Mr Bruce E Bergstrom
VP, Vendor Compliance,Li & Fung
"Sustainability is a great concept like liberty. We are in a world with many problems and sustainability is the solution. This is the answer given by Bruce Bergstrom, VP vendor compliance of sourcing giant Li & Fung, who tackled the difficult question of What is Sustainable Fashion? at the first-ever Sustainable Fashion Forum held earlier this month.
Moderating the first session, Michael Lavergne, director-Asia, Worldwide Responsible Accredited Production (WRAP), posed to the panel "What does it really mean to be sustainable and what is best practice?"
Adding to his big-picture view of sustainable fashion, Mr. Bergstrom says economics play a strong role in the current approaches to sustainability, while solutions taken from social and environmental perspectives are sure to come.
"Sustainability is now a retailer and brand-driven initiative, but we need to convince the manufacturers to see the benefits of sustainable operation starting with raw materials,’" said Hong Lee, manager of Asia Pacific, Control Union.
But when widespread consumerism drives disposable fashion, is there really a place for sustainable fashion? The answer is yes, according to Janvier Serrano, creative director and founder of The 091/091’s Eco Couture brand, which features bags made from recycled scraps.
Moderator: Mr Michael Lavergne
Session 1 Panel: Mr Javier Serrano, Ms Mary Yan Yan Chan, Mr Bruce E Bergstrom, Mr Hong Lee
"Although it is difficult to achieve sustainability right now and it is a big challenge, we must do it. We must be open, we must be proactive. We must educate the consumers to go for quality and not quantity," advised Serrano.
Agreed Amy Small, Creative Director at Green2greener, a b2b trade platform for eco-fashion: "Sustainability is a continuous goal, it is to put back the same amount as what you take out". In her opinion, small companies, successful in sustainable production, can inspire big companies to follow.
"Fashion is not only in clothing but it is a lifestyle and attitude of life. We have to be vigilant on sustainability in day to day operation and living. It is important to impress upon the students of today the concept of sustainable living so that it can be passed down to the next generations", said Mary Yan Yan Chan, director of Style Central Ltd, the exclusive agent of Perclers Paris.
Taking questions and opinions from the floor, the panel and audience agreed that a paradigm shift is needed for the fashion industry to tackle sustainability effectively. There is a need to drive innovation. Governments can also play a part, through education and green policies.
Devangshu Dutta, chief executive of Third Eyesight led the 2nd session panelists to discuss "Is Sustainable Fashion Profitable?" He commented that sustainability is not viable in the long term without financial returns and a good business sense.
"Sustainable fashion can be profitable because shoppers today are looking for something more meaningful. Consumers are accepting the concept of reuse and recycle in a creative way", said Olivier Grammont, founder of eco fashion brand Francs-Bourgeois. He described how his company uses second hand materials for handbags and the finished products are selling well in boutiques.
Concurred James Ockenden, director of publishing house Media Karma which specializes in the environmental technology, energy and finance industries. Ockenden citied the case of an olive oil company that used olive pits to generate energy for the plant. The company has now expanded to processing palm oil waste to produce a power supply to 400 households. Ockenden strongly believes that green legislation is the way forward but subsidy for new technology is necessary. He proposed adding ‘government’ to the three pillars of sustainability, that being economics, environment and social.
Session 2 Panel: Mr Olivier Grammont, Mr James Ockenden,
Ms Cassandra Postema, Ms Dong Shing Chiu
Moderator: Mr Devangshu Dutta
Meanwhile Carolina Rubiasih, VP sourcing & product development of the SAK questioned whether today’s consumers, who want value-for-money products, are indeed ready to for sustainable options that generally incur greater costs. The younger generation, however, is adopting healthier lifestyles that will likely encompass sustainable fashion. As time goes by, sustainability will be the norm and a way of life and perspective.
Offering ideas on how to be profitable with sustainable products, Ms Rubiasih advises to produce only what you can sell, improve on the design to reduce wastage, use less packaging layers, increase efficiency in logistics and study the tariff code to tap lower tariff categories with minor adjustments to the material & design. Her privately owned company took such steps and yielded good results, outperforming their previous year’s revenue.
Echoing Rubiasih’s emphasis on the importance of design, Cassandra Postema, director of fair trade fashion brand Dialog said "As designers, we have to design a product that can sell and sustain and compete with the regular products. It took People Tree, an eco-friendly company, 10 years to breakeven."
Some audience members felt that sustainability must be price neutral if not cheaper to sell to consumers and noted that supply chain efficiently is critical to profitability, while innovation and good management can bring costs down. It was also suggested that designers should place attention towards engineering so as to produce more efficiency.
In Session 3 Mr Ockenden facilitated the panel to probe into the question of "Who Wants Sustainable Fashion?" People buy fashion for various reasons, but experts often agree is linked to an emotional element. Companies can encourage sustainable fashion purchases by strengthening its ‘feel-good’ factor.
Sustainable fashion is in-demand among fashion brands, but under the financially low-risk terms of cost and time-efficient production, says Mr. Lavergne. NGOs are nudging the concept of sustainability onto the brands and retailers and the social climate is ripe for them to take such a stand.
Meanwhile Mr. Dutta says that general perception of fast fashion is quite wrong; it is actually not about throw away clothing but a management system that can improve the efficiency of the supply chain. Fashion is by nature not a sustainable concept but how can we make it sustainable? He hopes that in 10-20 years time we will truly have sustainable fashion.
Moderator: Mr James Ockenden, Direct, Media Karma
Overview of the forum
The panelists recognise that sustainable business is still in its infancy, and urge the brands, retailers, buyers and suppliers to take small steps towards sustainability. There is no one answer to the complex and multi-faceted issue and finding solutions will require a collaborative effort. Improvements in education, innovation, technology and government policies will make sustainable fashion possible – and profitable.
By Ranju Sarkar
New Delhi October 24, 2009
With retailers downsizing operations, many senior executives from fast-moving consumer goods (FMCG) and telecom who had jumped on the retail bandwagon a couple of years ago are making a quiet comeback.
These include some high-profile names who were in the limelight when the going was good.
Former banker Murlidhara Kadaba, who was head of financial services at Reliance Retail, has moved back to his old industry as senior managing director, Altamount Capital Management, a Mumbai-based wealth management firm. Kadaba, who has worked with Citibank and American Express, continues to be associated with Reliance Retail as advisor.
Amit Bedi, who was the business head for Reliance Retail, has moved back to telecom as CEO for Tata Teleservices, Bihar. Bedi earlier led the marketing operations for Hutchison (now Vodafone) in Punjab.
Then again, Rohit Malhotra, who headed Future Group’s operations in the south, has moved back to Bharti Airtel. So has Harvardhan Soin, a senior HR executive, after a stint with Aditya Birla Retail.
“The slowdown brought in a reality check in retail. Companies today want to pay for a role,” says the CEO of a Delhi-based retailer, who didn’t wish to be named. The slowdown left retailers with excess people.
Devangshu Dutta, CEO, Third Eyesight, a retail consultant, believes that retailers had built a pipeline of people anticipating certain growth, which has toned down in the last one-and-a-half years. For instance, retailers were growing at 50 per cent in square footage (adding new stores) before, a rate that has fallen to roughly 30 per cent in the last 18 months.
In the absence of retail-specific talent in the country, retailers were forced to hire from consumer-facing sectors like FMCG and telecom — that is, “anyone remotely related to consumer”. It worked when retailers were expanding and the only thing that mattered was how many stores they added. The slowdown exposed the weaknesses of this hiring strategy.
Anand Raghuraman, consultant with Boston Consulting Group, says functions that many people were handling were not aligned to their previous jobs. Retailers admit there were problems. Take the marketing function. In an FMCG firm, a marketing head’s job is to create brands and run campaigns. “In retail, brand is what you deliver in the store; the marketing operations are on-ground promotion and, most importantly, your speed of response,” said a CEO.
The sector differs from FMCG in pace and focus. ‘‘It is 5 per cent strategy, and 95 per cent implementation. In retail, the speed of response has to be much faster. In FMCG, you can sit and plan, and implement it in six months. In retail, people have to take calls all the time. In retail, it is about yesterday, today and tomorrow. In FMCG, you can classify customers into Sec A, B, and C but in retail, customers within a city can be different across catchments. When it comes to nuances, it is different,’’ adds an expert.
Besides, many of these executives came from well-established organisations like Hindustan Unilever, which was different from working for a start-up where the processes were not well-defined. ‘‘Some of these executives were disenchanted and struggling,’’ adds Raghuraman.
‘‘You need a different mindset to work in an unstructured environment. The variables won’t be known to you. Sometimes, the stock doesn’t come and you have to go with cash and buy from a distributor, or sometimes even from a competitor,’’ says an executive.
The executives have a different take on their exits. Nitin Tipnis, who moved from Reliance to head Hover Automotive that is developing a sales and service network for Nissan, says he changed from one industry to another because it gave him an opportunity to do something different.
Tipnis, however, says retail is here to stay since there’s no dearth of spending — people are buying more than what they want. “What I am doing is also a retail operation, I am developing an independent marketing, sales and service organisation and deliver customer satisfaction,” he says.
Trade, of course, has been global for millennia, so it seemed hardly unusual for retailers in the US, and in Europe to begin sourcing from distant countries in Asia where certain items were more readily available or significantly cheaper. Imports have also been encouraged as a political and developmental vehicle to aid friendly countries.
So, on the sourcing-end, large retailers have been comfortably operating beyond international borders for several decades even while the stores-end of their business was entirely domestic.
For most large modern retailers however, after the post-Second World War economic boom their core markets have grown relatively slowly (and rather predictably). While the sheer size of the US market kept American retailers busy domestically, planning and legal restrictions in terms of store size, locations, market share etc. limited manoeuvrability for retailers in Europe.
Among the current major retailers, the early retail explorer, Carrefour set out into neighbouring Spain in 1973 and then into distant Brazil in 1975. Soon after, Dutch retailer Ahold landed in the USA in 1977.
However, it took the opening up of East European economies in the 1990s to really prime the pump for growth of international retail. Suddenly, many more millions of consumers became available to European retailers close to their existing markets – both geographically and culturally – and western European retailers jumped at the opportunity.
At the same time, China seemed to have become steadily more open over the previous decade and in the early-1990s India looked accessible again. Some of the Latin American markets were also steaming up.
And, obviously, the prospect of 3-4 billion new consumers in emerging or developing markets was clearly not going to be ignored. In 2001, post dot-com, another inspiring idea hit the business world that was desperately looking for hope – the golden BRICs – the four countries focussed upon by Goldman Sachs as the biggest economies of the future: Brazil, Russia, India and China.
As incomes grew in these “developing” or “emerging markets”, the hypothesis was that consumer would want products and services similar to those in the more developed markets, creating the opportunity for retailers to cross borders. In the last 15 years or so, retail internationalization (and gradually “globalization”) has become an increasingly acceptable theme – in conceptual thinking, in retail boardrooms, in white papers, and finally in trade and mainstream media. The world has witnessed a network of retail subsidiaries, joint-ventures, franchise and other relationships spreading across continents.
Certainly, through the 1990s and 2000s, growing tele-connectivity, fashion, portable TV programming concepts, movies and print media seemed to give the impression that consumers around the world are becoming more similar, and can be reached by common formats and brands. Led by the FMCG companies on the one hand and fashion brands on the other, insights, concepts, products, formats, advertising campaigns are routinely extended across countries. (Unilever’s TV commercial for Close-Up in West Asia is a great example of this – an Anglo-Dutch company’s international brand of toothpaste, Indian models in Thailand, an Arabic voiceover and a Hindi song (“Paas Aao” – “Come Closer”) by Sona Mohapatra – surely you don’t get more global than that?)
But wait! Is the picture really as clear as that?
In 2006 Wal-Mart pulled the plug on its €2 billion German business that was a combination of German chains that it had acquired. In Russia it still has only a development presence since 2005, though it is reported to be looking at opening 10-15 stores in the following three years. According to Newsweek, Wal-Mart’s 13 year old Chinese business – even after an acquisition that is still to be approved – will have fewer stores than it would have opened in the US just in 2009. In the past it has struggled in Japan and Brazil.
In June 2009, Carrefour opened its first 86,000 sq. ft. hypermarket in Moscow, and a second one soon after that. In September, the company affirmed that the BRIC markets were its highest priority for international growth. However, in October it announced that it was pulling out of Russia. Within 4 months of the first store, Russia has gone from a market with “outstanding long term potential” to being a market to exit. In previous years the company has moved out of Japan, South Korea and Mexico. The Economist reports that significant Carrefour’s shareholders are forcing it to look at selling its Chinese business as well – obviously a move that would be politically very sensitive in China. The same shareholders are also reported to be urging a sale of its Latin American business. For now, the official statement from the company maintains an ongoing interest in all these markets.
Ikea has decided to freeze further investments in Russia, and has decided not to enter India until the Indian government allows 100 per cent foreign ownership of retail operations. It entered China in 1998, and has only 7 stores so far.
Even as Carrefour and Ikea announce plans to pull out of Russia, Russian retailers have pulled out from Ukraine, while Metro is cautious in its outlook about that country. French retailer Auchan has opened three stores in Ukraine since 2007, while the German retailer Rewe has opened all of nine since 2000.
Could the juggernaut of global retail be slowing, stopping or even – shock! – reversing? Are the BRICs and emerging markets falling out of favour?
Before we jump to conclusions, as they say in the television world: please don’t adjust your sets. As the French author Karr wrote: “plus ça change, plus c’est la même chose” (the more things change, the more they are the same).
It is a fact that, no matter how international or global a company becomes, when it gets to the business of retail, it needs to be intensely local. While elements of the business – concepts, products, people, money – can travel across borders, it is extremely difficult to take across an intact retail mix and expect to address a significant portion of the population in the new country. And given how important scale is to mass retailers, lack of localization would be a significant hurdle.
A company sourcing products from a developing country can fully expect his suppliers to adapt to his practices and customs. On the other hand, the same company entering that country as a retailer needs to do exactly that – adapt to the customers – rather than expecting them to fall in line because the “best practice” manual dictates certain processes or because central merchandising found some deals that were great for the home market which are totally irrelevant in the new market.
However, there are encouraging signs that retailers looking to grow internationally understand this more and more. Tesco, for one, has been following a localized approach in Thailand and South Korea, while Carrefour, Ikea, Wal-Mart have all steadily modified their approach in China and other markets. Wal-Mart’s cautious steps in India, including the stores opened by its joint-venture partner Bharti, are a complete contrast to the aggressive “plans” that were being reported in the press 2006-onwards. Recently Wal-Mart’s international chief C. Douglas McMillon was quoted by BusinessWeek as saying “we know you can’t run the world from one place”.
For the larger international retailers this means that, the benefits from international scale would be limited by the amount of localization that they carry out in their operations. For smaller and local competitors that are based in an emerging market this means a fighting chance to remain in business and even remain market leaders.
Lastly, as far as all the dark clouds gathered over international retailing and all the retreats being announced – stay tuned – this weather will change, too.
By Vishal Krishna
10 October 2009
Indian shopping hotspots are sporting more and more golden arches these days. If McDonald’s is expanding like never before, not far away is KFC (Kentucky Fried Chicken), though on a lesser scale. Their guests are young, their menus glocalised, their branding established, and their menus are no longer over-priced. After more than a decade in the highly fragmented quick service restaurant (QSR) segment — only 20 per cent of the Rs 10,000-crore segment is organised — McDonald’s and KFC are growing at a nippy 20-25 per cent, despite the slowdown.
“In a recession, we see ourselves as a good substitute for premium dining,” says Amit Jatia, managing director of Hardcastle Restaurants, a joint venture partner of McDonald’s. “We are rapidly expanding because we have tested the supply chain for over 15 years and it has given us the opportunity to scale up.” McDonald’s, which had 20 stores in India till 2002, today has 160. It plans to open 200 more over five years, with an investment of Rs 500 crore. KFC, the smaller player with 52 restaurants, plans to open over 100 more outlets in the next two years.
Though McDonald’s foray into chicken nuggets this year has taken it into KFC territory, the companies give the impression of ignoring each other. “The Indian market is very large for QSRs and our focus is on large portions of white meat, while the competition focuses on different products,” says Unnat Varma, marketing director of Yum Restaurants, which has been developing KFC and Pizza Hut in India. The pricing of its menus makes McDonald’s a quick eatery with the average per person spend at Rs 100. KFC’s spend is higher, at Rs 125-150.
Thanks largely to dishes such as McDonald’s Veg McPuff and Chicken Maharaja, and KFC’s Veg Thali and indigenised Hot and Crispy, not only are the two no longer viewed as outsiders by jingoists, they also have a fast-growing loyal clientele. In 2009, McDonald’s guest count has crossed 30 million; in 1996, when it started, the count was a little more than 200,000. KFC’s annual guest count is expected to rise from 3 million today to 5 million by the end of 2010.
Many Indian retailers have not turned cash positive because they burnt most of their money on building the front-end. But, “McDonald’s and KFC have got an amalgam of things right,” says Harish Bijoor, a Bangalore-based brand and marketing consultant. “While McDonald’s has converted millions of people with its Rs 20 happy price menu, KFC has done it with its large portions as a QSR-plus restaurant.”
Staying Ahead In The Numbers Game
It has taken McDonald’s, which has a global turnover of $22 billion (Rs 1.1 lakh crore), almost 12 years to operationally break even in India (KFC is yet to break even). That in itself is not unusual; Bijoor says cereal maker Kellogg’s took 23 years to break even in Mexico. “The costs incurred on store design and supply chains are huge,” says Jatia. “Now, I am expanding in Chennai and I have to prepare the back-end to service that region, which requires large investments.” Of McDonald’s’ Rs 1,200 crore investments in India so far, Rs 250 crore was for the supply chain alone.
McDonald’s supply chain in is decentralised — a store manager sends a requisition to its logistics partner Radhakrishna Foodland (RKF) though a data management system, who in turn informs Vista Foods, which McDonald’s’ global supplier, OSI Global, bought in partnership with Hardcastle Restaurants. “We source everything for McDonald’s locally and process,” says Bhupinder Singh, Vista’s CEO. Vista, which has invested Rs 30 crore in its processing capacity, works on a 15-day lead time with farmers and meat suppliers in a just-in-time format; RKF picks up the supplies and stores them at its distribution centre before dispatching them to every store individually. A McBurger for Rs 13 is possible only due to this efficient supply chain.
Other than a tie-up with Venky’s for chicken, KFC outsources buns, vegetables and transportation from different vendors. While this explains its slow expansion and gives McDonald’s a clear advantage, KFC’s limited, chicken-based menu does not need the kind of supply chain McDonald’s has struggled to establish. It is also the reason why McDonald’s can envisage expanding faster into the metros as well as the tier-I and tier-II cities, but KFC cannot for now.
More To Come
McDonald’s and KFC are unique because their international competitors (Burger King and Church’s Chicken, respectively) have not come to India yet. Local chains such as Nirula’s are popular in their cities of origin but to compete with these two MNCs, they will have to manage a complex supply chain and open stores quickly, which is unlikely to happen on a large scale.
Moreover, the supply chain costs for international restaurant chain brands are complex and play out on a much larger, national scale. Rents, salaries and power make up the largest overheads, and they cannot be rationalised without affecting quality benchmarks.
“The only way to turn profitable is with a growing customer base and they have achieved this with product consistency,” says Devangshu Dutta of Third Eyesight, a retail consulting firm in Delhi. He says the flywheel concept of engineering applies to food retailing too, where a company could be slow, but by building the right things such as supply chains and prudent store openings, it creates momentum for growth.
Sources say both KFC and McDonald’s spend 5 per cent of their turnover on marketing. They also invest considerably in R&D — select McDonald’s outlets have been experimenting with a breakfast menu for over a year now. But, “We will doubly want to check that there are volumes in a menu before we launch anything,” says Abhijit Upadhye, director, supply chain, McDonald’s. In the quick service food business, no decision is taken in a hurry.
(From BusinessWorld, Issue of October 10, 2009)
Here is a summary of the Sustainable Fashion Forum, and some more pictures from the afternoon.