admin
September 9, 2008
Fashion is, by definition, perishable. Like bread, eggs and milk. Or is it?
When bread turns stale, eggs turn rotten or milk turns rancid, you do have to throw it away. Fashion is different, because its perishability is artificial, driven by popular perception that something is “out-of-date” or that something else is “the look of the day”. You don’t really have to throw that blue peasant skirt out in the garbage or in the Salvation Army bin…but you do anyway, because it is so yesterday…or that’s what everyone else is saying.
Earlier, perceptions took time to spread, today they can be spread instantaneously through the web, TV and cell phones, and pretty quickly, even through slow media like print magazines.
So ‘Fast Fashion’ is really a product of fast media and communications technologies.
Having said that, it is here to stay, and regular (mainstream) slow-coaches do need to be worried about customers being seduced away by the ever-fresh look of a Chico’s or a Zara.
I can’t even begin to estimate the millions of dollars that must have been spent on “studying the Zara model”. However, while Zara’s model seems to scream “best practice” and everyone wants to emulate it – is it really for everyone?
Inditex (Zara’s parent company) has grown over 40+ years of evolution, in a specific market and business context. It may have “exploded” on the global scene when it floated its IPO in 2001, but the business model has been brewing a long time.
It has such significant investments in production that Inditex is as much a manufacturer as a retailer.
Its people and process model are almost diametrically opposite the command and control, “buying director – driven” model of other retailers. Its technology investments are focused better than most of its peers.
Would your company’s DNA allow you to invest in and manage fabric and apparel manufacturing? Would it allow young people to be sent out to take bigger-ticket purchase decisions with fewer approvals than they do now? Would your design team really trust your frontline store staff with feeding them relevant trend information every day?
And yet, and yet…As labour costs rise in Europe, Zara is also being forced to rethink its model of local or regional production. As it does move more production to places like India and China, the big question is whether it can maintain the sanctity of its business model.
I won’t advise other retailers to breathe easy, but they
don’t need to roll over and die just yet.
Other articles on Zara (all in Acrobat PDF format):
( A Request: These articles have been placed for open access on our website due to the overwhelming interest in Zara around the globe. If you wish to use any of these articles for distribution in your company or in industry workshops, or wish to quote from the articles, please provide full credit to the source. Thanks!)
admin
September 7, 2008
Do You See Yourself Fitting In?
The Indian retail market is set to be worth anything between US$ 270-300 bn, as per global consultants AT Kearney. The projected growth rate for the organised sector is 35-40% per annum for the next five years at least. “Overall retail is growing at 8-9% but the organised sector is growing much faster,” says Principal, AT Kearney, Debashish Mukerjee. Further, organised retailing is growing at 50-55% in small towns compared to 30% in large cities. Finance Minister P Chidambaram also recently put the figure on the government’s estimated figures for retail in the country at a staggering $ 300 bn.
The apparel retail market is about 6 % of the overall market – valued at $ 16-17 bn and growing at around 10-12% per annum. Also, apparel has among the highest percentage of organised retail at nearly 14%, which is second only to footwear, which has around 35% of organised retail. The question whether retail is a good option for garment exporters at this juncture is not as simple as it seems and many would nod in the affirmative, but the road is long and tedious, and requires among other things, the right product, a good location and more importantly, deep pockets, to make even a dent into the retail market. In the last issue, some of the exporters we spoke to, shared their experiences about the efforts they had made while venturing into retail. In this issue, we offer a few key directions from retail consultants and sector experts.
With a huge talent pool and a potentially large domestic market, the prospects for retail’s expansion seem buoyant. India has a population of 1.2 billion of which over 50% are said to be under the age of 25 and constitute 29% of the country’s urban populace. “The number of people who are going to have an income of Rs 2 lakh + per annum in India may double in the next two years, and these are potential apparel buyers. So, it would be right to presume that the expenditure on apparel will increase,” affirms Mukherjee.
Ernst & Young estimates that retail’s expansion in India is being driven by greater economic growth in the country and its changing demographics; the upsurge in urbanisation and greater credit availability in terms of retail loans for investments in new projects and ventures. “Investor interest in the country is on the rise, and that is a sign of things to come,” observes Manager, Retail and Consumer Products Sector, Ernst & Young, India, Soumya Pal Choudhuri.
These investments have translated into hectic activity for setting up retail outlets and businesses in recent times. “The commercial property market has been growing at 30% since 2000 and there is a demand for 200 million sq ft of commercial space by the year 2010. Retail rentals have gone up by 70% in the last one year and the opening up of retail for FDI has further pushed up prices,” says an industry watcher. He adds that nearly 340 new shopping malls are expected to come into operation by 2008 against 105 now, in Mumbai, Delhi, Bangalore and their suburbs, and that nearly 725 malls are being planned all over India. These figures further accentuate the potential for a retail blitzkrieg in the country.
Existing indigenous retail giants, Pantaloon and Shoppers’ Stop are focusing on re-formatting their business. International players are also looking to capitalise and leave their imprints on the Indian landscape. US-based company Wal-Mart has already tied up with the Bharti Group and is establishing its position in the country. The Bharti Group is expected to invest $ 2.5 bn by the year 2015 to open a chain of hypermarkets, supermarkets and convenience stores across the country. And, the Dubai-based Landmark Group is revitalizing and expanding its operations with its Max Retail Lifestyle stores, which are targeted to touch 100 in number by 2011.
“Activity is high in the top 12-15 cities in the country and in some of the mini metros but the market is stirring in smaller cities as well,” says Devangshu Dutta, CEO, Third Eyesight, a consultancy firm focused on retail and the consumer products sectors. Dutta notes that mid-to-high level brands are focusing on value and in big cities while smaller entrants have experimented with volumes in smaller cities, where they have tried to convert the rural buyer to shift from local tailored clothing to ready-to-wear. “Demand is growing substantially in these small cities and towns for apparel and particularly, in the ready-to-wear segment,” he points out.
Dutta believes that the many segments of apparel retail are growing at different rates altogether. “Some segments are growing at 25-30%. Yet others like ladies western wear could be growing at 50-70% per annum and innerwear could be growing at 4-5%,” he says. “But if we take the size of the apparel retail market at $ 25 bn today and say that it is growing at 10-15%, I see it touching $ 28 bn by 2008,” he adds.
To him, the growth of retail is very organic – adding one customer and one store at a time. “Retail is not only driven by financial power; the venture has to be continuously relevant to the customer. There really is no one template that you can follow as a retail business model or strategy,” he asserts.
Dutta is quick to point out that to enter the retail hemisphere, exporters must maintain a holistic approach to the venture. “They must take operational lessons to make a successful foray into retail rather than go for strategic ones,” he says. “I may even compare retail to the hospitality sector where the quality of service and the product offered is the discerning factor for success,” he adds. This could mean taking a close look at product segments, zeroing-in on the targeted clientele, selecting a network of perfect locations and deciding their marketing techniques.
The idea, therefore, is to find your niche and then make a well-heeled entry into that area. “There are primarily 3-4 core layers where you can fit in,” says Choudhuri. The super premium segment is limited to stores in the top 3-4 metros. It has a select loyal clientele and Choudhuri believes that there is tremendous growth in this segment as it has a skilled work force, and high-level brand recognition and protection. And, with luxury malls coming up, one will see players having ‘top class’ products roll out some really high-end offerings.
Then, there is the premium segment, which currently has international brands like Levi’s and Tommy Hilfiger. “This segment will grow as it is already witnessing a growth in organised retail with the number of malls growing by the day and the ever-increasing footfalls, which are healthy indicators. Players in this segment will partner aggressively with their Indian collaborators as a part of their strategies,” he adds.
“The trends as I see them,” says Mukherjee, “are large retailers launching private labels and their own brands and selling high-end stuff.” For example, Shopper’s Stop selling an Arrow shirt where its margin could be 10% vis-à-vis selling its own shirt at a margin of 25%. Therefore, a good retail strategy would be for a player to launch a private label of good quality, offering a value-for-money proposition in terms of the product. “A private label being sold instead of a branded shirt for a little less may do even better,” he suggests. Garment exporters could see retail growth in this segment, as large retailers will be looking out for quality manufacturers.
Consultants also have some suggestions for the sector and a note of caution to new entrants. “The Indian textile and apparel industry is the cornerstone of the Indian economy,” says Choudhuri. “But it has to re-organise itself, achieve the desired levels of scale, become competitive on cost, reach higher production levels, become technology savvy, create big companies and become exclusive suppliers to its clients. Apparel players should anticipate the pressures and challenges and prepare measures. Production and design systems, and integration and corporate governance are also needed to attract big investments. It is only when all these factors converge will the results start showing,” he concludes.
admin
August 26, 2008
By RASUL BAILAY
MINT (Exclusive Partner The Wall Street Journal)
DELHI, 26 August 2008
Since India bars overseas investments in a retail venture selling multi-branded products to consumers, the two foreign funds have invested in MedPlus’ wholesale arm
Two venture capital firms have invested $25 million (Rs109 crore) in Hyderabad-based pharmaceutical retailer MedPlus Health Services Pvt. Ltd in the first publicly known foreign investment in a medical store chain.
NEA-IndoUS Ventures, a Santa Clara, California-based venture fund, and an unnamed fund from West Asia have jointly invested the amount in MedPlus for an undisclosed stake, a person close to the transaction said, asking not to be identified ahead of a formal announcement.
A top MedPlus executive, too, declined details. “It’s confidential,” said Madhukar Gangadi, chief executive of MedPlus. “At this point of time I am unable to tell you anything.”
Since India bars overseas investments in a retail venture selling multi-branded products to consumers, the two foreign funds have invested in MedPlus’ wholesale arm. India allows up to 100% foreign investments in so-called wholesale cash-and-carry retail ventures that sell only to other retailers and businesses. Such ventures are not allowed to sell to end consumers. NEA IndoUS has, in the past, funded Microqual Techno Pvt. Ltd, a firm that makes telecom components and chips, and mortgage solutions provider ISGN Technologies Ltd.
In a bid to gain access to India’s more than $300 billion retail market that is growing annually by 7%, the world’s top three retailers Wal-Mart Stores Inc., Carrefour SA and Tesco Plc. have announced wholesale ventures in the country and let local firms manage the front-end stores that sells to consumers. Such branded retail businesses account for just 3% of the market today, but are expanding at about 35% annually.
Pharmaceutical products are retailed in India through 800,000 mom-and-pop stores and less than 1% is operated through organized ventures. In recent years, hundreds of branded pharma outlets have mushroomed nationwide operated by Apollo Pharmacy, Medicine Shoppe, Guardian Lifecare Pvt. Ltd, Subhiksha Trading Services Ltd and MedPlus among others. Guardian Lifecare is also looking for private equity (PE) investment, according to Ashutosh Garg, the company’s chairman and managing director.
MedPlus operates more than 500 drug stores in Andhra Pradesh, Maharashtra, Karnataka, Tamil Nadu, Gujarat and Rajasthan and plans to double that number by March 2009. Last year, MedPlus received $5.2 million funding from Mauritius’ iLabs Management Llc. (currently called Peepul Capital Llc.), a PE fund co-founded by Satyam Computer Services Ltd’s former chief operating officer Srini Raju.
Though the MedPlus funding is the first of its kind in drug retailing, foreign PE funds have backed retail ventures in other businesses in the past.
In 2006, for instance, UK-based Actis Capital Llp. invested about $65 million for a controlling stake in the back-end operation of Nilgiris Dairy Farm that through a different company operates a chain of supermarkets.
A retail expert predicted the MedPlus model may be copied in other retail niches. “That’s the kind of strategy everyone seems to be getting onto unless someone wants to retain control,” said Devengshu Dutta, chief executive of retail consultancy firm Third Eyesight. “That’s what has happened with Bharti-Wal-Mart, that’s what happened with Tesco and Tata.” Wal-Mart owns 50% in a cash-and-carry venture with Bharti Enterprises Ltd, the company that controls phone firm Bharti Airtel Ltd. Tesco, on the other hand, plans a wholly-owned unit in the back-end business that will supply to a Tata-owned supermarket chain, Star Bazaar.
Devangshu Dutta
August 21, 2008
August is the month when India celebrates gaining its independence in 1947.
So it is quite apt to think about the implications the word “independent” has in the world of grocery retailing as well.
India’s food and grocery retail sector (as most of the other product sectors) is full of traditional “mom-and-pop” operations. Estimates of their share of the market vary from 97% to 99.5% of the total food and grocery sales – but it is given that “independent” retailers rule the roost, and the estimates vary only in the degree of predominance.
The word “independent” in this context differentiates an entrepreneur-run stand-alone operation from a chain store, and encompasses all the kiranawalas and corner shops – traditional, modernizing, as well as the best-of-breed. The business owner-manager of these operations is solely responsible for merchandising, buying, staffing & HR, finance and the rest of it. If he works well, he makes a decent living and helps others to make a living as well. If he doesn’t work well, others may still make a living but he will most likely just scrape by.
In many ways, of course, the word “independent” is related to “freedom”. The phrase “independent retailer” also conjures up a picture of overall economic freedom, of self-ownership of one’s business and economic destiny.
There is freedom from an externally imposed operating framework, freedom in selection of products, freedom in pricing, freedom to service local customers for the store in the most appropriate and locally-relevant way, freedom to manage the cash-flows as the owner-manager wishes to, and so on.
This picture obviously is based on the premise that the independence that is assumed is actually available, as it would be if the market remains hugely fragmented and the supply base also becomes fragmented with many suppliers and brands fighting out for their share of the pie.
Clearly, to anyone who is actually involved in the retail sector that is a huge assumption.
Yes, the supply base is certainly becoming more diverse than earlier as new brands get launched in the market and battle for shelf-space. These brands include not just start-ups or mid-sized companies, but also large companies who are well-equipped to deal with the large incumbents on their own terms. This is surely a good thing for the independent retailer, as it provides him more choice and makes his shelf-space more valuable.
However, there is a quantum difference in the sophistication in organisation, information availability and financial capability between a single-location independent retailer, and even a mid-sized branded supplier, and the balance of power is actually more fragile than it seems. As a supplier grows, it builds up a differentiated position and a distinctive branding and becomes less easily replaceable, while each independent retailer becomes more and more generic, and therefore replaceable. The major differentiating or sustaining factor for most such retailers is their physical location, whose desirability and marketability is not as much within their own control.
When you add large modern retailers into the mix, the economic freedom of the independent looks even more fragile.
Some observers would have us believe that in India modern retailers have little or no impact on the long-term health of independent retailers. This is quite contrary to the ample evidence available from the modernization of retail over several decades in other markets around the world. (Should we chant the old hymn, “But India is different”?)
The fact is that modern retailers don’t suddenly lead to a boom in consumption of food and FMCG products. While there may be some increment due to greater supply and better retail techniques, a new store will invariably take business from existing retail channels. After all, given a choice of a wider variety, a better shopping environment, similar or better products, and similar or better pricing, why would consumers not shift some or all of their spending to a modern retail store?
This, then, brings us to the (sensitive) question – what would happen to the independent retailers in such a circumstance?
Of course, we can take heart from the fact that independent retailers continue to exist even in highly-consolidated and more “developed” markets, and imagine that such a thing will happen in India as well.
Let’s not forget that in some developed and consolidated markets, independents may be supported by local laws and regulations (such as urban planning constraints), while in other places they are supported by the community which may not just show their support by shopping at the mom-and-pop store but also by actively blocking the entry of large retailers and chain stores.
In India the picture is a bit more complex and nuanced.
One the one hand, the consumer is apparently quite happy to enjoy better shopping environments, the convenience of all-under-one-roof. And, while estimates of “wastage” in the food supply chain vary widely, it is widely acknowledged that modern retailers can have a significant positive impact on product quality, value addition, and logistical infrastructure. That is surely a good thing for the country when it is vital to explore every bit of efficiency in food production and its delivery to the population.
On the other hand, regulatory or activist blocks have started to appear already, very early in the growth cycle of modern food and grocery retailing. A few state governments have even taken to banning or at least restricting the growth of corporate-promoted retail chains. Traders’ associations in many markets are quite clear in their perception of the threat from modern retailers to the independent’s normal existence. They express the wish to retain a livelihood threatened by corporate-backed retail operations that are perceived to be competing unfairly with their deeper pockets.
One of the core issues here is the sense of ownership, of being one’s own boss, the dignity offered by being an entrepreneur. Think about what we said earlier about the sense of freedom. Is there a way to retain, or even improve upon that?
The answer may lie in franchising. This may be the bridge between the two sides, and the vehicle for a “co-opted” growth of both.
In a fragmented market like India, it will certainly be a while before corporate retailers can understand and service diverse localities as well as the independents can, or have operations that are as efficient as a kirana-store. As long as independents evolve their own business to offer consumers better service, keep their operating expenses low, manage their inventory closely and retain the energy to run their family business, they will thrive. Imagine if that management capability, sense of ownership and drive became available to a corporate retailer.
At the same time, surely the sourcing scale and marketing muscle that are available to retail chains could be useful to an independent retailer, and help him build more business.
The fundamental successful structure for franchising is identical the world over. The franchiser is an entrepreneur or a company with a product or service that has a market beyond what he can immediately service. The franchisee is an entrepreneur who wants to have the pleasure and privilege of being a business owner, but would also like to benefit from being part of an organisation.
For a win-win, both franchiser and franchisee have to bring something to the table, they both have obligations and responsibilities and both have rights. The framework of the franchise relationship has to be clear in defining these, and yet allow operational flexibility. The partners must also be able to break-away if things don’t shape up the way they have planned, without being too restrictive of each other after the break-up.
The Indian market is not new to franchising. Lifestyle products such as apparel, footwear and others have franchise networks that date back to the 1960s. However, food retail has only seen sporadic attempts at franchising (many of them unsuccessful).
Some of the problems can be tackled by improving the operational and system rigour, while others (such as how do you manage fresh produce consistently at franchise outlets) may be insurmountable in the short term and will require some constraints to be built into the business model.
I believe food and grocery retailers need to explore the option of franchising for faster and possibly more efficient growth, and for encouraging a spirit of partnership in the development of the grocery retail sector. Inclusive growth is a trite phrase, but very true in this context.
India has been and will remain a land of entrepreneurs, and companies would be wise to co-opt that energy.
Who knows – you may even be giving birth to a retail giant. After all, Sam Walton also began his business as a franchisee of another company.
admin
August 16, 2008
Oswal Group is a premier textile group of northern India having its corporate office at Ludhiana,Punjab. The organisation has been for the last 40 years with spinning as its core competency. Earlier, they were part of the Vardhman Group but, after family settlement between two brothers in 2003, they named themselves as Oswal Group. The group is mainly into spinning and dyeing of all types of yarn in different blends and manufacturing of garments. In 2004, Oswal group forayed into innerwear business under the brand of ‘Sensa’ with a view to cater to the growing ready-to-wear fashion apparel market. Thereafter, the company renamed its retail innerwear business as ‘Straps’, offering lingerie, nightwear and maternity wear in 2006. And finally in 2008; Oswal Retail decided to wind up its innerwear business and close down its 22 exclusive outlets of ‘Straps’.
Market still in nascent stage
As per reports of study conducted by leading retail consultants, Oswal group had pegged the intimate wear retail market in India at a whopping Rs 2,200 crore and it was expected that it would touch Rs 4,000 crore mark by 2009. The company had planned to capture five per cent share of this market by 2010. Commenting on the market scenario, Pradeep Seth, CMD, Stadia Group, says, "The main reason for suddenly deciding to shut down all stores could be the financial losses in the business and not seeing the growth potential as was envisioned. The markets chosen for Indian Lingerie were probably right but there could be a reason that the more elite class still prefers to wear foreign brands which they purchase from abroad. The other population may still be having cheaper options. However, the reasons for closure could also be mismanagement."
Too many stores too fast
Oswal group had ambitious plans to open ‘Straps’ stores across the country. They opened 22 stores across Delhi, Gurgaon and Ludhiana and had committed investment of Rs 60 crore in this venture and planned to open 120 exclusive stores by 2009. It even tied up with several premium foreign intimate wear brands including Italian ‘Parah’, Rene Rofe, Wonder Bra and Women Secret of USA, Body Line and Moon Dance, which were sold through Oswal retail outlets.
Reasons
for stores’ closure
|
Re-branding did not work
Re-branding is an exercise requiring meticulous plans and execution in order to retain its brand identity in the market. A company generally goes into re-branding after 10 years or more, when they feel that, with changing times, their brand too needs to be upgraded and consumer too needs the fresh look. Commenting on re-branding as a solution, Devangshu Dutta, Chief Executive, Third Eyesight, says, "The particular reasons behind Oswal’s decision to close down the chain will be best given by the company itself. Normally, if a company wishes to sustain the retail business, specific store-related decisions (changing the design, closing some stores, re-branding etc.) can certainly help. On the other hand, if the management wishes to exit the entire business for some strategic, operational or personal reasons, then there are essentially two options: either to sell the business or to close it down and book the losses."”
Lack of consumer interest
With everything being right in order, one very important thing the company skipped on was tile customer behavior commenting on consumer preferences, Mr Seth says “one reason is that more elite classes still prefer to wear foreign brands, which they purchase from abroad. Another reason lies in the possibility that people are still having cheaper options. However, reasons for closure could also be mismanagement. "
Possible solution
Is there a possibility that the company can be saved from such sudden closures of outlets? Can closing down of non- performing outlets or re-branding the brand be an option for survival? Or, is shutting down all the stores the only possible option? Talking about feasible solutions to this problem, Shubranshu Pani, President Retail Advisory Services, Jones Lang LaSalle Meghraj, says, "Normally the solution for such cases is a merger possibility with a known chain that is either into similar business in India or merger/acquisition by a foreign brand that may be looking for a foothold in India. Re-branding and shutting down of non-performing stores are solutions sometimes exercised by retailers to boost performance and cut losses. But many a time, retailers resort to sales and discounting. Some retailers abroad also resort to rationalization of format-size.and merchandising. For example, many ‘mom & pop stores’ and medical stores have started keeping other products like CDs, stationery and FMCG products. Getting a store chain out of trouble needs introspection and’ innovation. While reworking on space strategy is definitely required, it also calls for an overhaul in operations and client interaction." Giving his opinion, Mr. Seth says, "Normally, the solution to such cases is a merger possibility with a known chain that is either into similar business in India or merger-acquisition by a foreign brand that may be looking for a foothold in India."
