Tuesday, May 15, 2012: 09:01:38 PM

COVERStory

STEPPING IT UP

Suchaita Tenneti examines the composition of the footwear retail segment in India, the current trends and its future trajectory

One of the most organised segments of Indiaís retail industry and a significant contributor to the nationís retail growth, footwear retail is making notable strides in todayís economy. As designer Payal Kothari observes, ëThe footwear retail industry is definitely an emerging segment in India and is growing at a phenomenal pace. With an increasing number of domestic as well as international and luxury brands entering the market, India is proving to be a lucrative footwear retail hub.

A report on footwear manufacturing and retail in India by Netscribes estimates Indiaís footwear market at INR`160 bn with an expected growth to INR`475 bn by 2025. The report further reveals that the average spending on footwear by urban customers is INR `240 per annum and about INR`100 per annum by rural customers. The annual domestic consumption of footwear is approximately 1.1 bn pairs per annum, and the top 20 cities contribute about 450 million pairs per annum.

Further, the advent of malls and multi-brand stores, evolving fashion tastes and consciousness, and the entry of foreign brands into the Indian market are spearheading the footwear retail industry, and are expected to have an even stronger impact in the future.

Footwear Segments and Their Respective Trends
The footwear retail segment in India is broadly divided into two categoriesóthe large organised and the small unorganised. The organised segment comprises a variety of domestic and foreign players, and numerous emerging players are entering this segment on a regular basis. It accounts for 37.8 percent of the overall footwear segment, which makes the footwear market the second most organised after watches. The unorganised footwear retail segment in India meets a significant proportion of the domestic demand. However, there is still a shortfall of 300 million pairs, as a report from Browne & Mohan suggests.

The report further reveals that the highly organised nature of footwear retail in India is largely on account of menís footwear, which comprises half the market share. Womenís shoes contribute around 40 percent of the market, with kidsí footwear making up the remainder. As opposed to menís footwear, womenís footwear is largely unorganised, estimated at 95 percent. This is an unusual feature of Indiaís footwear market in comparison to its global counterparts. Browne & Mohan postulate that Indian women tend to select shoes based on colour and design rather than brand, which accounts for this distinctive trend.

Nevertheless, as a wave of fashion consciousness sweeps through the nation and a greater number of women enter the workforce, women are beginning to demand branded footwear. This creates a wealth of new opportunities for footwear retailers. Besides, there is an increasing demand for womenís footwear retail in tier II and tier III cities. With the sudden growth of the service sector, women residing in towns have also emerged as potential customers. Catwalk is an excellent example of a retailer, making forays into this segment, which has largely been ignored by traditional retailers, performance in this area has been commendable.

The Browne & Mohan report claims that kidsí footwear is one of the fastest growing segments in the Indian footwear retail industry. However, just like the womenís footwear segment, the kidsí footwear retail segment is very fragmented and is dominated by the unorganised sector. Nevertheless, with rising incomes and brand consciousness, there is tremendous scope for childrenís footwear, especially since India has the largest child population in the world.

Disney Kids is an example of a footwear brand that has ventured into the footwear retail market. It designs footwear especially for children in the age group of 510. Its shoe collection includes boots, sandals, slippers and sports shoes for boys and girls. The price range of the shoes is quite varied, in the range of INR`50850. Lifestyle, Shoppers Stop, Central and other prominent outlets actively feature the brands products.



Increasing Organised Retail Space
India is experiencing remarkable growth in organised retail, with a rising number of shopping malls and departmental stores, springing up in not just tier I, but also tier II and III cities. India is expected to have approximately 120 mn of total mall space, which will be made available through approximately 350 malls.

Numerous footwear retailers have discovered the advantages of establishing their outlets in malls. And as malls expand and shift their base to other cities, footwear retailers also have the opportunity of broadening their market spectrum. With numerous customers preferring to purchase shoes in tandem with clothes and other accessories, malls have emerged as popular venues for footwear retailers looking to increase their profit margins and gain wider exposure for their brands. This also helps retailers to de-risk their channels and product lines, as the Browne & Mohan report states. The store-in-store model has also been found to be one of the most cost-effective models for emerging retailers.



High Price Sensitivity
Browne & Mohanís report reveals that Indiaís domestic footwear retail market is substantially price driven, with branded footwear constituting less than 42 percent of the total market size. Price sensitivity in this segment has been steadily growing over the years.

The growth of footwear retail is maximum in the price range of `180ñ700, says the Netscribes report. These figures are indicative of the preferred budget of the average Indian middle-class customer, and reveal that affordability is the key to enhanced sales.

Most foreign brands largely target the affluent class, whereas the Indian population largely consists of middle class people. A mere 2 percent of men and 10 percent of women buy shoes in the premium segment (shoes priced above INR`200). Thus, branded shoes account for just about 20 percent of the entire market. International brands dominate the more affluent segment of customers, while unbranded and domestic brands as well as footwear manufactured by the unorganised segment are popular with customers at the lower end of the consumer spectrum.

However, the Netscribes report points to a recent development. It claims that Indian middleclass customers prioritise comfort and durability over price, and are thus beginning to prefer high quality, branded shoes over cheaper products from the unorganised market.

Growing Fashion Consciousness
One of the foremost reasons for Indiaís success in footwear retail is emerging fashion consciousness among Indians across economic divisions. Footwear is no longer a utility item but a specialised fashion accessory. With increased industrial and technological progress not restricted to metros but extending to other towns and cities, the demand for designer as well as branded footwear has been on the rise. Increased global travel has made Indian customers familiar with international brands. It is also estimated that the annual income in India has grown by an average of 10 percent yearly. This has resulted in a shift in demand from low-priced footwear to medium- and high-priced footwear.

Bata is one of the oldest brands, which has been catering to the executive segment of the Indian population. It occupies a dominant position in the footwear industry with a 50 percent share in the elite segment. However, several other brands such as Reliance Footprint, Liberty, Metro and others are emerging as Bataís competitors in this arena.

Entry of International Brands and Spread of Domestic Brands
As the level of fashion consciousness of Indian consumers increase, new opportunities for local footwear brands are being created. International brands have realised this potential and are using it to the fullest. This is true for European, American and Chinese brands. The Government of Indiaís decision to allow 51 percent FDI has been a strong motivating factor for foreign brands to enter the Indian market.

As the demand for footwear from the organised segment increases and spreads throughout the country, domestic brands have acquired greater mobility: they are beginning to spread beyond regional markets and have attained a pan-India presence. A notable example is of the NCR player, Mahatani Fashion, which owns the brand Vi-Ga, and is expanding its presence throughout India.

Diversification—Key to Success
Debdeep Sina ñ Vice President, Marketing Properties, Reliance Trends advises retailers to opt for stores selling multiple brands rather than single-brand stores. Two major kinds of diversification are taking place in the footwear retail industry todayóin leather products and in the entry of apparel brands.

The recession and the hardening of the Indian Rupee against the US Dollar have led leather companies to diversify and de-risk their businesses. In order to target the ever-increasing class of mall-goers, several manufacturers have turned retailers, either forging ahead on their own or creating ventures with other national and international players in the field. One such venture is between Foresight in Chennai and Pavers in the UK, who have together introduced the fashion footwear brand, ëStaccatoí, in India. Similarly, Reliance has entered into an agreement with Timeberland, a company specialising in footwear and apparel.

The franchise route has been preferred by foreign companies when entering the Indian retail industry. One of the most significant examples is Reebok and its partnership with Franchise India Holdings Ltd, an integrated franchise and retail solutions provider.

Mr Sinha points out to customersí desire to opt for various shopping options under a single roof. Apparel brands have identification this pervasive shopping trend, as well. This has induced them to enter the footwear segment and sell shoes alongside garments for quicker shopping. They use their brand value to allure customers to create demand for their footwear, as well.

Louis Phillipe offers an instance of a brand that has incorporated footwear along with its garments. Similarly, the Tata group owns the private fashion label and apparel brand ëWestsideí, which is a unit of Trend Ltd, Tata International Ltd has plans to set up a retail chain for footwear.

Emerging Trends
The manufacturing of therapeutic shoes in India is also gaining prominence. With growing consumer demand for specialised footwear options, (therapeutic shoes being among them), an immense scope for the retail of these shoes is likely to arise. Advanced 2D and 3D technology, and digital foot mapping enable the manufacture of therapeutic shoes to develop customised footwear solutions for the Indian customer. For instance, Manipal Footwear & Care (MCC) launched ëFoot Solutionsí, which marks Indiaís entry into the medicallyñ engineered footwear solutions, along with other brands such as Orthofeet, Drew and Thorlos, Chung Shi, and others. Domestic manufacturing could translate into cost-effectiveness for the Indian customer, thus propelling demand and broadening the market spectrum over the coming years, as well.

The increasing import of footwear from China carries significance for Indian retailers. Chinese shoes are cheap and attractive, and are available at prices as low as `100. Their influx could have multiple implications for Indian retailers. Although brand consciousness among Indian customers is on the rise, there is a significant portion of customers, especially women, who prefer shoes that meet their style and design preferences, irrespective of the brand. This could help the growth of footwear retail, especially of small-scale retailers. However, these cheaper products pose a challenge to the retail of more expensive domestic and international brands. In such a scenario, Chinese shoes could have a considerable impact on profit margins, and even reduce the overall quality of footwear retail in India.

Another notable trend in Indian footwear retail is the launch of online trading platforms such as the one launched by Bata. Recently, Bata even revamped its online portal to make it more user-friendly, and this is expected to have a significant positive impact on the already profitable online sales of the company. Ms Kothari observes of online footwear retailing, ìEarlier the Indian consumer was sceptical and unsure of purchasing footwear online, but this has now changed. Going by the growth and success of various websites selling designer footwear online and new entrants jumping onto the online footwear retail bandwagon, this is definitely an emerging and growing trend that is here to stay.

Challenges
Mr Sinha points out a few of the key challenges faced by footwear retailers in India, ìOne of the challenges faced by retailers is the shortage of quality retail space in many cities and the high rentals prevalent in many major cities that is hindering growth. For footwear specifically, the tax rate (VAT) is very high at 14.5 percent, which is also a big burden for us besides significant excise duties.

The Browne & Mohan report draws attention to other hurdles that footwear retail in India has to overcome. With rising rents, several companies can no longer afford to own their own premises and are now compelled to seek other forms of retailing outlets, which could result in a rise in operational costs. It is challenging for Small and Medium Enterprises to build up their brand presence, and increasing rents prove to be challenging for them while seeking to maintain suitable profit margins. The IT adoption rate, especially for SMEs, is rather low. Not many of them can afford to incorporate ERP solutions into their management and monitoring systems.

In conclusion, the footwear retail industry in India is certainly one of the core components of economic growth. It comprises several promising avenues for aspiring retailers to explore, and with the notable developments in footwear manufacturing, several more markets are expected to open up in the coming yearsboth nationally and overseas. As the industry grows and expands, it is likely to become more hospitable to new entrants, especially small players, and what are now perceived as challenges shall gradually be overcome or evolve into opportunities.


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