VAN HEUSEN: THE WAY FORWARD INDIAN APPAREL INDUSTRY Indian apparel industry is the 9th largest in the world in terms of market size. Highly fragmented & unorganized nature of the industry makes any projection of its size difficult, broad estimates suggest the domestic market to be an INR 190,300 crore industry in 2011 and is projected to grow at a CAGR of 9.0% to reach Rs 462,250 crores in 2021 (Source: Technopak Analysis). High unit value growth (due to growth in organized and branded segment), apart from increase in per capita consumption of clothing due to favorable consumer demographics is expected to drive apparel market growth in India.

Source: Technopack Analysis

Rural market which is estimated to be @ 45% of the total market is the most fragmented market with low addressability from merchandise and price-point perspective. Urban market is supposed to see a rapid growth with increasing workforce (CAGR of 12.1%), higher disposable income growth and growing exposure. The organized apparel industry is anticipated to grow at 28% from INR 24000 crores to closely 83000 crores by 2021. Currently Men’s wear is the biggest segment of the market, however Women’s wear is growing faster than other Apparel segments and is expected to gain majority share in future. Kids wear is also growing rapidly with higher growth in girls wear.

ABOUT THE BRAND Within the overall organized apparel market, Van Heusen plays in the premium readymade apparel category. It is one of India’s largest premium lifestyle brands for men, women and the youth. In 2013-14, the brand clocked a revenue of Rs 1300 Crores (at MRP). Over the last 5 years the brand has grown @ CAGR of 24%. The brand is available in close to 300 exclusive outlets across 100 cities and 24 states in India. In all, the brand is present over 1200 doors across Multi Brand Outlets (MBOs), Exclusive Brand Outlets (EBOs) and Shop-in-Shop in Departmental stores (Shoppers Stop, Lifestyle, Pantaloon, Central and Westside).TRENDIN, an online initiative by Madura Fashion & Lifestyle, is the official web store of Van Heusen. Apart from that, the brand is available in most of the ecommerce sites including Flipkart, Jabong, Amazon & Myntra. Van Heusen at one end competes with premium brands like Louis Philippe, Allen Solly, Arrow, Blackberrys, Park Avenue & Zodiac. At the other end it competes with International brands like Zara, Tommy Hilfiger, Mango etc. While none of the apparel brands has a significant market share, Van Heusen has always been one of the largest brands in men’s apparel category. Van Heusen is technically the 2nd largest brand marginally behind Louis Philippe (a sister brand from the same parent company, Madura Fashion & Lifestyle). The brand is manufactured, marketed & sold in India by Madura Fashion & Lifestyle, a division of Aditya Birla Nuvo Ltd under license from PVH Corp USA. The best-selling dress shirt brand in the USA, Van Heusen has been associated with stylish, affordable and high-quality shirts since introducing the patented soft-folding collar in 1919. With a rich heritage of 128 years, the brand entered India in 1990. It has had the unique distinction of establishing not only the brand, but also the ready-to-wear category in India. Van Heusen has consistently been ahead of the curve in understanding the evolving fashion needs of Indian professionals and making it accessible to the Indian consumer. Today, Van Heusen is not only the most preferred work wear brand, but also effortlessly straddles entire spectrum of occasions like casuals, ceremonial and party wear and this is what sets Van Heusen apart as the premium lifestyle brand. Over a period of its 25 years of history in India, Van Heusen has emerged as a fashion authority for the ever evolving Indian professionals becoming the go-to source for the latest in fashion trends, colors and style as well as for expert advice on what to wear, when to wear and how to wear. BRAND VALUES AND PHILOSOPHY Van Heusen assiduously chases the mission; fashion for the professional. The core audience of the brand is professionals and corporate executives - successful, sophisticated, multi-faceted professionals, both men & women, who are conscious of making their presence felt and confident at setting trends. They pursue success just as they do their other interests and passions, learning and exploring everything that comes their way. They believe that style is as important as substance.

For the Van Heusen customer, elegance and style are not just fads, but a philosophy. The Van Heusen range is modern, minimalistic and timeless. It is distinguished by its high quality, and its timeless designs which are neither too edgy nor too futuristic. Van Heusen with its distinctive and fashionable range of products helps the ambitious young professionals create their best impact, as much for his style as for his substance. And thus the brand embodies the positioning, ‘POWER DRESSING’. SUB-BRANDS Van Heusen is the most versatile brand in the category with strong business across Men, Women and Youth, in Apparel and Accessories, Work, Casual as well as Evening occasions. Extensions into various categories have helped the brand address different need gaps in the market and thus grow above industry average growth rate. Through Sub-brand V Dot, Van Heusen also addressed the needs of a younger consumer and a changing lifestyle – one who has a disposable income and the attitude to go with it. V dot offers a range of clothing that is edgy, not reckless, fashionable, not flippant, youthful, and not juvenile. It adds bold sophistication to the brand’s design philosophy. Though it was launched as a men’s brand, it did not take long for Van Heusen to appreciate that today’s woman is as much a stakeholder as her male counterpart in India’s growth story. The ‘Everyday Couture’ philosophy for women’s wear recognizes that today’s woman straddle many worlds and many roles with ease. The line captures her many facets, and offers her a classy, fashionable wardrobe that is truly unique. Van Heusen’s sport-inspired casual wear ‘Van Heusen Sport’ adds a dash of fashionable modernity to the iconic 60s Ivy League ‘day chic’ look. The line is made up of soft shirts, fine-knits, laundered chinos and easy-to-wear semi-lined jackets in exceptional washes designed to give you a drape quite unlike anything. The range features fine sporting elements that elegantly round off the sporty look. Impeccably crafted inside out, these garments are designed to look as good as new even after repeated wearing and washes. CHANGING MARKET SCENARIO In the last 10 years, Indian apparel market and the competitive landscape have undergone a fair amount of shift. The operating environment has changed especially since 2005. Initially the challenge was moving people from tailor to readymade. Dressing as a statement to impress people used to be the key consumer need. Today consumers are evolved, well exposed, and with lot of choices – and hence they are far more demanding. As India enters a new decade of growth there are significant visible changes at both consumption and retail level. Some key shifts that are expected to emerge in the next few years which can have a direct impact on Van Heusen include,

Dramatic Changes in the Indian Consumption Basket In the last decade food, clothing and housing had been the categories with highest consumption growth. Recently, healthcare services have become important and have overtaken clothing in the consumption basket. Categories of apparel, home textiles and housing are expected to move below categories like education, personal transport, travel and leisure in order of priority in consumer consumption basket. It is predicted that the emergence of new categories would put significant pressure on some of the categories like apparel as these categories are dependent on the share of consumer’s wallet. Commoditization Trap: Bigger Threat than Before for Brands As consumers increasingly move towards aspiration based categories like Branded Apparel, health and beauty services, jewelry and watches etc., some of the categories would also increasingly get commoditized which in turn, will imply • Consumers zeroing on just one or two attributes for taking the consumption decision e.g. just the fiber composition of the garment and the confidence in the retailer / brand etc • Consumers will optimize their purchases largely on simple attributes of price and convenience (time efficiency) in order to release more resources (money, time, mental involvement) for the other aspiration/ lifestyle based consumption categories • Increasing retailer presence across the country and emergence of e-tailer’s would see a rapid commoditization across various categories Emergence of New Hot Spots of Consumption Currently the top 8-10 cities contribute to disproportionate share of the markets. However, going ahead growth in India would be far more exclusive as the new hot spots of consumption (primarily driven by investments in these regions) appear on the map. In the near future, investments in mega projects and development of infrastructure are expected to create “new hot spots” in India. These new centers of consumption would present an opportunity for both retail and consumer product companies to focus on and derive growth from the consumption potential of these new hot spots. Changing Fashion preference of Indian professionals The old definitions of corporate fashion have changed significantly in the past decade. Led by younger population and the rise of ITES industry, work environment in last decade has undergone significant change. Professionals today have much more liberty in terms of how they should look at work and what they should wear. Strict formals are no more a must in most of the workplaces. Today professionals are experimenting with what’s called semi-formals, casuals and cross-over look at work more often than not. Denim, paired with a formal shirt with a jacket thrown in is far more acceptable at work than ever before.

Entry of International Brands Because of the opening up of foreign investments in retail, lots of international brands are entering India. The companies have either opened exclusive branded outlets across the major cities of India (e.g. Zara, Mango, Tommy Hilfiger etc.) or planning to set up their operations in India (e.g. H&M, Uniqlo). These international brands with high aspirational value, global best practices are expected to redefine the retail experience and consumer expectation. Emergence of Departmental Stores & Private Label Large format department stores like Shoppers Stop, Lifestyle etc. have seen significant rise in the last 4-5 years. These large format stores offer multitude of options and have become the preferred shopping destination for a large set of consumers. These retailers are now seen as brands and they have very deep pockets to invest and compete. Even though these retailers are helping the category grow, they are competing with established brands with their private labels. Also, it becomes difficult for the brands like Van Heusen offer a differentiated consumer experience in this multi-brand environment. Rise of E-tailers Online Fashion retail recently has been a roaring success mainly due increasing internet & smartphone penetration, convenience of in-home shopping, aggressive promotion & pricing (mainly led by discounting) by online players and easy options (free return, Cash on Delivery etc.). Online retailers like Flipkart, Myntra, Jabong, Amazon, Snap deal etc. are aggressively building fashion category since the gross margin is fairly high. This has presented a new opportunity as well as threat for traditional brick-&-mortar players like Van Heusen. On one hand, Online retail helps brand reach the customers in un-represented markets where brands will find it difficult to open & sustain exclusive brand outlets. On the other hand, steep discounting doled out by these payers and supported with high decibel adverting to drive penetration is likely to the erode profitability and give rise to channel conflicts. CHALLENGES AHEAD As the brand continues to move ahead, the key challenges staring at the brand are: • How would the brand create differentiation & continue to maintain its aspirational stature in the face of changing consumer-competitive environment? • Traditionally Van Heusen has had its stronghold in the Men’s Formal category. Even today 50% of brand’s revenue comes from Formals. Recent equity audits suggest that the brand is respected as, ‘The most definitive brand in formal wear’. Given this, how should the brand adapt to the changing fashion environment in the work context? • While expanding into new categories have helped the brand grow rapidly in the past, it has also diluted brand’s sharpness to certain extent. What should the brand do to grow to the next level? Should it get into newer high growth categories like some of its competitors (e.g. Innerwear, kids wear, Luggage, Time wear,

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eyewear etc.) or should focus on the core formal category? How does the brand maintain its sharpness while expanding into newer categories which may not be in line with the core brand philosophy? How would the brand continue to maintain its premiumness in the face of frequent discounting tendency in the category and consumer shifting purchase towards ‘End-of-season-Sale’? How does the brand continue to maintain its retail profitability – in the face of rising retail cost, threat from international brands, departmental stores as well as e-commerce? What would be the key Retail USP for consumers to walk-into the exclusive brand outlets How should the brand approach e-commerce opportunity – how should it best leverage the opportunity while tackling the threat presented by e-commerce?

While last decade has seen significant addition to consumption and retail market, it is expected that consumption is likely to double over the next 5 years. Profitable growth would be the emphasis for the brand. It is also expected that in the next 5-10 years, the scale of business opportunity and pace of change would be fundamentally different from what it has been in the past. This calls for the brand to go back to the strategy drawing board and develop a vision for the next decade in order to emerge as a successful player.