Are you being carried, or are you carrying others?
To know the answer to that question, bear with me while I take you on a short mental journey through the emerging landscape of “ethical business” and to the stories at the end of this piece. (Okay, you can cheat and skip ahead, but I would really prefer you to read through the whole thing.)
For the most part sustainability and responsibility – or “corporate social responsibility” (CSR) to use the proper jargon – is seen as more relevant to the western economies, rather than the emerging economies like China, India and Brazil.
The pressure to do the ‘right thing’ is like a carpenter’s vice, whose one jaw is public opinion and the other is regulation, together squeezing ever tighter on corporate business. Clearly, there is a significant portion of customers in western markets who are vocal in expressing their opinions on business practices that are seen as wrong or unethical. On the other side, judicial implementation of regulations is also extremely stringent.
In fact, in the last 10-15 years CSR and sustainability have become far more important to top management in western economies since the real penalties in terms of negative impact on the brand and financial penalties through regulation and litigation are extremely high. Multi-billion dollar businesses certainly have much at risk, as demonstrated by well-documented PR disasters of large brands and retailers in the last decade or so. The variety of issues they have faced has covered sweatshop factories, child-labour, product safety, food adulteration and many others.
Since the mid-1990s there has been a steady increase in CSR initiatives, or at least an increase in initiatives that are labelled under the CSR umbrella. There is no doubt that there is good intent behind many CSR initiatives.
Some of these are focussed on improving the core business processes and practices of the company, and have measurable improvement goals that also have a positive impact beyond the company itself. These can truly be called socially-responsible corporate initiatives.
However, one can’t help but question many others which are fuzzy in their impact on both within the business and outside. The motivation of this type of initiative seems to be a two-pronged PR effort: firstly to get positive PR for “good work” mostly unrelated to the business and secondly, more importantly, to avoid negative PR for poor or questionable business practices in the company’s mainstream products or services.
Lest I sound too cynical about the corporate efforts, let me say this: there is also lack of clarity and agreement in non-corporate circles about what constitutes “corporate social responsibility” or “responsible business”. The label is relatively new to mainstream management thinking and very mutable. Social responsibility, ethical business, sustainability are all terms that are broad-based, used interchangeably, and are open to interpretation which can change with the context. (I wrote about this in an earlier column “Corporate Responsibility – Beyond Babel” about 18 months ago.)
And that brings me to four separate incidents that happened recently, which are (in hindsight) neatly threaded together with a common thought process. (Thank you for your patience so far!)
The first was a discussion recently initiated by an international organisation about what could motivate Indian brands and retailers to make moves in the area of corporate responsibility, whether regulations needed to be tighter or whether it would be consumer pressure that would bring about a change. The underlying assumption – right or wrong – was that, as corporate entities, Indian retailers and brands were not sufficiently motivated to take significant and visible steps towards making their businesses more sustainable and socially responsible than their current state. The discussion was inconclusive, with many different, all potentially valid, points of view on the subject.
Very soon thereafter, I had the opportunity to participate in a dialogue with Gurcharan Das, the philosopher-author who, in his last corporate role, was Managing Director – Strategic Planning for Procter & Gamble worldwide. The dialogue primarily centred on his latest book: “The Difficulty of Being Good”. There was much debate and discussion on the wider consequence of individual actions and especially of those in positions of authority, highlighting the importance of individual choices.
A few days later, in a totally different context and with an entirely different person, the third incident occurred, when I was told an updated version of an old story to demonstrate the power of “a few good men” (and women). The story was as follows:
“50 people were travelling in a bus. Part-way through the journey, the weather suddenly turned stormy, with massive thunder and lightning bolts cracking all over the place. At times it seemed as if lightning would strike the bus and kill everyone on board. Then, someone proclaimed that there was someone on the bus whose end had come, who the lightning was seeking, and that it would be better for everyone else to get that person off the bus. The driver stopped the bus, and each person was sent off by turn, to go and touch a tree at a distance. 49 people got off the bus and returned unharmed after touching the tree. Then, as the last person got off and walked away from the bus, the bus was struck by a massive bolt of lightning.”
I thought this was a gruesome but effective moral science tale! During the next few hours I went about my activities, but kept mulling over the lesson(s) in that little story.
Then, that very afternoon, I got an email containing the following thought: “…when it looks like the whole place is going to implode – with pollution, disease, and war; famine, fatigue, and fright – there are still those who see the beauty. Who act with kindness. And who live with hope and gratitude. Actually, they carry the entire planet. (Mike Dooley)”
In looking back to the article 18-months ago, I closed the loop: it is the individual manager, who is also a citizen in a community, a consumer, and as a parent a stakeholder in future generations, who has to make the choices. His or her choices – both right and wrong – do have an impact beyond his or her own life and business. The so-called triple bottom line – profit, people (community) and planet (environment) – are irrelevant unless the first question is answered: “what does this mean for me?”
So as we go about our day, launching and growing brands, opening new stores, creating new products, I offer you this thought to reflect upon: are we carrying, or being carried? Is the bus safe because of us, or are we the ones the lightning is seeking?
[Go to the earlier post: “Corporate Responsibility – Beyond Babel“, December 2008]
Reporting by Aniruddha Basu; Editing by Harish Nambiar
Reuters, Mon May 31, 2010
India’s top textile firms are generating additional revenue streams by developing or selling precious real estate as land rates rise in a buoyant economy.
Bombay Dyeing & Manufacturing, Century Textiles & Industries, Provogue India and Alok Industries are some of the firms intent on developing or selling valuable land parcels to boost cash flow and cut debt.
Property prices in major Indian cities such as Mumbai and Delhi have nearly doubled in the past year, as home and office buyers return and mortgage rates are still in single digits.
Mumbai is rated among the most expensive office locations in the world.
"There are a lot of companies who have huge land banks. But the issue is market gives valuations to only those companies which have come into the market for development of these landbanks," said Kishor P Ostwal, chairman of brokerage CNI Research.
Ostwal has a "buy" rating on both Bombay Dyeing and Century who have premium large tracts in central Mumbai.
Bombay Dyeing, which has around 9 million square feet in Mumbai alone, recently sold a property to Axis Bank for 7.8 billion rupees, according to a statement by Shree Nath Commercial & Finance, the broker to the deal.
The firm has relocated its textile mills outside the island city near Pune and the land freed has been earmarked for two real estate projects in central Mumbai, Ostwal added.
Century Textiles, with 16 hectares in Worli in central Mumbai, is constructing two commercial buildings to be completed in 12-15 months.
Most old mills in Mumbai received huge tracts of land "almost free of cost" during colonial times from the British, who were keen on developing the city as textile centre for cotton because it had the right conditions, Chandrashekhar Prabhu, an urban development expert said.
"A number of mills had got land for a nominal lease for industrial use," making Mumbai an important textile producing centre, Prabhu said.
A crippling industrial strike in the early eighties saw the textile sector collapse and mills silenced. Over the past five years the state government of Maharashtra, of which Mumbai is the capital, allowed more land from textile mills to be used for real estate development.
Analysts said mill owners are finally getting to reap the benefits of this provision with land rates on the rebound.
"It is a strategic move. It would unlock financial value for the mills and help the city as well, because you would have real estate coming onto the market," said Devangshu Dutta head of Third Eyesight, a textiles consultancy.
Not all firms are developing their land, though. Alok Industries for instance, is planning to exit its real estate portfolio lock, stock and barrel to cut debt.
Alok expects about 7 billion rupees through sale of four large blocks, including properties in the heart of Mumbai.
"We should be able to sell a major chunk in a year. We have a big land parcel at Lower Parel (in central Mumbai), that’s a major portfolio. We will look at selling that property within one year," Chief Financial Officer Sunil Khandelwal said.
BUILDING TO GROW
Not all are selling land in premium metros of India. Apparel retailer Provogue India, for instance, is getting ready to launch a residential project in tier 2 cities.
Provogue is planning to launch three residential projects in Indore, Nagpur and Coimbatore by the year-end, on land owned by Prozone Enterprises in which Provogue holds 75 percent.
The first phase of the housing project will span 34 acres across the three cities, its deputy managing director, Salil Chaturvedi, said earlier this month.
The developed value in the first phase of the residential project at Indore alone was pegged at 3.5 billion rupees, Chaturvedi said.
"The question is will this prove to be a sustainable source of income or just one-time gains. That would depend on a company’s capability to handle it. Different companies would handle it differently," Third Eyesight’s Dutta said.
By Vishal Krishna
Businessworld, May 28, 2010
Even the cautious are now convinced about the Indian recovery. The GDP projections are creeping up, production figures look good and, more importantly, demand is back. Organised retailers are heaving a sigh of relief with an uptick in sales after a bad year. But one group in the organised retail business is still not smiling: the mall owners.
The usual practice for mall owners is to have a revenue-share agreement with retailers. Most get about 5-7 per cent of monthly net sales, and if sales fall below a minimum level, the builder gets a fixed rental. A workable business model in ordinary times, this arrangement came under pressure when retail sales slumped last year. Things have improved in the past three months; sales are up 10 per cent as per industry estimates. But they are still a far cry from the 25-30 per cent growth of three years ago, which formed the basis of the revenue-share model. Some, however, believe that it is only a matter of time before the mall owners get their share. “Sales have picked up this quarter,” says Govind Shrikhande, CEO of Shoppers Stop. He says builders will have to be reasonable in their expectations and that in the long run the revenue-share model would benefit both parties.
Other experts believe that mall owners will have to think of
new ways to drive business. Either find out the right mix for
their malls, or explore the possibility of switching to commercial
or housing properties as they offer quick cash exit. “Developers
are struggling to think through what mix they can provide and
make viable in that amount of space,” says Devangshu Dutta,
CEO of Third Eyesight in India.
When Sushil Mantri began building Mantri Square in Bangalore for Rs 900 crore, he realised that investing in organised retail was going to be a financial risk, and that it could also offer tremendous rewards if it succeeds. “Most builders now have three or four anchor tenants to increase the turnover per sq. ft,” says Mantri, MD of Mantri Developers. He says the job on the mall owner’s side was to engage customers. “We collect data on the sales of retail chains in our mall on a daily basis and then sit with them on ways to increase footfalls,” he says.
The mall owner-retailer relationship is changing too. One such change is that retailers are now pushing for sharing their revenue on usage-per-carpet area, unlike three years ago where rentals were also charged for the common area around the store. “Usually builders do revenue share with anchors and sell off the smaller stores to retailers. But the land will essentially be with the builder,” says Abhishek Malhotra, vice-president and partner of consumer practice at Booz & Company in Delhi. He says while retailers need deep pockets to survive, builders work on a yield basis for increasing revenues.
“Anchor stores in malls are beginning to pick up. But,
the mall story is still slow in India,” says Dutta. He says
smaller stores in malls are paying higher rentals and have not
been able to manage their operational expenses. Whereas, retailers
such as Shoppers Stop, Spar and Lifestyle have pared down their
rentals below Rs 60 per sq. ft to be anchor tenants in large malls
such as the 1.7-million sq. ft Mantri Square in Bangalore.
Some believe that though macroeconomic factors such as rising incomes and industrial development would keep the mall market busy, only a few would survive in the future. “This is the time that we have to expand across India, as the space will saturate in 10 years,” says Atul Ruia, promoter of the 1.5-million sq. ft Phoenix Mills in Mumbai, in a previous interview. The company is expected to open 15 malls in five years and is likely to spend over Rs 600 crore in this space.
According to property research firm Jones Lang Lasalle Meghraj (JLLM), there are over 240 malls in India and 30-40 more are expected by the end of this fiscal. “Expansion is still the buzzword in the shopping mall space,” says Shubhranshu Pani, MD of retail services at JLLM in Mumbai. But, he says, fund flows continue to remain an issue because most projects are not tied with funding bodies in a structured manner. Mall launches are also plagued with licensing issues and government clearances. Over the years, in order to attract retailers, developers have been committing deadlines they cannot realistically adhere to. This has forced retailers to go slow on their expansion plans. Retailers, therefore, want a cushion effect in the form of lower rentals or a revenue-share spread over a long period to make up for the delay.
“Large retailers in malls and standalone properties have seen a growth of 10 per cent over the past two months,” says Pinaki Ranjan Mishra, partner and national leader of consumer practice at consultancy firm Ernst & Young. He says the industry will see an upward trend because of their expansion into tier-2 and tier-3 cities, but he believes that metro properties will grow at a nominal pace. Currently, small towns have a 38 per cent share in the organised retail space, with the top 10 cities accounting for 60 per cent of organised retail penetration. But, even in tier-2 and tier-3 cities, the challenge for mall owners will be to decide what mix of retailers they want. For example, analysts say, of the 40 million sq. ft recorded by the end of 2009-10, only food courts – which occupy just 5 per cent of the space – seem to be the most profitable for mall owners.
According to Ernst & Young, retailers across various formats were resizing and relocating non-profitable stores. Last year at least 4 million sq. ft of retail space shut down. Analysts estimate that at least 2,300 stores spread across malls and prime locations were closed.
Kim Culley, an expatriate from England, has been in the mall business for 30 years. Culley is anxious about his new Rs 750-crore project in Chennai, the 1.1 million-sq. ft Express Avenue mall. “I have been in charge of malls around the world and in this business you have to be fresh,” says Culley, COO at Express Infrastructure. He says after the initial momentum of sales dies, footfalls depend entirely on the builders’ ability to pull customers with attractive promotions.
Clearly, mall owners have to innovate to survive.
By Vishal Krishna
Businessworld, 24 May 2010
A change in rules may have put a pause on organised retail’s expansion
Just as French retailer Carrefour prepares to launch wholesale cash-and-carry (C&C) operations – a key part of the supply chain – in India, the government stunned the organised retail companies with a clarification on the rules that govern the C&C business. Now, any retailer tying up with foreign C&C wholesale businesses can source only 25 per cent of the stock keeping units (SKUs) from such a venture.
By implication, the C&C business will effectively have to supply 75 per cent of the SKUs to kirana stores. Analysts estimate that there are more than 50 million of these small and medium businesses in India; 90 per cent of them are kirana or mom ‘n’ pop stores.
The announcement reiterates an election promise that the Congress party made, since organised retail business was perceived as a threat to the kirana stores – apart from a host of middlemen – whose owners make up a vote bank too large to ignore. The announcement also comes amid rumours that Carrefour could tie up with Kishore Biyani’s Future Group to help build their retail outlet Big Bazaar.
"This decision can affect those retailers whose front-end businesses are supported by the cash-and-carry business," says Devangshu Dutta, chief executive officer of consultancy Third Eyesight in Delhi. Bharti Wal-mart has one cash-and-carry unit that supports its front end ‘Easy Day’. There are nine such stores in the Delhi and Punjab regions.
Even Trent’s Star Bazaar, which has more than 50 stores across the country, will have to wait for its UK partner Tesco to begin C&C operations by end of this year. The government’s rationale is that letting C&C tie-ups with organised retail make sense only when kirana stores collectively are part of India’s retail growth story – estimated at $350 billion by global consulting firm Ernst & Young (E&Y).
"The wholesale C&C business will effectively give kiranas
a chance to modernise and organise their stores," says Pinaki
Ranjan Mishra, partner, consumer practice, at E&Y. Even then,
India’s retail business will be driven by the kirana stores supported
by distributors, agri-middlemen and traders.
"The policy will hurt those players who have cross holdings in both retail and C&C business," Mishra adds.
But will organised retail chains actually drive costs so low that they could wipe out the middleman through the C&C business? True, supply chain efficiencies are dismal. Kiranas, on the other hand, have very low operational expenditures on fast-moving consumer goods (FMCG) – they do not include power and labour. That allows them to drive costs way down and yet stay profitable. And with food and produce, kirana stores can mark up transport costs and still deliver cheap goods to customers, something organised retail is unable to do. Organised retail does not make profits from food; they mark down food products, but gain through impulse purchase of FMCG items.
Although tying up with the C&Cs drops supply chain costs, the government still puts organised retail on the back foot. "By 2013 all the top global retailers will be here. The success will depend entirely on changes in shopping habits," says B.S. Nagesh, vice-chairman at Shoppers Stop and interim chief executive officer, HyperCity, in Mumbai.
But the current note on what a C&C business can actually do will make front-end retail merchandising teams go back to the drawing board and realign business strategies. The C&C businesses, which include Germany’s Metro, Bharti Wal-mart, Star Bazaar-Tesco, Shoprite and Carrefour, have invested over Rs 2,500 crore in India so far. Changing the rules may not necessarily derail organised retail’s ambitions.
A lively discussion / debate took place on Retailwire.com about whether retailers were using chargebacks as justifiable penalties for poor performance by vendors or an unjustified means of generating income for the retailers.
The fact is that fees, discounts and chargebacks are becoming more common, and in private conversations – when no retail customer is within earshot – vendors will verify this. Retailers say that such chargebacks are only compensation for vendors not complying with processes that have been clearly laid down and agreed to, since non-compliance creates extra costs for the retailer, or loses the retailer margin.
But is vendor performance really becoming worse with each passing season? Or is it that difficult trading conditions or insufficient skills are making buyers take this easy road to margin?
It’s an open secret that merchandise quality and delays – the two most common causes for chargebacks – are easily overlooked when the market is hot and the product is in demand.
Chargebacks are a dangerous tool in the hands of a lazy, short-term thinking buyer who is incentivised on gross/realised margins from season to season; to him/her they are a quicker way to get to that bonus check for the season. Pragmatic vendors, for the most part, don’t want to antagonise the buyer because that risks not just business with the current retail customer, but any retailer that the buyer moves to in the future.
It’s ironic that vendors are mainly cited as “partners” when it comes to sharing the retailer’s pain. I don’t recall any retailer calling such vendor-partners up to a stage for distributing checks to share extra margin in particularly profitable years. Comments are welcome from anyone who can remember that happening; we’ll all have something inspiring to quote in industry meets, then. (And I’m really hoping some comments quoting such incidents will appear soon!)
The Retailwire discussion on this topic (with comments justifying both sides) is here – “Clothing Vendors Take a Chargeback Hit” – and the original article in Crain’s New York Business is here – “Retailer fee frenzy hits designers“.