Value Fashion Retail | Growth Through Expansion into Smaller Towns
Published by Sharekhan Education | July 8, 2022
Value Fashion Retail | Growth Through Expansion into Smaller Towns
The fashion retail industry was severely impacted by the COVID-19 pandemic, as mobility reduced significantly. However, the industry has shown remarkable agility in adapting to the crisis. It has been re-inventing and re-aligning itself to a rapidly evolving business environment. It has regained its growth trajectory owing to increased demand, driven by the resumption of economic activity to pre-COVID levels.
Initially, the Branded penetration in the apparel segment was skewed towards mid to premium price points leading to pricing gaps in the market. Realizing the gaps in pricing, the retailers found an opportunity to launch their private brands in the value segment. Private brands in the value segment are a win-win solution for both retailers and value consumers as these brands ensure better margins with good quality and design at affordable pricing for consumers. They are making the brand relevant and connected to Bharat’s customers more engagingly and effectively.
Growth Prospects:
Analysts expect the value fashion segment to grow at a 6% CAGR to USD 44 billion by FY 2024-25. Value fashion (VF) offers a massive untapped opportunity in the Indian apparel sector, with the organized segment of the industry at an inflection point. It’s positioning as ‘value-for-money’ is the least vulnerable to consumption shock resulting from a drastic fall in discretionary spending.
Value retail constitutes about 60% of the overall apparel retail market, mainly dominated by unorganized players. The value segment primarily caters to the aspirations of millennials and Gen Y and Gen Z customers (in the age group of 14-40) residing in tier II, III, and IV cities in urban and semi-urban areas. This market comprises households with an average annual income of USD 5,000-10,000, of fashion-conscious, value, and quality-seeking youth that forms the bulk of purchasing power of the Indian population.
The per capita trade activities growth has been higher in Tier II-IV compared to Tier-I. Owing to this fact, the retail ecosystem in smaller cities and towns is undergoing a paradigm shift on the back of inflow from private investments. Underpenetration of national brands in Tier II and IV towns presents another opportunity for existing players to position their brands in these areas.
About V-Mart
We have a positive outlook towards V-Mart in this space. V-Mart is the strongest value fashion retailer in India. V-Mart’s profitable model in Tier-II to IV towns attracts players like Trent, ABFRL, and Reliance Retail for smaller town penetration. Although competition is set to increase V-Mart’s first mover advantage, its better understanding of customers’ tastes in regional markets, lower price points owing to lower operational costs, and leaner structure would enable it to survive the competition and maintain customer stickiness. A shift to branded, organized, ready-to-wear clothing, and rural to urban migration will fuel V-Mart’s growth.
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