JOIN USApparel sector will see more M&A, say analysts
Organised retail in the apparel sector will see more mergers in the near future, say analysts, following the Aditya Birla Group’s consolidation of its branded apparel business.
Ashesh Jani, Partner, Deloitte Haskins and Sell, said the branded apparel space will see more consolidations as they are required for the growth of players. It is easier to promote only one brand, instead of two equally competitive brands, he said. He also said the eCommerce boom was another reason for the mergers. “Companies cannot do business only through their physical stores, while competing with numerous online portals,” he added.
He believes that along with consolidation, apparel industries must also enter into e-retailing because if the existing eCommerce sites offer good quality clothes online, customers will not visit the stores. He added that the ups and downs in the Indian textile industry have also driven the growth of organised retail. “The textile mills incurred losses and then the industry did not diversify,” he said.
Similarly, Amnish Aggarwal, vice president at Prabhudas Lilladher, said the challenges for the apparel sector were the eCommerce sector, the prevailing non-organised apparel sector in the country, and competition between existing companies involved in retail.
He said the biggest players in the sector at present in India are the new Aditya Birla Fashion and Retail that includes Aditya Birla Nuvo, Pantaloons, and Madura Fashions; Future Lifestyle Fashions that includes Central and Brand Factory; Shoppers Stop; Landmark Group’s Lifestyle, and Tata’s Westside. Morning Star Analyst Piyush Jain counted Arvind Brands and Raymond among the biggies. Aggarwal said the fast growth rates itself were a driving factor for the industry.
The Aditya Birla Group said at an event that the Indian apparel market would grow with a CAGR of approximately 18 per cent from $40 billion in FY2014 to $93 billion in FY2019. According to them, the apparel sector also has the largest share of 28 per cent in organised retail, followed by jewellery and watches (27 per cent), and food and grocery (18 per cent). Group chairman Kumar Mangalam Birla had said they are not entering the eCommerce platform in the near future.
Piyush Jain said apparel is a highly fragmented market in India and that was the biggest challenge for retailers. He said the organised sector has a fast growth rate of 15-20 per cent per year and consolidations were required for larger growth, because they are competing in small pockets at present. According to him, the textile industry is worth $200 billion in India and two-thirds of it constitutes the apparel sector. He added it would take another 10 years for the organised retail to rapidly grow in apparel, leaving behind non-organised markets and other several small popular domestic and foreign brands.
Jain said retailers can grow in two ways. “They need to expand their network in tier-2 and tier-3 cities for better growth. Mergers and acquisitions help the companies get ready-to-use space to expand, as there is already dearth of space. Another way is to grow organically, i.e. to open a lot of stores within a given time.”
DH News Service