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A Research Report On Assessment of Competition in Apparel Retail Industry in India
A Research Report On Assessment of Competition in Apparel Retail Industry in India
A Research Report On Assessment of Competition in Apparel Retail Industry in India
SUBMITTED TO
MR.RAKESH KUMAR
JOINT DIRECTOR (ECONOMICS)
SUBMITTED BY:
KANIKA
MA (ECONOMICS)
AMITY UNIVERSITY NOIDA
1
TABLE OF CONTENTS
S.NO
1
1.1
1.2
1.3
2
2.1
2..2
2.3
2.4
2.5
3
3.1
3.2
4
4.1
4.2
6
7
8
TOPIC
Disclaimer
Acknowledgement
Chapter-1: Retail Sector in India
Introduction
Size of the market
Classification of Retail Industry
Chapter-2: Apparel Retail industry
Introduction
Market size
Market structure
Key players
Future trends and opportunities
Chapter3- Foreign Direct Investment
Introduction
FDI and Apparel retail industry
Chapter-4-Assessment of competition
Introduction
Ways of assessing competition
4.2.1-Entry- Exist
4.2.2-Herfindahl- Hirschman Index
Chapter-5-Competition Concerns in Apparel Industry
Chapter-6- International interventions in Apparel Retail
Industry
Chapter-7- Competition law in India and Apparel Retail
Chapter-8-Role of CCI
Conclusion
Bibliography
Websites
Appendix-I
PAGE NO.
i
ii
1
1
2
3
3
3-4
5-6
7
8
8-10
11
11-12
12-13
14-18
19-21
22-24
25-27
28
29-30
31
32
DISCLAIMER
This project report has been prepared by the author as an intern under the Internship Program of
the Competition Commission of India for a period of one month from 3rd June, to 30th June;
2013.This report is for academic purposes only. The views expressed in the report are personal to
the intern and do not reflect the views of the Commission or any of its staff or personnel and do
not bind the Commission in any manner. This report is the intellectual property of the
Competition Commission of India and the same or any part thereof may not be used in any
manner whatsoever, without express permission of the Competition Commission of India in
writing.
ACKNOWLEDGEMENT
At the outset, I would like to thank my supervisor Mr. Rakesh Kumar, Joint Director Economics,
Competition Commission of India, for being a guiding force throughout the course of this
submission and being instrumental in the successful completion of this project report without
which my efforts would have been in vain. He has been kind enough to give me his precious
time and all the help which I needed. I am immensely thankful for the strength that he has
endowed me with.
I would also like to express my heartfelt gratitude to the other staff of Competition Commission
of India, for being immeasurably accommodating to the requirements of this humble endeavor.
CHAPTER-1
RETAIL SECTOR IN INDIA
INTRODUCTION
In emerging markets around the world there has been a close linkage between economic
development, rise in per capita income, growing consumerism, proliferation of branded
products and retail modernization.1 with high economic growth, per capita income increases
this, in turn, leads to a shift in consumption pattern from necessity items to discretionary
consumption. Furthermore, as the economy liberalises and globalises, various international
brands enter the domestic market. Consumer awareness increases and the proliferation of brands
leads to increase in retail space. Thus, retailing is a part of the development process
The retail sector in India accounts for 22 per cent of the country's gross domestic product (GDP)
and contributes about 8 per cent to the total employment. India continues to be among the most
attractive investment propositions for global retailers.2
India has emerged as the fifth most favourable destination for international retailers,
outpacing the UAE, Russia, Indonesia and Saudi Arabia, according to A T Kearney's Global
Retail Development Index (GRDI) 2012. The report also highlighted that "India remains a high
potential market with accelerated retail growth of 15-20 per cent expected over the next
five years."
SIZE OF MARKET:
India's retail sector is worth US$ 350 billion and is growing at a compound annual growth
rate (CAGR) of 15 per cent to 20 per cent at present,as per a PricewaterhouseCoopers
(PwC) research report titled, '(Winning in India's retail sector: Factors for Success)'.
Mass grocery and apparel are the two most favoured segments for foreign direct
investment (FDI) in multi-brand retail in India, according to a study titled 'Indian Retail
Market-Opening More Doors' by Deloitte Touche Tohmatsu India.
The FDI inflows in single-brand retail trading during April 2000 to December 2012 stood at
US$ 42.70 million, as per the data released by Department of Industrial Policy and
Promotion (DIPP).
Organized retailing entails trading conducted by licensed retailers and unorganized retailing
includes all types of low cost trading like local shops, small roadside stores and temporary shops
or door to door selling of various goods.
Of the total Indian retail market, 8% constitutes the organised retail segment which is estimated
to grow at a rate of almost 30% by 2015. Clothing & Apparel make up almost a third of the
organized retail segment, followed by Food & Grocery and Consumer Electronics. 4
India currently has a small penetration within the organized retail segment as compared to other
emerging markets such as China, which has a penetration of more than 20% within organised
retail. 3
6
3. Global Retail Index Report
4. The Indian Retail Sector Report(2013)
CHAPTER-2
APPAREL RETAIL INDUSTRY
2.1NTRODUCTION
The Indian Apparel Industry has an overwhelming presence in the economic life of the country. It is one
of the earliest industries to come into existence in the country. The sector has a unique position
as a self-reliant industry, from the production of raw materials to the delivery of end products,
with considerable value-addition at every stage of processing Apart from providing one of the basic
necessities of life, the apparel industry also plays a pivotal role through its contribution to industrial
output, employment generation, and the export earnings of the country. Currently, it contributes about 14
percent to industrial production, 4 percent to the GDP, and 17 percent to the countrys export
earnings. It provides direct employment to over 35 million people.5
1. Segmentation by user category: The domestic apparel industry has 3 segments, viz Mens
wear, Womens wear and Kids wear. Menswear accounts for 40% of the total market .
a.) Mens wear: Mens wear market in India fastest growing apparel segment The entire apparel
industry (2011-12 estimates), including domestic and exports, is pegged at Rs 3,270 billion
and is expected to grow by 11% to Rs 10,320 billion by 2020. Currently menswear is the
major segment of the market (Rs 720 billion) and is growing at a compounded annual growth
rate (CAGR) of 9%. Gucci, Hugo Boss, Salvatore Ferragamo, Armani, Versace, Brioni,
Ermenegildo Zegna, Canali, Corneliani, Alfred Dunhill, Cadini, are all present in India mens
wear market.
7
b.)Womens wear: Womens formal wear and ethnic wear markets are still ruled by unorganized
players. With more women expected to enter corporate world, both these segments are good
opportunities because of the market size. Historically, the mens apparel market in India has been
significantly larger than the womens apparel market. With only 20 percent of Indias urban
women in the workforce, womens wardrobes have traditionally been limited to home wear and
items for special occasions. Now, women are more willing to dress differently when they venture
beyond the hometo shop, for example, or visit a school or office.
b.) Kids wear: Kids wear is a major category with few established players viz., Lilliput, Gini
and Jony, Catmoss, Benetton, Disney, Barbie etc. It still holds a large opportunity which is
clearly untapped. The Indian kids wear retail market is expected to touch Rs 580 billion by
2014. At present, the size of kids wear market in India is estimated at about Rs 380 billion. 7
2.) Segmentation by Use: A rough estimate of the segmentation by use is depicted in the pie chart
below (3). Casual apparel dominates and account for more than 50% by value.
3) Segmentation by Price:
Low-end market: volume driven, products are mostly unbranded and dominated by large
number of manufacturers, mostly regional or even local players.
The companys brand portfolio includes product lines that range from affordable and massmarket to luxurious, high-end style and cater to every age group, and youth to men and women.
Madura Fashion & Lifestyle is defined by its brands Louis Philippe, Van Heusen, Allen Solly,
Peter England and People that personify style, attitude, luxury and comfort.
Madura Fashion & Lifestyle reaches its discerning customers through an exclusive network
comprising more than 1,300 stores, covering 1.5 million sq ft of retail space, and is present in
more than 2,000 premium multi-brand stores and 100 departmental stores.8
2. RAYMOND
A
APPAREL:
100% subsidiary of Raymond Limited, Raymond Apparel Ltd. (RAL) ranks amongst India's
largest and most respected apparel companies. We bring to our customers the best of fabric and
style through some of the countrys most prestigious brands Raymond Premium Apparel, Park
Avenue, Parx and Notting Hill.
RAL entered into the ready-to-wear business with the introduction of Park Avenue in 1986
catering to the men's formal wear market. Parx was launched in 1998 to address the growing
trend of smart casuals. Raymond identified the vacuum for a high end, casual wear brand and
hence decided to acquire ColorPlus as a part of strategic expansion plan for their ready-to-wear
business. Notting Hill was launched in 2007 to cater to the popular price segment.
Crossing the gender divide two of our brands, Park Avenue launched the Western Women's wear
collections. 'Park Avenue Woman'- A complete range of Premium Business Wear for women is
designed specially for the working women professionals of today.9
ARVIND LIFESTYLE BRANDS:
A subsidiary of Arvind is the other largest player in apparel retailing space of India it has
portfolio of 1 international brands and 12 .its own brands. It also now hold Ed- hardy , which is
projected to be launched in 2013 with new global product and different pricing strategies.
Apart from these above mentioned above players the other which also enjoy a good position in
the Indian apparel retail market includes, Kouton retail India, Indus- League clothing, Zodiac
Clothing co.10
10
The growth in the apparel segment will be primarily driven by the growth in Modern
retail. Currently comprising 18% of the total market, the modern retail share is poised to
grow sharply over the next 5 years to contribute a 25% share.
The increased presence of retail formats across hypermarkets, specialty retail formats,
cash & carry as well as e-commerce shall drive growth of modern retail
An increasing number of international brands across formats shall foray into India to leverage the
potential. Keen competition is driving international brands to adopt made for India models
leading to higher acceptance and thus increased share from around 18% in 2011 to 25% over the
next five years. 11
8. www.madurafnl.com/about_us/about_us.htm
9. www.raymondindia.com/grp_ral.as
10. www.indiantextilemagazine.in/...news/arvind-lifestyle-partners-iconix-to
11. Textile and apparel compendium (2012)-- TECHNOPACK
11
CHAPTER 3
FOREIGN DIRECT INVESTMENT
INTRODUCTION:
India has liberalized its single brand retail industry to permit 100% foreign investment, with
regulatory issues and legal structures pertinent to establish operations in this new dynamic
market. Indias retail industry is estimated to be worth approximately US$411.28 billion and is
still growing, expected to reach US$804.06 billion in 2015. As part of the economic
liberalization process set in place by the Industrial Policy of 1991, the Indian government has
opened the retail sector to FDI slowly through a series of steps:
1995 World Trade Organizations general agreement on trade in services, which include both
wholesale and retailing services, came into effect
1997 FDI in cash and carry (wholesale) with 100% rights allowed under the government
approval route
2006 FDI in cash and carry (wholesale) brought under the automatic route
Up-to 51% investment in a single- brand retail out
2011 100% FDI in single brand retail permitted
The Indian government removed the 51% cap on FDI into single-brand retail outlets in
December 2011, and opened the market fully to foreign investors by permitting 100% foreign
investment in this area. It has also made some, albeit limited, progress in allowing multi-brand
retailing, which has so far been prohibited in India. At present, this is restricted to 49% foreign
equity participation. 13
The recent resolution on Foreign Direct Investment, or FDI, in the retail sector has been
applauded by a large section of both industry professionals and consumers, despite the many
voices debating the merits of allowing FDI in the current economic situation and its possible
impact on the Indian retail and manufacturing environment.
As is quite apparent, the FDI policy is formulated with the objective of bringing in large funds to
be invested in improving the supply chain and back-end of the retail sector (especially for the
food and groceries segment) and to ensure that the manufacturing sector also gains from large
multi-brand retailers being forced to source 30% of their products (by value) from Indian
Small and Medium Enterprises (SMEs).
No Impact Demand:
From the fashion apparel demand perspective, India has emerged as one of the most attractive
destinations for American and European brands in the last 10 years and will continue to hold
promise for the next 10 years, irrespective of the policy on FDI. Apparel, being a more branddriven category than, say, food & groceries, has already seen many international brands enter
India over the past 15 years despite the restrictions in the FDI policy in single-brand retail with
the allowing of 100% FDI in single brand retail there may not be such a large change in the
apparel retail landscape excepting probable changes in the operating structure of international
brands.
13
the future as, with increasing competition, the pressure on price will increase further, forcing
brands to look for ways to cut their costs.
Thus From the apparel industrys perspective, it is favorable both from the demand and
manufacturing perspective as it will not only provide more opportunities for suppliers but will
also improve their manufacturing capabilities. It remains to be seen how the new FDI initiative
actually impacts the industry and economy in the years to come.14
14
Chapter -4
ASSESSMENT OF COMPETITION
The competition acts have been passed in developing countries as part of a pro-competitive
policy. India too has substantially improved the competition climate in its manufacturing sector
since 1991 via a series of changes in both domestic and international trade policies. The effect of
these policies has been mixed. In some sectors, due to easy entry of firms, competition has
increased, while in others, competition has reduced. However, it has been seen that the market by
itself does not bring about competitive outcomes, probably because of unequal strengths of the
market players. This indicates that the role of some regulatory agency is must in promoting either
competition or concentration. In this backdrop, Competition Act of 2002 was passed.
The Competition Act was enacted in 2002 keeping in view the economic development that
resulted in opening up of the Indian economy, removal of controls and consequent economic
liberalization which allowed competition in the Indian market from within the country and
outside. The Competition Act, 2002 provided for the establishment of a Competition
Commission, to prevent practices having adverse effect on competition, to promote and sustain
competition in markets, to protect the interests of consumers and to ensure freedom of trade
carried on by other participants in markets in India, and for matters connected there with or
incidental thereto.15
Entry- Exit
15
The policies of the government can act as a direct or indirect entry barrier. For example licensing
requirements and restrictions on foreign investments can be direct barriers, where as regulation
on land environment or safety may be indirect barriers. Prior to 1997 they were regulations
restricting foreign investment in India, the foreign companies operated via high control modes In
1997 because of the outflow of foreign exchange and for protecting the unorganized retailers
from foreign competition, Indian government restricted FDI, and international brands entered
through franchising as a mode of entry (the financial express).17 In 2006 the government reduced
and relaxed FDI allowing joint ventures upto 51% ownership in the retail trade of single brand
products and wholly owned subsidiaries for wholesale trade .such relaxation have created
oppurtunities for entrants allowing them to move from low control entry modes to ownership
modes .Further more the Indian government has allowed the entrants that set up manufacturing
facilities in India to sell the products in domestic market in the form of franchising ,local
distributors, existing Indian retailers or own outlets. As shown in table 18.
It can be inferred from the above that the government policies imposed low entry barrier, posing
challenges for existing players that may effect competition:
1. New entrants mainly international player may swell up urban middle and upper class segment
by marketing their symbolic value of foreign brands to satisfy the needs of these segments
2. New entrants can enter into contract with existing players this will not only help them to
overcome the cost disadvantage but also the cultural challenges.
16
Year
2006
2007
2008
2009
2010
2011
Apparels
Industry
HHI
300
300
400
400
500
200
HHI increased during 2007 to 2010, reflecting decrease in competition during the period
2007-2010; whereas during 2010-11 there is significant drop in HHI, reflecting a sudden
increase in competition. This could be attributed to the further opening up of the Indian
economy to foreign brands through changes in government policies with regard to
Foreign Direct Investments in single brand and multi-brand retail. Hence based on the
most recent available competition indices, apparel industry clear shows a high
competition.
Thus the above account indicates that the Indian apparel industry it is highly competitive
and fragmented. The level and nature of competition varies and the number of direct
competitors and the intensity of competition may increase as markets expand or as other
companies expand into the market. Some of the competitors may be able to adapt to
changes in consumer demand more quickly, devote greater resources to establishing brand
recognition or adopt more aggressive pricing policies than other. Thus, some of the
significant competitive forces within the apparel industry may result in reduced sales,
increased costs, and lower prices of the products and/or decreased margins.
17
As we know Retailing means the final link between the production of a good and the endconsumer. The characteristics of the end-consumer are thus crucial to the economics of retailing.
Typically, the end-consumer can be characterized as being: Small, Immobile & Uninformed
These aspects of Apparel retailing feed straight into a discussion of the nature of competition in
apparel retailing. We can identify four dimensions of horizontal competition between apparel
retailers:
Pricing
Geographical location;
Product selection; and
Retailer service.
A Pricing:
(I)
Differential pricing
In apparel prices tend to be very visible, with secret discounts to consumers being rare (although
these do occur for large purchases). This may ease collusion between retailers through different
retailing formats (because cheating on collusive agreements is easy to observe). On the other
hand, compared with other dimensions of competition in the industry it is relatively easy, given
that resale between consumers is relatively unlikely because individual purchases tend to be too
small to justify the necessary co-ordination between consumers of different types.
18
This price discrimination tends to be implemented through provision of discounts for certain
(broad) consumer categories (such as students or pensioners) or by designing retail choices (such
as trade-in offers, credit deals, end-of-season sales) in such a way that different consumers
choose different options
Loss leading: When choosing between apparel retailers, consumers often have only very vague
ideas of the relative qualities and prices of products. In this case, consumers tend to choose
between retailers on the basis of their Reputation for good product range and general low prices.
One method of gaining a reputation for general low prices under these circumstances is loss
leading which could be anti-competitive. By setting low prices on a number of key items, and
then by promoting these products and their prices, retailers induce consumers to compare
retailers on the basis of the prices of these products.
B. Geographic Location:
Geographical location means that local market power can be high and the inability to find an
appropriate location can act as a barrier to entry. Moreover, the attempt to gain access to good
locations may be an incentive for merger in apparel market.
C. Product Selection:
The product selection decision will depend on the relative strengths of various different factors:
Business stealing: By moving closer in terms of product space to a rival, each retailer
thinks that it can improve its share of the market by attracting customers from its rival.
D. Retailers service
In the apparel industry the various retailer services may affect competition in various ways. If
retailer services are important, there may be a so-called free-rider problem: that may have bad
effect on all consumers and retailers
19
These various dimensions in Apparel retailing have important consequences for competition
policy, and it is crucial, when considering competition in apparel retailing, to examine all of
these dimensions.
Indeed, there have been majority of cases internationally where the competition authorities had
to look at competition in apparel retailing. The issues typically covered included:
Full-line forcing: requiring retailers to carry the full line of the manufacturers products;
Exclusive dealing: requiring the retailer not to carry the products of competing
manufacturers;
Territorial exclusivity: :which protects one retailer from intra-brand competition from
other retailers within that territory;
Refusal to supply: as a general means of enforcing the compliance of retailers with any kind of
requirements set up by manufacturers, or simply as a method of constraining total sale
20
The main potential anti-competitive effects of vertical restraints are market foreclosure and
rising of rivals costs, competition dampening, and facilitation of collusion
Apart from these most frequently encountered issues, other issues which could be there in the
apparel industry include anti competitive licensing agreement. 22 The abuse of dominant position,
where dominance could be acquired through merger of two firms 23
In larger cities, where the foreign retailers would set up shop, their practice of offering rebates
and discounts which is already practiced by retailers in India like cantabil, which offers discounts
throughout the year, may be examined by CCI and prohibited if they are considered unfair or
discriminatory. For instance, if the effect of a rebate scheme offered by a large retailer is
loyalty inducing and may lead to competitors being driven out of the market, it may be
considered unfair and accordingly prohibited by CCI.
.
21
The second big concern pertains to the unequal purchasing power 24enjoyed by large retailers
in apparel. Presently, the Indian retail apparel market is highly fragmented, with the presence of
thousands of small, medium and large apparel retail stores. Similarly, the market on the supply
side is also fragmented. This level of fragmentation means that the commercial relationship
between retailers and their suppliers is equipois, with no one side enjoying the ability to act
independently of the other. There it is feared that the entry of large foreign retailers will change
this state of relative competitive equilibrium, and large retailers will start abusing their position
by imposing unfair purchase terms on their relatively smaller suppliers. While this concern
may have some merit, the Competition Act appears well suited to address such situations.
In light of the above discussion, it may be argued that the competition concern highlighted in
apparel retail market are no different from the concerns that may arise in any other industry.
Reduction of prices because of the entry of a retailer who enjoys higher economies of scale and
hence benefits consumers is generally pro-competitive. In limited situations, where the reduced
prices may force suppliers or competitors out of the market, Competition authorities may step in
and take corrective measures.
22
CHAPTER-6
INTERNATIONAL INTERVENTION IN APPAREL RETAIL INDUSTRY
PSKS filed suit, against leegin alleging, inter alia, that Leegin violated the antitrust laws by
entering into vertical agreements with its retailers to set minimum resale price.
Leegin, a manufacturer of leather apparel, concluded that its interests would be best served by
opting out of a price war "race to the bottom," focusing instead on quality and brand cachet.
Accordingly, with specific exceptions, it decided to refuse sale to retailers if they intended to
discount its products below their recommended retail price. Five years after this policy was
introduced, Leegin discovered that Kay's Kloset was violating the policy by marking down the
Leegin products by 20%. When Kay's refused to comply with Leegin's policy, Leegin cut them
off. PSKS, the parent company of Kay's, sued charging that Leegin had violated antitrust laws
when it entered into "agreements with retailers to charge only those prices fixed by Leegin."
23
In Leegin, the court held that manufacturer-imposed minimum resale prices can lead retailers to
compete efficiently for customer sales in ways other than cutting the retail price. It reversed the
96-year-old doctrine that vertical price restraint were illegal per se under Section 1 of the
Sherman Act replacing the older doctrine with the rule of reason.
'On field' apparel products identical to those worn by AFL players, such as football
jumpers. A small number of companies, including Fila, Adidas and Puma, were granted
exclusive licences to supply 'on field' apparel of particular AFL teams; and
24
'Team spirit' apparel products not worn by AFL players, such as T-shirts, but which
feature AFL team colours and designs. A large number of companies, including all 'on
field' licensees, were licensed to supply 'team spirit' apparel.
In 1999, the AFL announced that it would restructure the licence system from 2002. In response,
Fila implemented a Selective Distribution Policy (SDP), under which Fila would not supply
retailers with licensed apparel (either 'on field' or 'team spirit') if a retailer stocked 'team spirit'
apparel for any Fila-sponsored team that was manufactured by another licensee.
The Australian Competition and Consumer Commission (ACCC) alleged that Fila's conduct
contravened sections 46 and 47 of the TPA, Section 47 prohibits conduct that has the purpose of
substantially lessening competition. It was found that purpose of the SDP was anti-competitive.
since it was a clear instruction to staff that Fila would not supply 'on field' apparel to retailers
unless they agreed not to stock competitors' 'team spirit' apparel.
Thus it was declared that FILA misused its market power and engaged in exclusive dealing in
contravention of sections 46 and 47 of the Trade Practices Act 1974 (TPA). Justice ordered that
Fila pay a $3 million penalty.
28. college.holycross.edu/faculty/vmatheso/antitrust.htm
29. http://www.law.cornell.edu/supct/html/06-480.ZS.html
30. See table 5.1
25
CHAPTER-5
COMPETITION LAW IN INDIA AND APPAREL RETAIL INDUSTRY
The competition policy in India is laid out in the Competition Act, 2002. When the Competition
Act replaced the MRTP Act, 1969, there was a shift in the focus from curbing monopolies to
promoting competition. The Competition Act 2002 aims to prevent practices having an adverse
affect on competition and abuse of dominance of enterprises either by entering into anti
competitive agreements, or combination The Act typically focuses on four areas
The first three areas mentioned above give rise to competition concerns in the apparel industry
4.2.1 Anti-Competitive Agreements: Section 3 of the Competition Act deals with the
prohibition of agreements, which have an adverse effect on competition. It states that no
enterprise or association of enterprises or person or association of persons shall enter into any
agreement in respect of production, supply, distribution, storage, acquisition or control of goods
or provision of services, which causes or is likely to cause an appreciable adverse effect on
competition within India.
The specific anti-competitive practices of the apparel retail Industry covered under Section 3 of
the Act are, exclusive supply agreements, exclusive distribution agreements, refusal to deal and
resale price maintenance. The prohibition of cartel agreements (price fixing, output restricting,
market sharing or bid rigging) between enterprises or persons is the strongest provision in the
Act however the act shall not apply in case such an agreement increases efficiency in production,
supply, distribution, storage, acquisition or control of goods and provision of services. Having
said this it must be noted that cartels may increase efficiency but alongside may also increase
prices that may be detrimental to the consumers. However there is an exception in the law for
IPR-related agreements. Section 3(5) states that under reasonable conditions that an IPR holder
26
may apply to protect his rights may not be regarded as anti-competitive, although what is
reasonable has not been defined well.
.
4.2.2 Abuse of Dominance: The Competition Act does not prohibit the mere possession of a
dominant position but only the abuse of such dominance by the way of imposition of unfair or
discriminatory conditions of purchase/sale or unfair/ discriminatory pricing. Abuse of dominance
may arise in the apparel industry in the case of abuse of monopoly status granted by patents.
Thus in case of apparel retail may engage in overpricing of their products or are unreasonable
with respect to licensing terms etc then the competition law may be resorted to for redressal.
4.2.3 Mergers And acquisitions : Section 5 and section 6 of the Competition Act deals with
what is denoted by a combination of enterprises and persons, delineating the specific
circumstances as per which the acquisition of one or more enterprise by one or more persons.
The Act provides for merger review beyond a certain threshold level which would be defined as
the turnover of the group to which the enterprise would belong after the completion of the
acquisition or merger. Unlike most other countries merger notification in India is not compulsory
and is only voluntary. Moreover since the threshold level for regulation is quite high, the Indian
industry may become an easy target for MNCs for acquisition. In case of apparel retail
combination can be a common practice since it will help the enterprises to consolidate the market
power and achieve monopoly in the market.
For instance there has been a recent case of combination where in CCI approved the proposed
combination of five entities -- Pantaloon Retail India, Futures Ventures India, Indus-League
Clothing, Lee Cooper and Future Lifestyle Fashions. The rationale of the proposed combination
was to remove the multiple structures, reduce administrative cost and achieve operational and
managerial efficiency.
As per the proposed deal the entire fashion business of retail major Pantaloon Retail including its
format stores of Central, Brand Factory, Planet Sports would be transferred to Future Ventures.
Further, the entire fashion business of Future Ventures would be transferred to and amalgamated
with Future Lifestyle. It was observed that the proposed combination is planned to be carried out
with an ultimate objective whereby the fashion business of Future Ventures, Indus-League, Lee
Pantaloon Retail, all of which belong to the Future Group, is proposed to be integrated into a
single entity Future Lifestyle.
27
4.2.4 Cross border competition issues: The Competition Act, 2002 has extra-territorial
jurisdiction reach with respect to the following provisions:
a) Anti-Competitive Agreements
b) Abuse of Dominance
c) Combinations
That have an effect on competition in India. However the provision only empowers the
commission to enquire into such an agreement, it does not mention anything about the option to
pass an order in this regard. Thus the above account shows that the apparel retail industry has
sufficient interaction with the provision of competition act 2002.
28
CHAPTER-5
ROLE OF COMPETITON COMMISSION OF INDIA
The economic importance of the apparel retailing sector, and the many changes that have
occurred within it, implies that this sector is a prime area for competition enquiries. In recent
years, there have been some enquiries by the competition commission of India into apparel
market behaviour that has been subjected to inquiries into accquistions, combinations and their
competition.
The above mentioned concerns may be addressed under the Competition Act. Section 4 of the
Competition Act specifically permits CCI to examine whether the business practices or prices
imposed by a dominant enterprise are unfair or discriminatory. CCI is empowered to examine
whether lower prices offered by large retailers to relatively smaller suppliers are such that they
may lead to the exit of suppliers from the market. Equally, the Competition Act empowers CCI
to examine any conduct of a dominant enterprise if it is such that it may drive its competitors out
of the market and result in market foreclosure. Hence, if a dominant retailers purchasing policies
result in raising its rivals (smaller retailers) cost so much so that they are forced to exit the
market, CCI may intervene and remedy the situation.
Similar concerns have arisen in foreign jurisdictions and competition regulators appear to have
promptly stepped in. For instance, the Office of Fair Trade U.K. Competition Regulator
(OFT) was called upon to examine whether the purchase terms offered by large UK retailers
such as Asda and Tesco to their suppliers resulted in higher costs for smaller retailers and effectively created entry barriers for newer and smaller retailers. The OFT was also required to
examine whether the significantly higher buying power enabled large retailers to extract lower
prices from suppliers than would otherwise be possible. With respect to the effect on smaller
retailers and their inability to offer purchase terms similar to those offered by Asda and Tesco,
the OFT held that they have ample room to improve their purchasing conditions, including by
joining larger buying groups. Further, it suggested the introduction of a strengthened Code of
Conduct for large retailers, to prevent practices that may lead to an unjustified exercise of buyer
power against suppliers.
29
The solutions proposed by OFT may not be easily applicable in India. The Competition Act
prohibits all forms of co-operation amongst competitors which have the effect of determining
purchase or sale price. Consequently, if the smaller retailers were to organize themselves into a
joint buyers group and negotiate purchase price from their suppliers, CCI may consider their
action to be in the nature of an anti-competitive cartel agreement. This risk will also apply to
suppliers if they were to organize themselves into a joint sellers group to negotiate prices with
large retailers.33
As a general point, when investigating anti-competitive behaviour in apparel industry, the CCI
will need to evaluate the pros and cons of intervention with great care.
On the one hand, where there are likely to be first mover advantages, anti -competitive behaviour
over the short-term can deliver significant long-term effects. Any delayed reaction to foreclosure
by competition authorities could therefore have substantial and prolonged implications
On the other hand, the area of apparel is highly innovative, and developing since it changes with
trend and fashion which change everyday. Premature intervention by competition authorities
could in some cases inhibit innovation and the development of new markets.
One potential approach to this problem might be to apply competition law with a light hand for
the present, but to raise awareness of the large fines and risk of structural break -up that might
occur at a later date if competition law is found to be breached
Explaining that Pantaloons and Aditya Birla have different reasons to get into the deal, Ankur
Bisen, Associate Director-Retail, Technopak
opportunity for evolution of Future Group. Though it started with Pantaloons, over the last 15 to
20 years, it has actually evolved as a retailer operating in various retail formats. Even though
30
Pantaloons was probably the jewel in the crown, but it is to some extent a non-core activity for
the Future Group. Realizing that they would like to grow as a retailer and not as an apparel brand
owner, the Group must have gone ahead with this deal. And goes on to add If you look at the
kind of debt pressure the Future Group has, it stands to gain in the short term with this deal. 35
Devangshu Dutta, Chief Executive, Third Eyesight, a consulting organization for retail and
consumer good sector, opined The Aditya Birla group gains significant control over one of the
largest modern large-format chains in the country. Since Madura Garments is also one of the
largest branded retailers in the market, a better integrated value-chain may provide it some
margin advantage. However, it is likely that he might sour its position as a retailer to the other
large retailers through anti-competitive practices,
Thus the researcher found that deal went more in favor of the AV Birla Group, since Biyani loses
a large share of the high-margin, fast- growing apparel retail business. Aditya Birla Nuvo, which
through its subsidiary Madura Fashion & Lifestyle, controls apparel brands such as Allen Solly,
Louis Philippe, Van Heusen and Peter England, and the acquisition of majority stake in
Pantaloon, will enable it to cater to customers at the lower segment in the value chain. With its
bouquet of brands, Madura can not only attract the young it also gets to more than double the
Groups retail space from 1.6 million sq. ft. to 3.65 million sq. ft. And the combined entitys
turnover will go up by almost 80 per cent. Pantaloons Rs 1,700 crores
36
Maduras Rs 2,145 crores top line. Thus gainig dominance therefore it is likely that it can abuse
its position
Thus the above views indicate that the order might have some adverse effect on competition in
apparel retail industry which would emphasize the necessary indulgence of CCI to curb any such
actions.
33. www.conventuslaw.com/india-fdi-multi-brand-retailing-and-competition
34. www.technopack.com
35, 36. www. Fashion united.in//pantaloon-birla-deal-consolidation-key-to-org.
31
CONCLUSION
Apparel sector is growing at a very fast pace with growing Indian economy. Many international
players either have already plunged into Indian market or plan to do so in apparel sector
especially after the recent changes the government investment policies. They will bring many
new practices which they have been following in developed markets which will further intensify
the competition in the industry as pointed by the researcher. Further In this paper the researcher
has tried to assess the competition in the industry by measuring the concentration and entry- exist
behavior of the firms in the industry, further, the results revealed that the competition in the
industry is high, then the researcher identified the competition concerns in the industry and found
pricing and vertical issues had occurred in majority of international cases .
This implied that the competition authorities have to take in necessary action so as to sustain and
create fair competition in the industry that would enable the smooth function of apparel retailing
for the welfare of the consumers.
32
BIBLIOGRAPHY
Genessa M., Fratto, Michelle R., Jones and Nancy L. Cassill (2006). An investigation of
competitive pricing among apparel retailers and brands. Journal of Fashion Marketing
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Halepete, J., Iyer, K.V.S. & Park, S.C. (2008), Multidimensional Investigation of Apparel
Retailing in India, International Journal of Retail and Distribution Management, Vol.36
(9), pp.1-7.
How half the world shops: apparel in India, Brazil and China, Mc Kinsey
Quarterly(2007).
Indias Textile and Apparel Industry: Growth Potential and Trade and Investment
Opportunities(2001): office of Industries.
33
Kearney, A.T.(2010), Emerging Market Priorities For Global Retailers-The 2010 A.T.
Kearney Global Development Index
Porter, M.E. (1980), Competitive Strategy and Technique for analyzing Industry And
Competitors, The Free Press, New York.
Porter, M.E.(2008), The Five Competitive Forces That Shape Strategy, Harvard
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Shetty.S.A. (2001), India Textile and Apparel Industry. Growth Potential and Trade and
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Saluja,G.(2008),
The
Indian
Textile
Industry:
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Utton M. A. (1990) Anti competitive Practices and the Discussion Paper, Department of
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34
STATUES:
WEBSITES:
http://www.oecd.org
http://www.globalcompetitionreview.com
http://www.oft.gov.uk
http://www.ftc.gov
http://www.referenceforbusiness.com
http:.//www.competitionbureau.gc
http: // www.ncaer.com
http://www.fibre2fashion.com
http://www.indiaexports.com
http://www.conventuslaw.com
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APPENDIX-I
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