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India is increasingly a focal point for the fashion industry, reflecting a rapidly growing middle class and an increasingly powerful manufacturing sector. These forces, together with strong economic fundamentals and growing tech savvy, make India too important for international brands to ignore. Indeed, India’s ascent is one of ten trends the fashion industry should watch in 2019, highlighted in our latest State of Fashion report, written in partnership with the Business of Fashion (BoF).

Economic expansion is happening across Asia, but we expect that 2019 will be the year when India takes center stage. The country is being propelled by strong macroeconomic tailwinds, and its GDP is predicted to grow 8 percent a year between 2018 and 2022 (exhibit). India’s middle class is forecast to expand by 1.4 percent a year over the same period, outpacing China, Mexico, and Brazil. As a result, India is set to evolve from an increasingly important sourcing hub into one of the most attractive consumer markets outside the Western world.

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India’s apparel market will be worth $59.3 billion in 2022, making it the sixth largest in the world, comparable to the United Kingdom’s ($65 billion) and Germany’s ($63.1 billion), according to data from McKinsey’s FashionScope. The aggregate income of the addressable population (individuals with more than $9,500 in annual income) is expected to triple between now and 2025. According to Sanjay Kapoor, founder of Genesis Luxury, an Indian luxury retail conglomerate, higher incomes are likely to create a whole new class of consumer: “We are moving on toward the ‘gold collar’ worker. It’s a term that defines the well-paid, highly paid professionals, who are happy to look good, happy to feel good, and are expanding the consumption of today.”

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Given these dynamics, it is little surprise that more than 300 international fashion brands are expected to open stores in India in the next two years. But India remains a complex market that presents challenges as well as opportunities. The apparel business is still largely unorganized, with formal retail accounting for just 35 percent of sales in 2016. Its share is likely to reach around 45 percent by 2025—still a relatively low proportion.

To build momentum around conventional stores, Indian players are innovating: retailers are leveraging technology to enhance the in-store experience with digital marketing displays and improved checkout. For instance, Madura Fashion & Lifestyle launched the Van Heusen Style Studio, which uses augmented reality to display outfits on customers. Malls have also increased their share of space devoted to food service and entertainment.

The growth in the apparel sector is also being driven by increasing tech savviness among consumers. Ten years ago, technology was for the few, with just five million smartphones in a country of 1.2 billion people and only 45 million Internet users. These figures have since increased to 355 million and 460 million, respectively, in 2018, and they are expected to double by 2021, when more than 900 million Indian consumers will be online.

E-commerce leaders are moving to solutions based on artificial intelligence. “Personalization and curation based on personal taste will become a lot more important,” says Ananth Narayanan, chief executive of Myntra, a fashion e-commerce player acquired by Flipkart in 2014. “It’s not about having the largest selection; it’s about presenting the most appropriate selection to the customer involved.”

The supply side of the industry is equally robust, and the growth of textile and apparel exports is expected to accelerate. According to a 2017 McKinsey survey, 41 percent of chief procurement officers expect to increase the share of their sourcing from India, where average labor costs are significantly lower than China’s and comparable to Vietnam’s. Raw materials (such as cotton, wool, silk, and jute) are highly available, which enables participation in the entire fashion value chain.

Still, players looking to enter the Indian market should recognize several inherent challenges. First, India is a mosaic of climates and tastes. “If you break [India] up into four parts—north, east, south, and west—north India is the only region which is going to have winter, where you have mild-to-severe winter for eight weeks,” says Kapoor.

“Brands that are successful in India have understood that how [Indians] consume, what color they consume, what kind of designs work, what touchpoints and personalization work may be very different from [what works for] a consumer living in New York or Hong Kong,” Kapoor adds. “Indian women have kept a lot of their traditional sensibilities alive, and you see a beautiful mix of both Indian and Western sensibilities across the spectrum.”

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International companies considering an entry into India should heed this important message. Traditional clothing is still very much the default choice for women, making up an estimated 70 percent of women’s apparel sales in 2017. The appetite for Western styles is likely to increase, but traditional wear is still expected to account for a 65 percent market share by 2023.

Another challenge is the low quality of India’s infrastructure, which continues to lag behind that of many other Asian countries. Nearly 40 percent of the Indian road network was unpaved as of 2016. Poor infrastructure can make last-mile deliveries difficult. In addition, retail stock is often below expectations. However, there are signs of improvement. “We have two fantastic luxury malls coming up in Bombay, at the Bandra Kurla Complex along with the convention center,” says Darshan Mehta, founder and chief executive of Reliance Brands, which operates more than 500 stores for international brands. “So there is a whole new fantastic retail ecosystem.”

Many brands are determined to take advantage of India’s blossoming growth. The majority are likely to choose one of three routes. First, players can partner with existing e-commerce platforms. This is most suitable for players with low brand awareness and relatively little capital to invest; it also offers a good way to test demand and customer preferences. Second, brands that have little local knowledge and are looking to enter the market quickly can do so with a franchise model, developing brick-and-mortar retail spaces. Finally, players that have significant local knowledge and capital resources can create fully owned and operated stores.

Indian authorities are certainly keen to promote investment. Relaxed regulations on foreign direct investment (for example, allowing 100 percent foreign-owned single-brand retail operations) will probably lead to more overseas-originated activity through the value chain. We expect more outsourcing and more brand-owned stores without Indian partners in the years ahead. Most activity is likely to be focused on major urban centers, reflecting demographic trends, the rising spending power of urban consumers, and improving infrastructure in those areas.

In short, the Indian market offers great promise. Despite structural challenges that include inequality, infrastructure, and market fragmentation, we expect that strong economic growth, scale, and rising tech savviness will combine to make the country the next big global opportunity in fashion and apparel.

For more on all ten trends that will define the fashion agenda in 2019, see The State of Fashion 2019: A year of awakening.

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