Apparel Markets of China and India: Super Consumers

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With growth of disposable incomes, favourable demographics, changing lifestyles, and a high potential for penetration into urban and rural markets; the share of organised retail in India is expected …

With growth of disposable incomes, favourable demographics, changing lifestyles, and a high potential for penetration into urban and rural markets; the share of organised retail in India is expected to reach 15 per cent by 2025, within which ~ 29 per cent will be apparel.

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  • 1. • hard talk •124 | May 2013 | IMAGES Business of FashionApparelMarketsofChinaandIndiaSuperConsumersThe world is going through a time of great economic transition.After years of high growth in Western countries, the economy derailedseverely in 2008 due to reasons which were simmering for quite a fewyears. The systemic failure led to a snowball phenomenon spreadingto different parts of the globe in one or the other form. Even after morethan five years, the global economy has not revived – the U.S. is on apath of a very slow recovery, Eurozone challenges are yet to subsidise,the global trade has not yet reached its pre-financial crisis status andthe commodities are passing through phases of extreme volatility. However, during these times, economies of China and India performedbetter than the developed world. Their growth cannot be describedsmooth for sure, but it was enough to cushion the impact of globaleconomic meltdown to a large extent. In the foreseeable future, thetrend where growth is subdued in developed countries and emergingeconomies will contribute largely to the world economy growth isexpected to continue.
  • 2. May 2013 | IMAGES Business of Fashion | 125Data Source: Centre d’Etudes Prospectives et d’Informations Internationales (CEPII), France;Based on 2005 constant dollar; Estimates start after 201215%10%-10%5%-5% United StatesJapanChinaGermanyIndia0%1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31Apparel consumption - current leveland underlying economicsThe current global apparel market isestimated at US$ 1.1 trillion which formsnearly 1.8 per cent of the world GDP.Almost 75 per cent of this market isconcentrated in EU-27, the U.S.A., Chinaand Japan. The next largest marketsare Brazil, India, Russia, Canada andAustralia, in descending order with ashare of approximately 18 per cent.Within the top markets, there is amajor distinction between developedcountries and the emerging ones interms of per capita spend on apparel.The lowest per capita spend on apparelamong these markets is of India (~US$36) which is only 3 per cent of the highestone viz. Australia (~US$ 1,050). Largepopulation base in China and India hasled to their inclusion among the topapparel markets, even ahead of severaldeveloped economies.Very often, comparisons are drawnbetween the markets of China and India;but it is interesting to note that per capitaspend on apparel in India is only one-third of that in China.Future growth trendThere is a positive correlation betweenconsumer’s spending on variouscategories and economic stature of thecountry. In lesser developed economies,consumer’s spending is highest on foodfollowed by clothing, housing and otheritems. In developed economies, as theconsumer’s disposable income increases,Global Apparel Market Size 2012 (In US$ Billion)S. No. Region Apparel Market Size1 EU-27 3502 United States 2253 China 1504 Japan 1105 Brazil 556 India 457 Russia 408 Canada 309 Australia 2510 Rest of the world 75Total 1,105Source: Wazir AdvisorsSource:WazirAdvisorsAustraliaJapanCanadaUSAEU-27RussiaBrazilGlobalChinaIndia1,05083181468666327327215310936GDP growth rates of selected economies (1995 to 2025)Per capita apparel spend in major apparel markets (2012) (In US$)
  • 3. • hard talk •126 | May 2013 | IMAGES Business of FashionSource: Wazir Advisors; GDP projections from Centre d’Etudes Prospectives et d’Informations Internationales (CEPII), France3.4%4.7%3.8%1.7% 1.9%7.2%3.5%2.2%3.0%1.0%1.5%4.0%8.0%10.0%11.0%6.0%3.0%4.2%7.9%9.4%12.0%10.0%8.0%6.0%4.0%2.0%0.0%JapanAustraliaCanadaUSAEU27RussiaBrazilChinaIndiaRoWGDP growth rate Per capita spend on apparel growth rateAnnualised GDP and per capita apparelspend growth rates in major markets from 2012 to 20251,8001,6001,4001,2008006004002000Australia Canada Japan EU 27 United Russia Brazil China India Statesn 2012 n 2025the share of basic categories such asapparel reduces, whereas the share ofnew categories such as entertainment,recreation, consumer durables, travel andothers increases. Though in absolute valueterms, spend on clothing will not go down,but the increase will be slower than theoverall increase in disposable income. Thisbehaviour in an aggregate form causesper capita spend on clothing to rise fasterinitially and slow down later. In developedeconomies, this growth slows downor stagnates, while in value terms thespending on apparel continues to grow.Based on this, it is expected that theper capita spend on apparel will grow ata faster rate than the economy in Brazil,Russia, India and China; whereas it willbe slower or at par with the economicgrowth in developed markets over thenext few years.The projected growth rates will notresult in major ranking change in termsof per capita spent on apparel but whenthe population base of China and Indiais taken into account; one can see theenormous growth in consumption in boththese countries.Consumption trends in China andIndiaThe size and segmentation of Chineseand Indian markets are quite dissimilarand this holds true for the foreseeablefuture. However, the emerging changesin both the markets have a strongcorrelation. Apart from strong economicgrowth in both the countries, followingtrends will determine the evolution ofapparel markets: a. Changing consumer preferences Chinese consumer: More capableand more willingChina has a high national savings rate-more than 50 per cent which is wellabove the global average of 20 per cent.This says a lot about Chinese consumer’sself-restraint for spending, acrosscategories. The apparel buying behaviourof most of the Chinese consumers hashistorically been need driven. Impulsivebuying unlike other markets is low andvalue for money is the key selling pointfor merchandise.However, the projections indicate thatChina is perhaps past the peak savingsrate and going forward, consumer willbe more experimental and indulging. Arecent Hong Kong Trade DevelopmentCouncil (HKTDC) survey revealed thatChinese consumer has already startedmoving beyond need and discount drivenAnnualised GDP and per capitaapparel spend growth rates in major markets from 2012 to 2025Source: Wazir Advisors
  • 4. May 2013 | IMAGES Business of Fashion | 127purchase. A large chunk, ~40 per centof the consumers, reported fashion andtrends to be one of their key motivator forbuying clothes.The main reason behind the expectedChinese consumer’s increasing appetitefor new apparel is the ever increasingexposure to western lifestyle andincreasing affordability along with thefact that the domestic clothing marketis becoming more versatile, fashionableand segmented.apparel is the single largest categorywith a share of ~ 33 per cent. The vastpopulation base and growing economyhas caused global retailers and brands toactively seek Indian market participation,either on their own or in partnership witha local player. The recent governmentdecision of allowing up to 51 per centFDI in multi-brand retail is expected toprovide a boost to organised retail inIndia over next few years. Indian middleclass, the biggest consumer class, isalso waking up to the concept of largeformat stores where they have the optionto evaluate competing products in allcategory and choose value-for-moneymerchandise. With growth of disposableincomes, favourable demographics,changing lifestyles, and a high potential forpenetration into urban and rural markets;the share of organised retail in India isexpected to reach 15 per cent by 2025,within which ~ 29 per cent will be apparel.The apparel brand growth in India isalready a success story. The advent ofbrands in India around a decade ago hascaptured the fancy of most young andaspiring consumers. After developing astrong network in urban areas, apparelbrands are now making inroads to tierProjected growth of organised apparel retail market in India from 2012 to 20252012 size 2025 size Projected CAGRTotal retail market US$ 518 bn US$ 2100 bn 11%Organised retail US$ 41 bn (8%) US$ 315 bn (15%) 17%Total apparel market US$ 45 bn US$ 200 bn 12%Organised apparel retail US$ 13.5 bn (30%) US$ 90 bn (45%) 16%Source: Wazir AdvisorsWith growthof disposableincomes, favourabledemographics,changing lifestyles,and a high potentialfor penetration intourban and ruralmarkets; the shareof organised retail inIndia is expected toreach 15 per cent by2025, within which~ 29 per cent will beapparel.Source:WazirAdvisorsn Branded n Unbranded12 3145384530101110516KidswearWomenswearMenswearKidswearWomenswearMenswearProjected growth of branded apparel in Indian market from 2012 to 2025 (US$ bn.) Indian consumer: Shifting toorganised retailers and looking forbrandsOrganised retailing in India currentlystands at ~8 per cent of the overall retailmarket of US$ 518 billion. Within this,
  • 5. • hard talk •128 | May 2013 | IMAGES Business of FashionABOUT THE AUTHORVarunVaidisaPrincipalConsultantwithWazirAdvisors,andholdsabout11yearsofexperienceinmanufacturing,marketingandconsultingdomaininIndia,SouthAsia,SouthEastAsia,EuropeandAfrica.Theviewsexpressedintheguestarticlesarethoseoftherespectiveauthors.Theeditorandpublishermaynotnecessarilysubscribetothesame.management, product development andIT enabled production tracking.The market growth will also throwgates open for local brands and retailersto expand multifold. They already havean advantage of local sourcing expertise,market understanding and reach whichwill be further enhanced once thedemand starts rising in the near future.In order to increase the market share,we will have to focus beyond the tier Icities. For this, the brands and retailerswill have to develop low cost businessmodel in which e-commerce will play asignificant role.Last but not the least, Indian exportersstand to gain from the fact that China’sshare in exports is expected to reduceover the next few years. They need to beready to undertake suitable product andinfrastructure expansion drives to meetthe demand of the global market. BoFBoFMajor domestic apparel brands in China and IndiaChinese Brand Stores 2011 Revenue Est. (US$ Mn) Indian Brand Stores2011 Revenue Est.(US$ Mn)Bosideng ~10,000 1,300 Van Heusen ~190 160Youngor ~1,500 770 Louis Philippe ~150 170Li-Ning ~8,000 1,300 Allen Solly ~150 100Metersbonwe ~3,700 1,000 Raymond ~650 200+Projected market size of China/India vis-à-vis USA/EuropeRegion2012 market size(US$ bn.)Expected growth rate2012 to 20252025 market size(US$ bn.)India 45 12% 200China 150 10% 540India and China combined 195 11% 740USA 225 2% 285EU 27 350 2% 440USA and EU 27 combined 575 2% 725Source: Wazir AdvisorsII and II cities to achieve the next level ofgrowth in India. From a level of ~27 percent share in total apparel sales today,brands are seen as capturing close to 50per cent share by 2025. b. Domestic brands will playan important role in marketdevelopmentDomestic brands dominate the massmarket in both China and India.Domestic players generally have moreextensive sales channels especially intier II and III cities. These brands arestrengthening their presence and areinvesting in aggressive expansion inopening their exclusive brand outlets(EBOs) in both the countries.In China, the penetration oninternational brands is quite high ascompared to India. However, they havefocused more on the high end segment,including luxury till now. In that segmentalso Chinese brands such as NE.TIGERand TRANDS are gaining recognition.China and India – The future superconsumersIn both the countries, the demand ofclothing is expected to outpace theoverall growth of economy. It is projectedthat the per capita spend on apparelin China will rise from a current valueof US$ 109 (2012) to US$ 377 by 2025thereby registering a CAGR of 10 percent. In India, the growth will be fromUS$ 36 (2012) to US$ 138 by 2025, witha CAGR of 11 per cent. This would causethe market size in China to swell fromUS$ 150 billion in 2012 to US$ 540 billionwhereas Indian apparel market size willtouch US$ 200 billion by 2025 from US$45 billion in 2012.On one hand where these twoeconomies will drive the growth of globalapparel consumption, while on the otherthe traditional markets of the U.S.A. andEU will face a slower growth rates onaccount of market maturity and weakereconomy growth. It is expected that by2025, the cumulative size of Indian andChinese markets will overtake that of theU.S.A. and EU.Opportunities for manufacturers andretailersThe growth potential in markets ofChina and India has drawn attention ofbrands and retailers globally. In caseof China, they have already made inroads whereas in India, the recent policydecision to allow FDI in multi brandretailing will bring large internationalretailers over the next few years. Withtheir home markets slowing down and/or the ambition for global expansion willdrive retailers to tap these two markets.As it happens, initially the retailers willimport the products but later on theywill indigenise the sourcing processbenefitting the local manufacturers.This will provide local manufacturersan unparalleled opportunity for growth,but their business model needs to begeared up to cater to the quality, service,design and quantum of demand that isthe hallmark of international retailers.The key will be to develop economies ofscale and establish strong business tie-ups with them by providing value addedservices, which may include inventory