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Shanthi Venkataraman

READYMADE garment is really becoming big business. With the quota regime on textiles and clothing set to go in 2005, the garment industry should get greater access to international market. The domestic market too presents immense opportunities with consumer spending on the rise and organised retailing growing. But should a garment player go global or sell at home?

Some players such as Raymond and Zodiac Clothing have chosen to be aggressive in both markets. Even as they plan to improve their retail presence over the next three years, both are expanding their manufacturing facilities in Bangalore to cater to the expected rise in international demand, post-2005.

Betting on domestic market

Once the quotas go, a good number of domestic outfits may look at the export market to augment revenues.

Interestingly, major export players such as Ambattur Clothing (Color Plus) and Acme Clothing (Provogue) have, in the past, placed their bet on the domestic market.

These companies quickly managed to give bigger players a run for their money. But, as Color Plus discovered, further growth could come only from a wider distribution network, which needs deep pockets. Raymond stepped in and acquired the brand.

Operating in the domestic market poses an entirely different set of challenges from that of the export market. It requires more than manufacturing expertise and a heightened fashion-consciousness.

While these factors help initially, it is an entirely different ball game to emerge as a strong brand. This is borne out by the presence of just a handful of successful brands in an apparel market pegged at Rs 9,000 crore. Sound branding and positioning, supply chain management and retailing assume greater importance in the domestic than in the export market, where garments are sold under private labels. These elements also involve considerable costs.

Established names, however, do not have it easy either. The entry of international brands such as Tommy Hilfiger into the Indian market is likely to be followed by more players.

Once quotas go, international manufacturers are likely to set up facilities in India to take advantage of the low-cost base. Moreover, import tariffs are likely to come down, which would also attract international players.

Competition is likely to hot up and keep domestic players on their toes. The retail landscape is changing, and the traditional distribution strategy of apparel players is in for an overhaul. Figuring out which price point to operate in is yet another challenge for an apparel maker. Challenging, but interesting, times are ahead for the readymade garment industry.

Growing retail space

The growth of the readymade garment industry is inextricably linked to that of retailing. For long, the bane of the domestic readymade garment industry was the inadequacy of the distribution system.

Apparel retailers, with little retail expertise, had to build their own network, at considerable expense. The rapid growth in recent years of various retail formats, such as departmental stores and malls, has given a fillip to the industry.

Players still believe that the retail industry is in its infancy. While KSA Technopak, a textiles and retailing consultant, expects some 200 malls to come up over the next two years, the growth in retailing is still seen with scepticism by apparel companies. Most of these projects are executed by real-estate developers rather than retailers. The latter are, however, better placed to understand the dynamics of the business.

A boost to the industry would come from allowing foreign direct investment in retailing, which would increase space considerably and also bring international practices to India. This may also encourage newer entrants, once the distribution costs decline.

Expanding the retail network

Apparel manufacturers were among the first to foray into organised retailing. Raymond, Arvind Brands, Madura Garments (Indian Rayon) and Zodiac Clothing have built an extensive retail network over the years.

Even as they retail through other multi-brand outlets/departmental stores, they also continue to set up their own outlets. Having their own outlets, they believe, would help showcase their entire range of products, as well as build their brand image.

Tussle with private labels

Manufacturers have found it is advantageous to have their own outlets for another reason. The increasing share of retailers' private labels is squeezing the space available for their own brands. The likelihood of private labels emerging as a major threat to brands has been debated endlessly.

Private labels tend to do well during recessions. Retailers enjoy better margins on their own labels, and are also able to price them lower.

Private labels, however, plateau in the boom periods, when brands stand to gain. Players in the branded segment also contend that customers are eventually won over to brands by familiarity and quality assurance.

Going one step further, private labels can help build markets for brands. For instance, the women's apparel segment is yet to take off in a big way, but private labels have managed to do well in this segment.

Players such as Madura Garments, which have a presence in the segment through Allen Solly, believe that once women try out private labels and get more accustomed to Western wear, they are likely to upgrade to a more expensive brand.

Towards lower price points

Brands may not even be as expensive as they are today. Leading ones have, in the past, been predominantly positioned in the premium segment.

There has been a market for such products; Louis Philippe shirts have sold for Rs 4,000 and more. Clearly, the promise of high quality has held value for customers.

But the strong response to a flurry of price cuts across sectors, ranging from airlines to telecom, has shown that the branded apparel segment cannot afford to miss out on the opportunity in mass markets for long.

One has to only see the huge response to a Color Plus sale to get an idea of the growing demand for branded clothing at lower price points. Brands have grown to depend upon such sales to drive up their volumes.

With the exemption of excise duty on cotton garments (if a manufacturer opts for the cenvat route he would have to pay 4 per cent against 10 per cent earlier) and the creation of a level-playing field, branded players now have a good incentive to introduce products at lower price points for the mass market, which, till now, has been the preserve of smaller and relatively unknown players.

But players may still find it tough to cater to this market. They would have to move towards a low-margin, volume-driven business. This would also need a far larger distribution network than what exists today.

Few retail formats in India operate on a truly large scale. Giants such as Walmart and Carrefour, which have the ability to drive volumes, are what the industry would need; however, their entry is unlikely till such time FDI is permitted in retailing.

Striking a balance

Interesting times are ahead for garment manufacturers in the domestic market.

The success of a player would be driven by its ability to strike a balance between the export and the domestic market, straddle various retail formats and self-owned retail outlets and have the right mix of premium and mass market offerings in its product bouquet.

A well-chosen combination could place a garment manufacturer at a cut above the rest.

Sewing up gains

THE garment sector is considered one of the more promising segments in the textile chain as. after 2005, as there would be greater demand for finished products. The universe of readymade garment stocks is, however, limited. Zodiac Clothing is the only one with a pure garment focus. The stocks of Raymond, Indian Rayon and, to some extent, Arvind Mills, have managed to draw investor attention the past couple of months due to their increasing thrust on garments on the domestic and export front.

Zodiac, as a pure play garment company, will be able to leverage on the potential in this sector. The company is strongly focussed on exports, . Capacity expansion plans augur well for its revenue growth; the company recently acquired a shirt-manufacturing unit in Dubai. It also plans to add 60 retail outlets over the next three years.Raymond operates in the garment business through its subsidiaries. The integrated nature of its facilities is likely to place Raymond, along with Arvind, on the importers' list of preferred vendors. On the domestic front, Raymond's brands cater to the premium segment. Raymond is also a leader in the suits segment. The decision to overhaul its retail outlets and cater to a younger crowd might help spruce up its brand image.

Arvind Brands, is no longer a subsidiary of Arvind Mills. The latter is, however, building its export market But the company still derives a chunk of its revenues from its denim business. It would be some time before garments emerge as a major driver of its revenues.

Indian Rayon has a presence in a number of businesses. As the owner of Madura Garments, it has a strong presence domestically. . The garment division is expected to be one of the major growth drivers The revival of its power brand, Peter England, capacity expansion plans, and retail expansion should boost earnings.

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