In International Business we chose to market Forever 21 to the Indian retail market. Topics covered included retail environment, culture, competition, Foreign Direct Investment, SWOT Analysis, and strategic planning.
FOREVER 21 ! IN INDIA! Kamilah Francis! Sara Mavec! Jennifer Newkirk! Alfonso Cuaycong!Parsons the New School for Design! Course: International Business! Instructor: Jabril Bensedrine!
Table of Contents!I. IntroductionII. Forever 21 CurrentlyIII. Background I. Indian Culture II. Indian Customs III. Indian FashionIV. Economy I. Retail in India II. Retail Formats in India III. Challenges for Retailers IV. Foreign Direct Investment (FDI) V. CompetitionV. Strategies I. SWOT Analysis II. Five Forces Model III. Observations
Introduction!• Recent initiatives taken by the government to open up the sector for foreign players have lured many companies to enter the retail industry• India allows 51% Foreign Direct Investment (FDI) in single-brand retail and 100% FDI in wholesale trading• 100% FDI will draw a lot of foreign retailers into market generating employment and increasing competition• The United States retail market is much more consolidated with large, vertically-integrated national companies, whereas the Indian market has more suppliers that don’t sell directly to consumers• “We are not opposed to FDI, given our business should not get affected”, says a Bittu Singh, a small retail store owner• Entry into the retail sector of India must be gradual, as not to upset the balance of loyalty to the small shop owners
Forever 21 Currently!• Forever 21 is a privately owned apparel company that was founded in 1984• Their headquarters is located in Los Angeles• Founded by two South Korean immigrants who sold reproductions of trendy Korean clothes to Los Angeles’s Korean community• They saw very fast growth and added stores quickly, as well as expanded the size of each retail location (the average size is 9,000 sq ft)
Forever 21 Currently!• First international store was opened in 2010 in Birmingham, United Kingdom, soon followed by stores in Ireland and Spain• Forever 21 opened their Times Square location in June 2010, and occupies 90,000 square feet• Forever 21 also operates stores under the names XXI, For Love 21 (their all accessory store), Heritage 1981 (includes mens apparel), as well as offering pop-up lines that change every 4-6 weeks, a more upscale location inspired by couture in L.A. and a plus size line.
Background! • The republic of India is the world’s largest democracy and the second most populous, following China. Located in South Asia, India shares its borders with Pakistan, China, Nepal, Bhutan, Bangladesh and Burma, and carries a coastline that touches the Arabian Sea and the Bay of Bengal within the Indian Ocean. • With such vast terrain in its regions, climate in India is known to vary between tropical and temperate. Many say that the multiplicity of terrain and climates reflects the diversity within India as well.
Indian Culture!• Religion – With 82% of Indians Hindu, Hinduism is the most practiced religion in India. This homogenous religion consists of a variety of creeds and faiths. – Along with Hindus, there are also large populations of both Muslims and Christians within the borders of India. There are known to be different types of religions that are concentrated in particular parts of the country, such as Muslims in the Kashmir, Sikhs in Punjab, and Christians in the North-Eastern states of India. – Religion plays an important role in the personal lives of Indians, and it has known to influence various types of relationships, even those regarding business.
Indian Culture!• Social Hierarchy – Although discrimination of the basis of caste is illegal, Indians lives are still influenced by the Hindu caste system. Because of this influence many Indians are conscious about their social order and their status relative to other people, their family, friends, or strangers. – People also tend to define themselves by the group which they belong, versus their status as an individual. A person is known to be affiliated to a specific state, region, city, family, career path, religion. This allows for very strong and close personal ties, within these groups.
Indian Culture!• Important Demographics – India is known to be a “young” country, with a median age of 24, and having 40% of its population between the ages of 20 to 44 years old. This young generation is known to be more confident than their older counterparts, carrying more liberal and consumerist values and growing more ambitious. – Along with being young, India also has one of largest populations of “technically qualified manpower, ” having almost 15 million engineers, doctors, and scientists. Their strong workforce has made great leaps in areas such as information technology, and has become desirable for international companies to outsource their work here.
Indian Fashion! • Women’s Fashion – There is a variety of different types of womens clothing in India that relates to the Indian culture, religion, and climate. – Saris, salwar kameez, and lehengas are known to be the most popular forms of traditional Indian clothing for women. A sari is simply a long sheet of cloth that is draped over body in various styles. Salwar kameez is a dress that reflects a shirt and pants, that are light and sometimes baggy. A lehengas is a type of skirt, that can be worn in combination with a choli, a mid-driff baring blouse.
Indian Fashion! • Women’s Fashion (continued) – Accessories are an additional piece of clothing that are commonly used, such as bangles, anklets, and various types of piercings. Unlike bracelets, they are not flexible, and take a circular form. They are usually worn in pairs, and are usually seen with more than one on each arm. – Womens fashion in India is constantly changing and modernizing. As more companies move internationally, they see the potential with Indian-influenced designs.
Indian Fashion! • Men’s Fashion – Traditional pieces for men are the sherwani and churidars. A sherwani is a long-sleeved coat jacket, that comes down to right below the knees, settling somewhere around the calf. This jacket is worn with churiders, which are more simply trousers that are tight around the ankles, but hand loose around the thighs. – Although sherwanis and churiders are formally worn, men in India also wear three-piece suits for the proper occasion, along with various other western pieces of clothing.
Indian Fashion!• Shopping – In India, each region specializes in some sort of particular industry. Delhi and Kolkata have been the most popular areas to buy saris, where Jaipur is known for gemstones and accessories. Additionally, Maharastra is known for their footwear, and Orissa is known for their intricate silver jewelry. – Indian fashion and shopping has also become very commercial with the emergence of many shopping malls. Some of the most popular shoping malls are: • Center Stage Mall • The Great Indian Place • Gold Souk Mall • Cross Road Mall • City Centre • Garuda Mall • Spencer Mall • DLF Mall • Sahara Ganj Mall • Ansal Plaza Mall • R Mall • Inorbit Shopping Mall • Hypercity Mall – Although shopping malls span across the country, the countries most populous city, Mumbai, is known for their variety in shopping malls and markets.
Retail In India!• The Indian Retail industry is the fifth largest in the world• One of the fastest growing industries in India, especially over the last few years• According to the 8th Annual Global Retail Development Index (GRDI) of AT Kearney, India’s retail industry is the most promising emerging market for investment• Retail industry is currently growing quickly and expected to go up to US $833 billion by the year 2013• Consumer spending expected to go up; within the last 4 years, consumer spending has climbed up to 75%• A large young working population with median age of 24 years, nuclear families in urban areas, along with increasing workingwomen population and emerging opportunities in the services sector are going to be key factors in the growth of the organized retail sector in India• The vast middle class and the almost untapped retail industry are attractive driving forces for global retail giants who want to enter into the Indian market• India has the highest density of retail outlets, but unlike most developed and developing nations, India’s retail sector is highly fragmented and unorganized
Retail Formats In India!• Mom-and-Pop Stores: family-owned businesses catering to small sections; have a personal touch• Department Stores: general retail merchandisers offering quality products and services• Convenience Stores: located in residential areas with slightly higher prices• Shopping Malls: biggest form of retail in India; mall offers customers a mix of all types of products and services including entertainment and food• E-trailers: retailers providing online buying and selling of products and services• Discount Stores: factory outlets that give discount on the MRP• Vending: relatively new entry in the retail sector• Category Killers: small specialty stores offering a variety of categories; focus on specific categories, such as electronics and sporting goods• Specialty Stores: retail chains dealing in specific categories providing deep assortments
Challenges ! Forever 21 Faced!• Tax structure favors small retail businesses• Lack of adequate infrastructure facilities• High cost of real estate• Restrictions in Foreign Direct Investment (FDI)• Shortage of retail study options• Shortage of trained manpower/labor• Low retail management skills• Dissimilarity in consumer groups
Foreign Direct Investment!• Foreign Direct Investment (FDI): long-term participation by host country into the foreign country, which usually involves participation in management, joint venture, transfer of technology and expertise• Two types of Foreign Direct Investment: Inward Foreign Direct Investment and Outward Forward Direct Investment• Direct investment excludes investment through purchase of shares• Foreign investors can enter into the business in India either as a foreign company in the form of a liaison office/representative office, a project office and a branch office by registering with the Registrar of Companies (ROC), New Delhi within 30 days of setting up a place of business in India or as an Indian company in the form of a joint venture and wholly owned subsidiary
PRO! Foreign Direct Investment!• Will bring the latest technology and management practices to build modern supply chains in India, thereby connecting small producers with national and global markets• Globalization of India’s very old distribution system• Better customer services, lower prices and product quality, which will be due to competition between domestic and international companies in the retail market
CON! Foreign Direct Investment!• The current retail situation in India will not be able to survive competition from global markets because most of the retailers are small shopkeepers• FDI can upset retail balance• Domestic retailers can become unemployed by foreign companies who will be able to offer lower prices, and possibly higher wages to employees
Foreign Direct Investment in India!• India is ranked as the 4th most attractive Foreign Direct Investment (FDI) destination in 2010, but is ranked the 2nd most attractive destination following China in the next three years• As of April 1, 2011: India has eased foreign direct investment rules, letting foreign companies operating through existing joint ventures or technical agreements set up new units in the same business without prior government approval• Under this more relaxed rule, foreign companies that have an existing joint venture in India will not require the local partner’s permission if they want to set up a fully-owned subsidiary in the same field of business• According to the Federal Trade ministry, easing foreign direct investment (FDI) will “promote the competitiveness of India as an investment destination and be instrumental in attracting higher levels of FDI and technology inflows into the country,”• In the past, foreign firms have complained that their local joint venture partners or technical collaborators have misused the rules and tried to extract undue price or commercial advantage• Foreign companies have been attracted to India due to its high-growth economy and an expanding middle class• Rules limiting investments of foreign partners of Indian companies has been in place in various forms for more than 12 years and was largely aimed at protected local Indian industries
Competition!• Most of the brands entering the market are targeted at the premium end since India has a considerably young population and the purchasing power is increasing• Foreign companies with a presence in India: – Guess – Espirit – Chanel – Clarks – Mango – Aigner – Bvlgari – Hugo Boss – Mark & Spencers – Tommy Hilfiger
Porter Five Forces Model!• Competitive Rivalry The intensity of competition for woman’s fashion in India is rising. The economy is growing, the youth’s consumer trends are shifting, and there is increasing interest in foreign direct investment. Forever 21 does have existing American competition but it is projected to face more in the future as the fashion industry is becoming increasingly international. Existing competitors include Guess, Mango, Gap, and JC Pennies. • Potential Entrants The easier it is for new companies to enter the industry, the tougher the competition will be. The biggest threat of new entrants for Forever 21 would be other foreign companies interested in selling their clothing lines in India. Specifically, woman’s younger fashions that is less expensive. For example, H&M, Charlotte Rouse, Delia’s, Alloy, and Old Navy. But in India there are a few barriers to entry for new companies to consider. The factors limiting new entrants include the high taxes of specific products, Indian brand loyalty, government restriction and limitations (FDI), transportation, production, and resources.
Porter Five Forces Model!• Suppliers The amount of pressure that Indian suppliers can place on Forever 21 would be low. Resources are bountiful in India and no one supplier of Forever 21 would have large enough impact to affect the margins and volumes. The reason why suppliers wouldn’t have a strong influence is because there are many clothing suppliers in India to choose from. There are substitutes of suppliers for Forever 21 to opt for. And finally, the buying industry of India’s youth has a higher profitability than the supplying profitability. • Buyers Indian customers can potentially place a large amount of pressure on Forever 21. Customers can make a large enough impact on their margins and volumes for a few different reasons. If Forever 21 fails to modify clothing lengths and styles according to Indian apparel customs, they will only receive a small amount of buyers. If more comparable foreign brands enter India, customers could simply switch to another comparable product. And finally, Indian consumers are very price sensitive, which means Forever 21 may be too cheap for their standards.
Porter Five Forces Model!• Substitutes The likelihood that Indian consumers will switch to a competitive product is slim now but will be greater in the near future. Until recently the Indian government decreased restrictions on foreign companies entering the market. Although only ‘single brand’ companies are allowed business in India, soon more comparable American and other foreign brands will compete with Forever 21. And finally, the cost of switching clothing brands is low, which means consumers have multiple options for less expensive clothing brands.
Strategies!• Should Forever 21 decide to expand into India, it would be best for them to stick to urban areas, like how they do here in the U.S.• Some possible cities include Maharashtra, Delhi, Karnataka, West Bengal, and Tamil Nadu. These are India’s 5 largest cities, with Maharashtra having a population of almost 12 million, and Tamil Nadu having a population of over 4 million.• There is more likely to be larger numbers of potential shoppers in these urban areas, with better likelihood of younger and fashion orientated customers.• In these urban areas, the population is more likely to dress contemporarily rather than traditionally or conservative.• Forever 21 also operates the brands “XXI” and “For Love 21”, as well as a plus size line. If Forever 21 is successful, they could consider moving these operations into India as well.
Strategies!• It would be best for Forever 21 to open in a slightly more upscale mall that has constant foot traffic near one of the major metropolitan areas• Forever 21 will have to keep in mind that the body type are different, so they may need to offer different sizing or different proportions• They wouldn’t need to change their appearance as it will attract customers who are already familiar with the atmosphere and look of Forever 21 stores• They may find it necessary to adjust pricing in order to compensate for shipping costs, as well as any applicable tariffs or taxes.• However, they also must keep in mind that their low prices will attract a large number of customers from varying classes.• The Indian Rupee is currently equal to about 22 cents in the U.S., so a $15 item will cost 663.59 rupees. The items start at 199 rupee, or about $4.40. This is consistent with current U.S. pricing.
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