Is India The Place To Be For Apparel Retail Companies?

by Trefis Team
-25.67%
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Trefis
AEO
American Eagle Outfitters
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American Eagle Outfitters (NYSE:AEO) has announced its plans to launch its stores in the Indian market through a licensing deal in 2018. The company has entered into a multi-year agreement with the Aditya Birla Group, a conglomerate headquartered in Mumbai that has 900 retail stores and strong digital and omnichannel capabilities. The first of the company’s stores are set to open in Mumbai and Delhi in the spring. AEO currently operates over 1,000 stores in the US, Canada, Mexico, China, and Puerto Rico. Its plan to enter India follows its long-term growth strategy of revenue increase through international expansion. The company has stated its intentions to open roughly 50 new franchise locations through the course of this financial year, and the number of its new stores located outside the US is set to grow further in the coming years given the weakness in its domestic operations.

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The Lure Of The Indian Market

According to Andrew McLean, EVP-Global Commercial Operations, “India’s rapidly growing and vibrant economy” provides immense potential for apparel retail companies, including American Eagle, spurred on by the presence of the world’s largest youth population. Furthermore, as per UNFPA projections, the nation will continue to have one of the youngest populations in the world till 2030. On the back of a strong economy, which is expected to grow 7.4% and 7.6% in 2017 and 2018, and a growing middle class, the region is also a top destination for retail investment, a fact that may come as a surprise given the presence of China; the latter came in at the number two spot. A growing interest in foreign brands, as well as the relaxing of some regulatory requirements, are other factors driving the investment growth in the country, where the organized retail industry is expected to double in size by 2020. Online shopping in the country is booming and is projected to grow at 30% annually, to reach $48 billion by 2020. Furthermore, mobile shopping seems to be the preferred way in developing economies and is set to account for a majority of the online retail sales. Given this fact, it is imperative that AEO enters the market armed with a good mobile app and mobile commerce strategy.

AEO is not the first store looking to boost its sales through expansion into the country. 2016 saw a spate of brands entering the market, including Armani Exchange, Cole Haan, Muji, Massimo Dutti, and Kate Spade. Another retail giant, H&M, has already opened 15 stores in the country, within two years of its entry. Meanwhile, IKEA, the largest furniture retailer in the world, has plans to invest $1.56 billion in the country to open roughly 25 stores. Amazon has had a presence in the country for many years, and has made enormous headway in its fight against local e-commerce leader Flipkart. Walmart is another brand that has aggressive growth plans, and is aiming to open 50 cash-and-carry stores over the next two to four years.

 

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for American Eagle Outfitters
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