1

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
2


TABLE OF CONTENTS







S.NO TOPIC PAGE NO.
Disclaimer i
Acknowledgement ii
1 Chapter-1: Retail Sector in India
1.1 Introduction 1
1.2 Size of the market 1
1.3 Classification of Retail Industry 2
2 Chapter-2: Apparel Retail industry
2.1 Introduction 3
2..2 Market size 3
2.3 Market structure 3-4
2.4 Key players 5-6
2.5 Future trends and opportunities 7
3 Chapter3- Foreign Direct Investment
3.1 Introduction 8
3.2 FDI and Apparel retail industry 8-10
4 Chapter-4-Assessment of competition
4.1 Introduction 11
4.2 Ways of assessing competition
4.2.1-Entry- Exist 11-12
4.2.2-Herfindahl- Hirschman Index 12-13
5 Chapter-5-Competition Concerns in Apparel Industry 14-18
Chapter-6- International interventions in Apparel Retail
Industry
19-21
6 Chapter-7- Competition law in India and Apparel Retail 22-24
7 Chapter-8-Role of CCI 25-27
8 Conclusion 28
Bibliography 29-30
Websites 31
Appendix-I 32
3

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 3
rd
June, to 30
th
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.




















4



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.















5

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.

1. Impact of retail Fdi policy on Indian economy-ICRIER
2. http///www.ibef.org/industry/retail-india.aspx


6

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).
CLASSIFICATION OF INDIAN RETAIL SECTOR

Retailing industry can be classified into two classes:

Organized retailing

Unorganized retailing



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


3. Global Retail Index Report
4. The Indian Retail Sector Report(2013)


7

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

2.2 MARKET SIZE:
The Indian apparel industry is estimated to be worth Rs. 3,270 billion in 2011-12 and is expected
to grow at a compounded annual growth rate of 8.7 per cent till 2016. The growth would
primarily be driven by the surge in demand for readymade apparels in semi-urban areas, rising
income levels and youth population and increasing preference for branded apparel.
6


2.3 MARKET STRUCTURE:
Indian apparel market is segmented in three different ways:

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.
8


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.

5. Confederation of Indian Industry
6. Corporate catalyst India: report on apparel industry in India (2013)
7. Corporate catalyst India: report on apparel industry in India (2013)


9


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.

Mid-range market: quality products. Manufacturers large and medium.

High-end market: premium and super premium product categories. Dominated by MNC and
major Indian manufacturers.

KEY PLAYERS:
The apparel retail sector is experiencing the huge development and making an increased
contribution to GDP, it requires a better and exclusive regulatory framework to sustain the
impressive overall growth. Competition in the retail sector is getting stiffer in the nation as many
big players both national and international are testing and applying different retail plans in the
market .Entry by fresh players is still at a promising stage. But, increasing competition in the
sector would, in due course, lead to a drop of margins with each retail chain trying to attract
consumers through innovative and effective ways

The key players in the apparel retail market in are:

1. MADURA FASHION AND LIFESTYLE:
Madura Fashion & Lifestyle, a division of Aditya Birla Nuvo Ltd, is one of Indias leading
branded apparel companies and a premium lifestyle player in the retail sector. After
consolidating its market leadership with its own brands, it introduced premier international
labels, enabling Indian consumers to buy the most prestigious global fashion wear and
accessories within the country.
10

The companys brand portfolio includes product lines that range from affordable and mass-
market 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 APPAREL:
A 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

11

FUTURE TRENDS AND OPPORUNITIES

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


12

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

2012 51 % FDI in multi brand retail permitted.

12

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

FOREIGN DIRECT INVESTMENT AND IT IMPACT ON APPAREL INDUSTRY IN
INDIA

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.
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).

EFFECTS OF FDI ON APPAREL INDUSTRY

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 brand-
driven 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.


Industry as a whole will benefit:
From the industrys perspective, allowing up to 100% FDI in single-brand retail and 51% FDI in
multi-brand retail seems like a favorable proposition, since a large part of the fashion industry
supply consists of SMEs and they will surely benefit if more international brands make a foray
into India. Many foreign brands present in India have, over the years, increased their sourcing
from India as this gives them the benefit of shorter lead times and lower costs. Many brands have
also set up their own back-end manufacturing infrastructure. This trend will continue to widen in
14

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

























12. Effects of fashion apparel industry in India
13. www.bdo.co.uk
14.FDI and Indian fashion apparel industry - Technopack



15

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

4.1 WAYS OF ASSESSING THE STATE OF COMPETITION:
To assess the state of competition in the apparel industry we look at the following factors
Entry- Exit
Herfindahl- Herschman Index
4.1.1 Entry Exit:

Definition: Under the Competition Act, Section 19 (3) (a), one of the factors which must be
taken into account in determining adverse effects on competition is the ease of entry into the
market.
16
To analyze this we looked at government policy:

16

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.

4.1. HERFINDAHL HERSCHMAN INDEX:
Industry concentration refers to the number of companies competing in the same market.
Competition gets intensified if these companies have similar market shares, thus destroying
profitability. A standard measure of market concentration is the Herfindahl Herschman Index
(HHI) a measure of the distribution of sales among firm.
HHI: It is calculated by squaring the market share, S of each firm I competing in a market, and
then summing the resulting numbers.
HHI = (Si)
2


17

Year Apparels
Industry

HHI
2006 300
2007 300
2008 400
2009 400
2010 500
2011 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.





CHAPTER-5


18. Adapted from Dutt and Saxena(2007)
19. HHI were calculated using CMIE prowess data, coverage is limited to the companies for which data is available.
20. Manoj Pant and Manoranjan Pattanayak, Does openness promote competition? A case study of Indian manufacturing, Economic and
Political Weekly, Vol XL, No 39, September 24, 2005
18

COMPETITION CONCERNS IN APPAREL RETAIL INDUSTRY
In Apparel Industry there is immense potential to increase competition by enabling the
development of new products, new distribution channels, and greater efficiency in business
activities and also due to changes in government investment policies. Competition policy issues
may arise in relation to mergers, particularly when they are developed by existing market
participants with a significant combined market share (as buyers and sellers) in underlying retail
markets. Competition concerns would include evidence of price fixing or tacit collusion, or anti-
competitive discrimination against, or refusal of access to third parties. Issues will not arise in all
cases, and this will depend on the details in each case. In many situations there will be pro-
competitive and other public benefit issues that should be taken into account.

As we know Retailing means the final link between the production of a good and the end-
consumer. 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.

19

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:

Strategic reduction of competition: Retailers can strategically reduce direct price
competition between themselves by spreading out in product space (niche marketing).

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

20

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.

Competition problems are likely to be particularly prevalent in apparel markets , since
markets will only tend to work imperfectly when there are asymmetries in bargaining
power(consumers are small), high transactions costs (consumers are immobile),
information asymmetries (consumers are uninformed), or vertical restraints.
21


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:

Vertical issues: It including vertical restraints, differential discounting, and own-brand
competition. The vertical restraints that may exist in apparel industry may include:
Retail price restrictions : such as resale price maintenance (RPM);
Manufacturer non-linear pricing : that is, non-linear manufacturer discount schemes
such as franchise fees, quantity discounts, or differential discounts for different retailers;

Quantity forcing : requiring retailers to sell minimum quantities of the manufacturer's
products;

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
21


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

THE COMPETITION CONCERNS THAT MAY ARISE IN APPAREL INDUSTRY DUE
TO THE CHANGES IN FDI POLICIES
The Main concern that is common among the cynic is that large retailers in apparel like zara,
Raymond, Madura fashion and lifestyle will under-price their products to wean away
customers from smaller Indian retailers, ultimately leading to the exit of smaller retailers
from the Indian market. Lower prices benefit consumers and are generally considered pro-
competitive. In limited situations, where the retailer, being in a dominant position, sets its prices
intentionally below its average variable cost of making the products, with the aim of driving
away the retailers competitors, these lower prices may be problematic. The rationale being that
once all the competitors are driven out of the market, the retailer which was earlier selling at
lower prices will increase its prices to recoup its losses and make monopoly profits.
Linked to the concern about lower (predatory) prices is the concern that local retailers may not
be able to match the rebates and discounts offered by large retailers, which may lead to their
ouster from the market.

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.
.

22

The second big concern pertains to the unequal purchasing power
24
enjoyed 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.

































21. Competition in Retailing, Office of Fair Trading
22. See the case related to it in: chapter-5
23. See table 5.1

23

CHAPTER-6
INTERNATIONAL INTERVENTION IN APPAREL RETAIL INDUSTRY

Antitrust cases in Apparel Industry:
1997
Standard Fashion v. Magrane -Houston Company
28

Standard Fashions manufactured dress and children's apparel patterns which were sold in apparel
retail outlets owned by Magrane-Houston. Standard's contract with Magrane specifically called
upon Magrane to sell no other competing brands of patterns in their store as a condition of the
contract. While 52,000 independent companies manufactured patterns, 40% of the pattern market
was controlled by Standard.
The court affirmed that the result of this exclusive contract would be to reduce competition
especially in smaller towns where only one store in town might carry dress patterns. In addition,
this type of arrangement raised significant barriers to entry for small firms who may not be able
to supply a full line of fashion apparel patterns
2007
Leegin Creative Leather Products, Inc. v. PSKS, Inc.
29


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."

24

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.

World Wide Interventions:
In march 2010 The Competition Bureau of Canada has reached an agreement with Apparel
retailer Mexx Canada and its parent company Liz Claiborne Canada Inc.
30
, requiring the
companies to properly disclose all conditions relating to gift card promotions being offered in
Mexx locations across Canada. Mexx and Liz Claiborne have now submitted an undertaking to
resolve the Bureau's competition concerns.
An investigation by the Bureau found that a minimum purchase requirement was necessary in
order to redeem Mexx gift cards for a particular promotion, but that this condition was not
properly disclosed to the public during the promotion
Under the terms of the undertaking, Mexx and Liz Claiborne will take corrective action to ensure
that the terms and conditions of all promotions are clearly and prominently displayed in all of
their representations to the public, including all advertising and promotional materials, in-store
signage and oral representations made to customers. Liz Claiborne will also be required to
develop a corporate compliance program in order to ensure that future promotions do not
violate the false or misleading advertising provisions of the Competition Act.
ACCC v Fila Sport Oceania Pty Ltd(2013)
The Australian Football League (AFL) licensed various companies to supply apparel to AFL
teams and their supporters. There were two types of apparel licensed by the AFL:
'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
25

'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



26

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

a) Anti-Competitive Agreements (Section 3)
b) Abuse of dominance (Section 4)
c) Combination Regulation (Section 5)
d) Competition Advocacy (Section 49)
32


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
27

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.
28

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.























32. Competition Act2002



29

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 ef-
fectively 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.

30

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

4.6 ANALYSIS OF CCI ORDER:

CCI approved the acquisition of the Pantaloons Format Business By Aditya Birla Group the
Various views were expressed below regarding the impact of this acquisition on competition
in apparel retail market.
34


Explaining that Pantaloons and Aditya Birla have different reasons to get into the deal, Ankur
Bisen, Associate Director-Retail, Technopak Advisors says, It is a great deleveraging
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
31

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
turnover will add to
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.


32

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.















33

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35


STATUES:
Competition Act 2002
Monopolies and Restrictive Trade Policy Act, 1969

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











36


APPENDIX-I



Source: Adapted From Dutt And Saxena(2007)