Shailaja Sharma & Ashish K Tiwari, Daily News and Analysis
Mumbai, December 28, 2011
2012 will be the year of moderation in consumer spending across durable, consumer goods and apparel, as industry experts foresee an unfavourable sentiment gripping consumers, which could make companies cautious in their growth talk.
“2012 will be a tough year,” says Dr Y V Verma, president, Consumer Electronics and Appliances Manufacturers’ Association (CEAMA), and chief operating officer, LG Electronics India. “It will be challenging on account of several factors — economy, slowing industry growth, currency fluctuation, inflation that has gone up again. And it would be difficult to say when things will revive.”
Almost half of the durable and electronics sales happen during the festive season around Diwali. December, Dr Verma says, was anyway a dull period for sale of white goods. And next year looks dim as consumers will not likely be in the best of their spirits, given the current gloom-and-doom talk.
Devangshu Dutta, chief executive officer of retail consulting firm Third Eyesight, says there already has been moderation in the way money is spent by consumers, both on apparel and out-of-home consumption.
For the apparel industry, demand has slowed since August and the festive season was way below expectations as high cotton prices and levy of excise on branded apparel forced brands to hike prices, says Anurag Rajpal, vice president- apparel, Spencer’s Retail. Consumers are, however, buying now during the clearance period that will last till early-February.
Paresh Parekh, tax partner – retail and consumer products, Ernst & Young, says that while consumers continue to spend, there will be a degree of correction in the rate at which they have been spending until now. “The trend in spending patterns will be more evident in metros while the middle- and upper-class in the tier two and tier three markets will not be much impacted.”
An analyst with an international brokerage firm says that after two quarters of slowdown seen in sales of automobiles and white goods, there is an impending slowdown in consumer goods as well. For spenders are set to go into ‘savings’ mode. “Given the fiscal deficit pressure at the hands of government, doling out funds under the National Rural Employment Guarantee Act (NREGA) proportionate to previous years may be a challenge. This can leave less disposable income in the hands of rural consumers. Similarly, as salary hikes will be restrictive, demand in cities will be dampened.”
Some analysts have already started cautioning on ‘downtrading’ (consumer tendency to move to cheaper brands) in detergents, tea and personal care items. This means that the net addition of new consumers in several categories will be lower than expected. While food and staples is not seeing any weakening in demand, discretionary categories like home and personal care are starting to get affected.
Emkay Global Financial Services analysts Pritesh Chheda and Jay Shroff conducted a consumer goods channel-check at modern retail stores in Mumbai recently, to gauge inventory of popular stock-keeping units (SKUs). In their report, Chheda and Shroff state: “Our conviction for moderation in growth momentum in consumer goods is getting vindicated.”
Their survey showed average inventory of products in modern retail
outlets was dated back to two-and-a-half months with relatively
old inventory seen in categories like hair oils, shampoo and toothpaste,
and relatively newer inventory in foods.
A report last week by Latin Manharlal Securities said volume growth for FMCG companies will be lower in 2012 as consumers remain wary of spending too much.
Consumer goods companies are already battling inflation, high input prices and slowdown in the global economy. Most FMCG companies feel further price hikes will be eminent. From double-digit volume growth, the sector growth has come down to 8-9% in the last quarter. It could slip further if consumers chose to make do with less.
“The added pressure comes from the rupee front (currency depreciation), which is compelling companies to take up prices at a time when pricing power is limited. All these negative sentiments continue to pinch the FMCG sector so much that most FMCG players are expecting volumes to be impacted,” states the Latin Manharlal report.
Agarwal, MINT (A Wall Street Journal partner)
Mumbai, December 18, 2011
Four apparel brands are expected to exceed Rs. 500 crore in revenue in the year to March as they acquire scale rapidly and expand into new territories and categories, signifying the maturing of the organized retail business in India, according to analysts. All this in a slowdown year.
The four are kidswear apparel brand Lilliput, United Colors of Benetton, Nalli and FabIndia.
“This will be the single largest addition in a year,” said Raghav Gupta, principal, Booz and Co., a consulting firm.
Most of the existing Rs. 500 crore brands, such as Louis Philippe, Van Heusen, Peter England, Koutons, Levi’s and Raymond, took 12-15 years or more to achieve this scale. Younger brands will need lesser time.
“The Rs. 500-crore mark is a psychological threshold, and signifies a critical mass that is now available in the market in terms of consumer incomes and willingness to spend for premium brands,” said Devangshu Dutta, chief executive, Third Eyesight, a Delhi-based retail consultancy.
Most of these companies have a positive outlook despite the gloomy overall economic scenario, with growth set to slow in the current fiscal year. The optimism is based on the fact that organized apparel retail was just 17% of the overall $36 billion apparel market as of 2010 and is estimated to grow to 25% of the overall market by 2015, according to Booz and Co.
The growth of organized retail is based on increasing penetration in smaller towns and growing consumer demand.
For instance, Madura Fashion and Lifestyle, the lifestyle garments business of Aditya Birla Nuvo Ltd, which has the largest portfolio of Rs. 500 crore brands—Van Heusen, Louis Philippe and Peter England— achieved breadth as operations were expanded and they diversified to become lifestyle brands.
As such, Van Heusen, a men’s formals brand, now has a casualwear range VDot and a women’s wear range. Van Heusen and Louis Philippe have tripled their footprint from 40-50 stores to 120-150 each in the past three years. Peter England has scaled up from 200 stores three years ago to 500 now.
Over the past year, Lilliput has more than doubled the space under operations from 470,000 sq. ft to 1 million sq. ft. The retailer has got on board private equity investors TPG and Bain, and is looking at raising another Rs. 500 crore to fund its plans, said Sanjeev Narula, chairman, Lilliput.
Besides expansion, “the average bill value has also risen by 20-30% over a period of two-three years as a result of consumers buying more quantity and also buying higher-value products,” said Ashish Dixit, president, Madura Fashion and Lifestyle.
As a result, the business has grown at a compounded annual growth rate of more than 30% in the last two-three years, compared with 15-20% in the 1990s, Dixit said.
US Polo, an American brand, expects to touch Rs. 500 crore revenue within five years. The brand, launched in India in 2009, expects to close fiscal 2012 with a revenue of Rs. 160 crore.
“This is the fastest growing brand in India,” said Alok Dubey, chief operations officer, Arvind Lifestyle Brands, a unit of Arvind Ltd, the licensee for the brand in India.
Brands such as Lilliput are aiming to achieve Rs. 1,000 crore in another two-three years. “It took us eight years to reach Rs. 500 crore, but the next milestone of Rs. 1,000 crore will be achieved in a year’s time,” said Narula of Lilliput.
Madura Fashion has similar ambitions. “The journey from Rs. 500 crore to Rs. 1,000 crore for two of the three brands will happen in the next two years,” said Dixit.
“Brands with weak foundations and a focus only on revenue growth have been weaned out over the last one-two years,” said Gupta, referring to retailers such as Koutons Retail India Ltd, which got stuck with large inventories and debt in the midst of the financial crisis of 2008-09. “Only companies with quality management and strong pedigree of brands portfolio have come through.”
Pia Heikkila, The National
Cricket-mad India has found a new passion – football. Local games and international tournaments alike are attracting a huge following, and young wannabe David Beckhams can be seen kicking balls in parks and streets across the country.
This popularity of"the beautiful game" has not gone unnoticed by those overseas, with major English football clubs lining up to cash in by launching merchandise outlets in the country.
Manchester United is leading the charge. The club has tied up with the Bangalore company Indus-League Clothing, which is part of the Future Group, to set up two United stores in Mumbai and one in Kolkata. A United-themed cafe is already open in Mumbai.
Rachna Aggarwal, the chief executive of Indus-League says football’s growing popularity in India is the reason for the deal with United.
"Football in India is seeing a lot of action," Ms Aggarwal says. "There was a Fifa friendly match held recently between Argentina and Venezuela in Calcutta [Kolkata]. Liverpool and Barcelona are set to open schools for training kids, and Manchester United has already started. In addition, there are a lot of schools who give professional training for football."
Other clubs are getting in on the action. Blackburn Rovers, which is owned by the Indian poultry chain Venky’s, plans to begin selling its club merchandise soon in India. Liverpool has signed a deal with Carnoustie Group to launch shops and cafes.
It’s easy to see why the clubs are jumping on the bandwagon: there is huge scope for growth. India’s sportswear segment was estimated at about US$900 million (Dh3.3 billion) last year and is expected to grow to $2.4bn by 2015, according to Ernst & Young India.
The market is still at a nascent stage, says Pinakiranjan Mishra, a partner at Ernst & Young India.
"Cricket is by far the most popular sport in India, and football still doesn’t occupy a lot of mind space. So this will be a very limited and niche market in India," Mr Mishra says. "However, with increasing popularity of football and investment in advertising and promotion, this sector could see a healthy growth in the future."
It has been a slow start for the sportswear and merchandise sector, but cricket merchandise has paved the way.
"India opened up to the sports merchandise market long ago when T-shirts of the Indian cricket team were available in stores," Raghu B Viswanath, the managing director at the Vertebrand consultancy. Although cricket has dominated this scene since some time, there is a huge scope for other types of sports merchandise and overseas brands to come in due to growth in India’s exposure to other sports and sporting events."
The club merchandisers have been waiting in the wings to watch the big global brands kick things off.
"A lot of brands like Nike, Reebok, Puma have done well in India. The value of the market is still low, but is expected to grow tremendously in the near future," says Saloni Nangia, a senior vice president at the consultancy Technopak. "With rising consciousness among people about being fit and being into sports … the opportunity certainly exists."
Analysts say brands such as Manchester United can gain popularity in India if they build a lifestyle profile rather than a strictly sports image.
"Reebok, adidas, Nike, Puma are some of the popular brands in the sportswear segment in India that entered India early on," says Tarang Gautam Saxena, a consultant at the retail advisory agency Third Eyesight. "While their initial positioning was based around being leaders of functional products driven by technology, they, too, have increasingly moved towards being sports-inspired lifestyle brands."
Indus-League Clothing wants fans to live and breathe Manchester United with the help of the club’s merchandise.
"The Indian fans see this brand as a premium lifestyle sports brand and wear it with pride. The brand will be a complete lifestyle offering of apparels, accessories, home linen and sports accessories in India," Ms Aggarwal says.
The Indian sportswear market differs from the more mature western markets because the Indian consumer is primarily a sports spectator rather than a sports participant. "The Indian sportswear market is more of a non-active casual-sportswear market. Acceptance of active and technical sportswear in India is rather low. In the casual-sportswear category, we foresee a robust market growth," Ms Nangia says.
Football’s popularity in India is rising, audience figures suggest. TAM Media Researchsays 20 million television viewers watched last year’s Fifa World Cup on the first two days of the competition in South Africa, a 35 per cent increase from the 2006 World Cup. A total of nearly 300 million television viewers in India saw the Fifa World Cup last year, TAM Media says.
Shushmul Maheshwari, the chief executive of RNCOS, a market research company, says events such as the World Cup can be great marketing tools and that the rise of internet and satellite television has helped to create brand awareness in the football merchandise sector.
"Things were very different 20 years ago when our exposure was limited to domestic brands or the odd cricket T-shirt," Mr Maheshwari says. "Today kids get internet on their phones and can access the latest information on their favourite clubs [and] can see the latest team-wear in an instant."
As a result, marketers today have created opportunities for fans to show their loyalty.
"There are now new avenues for these enthusiasts to socialise and show their support for the favourite teams, such as social networking sites and upcoming sports bars, lounges and clubs," says Mr Viswanath from Vertebrand.
But despite the enthusiasm showed by the clubs to interact with their fans, most genuine brands are still out of the reach of those in the lower middle class.
"They are too expensive for the masses. It will take a little time for the market to mature. In the meantime, people still want to show their devotion so the masses will buy rip-off products because they love the brand but can not afford to buy the real thing," says Mr Maheshwari.
The deal-making and partnerships are essential because of the country’s strict limits on foreign retailers operating in the country. The Indian government has decided to suspend the recently announced easing of restriction on foreign direct investment (FDI) in the retail sector.
"The restrictive FDI regulations may have been an impediment for brands that are looking to have a greater degree of control and management in their own hands," Ms Saxena, the Third Eyesight consultant.
"The enhanced limit of FDI in retail, whenever it happens, will encourage many such brands to enter the Indian market."
(This article appeared in The National.)
Sarah Jacob , The Economic Times
December 16, 2011
So what if the Walmarts and Carrefours can’t yet sell their wares directly to Indian consumers, the country’s retail industry is buzzing with activity as several honchos quit jobs to play entrepreneurs.
Former Hidesign CEO Kunal Sachdev and former marketing GM of Page Industries, Nischal Puri, are among the latest in a growing club of retail professionals who have traded in their huge pay packets for their own wall art chains, lingerie brand, beer cafes and so on.
Driving them are the new urban consumers, whose everincreasing demands and expectations create space for several niche businesses and new approaches. "Functional consumption is getting relegated to rural India; urban consumers are beginning to pay attention to the badge value of the brand, its packaging and retail experience," says Nischal Puri, who recently floated a lingerie brand, Beyouty.
Puri, who helped Page Industries introduce exclusive outlets of innerwear brand Jockey in the country, will open an exclusive Beyouty store in Bangalore early next year.
Sachdev, meanwhile, has launched Folia, a brand of wall art pieces that hold plants in them, with two standalone outlets in Bangalore and shopin-shops across home decor stores. He will soon take the brand to the UK, where his Hidesign experience helped him make many contacts. Their experience of playing key roles for top retail brands through their highs and lows are clearly a big advantage for these professionals-turnedentrepreneurs.
"The retail segment grew tremendously until 2008 after which the slowdown too gave several senior executives valuable experience to start out on their own," says Devangshu Dutta, chief executive of retail consultancy Third Eyesight.
This experience gives them the courage to go ahead in spite of a slowdown in consumer demand and increasing competition from large national and international brands.
Indian retailers and brand owners such as Future Group, Reliance Retail, Aditya Birla Nuvo, Arvind Brands and Tata Group are expanding rapidly across lifestyle segments from apparel to footwear to food & beverage, while on an average 20 big international fashion brands have been entering the country every year since 2005.
Serving the young
But retail executives say existing brands have not kept pace with the young Indian consumer who spends easier but demands more. This is where a lot of opportunities lie.
"The economic conditions are tough today. But anytime is right for an entrepreneur with a good concept," says Pradeep Gidwani, who last year quit as MD of Carlsberg India to set up The Beer Cafe along with Reebok India’s former head honcho Rahul Singh.
The Beer Cafe, opened in Gurgaon late last year, introduced a new self-serve concept where consumers buy a swipe card and use it to pour their own beer; no reservation, no loud music, no bouncers. The two partners have now split with Singh buying out Gidwani’s rights in The Beer Cafe.
While Singh will focus on North India, opening 10 outlets in six months, Gidwani will take the beer cafe concept to cities such as Bangalore, Mumbai, Pune, Hyderabad and Kolkata under a new brand name. It will be yet another venture for Gidwani, who had been part of the start up team of Foster’s, Diageo, Red Bull and Moet Henessey in India.
For Singh, besides The Beer Cafe he has set up a 44,000 sqft indoor golf lounge called Golfworx in Gurgaon. The golf lounge operationally broke even this year and will soon be taken to Bangalore and Mumbai, says Singh, who brought Nike Golf and apparel brand Greg Norman Collection to India.
While these professionals attribute their decision to turn entrepreneurs to their urge to take on new challenges, some experts call it stagnation at the top.
"As the retail industry in India consolidates, senior executives are finding it harder to move up the ladder. They are either tying up as distributors of international brands or setting up their own," says Gaurav Marya, president of Franchise India Holdings.
In any case, there are opportunities galore in the emerging consumer society. "There were far too many opportunities in retail," says Jaydeep Shetty who quit Future Group as its new business development head to launch his own women’s western wear brand Mineral.
"Even average and poor concepts were succeeding in the market," says Shetty, who helped the country’s largest retailer launch concepts such as Central malls, lingerie brand Etam and accessories brand Holii.
The goodwill of having worked with Shoppers Stop and Future Group helped him open western wear brand Mineral’s shop-in-shops at these department stores.
Mineral will add outlets at High Street Phoenix, in Colaba, Thane and Bangalore next year. Some analysts, however, are critical of concepts that are not tried and tested, particularly when rentals, raw material costs and loan rates are high and consumer demand is slowing.
C. J. Punnathara, The Hindu – BusinessLine
FDI in retail will usher in changes in the shopping experience, believe experts. But, even without it, Kerala’s textile retailers have been dressing up in style. A look at the action.
The small like it big. So Kerala — going by its shopping complexes — is going for the maximum. Textile showrooms in God’s Own Country have been outdoing one another in setting up extravagant outlets at a time when retailers everywhere else are downsizing.
Take the recently opened five-storied five lakh sq ft Emmanuval Silks showroom in Kochi. Its car park can accommodate 1,000 cars at a time; there’s a 5,000 sq ft children’s play area; a food court that stretches 4,500 sq ft, doctor-and nurse on-call, and areas to host fashion shows.
What’s more, there are fashion consultants to help shoppers choose their brocades. And for those who find shopping hell, but have to accompany their wives, there are VIP lounges to watch TV and read the newspapers or simply snooze.
This towering new complex in Edapally, a busy suburb, has just beaten in size many times over the 1.25 lakh sq ft Kalyan Silks showroom in Ernakulam, which claims to be the world’s largest silk saree showroom. Other textile retailers in the State such as the century-old Seematti Silks and Jayalakshmi Silks too have been dressing up grandly to woo customers into their fancy stores. Seematti offers its customers a choice of three lakh sarees at any given time.
YOU WANT IT, WE GOT IT
These new avatar mega textile showrooms that stock hundreds of brands across all age groups, gender and income brackets are creating a big buzz in retail circles. They are positioning themselves as complete family outing destinations rather than just functional shopping places.
“We are big, but bigger can also be beautiful and that is the general direction where we are headed,” says Govind Kamat, Managing Partner of Jayalakshmi Silks, whose outlets in Kozhikode and Thiruvananthapuram boast food courts and huge parking areas. As space becomes scarce in its Kochi showroom, it plans to open a food court besides its car park. “We are re-writing the old adage ‘shop till you drop.’ There are several gentlemen at our stores who drop off to sleep at our luxurious lounge, while the women and children indulge in their shopping sprees,” Kamat says.
So are they setting a new trend? After all, Kerala has always been a trendsetter in retail innovation.
As Devangshu Dutta, Chief Executive, Third Eyesight, a retail consultancy says, “Kerala has been ahead of format of the rest of the country right from the ’80s.” According to him, urbanisation, education and a consumption economy are all key factors for the success of modern retail and that’s why Kerala has been a successful retail experiment lab.
Consider some of the innovations. The Emmanuval Silks showroom has Chinese, Arabic and French speaking staff to cater to the demands of international clientele.
The question is will big format pay off? Talk to T. O. Byju, Managing Director of Emmanuval Silks, and he sounds optimistic. “We plan to do a turnover of Rs 300 crore from the new outlet in the first year,” he says. That is more than the combined turnover of their two existing showrooms — which together have a turnover of approximately Rs 200 crore. By 2015, he expects the turnover to touch Rs 1,000 crore.
WOOING THE WEDDING CROWD
Byju’s confidence stems from the lucrative wedding market the saree retailers are addressing. As he says, a wedding is not just the coming together of two families but extends to relatives, friends and neighbours. And the family indulges in a shopping spree when clothes are bought for family, friends and relatives, over and above those for the bride and the groom. The shopping experience tends to go on for days. And the whole family needs to wine, dine, rest, relax and enjoy themselves while they indulge in the shopping jamboree. Every member of the family has to be not only taken care of, but has to be pampered and cared for. Thankfully for the large showrooms, weddings in India are virtually a round-the-year phenomenon, says Byju.
The transformation in the textile showrooms is also the result of changing shopping trends. Earlier, almost 30-40 per cent of the family shopping was undertaken during the festival season — Onam in Kerala and Diwali in North India. Now, with changing lifestyles and fatter wallets, it is becoming a round-the-year shopping experience.
In Kerala, the shopping season commences with the New Year festivities, then moves into the summer vacations when the wardrobe of the whole family is refurbished, followed by the NRI season when expatriates descend on the State to shop for themselves, children, family and friends. The festival seasons of Onam, Ramzan and Deepavali follow, which is rounded off with the year-end Christmas season. And there is no demarcation between Christmas and New Year and the festivities and shopping continue.
Clearly, it’s God’s own retail lab.