VAICHITRYA: We design desires; A Hypothetical business model in organized Indian apparel sector (An analysis of challenges faced in the sector and identification of potential opportunity areas)

Abstract

Organized retail in India is on fast track growth with a large untapped market space and potentials of high return. A dominant category in this segment is the apparel sector with the highest market share of 40% by value. The Indian readymade garment industry segment is expected to grow at a CAGR of 7.4% for the next 5 years. The improving Indian economy, increasing purchase power of the individuals and the drift in consumer preference towards branded apparels appear to be the key growth drivers for apparel sector. The sector can broadly be divided into men’s, women’s and kid’s apparel segment. Form the secondary research it has been found that the women’s apparel segment is going to grow at the fastest rate over next five years. Further the increasing consumer preference for readymade Indian dresses over tailor made dresses would make the ethnic wear product category the fastest growing in the women’s segment and the second fastest in the men’s segment. An industry analysis of the apparel sector reveals it to be moderately attractive and is likely to see increased investment from global players. The government policy is fairly supportive and favors industry growth. However, there are many challenges faced by the organized players in this segment, the foremost being intense competition from local unorganized players. The objective of the project was to design a hypothetical business model in the apparel sector. A total of 13 business models were identified and analyzed. The three prime differentiating factors in these models were the strategy of manufacturing and procurement, branding strategy and strategy of distribution. To understand the dynamics of the industry, the key players in this segment were further mapped on the customer perceived value matrix, the product mix matrix and the business model matrix. The analysis revealed the ethnic wear segment to be the most suitable for the launch of a new retail chain. After a comparative analysis of the above business models, the business strategy of having an own brand and own point of sale has been identified to be the most appropriate. The stores forte to offer unique and customized designer wears, advisory fashion solutions and bulk deals on special occasions are the key differentiating factors with respect to incumbent players such as FabIndia, BIBA and unorganized local stores. The financial analysis projected an annual profit margin of 9.3% under normal circumstances which is above industry average of 7%. Hoewever, in worst case scenario break-even point is achieved in year II and the NPV of the project turns out to be Rs. 36,16,563.