In early February, the capital of Manipur woke up to hoardings teasing about Korean cosmetics, designer goods and gadgets starting from Rs 100 coming soon to the city. In no time, the billboards took over the water cooler conversations, gossips and social media chatter in the town – another testimony to the contagious effects of Korean products – from K-pop to cosmetics- charming the pants off the world.
A week later, the Malaysia-based Korean concept retail brand Kioda opened its first outlet in Northeast India in Imphal.
Kioda’s debut in the Northeast region was consistent with the trend of Asian fast-fashion and lifestyle companies looking at India as their primary growth market.
Just like Imphal, many metros, tier 1 and tier 2 cities are warming up to the idea of fast-fashion Asian brands setting up shops one after the other. India boasts of a retail industry worth USD 750 billion growing at 10-12% year on year - according to research firm Technopak.
The Asian invasion
Miniso entered India two years ago. With 85 stores across the country and many headlines later, the Tokyo-headquartered Japanese-Chinese variety retail brand has indeed caught on. Along the way, Miniso has sparked the interest of Indian consumers in Asian brands.
Last year, fast-fashion and designer lifestyle brands such as Kioda, Usupso, Ximivogue and sportswear brand Xtep launched in India.
Korea-based fashion and lifestyle retail chain Ximivogue, opened in India nine months back, has now 32 outlets across the country. The aim is to have 100 stores in the next year, said Shiven Anand, Ximivogue’s head of business expansion in India.
Kioda, launched in May 2018, has seven operational outlets. Ten more stores have signed up under the franchise model, and two master franchise agreements have also been sealed.
“We are aiming at 200 stores in three years, of which we are looking at 20-25 stores in year one, followed by inorganic growth (through master franchisee) in the second year, followed by the exponential growth in the third year,” said Karthikeyan Vishnu, chief operating officer at Kioda.
Meanwhile, Japanese lifestyle retail Usupso has quietly opened 12 outlets in cities over the last year. The brand is planning an aggressive expansion, said Ronit Roy, chief executive officer at Usupso India. Ten stores are lined up for launch in the next two months, with a target of 100 stores in 2019. Last August, Hong Kong-headquartered sportswear brand Xtep, with 6,500 stores in China alone, was introduced in India. Ritwik Ghosh, the board director of its Indian arm VRX Sports, said the company is going after one city at a time, starting with Bangalore. Xtep runs two stores in the city and plans to have up to 9 stores in 2019.
In other news, the world’s largest chain of convenience stores owned by Japanese retail giant Seven & I Holdings Co., Ltd has announced plans to enter India in a joint venture with Kishore Biyani’s Future Group. Japanese fashion retail chain Uniqlo and China-based casualwear company Meters/Bonwe are also contemplating entering India this year, said industry sources.
Right time, right place
A year and a half ago, a senior employee from Xtep reached out to Ghosh. Both were the alumnus of the China Europe International Business School. Xtep was looking to move to other markets including India after the market in China saturated.
“Over the last few years, Chinese companies going overseas had become a huge trend. Xtep was looking at countries that were not very far geographically and that had similar demographics like China. India fits the bill,” said Ghosh. “They felt in some ways India was lagging 10 years behind China in retail and could visualise India’s potential to become the second market as big as China based on what had happened over the last decade."
Asian brands like Xtep are looking at the Indian market for high growth, following the meteoric rise of Chinese, Japanese and Korean brands here.
“India has seen a lot of Japanese companies for more than three decades starting with Suzuki, Honda, Toyota as well as iconic Sony, which was an aspirational brand until recently,” said Arvind Singhal, chairman at Technopak Advisors. “When Japanese companies lost out in electronics to Korean and Chinese more recently, it increased the familiarity of Indian consumers with products not only from Japan but also from Korean companies like Samsung and LG and Chinese firms like Xiaomi and Oppo.”
“The first round of excitement was built by these giants, with each of these companies building a significant market share and revenues,” he said. “This has given the confidence for the next round of companies to start looking at India a bit more carefully than before.”
Harish Bijoor, a brand consultant and analyst, said the second-tier brands (retail, B2C oriented) found it challenging to enter India earlier due to the language barrier and lack of understanding of Indian consumers.
“These brands earlier felt that there was a slight disconnect in the products they were offering and the kind of products Indian consumers liked,” he said. “However, after the successful foray of big multinational companies, these brands have entered India. The companies are quite confident that they will be able to offer differentiation to Indian consumers.".
The rapidly growing organised retail infrastructure and mall culture have turned India into a magnet for Asian retail chains.
“The retail infrastructure has grown a lot. Five to ten years back, the mall culture was not prevalent in India. Now, it is well accepted in tier 2 and tier 3 towns,” said Anand of Ximivogue. “Thanks to the evolution of tier2 and tier 3 cities, a lot of branded retail chains have entered India.”
Under the hood
Miniso tested waters in India by operating its own stores, said an industry insider. The retail chain, which manufactures products in China under own private label, opened 7-8 stores in the first nine months after its Indian entry in mid-2017. Only when it switched to a franchise model, its expansion plans geared up.
“Majority of the outlets came up after Miniso started franchising,” he said. The brand had set up over 75 stores in 12 months.
India has now emerged as one of the top three markets for Miniso.
Usupso adopted the same strategy after launching in India in January 2018. The premium, yet low-cost, lifestyle retail brand owns and operates 12 outlets at present. For the next phase of growth, Usupso has taken the franchise route, which usually translates to 15-20% margins for the operators.
“We took a strategic call by opening our own shops. We needed to first see if the products were sellable and the stores were sustainable,” said Usupso’s Roy. “We see rapid growth in our sales. Now, we have the numbers that can give confidence to our franchise partners.”
Usupso, like Miniso, manufactures products under a private label in China, Singapore and Malaysia. The company kept a low profile last year but is now ready to go all guns blazing. The Japanese brand plans to invest up to Rs 100 crore in the country this year for expansion, marketing and brand promotion.
“These brands have found a franchise model very efficient. Nothing beats getting a local player to invest his time, energy, money, bandwidth and retail distribution network,” said Bijoor. “It bridges the gap of self-learning.”
Franchise model has given brands like Miniso and Ximivogue a lot of speed. Kioda, on the other hand, currently provides franchisees with a plug and play model, wherein it takes care of real estate for its partners.
“It is all about the right timing. When the (economic) environment, retail infrastructure and consumer mindset are favourable, if you bring in any concept, which brings in a lot of value proposition to the customer, it has to sail through,” said Ximivogue’s Anand. “And sail through at a pace which Miniso has witnessed.”
“The categories under fast-fashion retail that these companies are offering have been existent in India in an unorganised manner for very long,” he said. “Now these products with better quality and better price points are available from same shop. India being the price sensitive market, our value proposition is getting a lot of traction.”
Kioda’s Vishnu said Indians travelling to SEA countries had added recall value to the brand.
“One of our franchises connected with me after he saw our brand in China,” Vishnu said.
Then there is the wild card - demonetisation, which indirectly became a catalyst for Asian brand’s expansion spree in India.
“After demonetisation, a lot of local businessmen started exploring various structured business opportunities to diversify. A lot of the speed comes from local entrepreneur fraternity, which after seeing the model as successful and well-receptive by Indian audience came forward to open outlets in their regions,” said Anand of Ximivogue. “They have expertise in getting real estate and building establishments, money as well as resources locally. They understand the customers’ buying pattern and preferences which also gives speed.”
Most of these brands take 45-60 days and between Rs 50 lakhs to Rs 1 crore to set up a 1000-2000 sq ft variety-retail format shop. Xtep, however, opened a shop in Bangalore in 25 days.
Technopak’s Singhal believes the aggressive expansion has more to do with the size of scale.
“Opening a 50,000 sq ft store would be very difficult compared to 2,000 sq ft stores like Miniso’” he said. The brands are also tapping malls extensively to expand their footprints.
On average, an Asian variety retail store can earn Rs 2,000-2,500 per sq ft per month - Rs 40-50 lakhs in monthly revenues on an average for a 2,000 sq ft store in metros.
Cut from the same cloth
Usupso has an 11-member team for crunching data. The retail chain has been using data analysis to figure out product preferences – demographic and geographic wise – to target the consumers better in India.
Majority of Asian consumer retail brands are chasing tier 1 and tier 2 cities, in addition to metros.
“There is a gap because many of the big brands have not entered these markets. Entering into these markets is relatively inexpensive as well,” said Bijoor. “That’s the quotient they love---to enter a low-cost market with few risks and large opportunity.”
Although the feel, look, vibe and price points are uncannily similar across these Asian variety-retail brands (their product lines overlap 20-30%), they differentiate themselves by their product mix, categories they cater to and cities they choose to go.
While the availability of real estate is a de-facto challenge for retail companies, consumer loyalty can become a headache for these brands.
“The new Asian consumer companies have not invested in brand building in the country which is very important. If the consumers only walk in these stores on the basis of price, these companies would become fly-by-night brands,” said Bijoor.
The only mantra the Asian brands seem to follow for now is “sasta, sundar and tikau,” (affordable, beautiful and durable), and it seems to be working for them.
“It is an appropriate strategy to succeed in India,” said Anand.