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Can Eco-Fashion be Mainstream

January 27th, 2010 by Devangshu Dutta

An article in the San Francisco Chronicle sparked off a debate on whether ecologically friendly can be mainstream, whether customers will switch from traditional to eco-friendly fashions and if so, when. There is the view that eco-friendly products are necessarily niche and cannot match up in fashionability and affordability to ‘mainstream’ products.

I don’t think it is an either/or choice between styling and eco-friendly. To sell, eco-friendly merchandise absolutely MUST be comparable to or better than eco-unfriendly merchandise, both in style and quality.

Pricing is another story. The article also quotes Joslin Van Arsdale (founder of Eco Citizen, a San Francisco boutique devoted to Earth-friendly clothing) as saying, “When it comes to buying green or price, the general public will more likely choose the cheaper item on anything, whether it’s fashion or tomatoes.”

While most consumers will not willingly pay higher prices for eco-friendly merchandise, that may change as the cost of being eco-unfriendly goes up through awareness and legislation. There was a time when safety belts in cars were optional at an extra cost. No one would argue against paying the extra price for safety today.

Perhaps many of us would rather trash the planet cheaply because we may not feel the heat within our lifetimes. That is no reason that others, who feel more responsible, will allow that to happen indefinitely.

One way or the other, eco-friendly merchandise will compare in price, too.

Some of the parity will come from reducing the cost of eco-friendly stuff, but the bulk will probably happen because the cost of being eco-unfriendly will go up.

The original article is here – “Green fashion has new cachet“.

Posted in Apparel, Corporate Social Responsibility, Footwear, Lifestyle & Fashion, Marketing, Product Development and Design, Retail, Soft Goods, Strategy, Supply Chain, Textiles, Uncategorized | No Comments »

International Fashion Brands in India – Perspective 2010

January 7th, 2010 by admin

By Tarang Gautam Saxena, Chandni Jain and Neha Singhal

In Retrospect

While India was a promising market to many international brands, it was not completely immune from the global economic flu. More than its primary impact on the economy, the global downturn sobered the mood in the consumer market. Even the core target group for international brands, that had just begun to splurge apparently without guilt, tightened their purse strings and either down-traded or postponed their purchases.

In 2008 in the midst of economic downturn, skepticism and uncertainty, the international fashion brands had continued to enter India at nearly the same momentum as the previous year. Many international brands such as Cartier, Giorgio Armani, Kenzo and Prada entered India in 2008 targeting the luxury or premium segment. However, given the high import duties and high real estate costs, the products ended up being priced significantly higher than in other markets. Many players ended up discounting the goods heavily to promote sales while a few also gave up and closed shop.

As the Third Eyesight team had foreseen last year, 2009 saw a further slowdown and fewer international brands being launched during the year. The brands that were launched in 2009 included Beverly Hills Polo Club, Fruit of the Loom, Izod, Polo U.S., Mustang, Tie Rack and Timberland. Some of these had already been in the pipeline for quite some time and invested a considerable time and effort in understanding the dynamics of the Indian retail market, scouting for appropriate partners, building distribution relationships and tying up for retail space, setting up the supply chain and, most importantly, getting their operational team in place.

International Fashion Brands in India

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After many deliberations, the well-known global brand Donna Karan New York set foot in the Indian market in 2009 through an agreement with DLF Brands to set up exclusive DKNY and DKNY Jeans stores India. The brand is also reported to have signed a worldwide licensing agreement with S Kumars Nationwide Ltd to design, manufacture and retail DKNY menswear in certain specific countries.

Second Chances

Amongst the international brands that have recently entered the Indian market, a few are on their second or even third attempt at the market.

For instance, Diesel BV initially signed a joint venture agreement in 2007 with Arvind Mills, and the partnership intended opening 15 stores by 2010. However, by the middle of 2008, the relationship ended with mutual consent, as Arvind reduced its emphasis on retailing international brands within the country. Within a few months of the ending of this relationship, Diesel signed a joint venture with Reliance Brands for a launch scheduled for 2010. Both partners seem to be strategically aligned with a common goal as the international iconic denim brand wants to take on the Indian market full throttle and the Indian counterpart has indicated that it wants to rapidly build its portfolio of Indian and foreign brands in the premium to luxury segments across apparel, footwear and lifestyle segments.

Similarly, Miss Sixty entered India in 2007 through a franchisee agreement with Indus Clothing. It switched to a joint venture with Reliance Brands in the same year but the partnership was called off in 2008, despite plans to open more than 50 stores in the first three years of operations. Miss Sixty has finally entered India through a franchise agreement with a manufacturer of women’s footwear and accessories. The company has currently introduced only shoes and accessories category and is looking at potential partners for its label Energie and girls’ range Killah.

Other brands that have re-entered the Indian market include Germany-based Lerros whose first presence in India was back in mid-1990s. The brand re-entered the market in 2008 through own brand stores and is growing its presence through this route as well as through multi-brand stores.

Oshkosh B’gosh is another brand that had entered India in mid 1990s, through a licensing agreement with Delhi based buying house, Elanco. The licensee found the childrenswear market hard to crack, and closed down. In 2008, Oshkosh re-entered the Indian market through a licensing partnership with Planet Retail and is now available through shop-in-shop counters at Debenhams stores. Reports suggest that it may consider setting up exclusive brand outlets.

During the turbulence of 2008 and 2009, a few brands also exited the market. Some of them were possibly due to misplaced expectations initially about the size of the market or about the pace of change in consumer buying habits. Others were due to a failure either on the part of the brand or its Indian partners (or both) to fully understand what needed to be done to be successful in the Indian market. Whatever the reason, the principals or their partners in the country decided that the business was under-performing against expectations and for the amount of effort and money being invested, and that it was better to pull the plug.

Some brands that have been pulled out of the Indian market during 2008 and 2009 include Dockers, Gas, Springfield and VNC (Vincci). Gas (Grotto SpA) is reported to remain interested in the market but has not found another partner after its deal with Raymond fell through in 2007 and all dozen of its standalone stores were shut down.

The Scottish brand Pringle and its Indian licensee did not renew their agreement upon its expiry. The Indian partner has reportedly signed an agreement to launch another international brand in India, while Pringle is said to be looking for new licensee.

The good news is that successful relationships outnumber every exit or break in relationship possibly by a factor of ten. Some of the brands that have sustained are among the early entrants having a presence in India since the late-1980s and 1990s or even earlier. These include Bata, Benetton, adidas, Reebok (now also owned by adidas), Levi Strauss and Pepe. Having grown very aggressively during 2006 and 2007 Reebok quickly became the largest apparel and footwear brand in India, while Benetton and Levi’s are expected to cross the $100-million mark for sales this year.

Entry Strategy & Recent Shifts

As envisaged in Third Eyesight’s report from a year ago, with changing market conditions and a growing confidence in the Indian market, there has been a shift among international brands in the choice of the launch vehicle. While franchising has been the preferred mode of market entry in the recent past for risk-averse brands, more brands today demonstrate a long-term commitment to the Indian market, and are choosing to exercise ownership through wholly or partially owned subsidiaries and through joint ventures.

In 2009, we have seen a noticeable shift in favour of joint-ventures as the choice for entry into the market. Even the brands already present are looking to modify the nature of their existing presence in India in order to exert more control over the retail operations, products, supply chain and marketing.

Current Operating Structure
(End 2009)

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Brands that changed their operating structures and, in some cases partners, in recent years include VF (Wrangler, Lee etc.), Lee Cooper, Lee, and Louis Vuitton amongst others.

Mothercare, the baby product retailer, which is present through a franchise agreement with Shopper’s Stop has, in addition, recently formed a joint venture with DLF Brands Ltd to enable the expansion through stand-alone stores. Gucci, which had initially entered in 2006 with the Murjani Group as a franchisee, has recently changed over to Luxury Goods Retail, and is now in the process of restructuring the relationship into a joint venture.

VF has also been reported to be looking to license Nautica, Jansport and Kipling to a new partner. Until now, these brands were handled through the joint venture with Arvind Brands. Arvind has increasingly focused on its core business, closed stores and scaled down expansion plans for the international brands.

Burberry that had entered India in 2006 through a franchisee arrangement with Media Star opened two stores under this arrangement. It has now set up a new joint venture with Genesis Colors and plans to open 20 stores across the country.

More recently Esprit has also been reported to have approached Aditya Birla Nuvo to deepen its engagement by moving from its distribution arrangement into joint venture as the international brand sees excellent potential in the Indian market.

Buckling up for 2010

Throughout 2009, the one fact that became clear was that the Indian market was resilient. Now, as the global economic condition stabilizes, confidence levels of brands and retailers in India have also improved.

Several launches are already expected in 2010, and possibly many more are being worked upon. In the following 12 months, consumers can expect to find within India acclaimed brands such as Diesel, Topman, Topshop and the much-anticipated Zara. Many more Italian, British and French brands are examining the market.

Most of the international fashion brands already present in the market are also projecting a cautiously upbeat outlook in their plans, while a few are looking positively bullish.

For example, Pepe, an old player in premium and casual wear segment, has reported plans to grow its retail network further and open 50 more franchise stores by September 2010. Similarly the German fashion brand S. Oliver that entered the Indian market in 2007 is looking to grow significantly. It has already moved from a franchise arrangement with Orientcraft to a joint-venture with the same partner, and has stepped up its above-the-line marketing presence. The brand has recently reported its plans to scale up its retail presence to 77 stores by the end of 2012 while also strengthening its presence through shop-in-shop in multi-branded outlets in high potential markets.

Those international brands that have tasted success have not achieved it by blindly importing business models and formulas from other markets. Most have had to devise a different positioning from their home markets. Some have significantly corrected pricing and fine-tuned the product offering since they first launched. These include The Body Shop which decreased its prices by up to 30% this year, and Marks & Spencer which reduced prices by 20-40%. Others are unearthing new segments to grow into; for instance, Puma and Lacoste are now seriously targeting womenswear as a growth market.

On the operational side, the good news for retailers and brands is that the average real estate costs have reduced significantly, although marquee locations remain high. In several locations lease models have also moved from only fixed rent to some form of revenue sharing arrangement with the landlord. And, while the sector has seen some employee turmoil as many non-retail executives who came into the business in the last 5-7 years have returned to other sectors, employee salary expectations are also more realistic.

As customer footfall and conversions pick up, international brands are also shoring up their foundations for future expansion in terms of better processes and systems, closer understanding of the market, and nurturing talent within their team. Third Eyesight’s recent work with international brands’ business units in India highlights the international players’ concern with ensuring a consistent brand message, improved organizational capabilities right down to front-line staff, and focus on unit productivity (per store and per employee).

We may yet see a few more exits, and possibly some more relationships being reshuffled and partners being changed. However, all things considered, we can look forward to a net increase in the number of international brands in the country.

The Indian consumer is certainly demonstrating more optimism and as far as there are no major unforeseen global or domestic shocks, this optimism should translate into a healthier business outlook for international brands as well. According to early signs, 2010 could be an excellent curtain-raiser for a new decade of growth for international fashion brands in India.

[The 2009 report is available here: “International Fashion Brands - India Entry Strategies”]

(c) 2010, Third Eyesight

[Note: This report is based on information collected from a combination of public as well as proprietary sources, and in some cases may differ from press reports. However, no confidential information has been shared in this report.]

[If you are working for a company looking entering the Indian market, you may be interested in looking at our list of services > India Entry.]

Posted in Apparel, Branding, Footwear, India, Lifestyle & Fashion, Market Research, Marketing, Retail, Soft Goods, Strategy, Textiles, Uncategorized | 8 Comments »

Private Label Maturity Model

January 5th, 2010 by Devangshu Dutta

If we were to look at phrases that have cropped up during the recent recessionary times in the consumer goods sector, “private label” has to be among those at the top of the list.

From clothing to cereals, toothpaste to televisions, there is hardly a category that has not seen retailers trying their hand at creating own labelled products.

The first motivation for most retailers to move into private label is margin. On first analysis, it appears that the branded suppliers are making tons of extra money by being out there in front of the consumer with a specific named product. The retailer finds that creating an alternative product under its own label allows it to capture extra gross margin. Typically the product category picked at the earliest stage of private label development would be one for which several generic or commodity suppliers are available.

At this early stage, the retailer is aiming for a relatively predictable, stable-demand and easily available product whose sales would be driven by the footfall that is already attracted into the store. A powerful bait to attract the customer is the visible reduction in price, as compared to a similar branded product. If the product can be compared like-for-like, customers would certainly convert to private label over time.

However, maintaining prices lower than brands can also be counter-productive. In many products, while customers might not be able to discern any qualitative difference, they may suspect that they are not getting a product comparable to one from a national or international brand. And while private label can drive off-take, the price differential can also erode gross margin which was the reason that the retailer may have got into private label in the first place. Over time, such a strategy can prove difficult to sustain, as costs of developing, sourcing and managing private label products move up.

The other strong reason a retailer chooses to have private label is to create a product offering that is differentiated from competitors who also offer brands that are similar or identical to the ones offered by the retailer. Department stores, supermarkets and hypermarkets around the world have all tried this approach – some have been more successful than others. The idea is to provide a customer strong reasons to visit their particular store, rather than any of the comparable competitors.

Of course, when differentiation is the operating factor, the products need more insight and development, and closer handling by the retailer at all stages. A price-driven private label line may be sourced from generic suppliers, but that approach isn’t good enough for a line driven by a differentiation strategy. In this case, costs of product development and management increase for the retailer. However, to compensate, the discount from a comparable national brand is not as high as generic nascent private label. In fact, some retailers have taken their private label to compete head on with national brands – they treat their private labels as respectfully as a national branded supplier would treat its brand.

So what does it take to go from a “copycat” to being a real brand?

Third Eyesight has evolved a Private Label Maturity Model (see the accompanying graphic) that can help retailers think through their approach to private label, whether their product offering is dominated by private label, or whether they have only just begun considering the possibility of including private label in their product range. The model sketches out a maturity path on five parameters that are affected by or influence the strength of a retailer’s private label offering:

  • consumer knowledge and insight
  • product design and quality
  • pricing
  • promotion
  • supply chain & sourcing

Private Label Maturity Model - Third Eyesight

(Click here for a larger image)

In some cases, retailers may have multiple labels, some of which may be quite nascent while others might be highly evolved, clear and comparable to a national brand. This could be by default, because the labels have been launched at different times and have had more or less time to evolve. However, this can also be used as a conscious strategy to target various segments and competitive brands differently, depending on the strength of the competition and their relationship with the consumer.

The interesting thing is that size and scale do not offer any specific advantage to becoming a more sophisticated private label player. Some extremely large retailers continue to follow a discounted-price “me-too” private label strategy where even the packaging and colours of the product are copied from national brands, while much smaller players demonstrate capabilities to understand their specific consumers’ needs to design, source and promote proprietary products that compare with the best brands in the market.

For a moment, let’s also look at private labels from the suppliers’ point of view. As far as we can see, private label seems to be here to stay and grow. Suppliers can treat private labels as a threat, and figure out how to ensure that they retain a certain visibility and relationship with the consumer. On the other hand, interestingly, some suppliers are also looking at private label as an opportunity. They see the growth of private label as inevitable, and would much rather collaborate in the retailer’s private label development efforts. This way they can maintain some kind of influence on the product development, possibly avoid direct head-on conflict with their own star branded products and, if everything else fails, at least grab a share of the market that would have otherwise gone over to generic suppliers.

If you are retailer, I would suggest using the Private Label Maturity Model to clarify where you want to position yourself, and continue to use it as a guide as you develop and deliver your private label offering.

If you are a supplier concerned about private label, my suggestion would be to gauge how developed your customer is and is likely to become, and ensure that you are at least in step, if not a step ahead.

Of course, if you need support, we’ll only be too happy to help! (Contact Third Eyesight to discuss your private label needs.)

Posted in Apparel, Branding, COLUMN-Progressive Grocer, Food & Grocery, Footwear, India, Lifestyle & Fashion, Marketing, Product Development and Design, Retail, Soft Goods, Strategy, Supply Chain, Textiles, Uncategorized | 2 Comments »

Independent Retailers Thriving in Manhattan

January 4th, 2010 by Devangshu Dutta

Prompted by an article in the New York Times, Bernice Hurst, Contributing Editor of RetailWire, brought up an interesting subject to discuss – the tradition of small, independent retailers on Manhattan’s Lower east side, their survival despite the recession, and their determination to thrive. 

One of the retailers interviewed for the article said that the business was “so much fun”. In referring to the kind of products she was developing said, “there are no boundaries to these things”.

Imagination may have no boundaries, but markets always do. When you’re small fry the pond seems limitless. And if all is in harmony (no tuna to gobble you, all fry remaining small, enough algae to feed off, forever), then the market is a good and boundless place. If only.

Personally, I hope there will always be some ponds with room in them to let such small fry bubble up their innovations: they keep the fashion business alive.

They also serve to remind us that there are reasons for running business that are not based on the race-to-scale.

The New York Times article is here - Yes, We’re Open – and the Retailwire discussion is here – Manhattan Still Home to Independent Retailers.

Posted in Apparel, Branding, Entrepreneurship, Footwear, Lifestyle & Fashion, Marketing, Product Development and Design, Retail, Soft Goods, Strategy, Textiles, Uncategorized | No Comments »

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