Inching Up the Value Chain

To 17-something Payal Mehta, it simply doesn’t matter whether the stone-washed pair she wriggles into each morning for college are technically distressed, khadi, corduroys, vintage or stone-washed. To her, a pair of tight-fit denims feels like a second skin.

She may perhaps have a pairs of Levis or Wrangler in her wardrobe, but the bulk of her daily wear comprises of non-branded street ware she picked off Mumbai’s famous flea market, the Fashion Street.

Unbranded segment still comprised a staggering 92 per cent of the Indian denim market in 2016

To her, as to many of her age, it doesn’t matter if a pair of jeans is branded or non-branded. The indigo fabric, as for youth across the world is an enduring metaphor for resilience and rebelliousness, not to mention gender-neutrality, stability and versatility. Every Indian youth from every income strata must have at least one branded pair and a few non-branded in their casualwear.

Small wonder than that denim apparel market in a demographically-diversified country like India is hugely fragmented with only 20-30% in the organised sector, concentrated in Delhi/NCR, Mumbai, Bangalore and Ahmedabad. Ahmedabad is incidentally, the country’s main apparel manufacturing hub, commanding 40% share of the denim market. Non-branded products dominate with around 60% share, according to a recent study by market research agency Technopak.

Almost a decade ago, Rajesh Gangwani, then managing partner at J Walter Thompson, the agency that has managed the Levi Strauss brand in India for donkey’s years, had quipped to this reporter “Whether it is lycra, or corduroys; whether they are sweating or breathing in it, it simply doesn’t matter. Jeans is in their genes.”

That statement made in 2008, holds true even today, except that now the market has expanded to women and kid’s wear segment too.

Accordingly, the Levi Strauss’s newest #IShapeMyWorld campaign is focussed more on the young Indian women consumer in tier-2 and tier-3 cities, who are keen to defy the “jeans ban” imposed by their patriarchal societies, and ride up the value chain with at least one branded pair.

Presently, the women’s category contributes only 9% and the kids’ another 6%, although both are growing. Women’s category is growing at a Compound Annual Growth Rate (CAGR) of 17.5 per cent, according to Amit Gugnani, Senior Vice President (Fashion) and Kanti Prakash Brahma, Principal Consultant (Fashion) at Technopak.

Premium range however comprises only 20% of the denim wear market in India, compelling international brands, such as Pepe Jeans London (Debuted in 1989 in India) to diversify into other categories – casual shirts, T-shirts, footwear, even eyewear and winter wear, across men’s, women’s and kid’s wear segments.

Pepe’s so far received the best response from the kid’s wear segment that it entered in 2015 through the LFS (Lifestyle, Shopper Stop and Central) channel, to claim 318% growth in 2015-16, according to Kavindra Mishra, Business Development Director (APAC), Pepe Jeans London.

Present at 218 exclusive brand outlets (EBOs), 1350 multi-brand outlets (MBOs) and 477 large format stores, besides Myntra, Amazon, Ajio & Cilory, Kavindra remains bullish about growth, despite rumours (Source: Bloomberg) that the international brand is looking to sell its business in India, due to the challenges posed by a volatile market, high operational costs, steep real estate prices, and the practice of deep discounting to clear off inventory in a fast-forward fashion scenario.

The market size
Produced largely from cotton in India, denim is growing, albeit at an even keel, from a very low base. If in 2007, it was worth only Rs 2,700 that grew to Rs 13,500 crore in 2013 (accounting for 5% of the total apparel market) it’s now projected to grow at a CAGR of 15% to be worth Rs 27,200 crore by the end of 2018.

Despite its rugged appearance – or rather because of it, and for its high comfort factor, denim continues to be popular among the Indian youth. Home-grown brands like Kolkata-based Hoffmen Fashions Pvt Ltd. claim to be averaging 15% to 20% year on year (YoY) since its incorporation in 1991 with a production capacity of 50k-60k pieces a month. The brand retails at 400 MBOs, 70 EBOs, and has its own online platform (hoffmenonline.com), besides selling on Amazon, Flipkart and Myntra.

Caught between tough international players, such as Levis, Pepe, Jack & Jones, who have well-established supply chains, and deep advertising spends on one hand; and licensed players like Lee, Wrangler, Nautica, JanSport, Kipling etc. (Through Arvind Brands Ltd. that has a joint venture with VF Corporation to market these US brands in India); as well as domestic players, such as Killer, Being Human and Red Flame, survival is tough for mid-price Indian brands like Mumbai-based Spykar and Hoffmen.

Admitting to this growing competition, Chief Operating Officer of Hoffmen Fashions Pvt. Ltd. Harsh Rungta observes that in the past two years, the Indian market has suddenly become very price sensitive.
“Cutting down costs and offering correct pricing, while keeping quality and innovation intact is a challenge, along with measures aimed at strict inventory management,” he says.
With trends changing fast, and with the entry of several non-branded players, survival is no doubt tough, even with deeper penetration in Teir-1 and Tier-2 markets.

Recent innovation in terms of fabrics, styling and washes, introduced mainly by the international players is gradually inspiring the domestic players to move up the value chain, but the main challenges remain in terms of well-differentiated product, strong brand loyalty and consistent product quality that is difficult to patch by Indian apparel makers, at the prices they operate at, according to Rungta.

In recent years, stretch has introduced some vibrancy in the market.
“With the ‘athleisure’ trend, denim for bottoms is now predominantly stretch,” admits ‎Sanjay Vakharia , arketing manager at ‎SpykarLifestyles Pvt Ltd, a Bombay-based brand that supplies 1.75 lakhs jeans into the market that has a standing country-wide demand of three crore, a month. Incorporated in 1992, Spykar’s last year’s turnover was Rs 350 crore, with denim contributing 60% to the business.

Digital retail is growing
Although the brand is present in 210 EBOs and 1000 MBOs, 28% of Spykar’s customers are online shoppers, a market that is steadily growing. Accordingly, Spykar is promoting its new line of curated denims, Young n Restless (YnR) that comes accessorised with coloured loop and metal detailing through a digital campaign, featuring a dancing mascot.

International brands like Pepe also recognise the reach of the digital medium and works closely with influencers and bloggers, says Kavindra Mishra.

Super-premium is minuscule
Although Indian designers are embracing denim in their collections, the super premium range is still nothing to write home about. In 2006, Bollywood hunk John Abraham became the first Indian celebrity to lend his name to a limited edition, low-rise fits by Wrangler, the first US-retailer to launch a private jeans collection with an Indian celebrity (Late actress Jiah Khan was roped in as the brand female ambassador) – but although priced at Rs 2500-4000 a pair, there were few takers for the pair and its now phased out of the market.

Even for a non-branded pair, for the typical Indian consumer (15 to 29) who comprises 26% of the denim consuming population, Rs 1,500 is the sensitive price index, unless the pair is perceived to be of an exceptionally high value. “Higher realisations from denim range is possible only with the introduction of value-added features,” notes the Technopak study.

Yellow is the new blue
Believe it or not, Indian youth has begun experimenting with colours in their denim wear. This includes green, red, and yes, even yellow. Experts feel that there is scope to develop a larger portfolio of denim garments and accessories, including shorts, shirts, bags, dresses, accessories among others. At present the market is skewed towards denim jeans.

Across the world, the coolest trend is to wear a pair that gives you a skinny and tall silhouette. The only difference between the West and the India is the per capita consumption. Once that grows, and denim continues to move up the value-chain that difference will also disappear in a matter of time.

In the interim, a three-prong strategy for growth in India would be to one, to address the price sensitive needs of the Indian consumer; and two, woo them to the branded category with more value-addition; and three plug the existing gaps in the supply chain to make India’s denim apparel market more consumer-centric with opportunities for all stakeholders to grow and mature.

Radhika Sachdev

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