The Eastern Front

Australian apparel, footwear and accessory businesses have long looked to India as an affordable avenue for sourcing and production. But, as Assia Benmedjdoub discovered at the 2008 Global Retail Insight Seminar, a retail revolution is brewing.

"You can't help but think once an established player comes into the market, the local competition might find life pretty tough unless they raise their game," says Steve Ogden-Barnes, drawing our attention to the front of the room, where a storefront image is being projected onto a white screen. "Perhaps a degree of under promise and hopefully over delivery there."

Ogden-Barnes, a program director at the Australian Centre for Retail Studies since 2002, can't help himself. He takes another crack. "It's not bad, it's just ok," he shrugs.

The hapless target of Ogden-Barnes' jibbing is 'O.K Hair Style' salon in India's Bangalore district – a business he uses to reflect the more unfortunate examples of regional retailing and marketing. According to the corporate strategy expert, whose arguments are backed by the latest reports from management consulting firm McKinsey & Company, local retailers are failing to grasp the country's booming middle-class dollar. Predictions suggest that if India plays its cards right, it could become the fifth largest consumer economy in the world over the next eight to ten years.

"There's a lot of potential for businesses, both internationally and domestically, to capitalise on India's growing middle class," Ogden-Barnes says, noting that economists are expecting to see a "massive upsurge" in spending from this demographic in coming years. "It's a very dynamic market and one that's laden with entrepreneurial spirit, entrepreneurial attitude and has simply, a lot of potential."

O.K Hair Style salon aside, Ogden-Barnes says the formalisation of Indian retail is already (albeit slowly) in motion with shopping centres expanding and Western retail models becoming more readily adopted. Even wholly domestic retailers – such as upmarket fashion boutique Millionaire – are starting to target the aspirational, middle class consumer.

"As you might imagine, international retailers are also looking to India as not just a place to source from but to trade in as well," Ogden-Barnes adds. "As many countries are seeing a slowdown in domestic growth opportunities, emerging countries like India appear as an attractive place to trade from."

But buyer beware: Ogden-Barnes says the key to trading in the new market is to source a suitable local partner. This is a lesson UK retailer Boots had to learn the hard way after it bowed out of India, tail planted firmly between its legs, in 2005.
"They couldn't make it work," he says simply. "Now they're going back into India with the sizable and significant Reliance organisation – perhaps the strongest local player in India – and they've got some extremely ambitious growth plans across many sectors."

Other international giants taking on the emerging market include America's Walmart, which has partnered with Bharti Enterprises, and UK department store Marks & Spencer. Ogden-Barnes says the incentive for the former is both strategic and economical.

"One of Marks & Spencer's strategies for improving their fortunes is to internationalise and they're predicting some 15 to 20 per cent growth in overseas, developing markets including India," he explains, adding the company has had its fair share of ups and downs in recent years. "The time they slipped in the UK meant that the competition got better and better and it was harder for them to get back their old position – new markets are the way forward for Marks & Spencer."

Another key area of growth, both in India and other emerging international markets such as Asia, is the move towards premium and luxury product categories. Ogden-Barnes says this can range from premium in-house brands to more traditional luxury options such as Rolex, Louis Vuitton or Porsche. Even regional retailers like the Titan Group, which has a specialist arm in premium jewellery and watches, are re-educating Indian consumers away from a dependency on price promotion to an emphasis on service and product quality.

"I was talking to the CEO just a few weeks ago and he said that it's been a hard fight," Ogden-Barnes says. "They now only have one sale a year and that's it. They have promotions and those promotions may be based around calendar events, religious festivals and seasonal events – they're big on promotion, not big on discounting."

Ogden-Barnes says the group has leveraged other value factors such as service, retail environment and premium quality to steer consumers away from price-driven transactions.

"That's a trend we're seeing internationally and nationally as well," he says. "If you put good product in front of customers in an effective environment, then you can actually draw people away from a base price point and into the better, best or premium luxury categories."

Only time will tell how international retailers fair in the fledgling market – with Boots not alone in its failed attempt to enter India in the early noughties – but Ogden-Barnes predicts the future is looking good. 

"For those who want to take a risk and who want to perhaps capitalise on the first mover advantage, then you can see some good potential in this country. The middle class [in particular] is a significant consumer slice and one that is currently underserved."

By Assia Benmedjdoub