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Comprehensive Pack - RMG PDF
Comprehensive Pack - RMG PDF
Readymade Garments
1
• Industry Overview :3
• Industry Characteristics :8
• Business Models : 15
• Distribution Channels : 22
• Domestic Market : 30
• Exports : 44
• Growth Outlook : 75
Industry Overview
Domestic RMG sales were ~2.9 times the exports in 2017
• The Indian readymade garments (RMG) industry can be classified into domestic and
exports segments.
• The total size of the domestic RMG market was estimated to be Rs. 3417 billion in
2017, while the turnover of the industry from garment exports stood at Rs. 1185 billion
during the year.
• The corresponding figures for 2016 were Rs. 3201 billion for the domestic market and
Rs.1173 billion for the exports market.
RMG market size - 2017
• Until December 31, 2000, the manufacturing of woven garments was reserved for the
small-scale sector, while manufacturing of knitted garments was reserved for the small-
scale sector until 2004-05.
• This restricted growth of the industry.
• Manufacturing units could not purchase modern machinery on account of the Rs. 30
million investment ceiling on plant and machinery, thereby resulting in fragmentation,
and hence poor economies of scale.
• The government de-reserved the woven garment segment on January 1, 2001.
• On the other hand, the government recognised the need for attracting large investments
and the need to enhance the competitiveness of the Indian knitting segment by exploring
economies of scale.
• Finally, in 2004-05, the knitting segment was de-reserved.
Reservation for small scale industries: Until December 31, 2000, the
manufacturing of woven garments was reserved for the small-scale
• Quota restrictions: Exports to the US and the EU were governed by quota restrictions
till the beginning of 2005.
• Within this overall restriction, there was a specific cap that applied to each company.
• Since no company could increase its exports significantly due to the cap, there was no
incentive for expansion.
Business Models
Several business models exist in Indian RMG industry
• Players in the Indian RMG industry adopt a number of business models.
• They can be differentiated based on the strategy used to manufacture or procure
(purchase or outsource) apparel, and the strategy used to distribute it.
• There is intense competition in the industry among both domestic as well as export
players due to high fragmentation.
• However, competition is not severe in the designer wear and branded garment segments
on account of brand positioning and the niche nature of the market.
• The Indian readymade garments (RMG) industry is highly fragmented.
Several business models exist in Indian RMG industry
• There is intense competition among players, both in the domestic as well as international
(export) markets.
• However, competition is not very intense in the designer wear and branded garment
segments due to brand positioning and the niche nature of the market.
• Thus, the garment industry can be classified into mass market and niche market.
• Competition in the exports market is more intense than in the domestic market.
• Indian exporters face competition from low-cost producing countries such as China,
Pakistan, Vietnam, Bangladesh, etc in the mass market.
• In the niche market, India faces competition from Germany, Italy, France and Turkey,
among other countries.
Several business models exist in Indian RMG industry
• Thus, players with high volumes get the benefit of economies of scale and can sustain
competition in the mass market, while players in the niche market need high-end fashion
designs to sustain.
Business models in Indian RMG industry
• Indian RMG players employ various business models.
• The two key differentiating factors in these models are the strategy used to manufacture
or procure (purchase or outsource) apparel, and the strategy used to distribute it.\
• Business models can be analysed by dividing these into: manufacturing, branding and
distribution stage.
• Companies often operate across segments, depending on their strategy and business
models.
RMG industry - Key business models
Key business models employed by RMG players
Distribution Channels
Distribution channels important for determining profitability of RMG players
• Realisations, costs and therefore net margins of players depend on the distribution channel
selected for marketing apparel.
• The main distribution channels through which players sell apparel in the domestic market
are own stores, retailers, shopping malls or multi-brand outlets, and distributors.
Difference in distribution method affect margins
• A distribution channel is a network of outlets through which a product is sold.
• A company can sell its products through one or more distribution channels.
• The selection of a distribution channel or channels is a key management strategy which
determines a company's costs and revenues
Distribution channel
Own stores
• Own stores are a direct medium of selling apparel to consumers, wherein garments are
sold from owned (or rented or leased) retail shops.
• The main advantage of selling through this channel is higher realisations on the garments
sold (since the middle agency for selling apparel to end-users can be bypassed).
• The other advantage is getting end-user feedback and insights on their preferences, which
can be useful, especially in the case of designer or fashion wear.
• Companies such as Provogue, Raymonds, Kewal Kiran Clothing, Madura Garments
(subsidiary of Aditya Birla Nuvo), Arvind Brands (subsidiary of Arvind Mills), Gini and
Jony, and Zodiac Clothing sell apparel through this channel, apart from employing
various other channels.
Retailers
• In this distribution channel, the ready-made garment (RMG) player sells garments to
retailers, who, in turn, sell these through their stores.
• Thus, the retailer acts as the middleman between the RMG player and the end-user.
• Accordingly, realisations from this channel are lower than those earned by selling RMG
through own stores, as the retailer provides for his cost and profit while purchasing
apparel.
Shopping malls or MBOs
• This distribution channel is gaining momentum in India. In this channel, apparel is sold
by a RMG player to multi-brand outlets (MBOs) that sell apparel of several brands
through large retail spaces, located in prime locations of cities and towns.
• Usually, the MBOs are shopping mall chains with presence in more than one location,
e.g., Shoppers Stop, Pantaloon Retail, Westside (Trent), Globus, Lifestyle and Pyramid.
• Realisations from this channel are lower than those earned by selling to retailers, since
MBOs keep higher margins than retailers while purchasing garments, their costs being
higher.
Distributors
• In this channel, the RMG player sells garments to distributors, who, in turn, sell it either
to retailers or MBOs.
• The retailers or MBOs sell the apparel to end-users. Since two middle agencies figure
between the seller and end-users, realisations from this channel are lower than those
earned by selling through retailers, as in this case, both the distributor and retailer or
MBO provide for their costs and profits while purchasing an apparel.
Exports
• Garments are exported either directly to companies or through overseas buying offices.
• In the case of overseas buying offices, export orders are forwarded to domestic textile
manufacturing units. These units manage the manufacturing part and strictly adhere to
buyers' requirements.
Domestic Market
30
Domestic Men’s wear
segment
31
Men’s wear segment
Casual and active wear are high-growth segments
• Men’s wear, the largest segment in the domestic apparel market (~43%), is expected to
grow at ~8-9% CAGR over next five years to Rs ~2,414 billion (~$35 billion) by 2023.
• Shirts are estimated to be the largest category at 30%, owing to the availability of a
variety of sizes and continuing preference for RMGs.
32
Men’s wear segment
Break-up of men's wear market (2018 estimates)
35
Domestic Women’s
Wear Segment
36
Women’s wear segment
Western outfits picking up pace though saris still rule
• Women's wear comprised ~39.9% of the RMG market in 2018.
• Within the space, there is an increasing shift to RMG from tailor-made apparel in the case
of traditional dresses, and to western wear from traditional dresses.
• However, traditional wear continues to dominate the segment, with saris comprising
~33% share in 2018 and salwar kameezes, 29%, according to our market interactions.
37
Estimated share of apparels in women's wear (2018)
39
Domestic Kid’s Wear
Segment
40
Kid’s wear segment
Uniforms dominate, but demand for western wear increasing
• The kid’s wear segment is highly lucrative (30% of India's population is below 15 years).
• It is expected to grow at ~10-11% CAGR over next five years to ~Rs 1,087 billion
(~$15.98 billion) by 2023.
• Within the segment, the boys' category dominates with a ~53% share.
• However, girls' wear is expected to outperform boys' wear, rising at 12-13% CAGR over
next five years.
• Increase in government support and awareness of girl education and girl child protection
will support the girl’s apparel market.
• In the kid's segment, denims and T-shirts are high-growth categories. The segment is
expected to grow at 13-15% CAGR.
41
Kid’s wear segment
Uniforms dominate, but demand for western wear increasing
• However, category leaders, uniforms, are expected to retain their dominant market share
of ~32% over next five years because of lower school dropouts, multiple uniforms in
upscale schools (some upscale schools have different uniforms for different seasons/days
of the week) and the fact that uniforms are need-based rather than aspirational buys.
42
Share in kid's wear (2018 estimated)
75
RMG exports to slow down up to 2023
• The domestic RMG market is expected to improve between 2018 and 2023.
• Export growth, though, is expected to slow down as India loses competitiveness versus
Bangladesh and Vietnam.
76
Exports to decelerate over long term due to lower competitiveness
• India's readymade garment (RMG) exports, which rose 6.4% CAGR in US dollar terms
over 2012 to 2017, is forecast to grow at a slower 3.0-3.5% CAGR between 2018 and
2023 because of low competitiveness of India in terms of lower FTAs and higher labour
cost. compared with Bangladesh, China and Vietnam, and expected slower growth in
non-traditional markets, i.e., non-US and non-EU markets
• Also restricting the upside is China and Vietnam's favourable product mix dominating
MMF based apparels.
• The projected deceleration could have been sharper, but for the government's sporadic
interventions in the sector by providing export incentives.
77
Exports to decelerate over long term due to lower competitiveness
79
Domestic sales to be healthy on improved consumer spending
• The pace of growth on the domestic front is projected at 10-12% CAGR between 2018
and 2023 versus 10% CAGR during 2013 to 2018, supported by rising income levels,
higher penetration of organised retail, and growing preference for RMG over tailor-made
garments.
• Also, realisation is expected to rise at ~5% CAGR as compared with 4-5% CAGR in the
previous corresponding period, owing to rising premiumisation of the garment segment
with increase in the number of branded players.
80
Domestic market size trajectory
82
Consequently, share of exports in overall RMG market to shrink
Break-up of overall market size