Retail Jun, 17 2010

Apparel draws no parallel

Apparels have quintessentially dominated our wardrobes for as long as we know. So, it’s no wonder that the apparel industry is perched at the top and franchise sector is tapping the largest consumer base in India and abroad. Industry’s success has sub

By Neha Malhotra
Sub Editor, Franchise India Holdings Limited, Web Division
Apparel draws no parallel

Clothing, once looked upon as a necessity, has transformed into a lifestyle product. Subsequently, the apparel industry has been aptly termed as a potential sector poised for growth. With growing fashion consciousness among people, the apparel industry is getting the needed impetus to innovate.

Today, around 35 per cent of the apparel industry is franchised with over 30,000 franchised apparel stores across the length and breadth of the country. Apt location, regional insight, management support and financial aid are some of the benefits franchising offers. Growing at a rate of about 10 per cent every year, organised apparel brands are now spreading their wings to tier II and tier III cities.

Sanjay Sahni, Managing Director, Ritu Wears, tells, “We are thinking to expand in tier II and III cities through the franchise route. Many entrepreneurs had expressed their interest in doing business with our company, so we thought of taking up the franchise route to penetrate these markets.”

Factors in favour of franchising

Franchising offers brand recognition and consumer trust and reduces the element of risk to a great degree. Elaborating, Blues Clothing Company (BBC)’s, ED, Abhay Gupta, says, “Franchising is the best route for an aspiring entrepreneur to enter the world of business, where s/he acts as manager-cum-operator or owner. Gradually, s/he gets a first-hand exposure, become capable to explore and use the experience of the franchising company.”

Journey from MBOs to EBOs

Multiple Brand Outlets (MBOs) were the most widespread format for carrying out the business. At an MBO, merchandise is stacked category wise on racks for customers. However, in the process, though customer value was attained but brand promise got lost. This gave way to the establishment of Exclusive Brand Outlets (EBOs). This helped garner higher brand visibility, brand positioning, escalated sales and better management of inventory. However, areas where MBOs score over EBOs are lower rentals, higher margins and location benefits to name a few.

Specialty retail franchising

Specialty retail franchising is an offshoot of the franchise growth and has inspired domestic and international apparel franchisors to create exclusive speciality stores. These stores can be categorised to cover a broad range, including men’s wear, women’s wear, traditional clothing, kids wear, lingerie, demin wear, designer wear, sports wear and luxury retail.

Luxury brands: According to industry experts, the luxury market has doubled in India in the last two years and is currently growing at a compounded annual growth rate of 25 per cent. It is pegged to grow at 60-70 per cent in the near future. However, franchising is just picking up in this industry. Charu Sachdev, CEO, The Sachdev Group (TSG), says, Franchising, as a tool, is being utilised worldwide by the luxury goods retail industry to enter new markets, where local knowledge and expertise of the franchise partner help to build the brand and penetrate the market more efficiently and effectively.” Brands like Versace, GUCCI have opted for franchising for India expansion.

Designer wear: The organised market for designer wear apparel in India is estimated to be about Rs 250 crore with per capita expenditure on designer wear ranging between Rs 48,ooo to Rs 56,000 per annum. A growth rate of 10-12 per cent is foreseen for this particular industry in the times to come. Satya Paul and Ritu Kumar are top designer labels looking at franchising as an option for growth.

Traditional clothing: The demand for traditional clothing is growing not just amongst women but men as well. Traditional clothing is customary to weddings in India, as the wedding wear industry is worth about Rs 38.4 billion and is expected to grow at a rate of 13.5 per cent in the next few years. Study By Janak, Chabbra 555, Ashika and Nalli are a few brands that have taken up franchising successfully. Jagdeep Chhbara, MD, Chhabra 555 Fashions Private Limited, says, “Fashion is changing rapidly with time. To survive, a company needs to come up with the best products to meet the rising expectations.”

Women’s wear: The Indian women’s apparel market is pegged at US $9 billion, of which only US $1.5 accounts for the branded market share. Franchising holds about 35 per cent of the branded market share. Franchisors are upbeat about franchise concepts for traditional, casual, formal and party wear clothing. Saurabh Agarwal, MD, Ashika Fashion Wear, says, “This concept is a hit amongst both the brands and investors and is a win-win situation for stakeholders.” Fulfilling their franchsie dreams in the sector are Latin quarters, Leels’s, W, Kitch, Madame, Aurelia and Ashika and many more.

Men’s wear: The men’s wear market stands at about US $ 9.3 billion, just a little more than the women’s wear industry and contributes about 44 per cent to the total apparel market. The opportunity lies in the branded segment, which holds about 23 per cent of the market share and is said to cross Rs 5221.4 million mark by 2010. The franchise model is playing a significant role. Deepak Agarwal, Director, Viavero, says, “When a retailer penetrates a new city, franchising can benefit a lot than directly owning or operating the store.” Besides Viavero; Raymonds, Belmonte, Planet Fashion and Hasbro are also upbeat about franchising for their businesses.

Kids wear: The kids wear market in India is valued at US $4.43 billion and showing a steady growth of 10 per cent per annum. This market contributes to about 25 per cent of the franchise activity. Lilliput, Giny & Jony, Catmoss and Lil tomatoes are franchising for expansion. MBOs, earlier seen as a preferable option for brands, have now been taken over by EBOs. However, both have their own pros and cons. As says Anil Lakhani, Executive Director, Gini & Jony, “In an EBO, special attention is given to each and every customer with a wide range and variety of merchandise to offer. The entire shopping experience is different from that in an MBO.”

Denim wear: The denim wear industry in India was highly disoriented until emphasis was laid on lifestyle aspect of the business. Levi’s, Spykar, Killer and Lee organised the industry to quite an extent. Franchising is fast forwarding the way to profits. Kewalchand Jain, Chairman and MD, Kewal Kiran Clothings Ltd (KKCL), articulates,One has to have a long-term vision. When an aspirant is opening a franchised outlet, s/he has to be committed enough to spend five to nine years in the business.”

Lingerie: At present, the Indian Lingerie market is estimated at Rs 300 crore and is escalating at a rate of 10 per cent per annum. Lingerie, sleep wear and swim wear are the most potential sectors, showing a growth rate of 25–33 per cent (YOY). Of the innerwear market, 33 per cent comes under the umbrella of the organised share, of which a mere three per cent is franchised. The market is dominated by international players, who own 25 per cent of the market pie. This sector poses a great opportunity for women entrepreneurs.

Parag Merchant, General Manager (Supply Chain), Gokaldas Intimatewear Pvt. Ltd, which franchises brand Enamor, tells, “We want to give women entrepreneurs and people from the industry who are aware of the brand strength an opportunity. An Enamor franchisee would do excellent business in a shopping mall, which has good footfalls or in an upmarket high street area.”

Sports wear: The Indian sports wear industry accounts for just .25 per cent of the world market. Of the organised sector, a small share is franchised. The sports wear franchises have led the way for apparel retail franchising. This sector, like the lingerie market, is dominated by international labels. Andreas Gellner, Managing Director, adidas India, says, “Our prospective partners can look forward to working with a globally renowned premium sports brand that has a strong long-term commitment towards the Indian consumer and market.” Reebok, adidas and Planet Sports are brand names prevalent in this sector.

International brands exploring Indian shores

International brands have taken India by storm. The country has witnessed growth of foreign franchises at 25 per cent per year. European brands top the list followed closely by US. Benetton, Tommy Hilfiger, Levi’s Strauss, Reebok, adidas, Hugo Boss, Mango, Lerros, Versace and many more have already made their presence felt. Their success has inspired others across the international brands to enter the Indian market. The coming up of international brands has also led to integration of the apparel industry. Bipin Jain, Director, Madame, says, “The aspiration level of the Indian customer has grown by leaps and bounds. They do complain that they are getting an international brand at exorbitant prices, but a genuine user is always confident. This has given a boost to the Indian brands to get into the premium segments.”

Investment and returns

Business brings profits. It’s with this assertion that an investor invests in a business, and why not. A person who invests money will surely want handsome returns from the venture. The investment begins with few lakhs and goes up as per the segment and brand value. The investment per sq.ft for a value apparel chain is around Rs 400 whereas for a lifestyle brand, it may cost around Rs 1,000 per sq.ft. The returns also vary between 10 to 30 per cent. Jain says, “Since it is a growing industry, the turnover is usually higher, year after year. Franchisees will have an assured income due to turnover-based remuneration and they don’t have to pump in additional investments generally.”

Location plays potent role

High streets in India are still a preferred location for an apparel store. In smaller towns and cities, areas with greatest footfalls are being targeted for expansion. Investors, who have location at a key location in their city, can be potential franchisees.

At malls, developers are working on devising proposals to keep franchisors in the malls. The latest being the pay-per-day plan, wherein the occupant pays according to a rental plan devised daily by the mall developers.

Multi-Unit Franchising (MUF)

It‘s a format in which a franchisee has the opportunity to open more than one store with a single franchisor. MUF brings with it the advantage of getting the units at a reduced price for each of the unit, lowered risk, higher profits and low cost of supplies. Besides monetary remuneration, time and staff support is also there. These outlets are not constrained by area and hence, can be at different locations in the same city or in another one. However, expertise and better qualification profile is needed to secure multiple units. In US, about 50 per cent of all franchise units are owned by multi-unit franchisees. Product distribution franchising is fast giving way to business format franchising.

Future forecast

People’s aspirations and the level of innovation that can be brought about will lead the way for this industry. Franchising will continue to play its role in pushing the industry further, but not sans challenges. Anirudh Deshmukh, President, Retail and FMCG, Raymond, tells, “Challenges are there in every business. In ours, they are acquisition, running operations profitably and ensuring satisfaction of customers.”

Related: Enamored by franchise success

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