5. Build capabilities on fast fashion

Levers to reduce lead time

Typical lead times

Retail Manufacturing Sourcing Design

• Collaboration between functions to get it “right” the first time

• Advance orders for long-lead time fabrics (E.g. yarn dyed) – early blocking of capacity

• Early forecasts and capacity blocking with key vendors / preliminary costing prior to style finalization

• Pre-packing and cross docking for flow-through of products to store

3 months 4 months 2 months 1 month

Fast fashion lead times

• Focus on product “look” delivery rather than technical “rightness” – fewer approvals / higher design flexibility

• Flexibility in fabric usage; usage of stock fabrics, purchased / left-over greige fabric

• Dedicated capacity blocking for opportunistic production / use of fragmented supply base (1-2 products), parallel manufacturing

• Immediate feedback on market delivery

• Air shipments / part shipments

Retail Manufacturing Sourcing Design

10 days 20 days 10 days 10 days

Design flexibility

Opportunistic sourcing

Parallel production

Tight delivery

Process run in parallel to regular delivery


6. Hard choices between creativity and materiality is required

6. Design for low costs

Source: A.T. Kearney

SKU complexity (Materials illustration) Complexity Funnel

100% of business (INR) 80% of business (INR)

2

6

Fabric

81

833

Blends

91

722

Brands

17k

65k

SKUs

Le

vel

of

co

mp

lexit

y

Material 1 (1.5%)

Sales Volume (Rs. Crores)

Material 2 (45%)

Material 3 (52%)

Regular (72%)

Top 5 (54%)

5,225

1,096

Exclusives (21%)

Next 10 (25%)

3,785

591

Others (8%)

Bottom 82 (21%)

4,482

336

Others (1.5%)

Product Hierarchy

Fabric

Category

Brand

SKU

Avg. Sales/ SKU (m/SKU)

Level of Complexity

Low

Low

Med

High

Key Design led profitability levers (example)


In summary, to win, there are six key themes for fashion and lifestyle to debate in this august forum!

Key Winning Themes

1 Create new fields of play

2 Differentiate

3 Tailor

4 Expand access: win in Digital / rural reach

5 Build capabilities to deliver on ‘fast fashion’

6 Design for low cost


Americas Atlanta

Calgary

Chicago

Dallas

Detroit

Houston

Mexico City

New York

San Francisco

São Paulo

Toronto

Washington, D.C.

Asia Pacific Bangkok

Beijing

Hong Kong

Jakarta

Kuala Lumpur

Melbourne

Mumbai

New Delhi

Seoul

Shanghai

Singapore

Sydney

Tokyo

Europe Amsterdam

Berlin

Brussels

Bucharest

Budapest

Copenhagen

Düsseldorf

Frankfurt

Helsinki

Istanbul

Kiev

Lisbon

Ljubljana

London

Madrid

Milan

Moscow

Munich

Oslo

Paris

Prague

Rome

Stockholm

Stuttgart

Vienna

Warsaw

Zurich

Middle East

and Africa

Abu Dhabi

Dubai

Johannesburg

Manama Riyadh

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Winning Themes - Indian Fashion and Lifestyle Market include apparel accessories, bags, wallets, belts, fashion jewelry, time wear and eyewear Source: Images Fashion Yearbook, Industry