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Fashion

Future of Fashion Business

Semi-organized retail is very low margin-based, a wholesaler may work at 5-20% gross margin on his selling price and a retailer between 15-30%
Future of Fashion Business
Image credit: graphicstock
Founder, Wishbook
4 min read
Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Old Delhi’s Nai Sadak is a very busy market. One part of the street starts with Chawri Bazaar side with booksellers & publishers, gradually making way for women’s ethnic wear retailers. These small stores have shimmering lehengas & sarees hanging outside attracting retail customers from Delhi & around. Often families come for a wedding shopping, seated them on gaddis in these shops while being shown the samples. With some retailers, being able to get inside the store, identify & pick your garment, and get it billed would feel like an achievement. Wholesalers and agents have larger, sometimes multi-storey, offices and warehouses in the numerous sideways alleys or streets.

India’s apparel business is quite peculiar – a few characteristics define it:

  1. Branded retail, in the form of known outlet chains, makes up only a small fraction of the actual retail business. These brands are known by virtue of their presence in shopping malls or through their investments in above-the-line advertising.

  2. Most of the retail is dominated by small retailers, often single store proprietorship firms, employing up to 5 people. Manufacturing hubs such as Surat, Ahmedabad, Mumbai, Delhi, Jaipur, Tirupur etc typically supply their products to local wholesale hubs in most major city/district hubs, and the retailers buy from these wholesalers.

  3. Wholesale brands exist in these categories. These brands are typically family-run, based on the manufacturing hub, have in-house design & product setup, and effectively leverage the production ecosystem around their hub to create the highest quality products & sell to these wholesalers. End customers may not know them very well because they don’t do retail themselves.

  4. Throughout the semi-organised distribution channel - product freshness is high, communication channels on new products & old product inventory status are unorganized – often a phone or WhatsApp based, and in the absence of institutional credit – suppliers finance the retailers or wholesalers by selling on credit.

Semi-organized retail is very low margin based. A wholesaler may work at 5-20% gross margin on his selling price and a retailer between 15-30%. This leads to the following problems:

  1. Most transactions are on supplier credit. Excessive supplier competition further eats away the supplier’s gross margin or forces the supplier to give unfavourable credit terms to his buyer.

  2. Strong manufacturers & wholesalers require design/catalog freshness, constantly churning out older designs, and that further puts the pressure on them to sell out faster.

  3. Retailers & wholesalers constantly look out the cutting edge designs & catalogues, and manufacturers would like faster feedback on their catalogues to help plan inventory replenishment or liquidation.

B2C eCommerce came about to effectively address these issues, extending organised retail outreach. Retail is fundamentally different from manufacturing, requiring different inventory structures & skills - which means that fashion manufacturers don’t themselves directly e-retail online. B2C eCommerce hasn’t been able to match the cost structures of offline retail, still remaining a single-digit percentage of the overall 

Social commerce came up to fill in the last mile retail gap, extending it by creating home-based women micro-entrepreneurs. However, both existing retailers & social sellers need sourcing from the manufacturers & wholesalers to be aggregated. Managed fashion-focussed B2B marketplaces have come up to enable direct transactions between manufacturers & retailers. Offline business transactions are still being done low-tech & without a common platform, though OkCredit and KhataBook are now trying to digitise offline transactions, albeit mostly currently B2C.

The industry’s manufacturers, wholesalers & retailers are threatened by the organised sector and must compete with it, using trends data to increase production & sales, reduce dead inventory, and credit defaults. This requires the transactions to be digitised & brought on a single platform, real-time & readily shared between business buyers & sellers. This allows a merchant to identify fast-moving styles for repeat product or purchase, non-moving styles for production, and manage credit risk buyer wise effectively. A manufacturer can reach all relevant retailers - and a retailer sees machine-learning-based recommendations on styles/catalogues to buy, based on market trend and his own prior selling behaviour to source better.

Individual manufacturers, wholesalers or retailers are not equipped to build & drive adoption of technology & system for such a platform, let alone build value additions on top it. Instead, new mobile-first technology-enabled platforms, coming from experience in the industry, are already emerging - cross leveraging marketplace & software use cases to drive adoption & stickiness. Solutions did right have the potential to capture other emerging markets globally too.

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