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June 11, 2011
Priyanka
Pani, Businessworld
June
11, 2011
Anyone remember Ranger Farms? In 2007, Reliance Industries’ subsidiary Reliance Retail launched its cash-and-carry retail format by that name. A year later, RIL ‘merged’ Ranger Farms into Reliance Fresh, its food and grocery business. Readers may also recall that in 2009, RIL put together a team of top officials it had hired from several wholesale players, including Gwyn Sundhagul, the chief marketing officer and director at Tesco Lotus, Thailand, to spearhead its cash-and-carry plans. But it appears that after a year and a half, that team has been disbanded.
On 3 June, at the 37th annual general meeting of RIL, chairman Mukesh Ambani announced that Reliance Retail would launch its cash-and-carry stores this year. RIL’s past experience in the retail business has not quite had the same success that its other businesses – oil exploration, refining and petrochemicals – have had (see ‘Downturn’).
Reliance’s re-entry into the business assumes significance even as global retailers such as Walmart, Tesco, Metro and Carrefour are expanding their presence in India, and amid anticipation that the government is likely to ease foreign direct investment (FDI) norms in retail. Currently, FDI is allowed only in the cash-and-carry business.
But others think the rationale is different. "Cash-and-carry is, as yet, at a nascent stage in India," says Devangshu Dutta, chief executive at Third Eyesight, a retail consulting firm. "It’s a modernisation and organisation of the wholesale business, and an intermediate step needed in modernising the fragmented retail business." Something that Ambani has said he always believed in, which he called ‘farm-to-fork’.
Most cash and carry operations are targeted at hotels, restaurants and cafeterias – the so-called Horeca market, which accounts for close to 60 per cent of sales. "Package sizes of goods are larger (meaning more per sq. ft sales and greater volume growth); margins are also better," says Anand Ramnathan, manager at KPMG, the global consultancy. Compared to industry standards, Reliance Retail’s per sq. ft revenues have been lower, say industry analysts.
Reliance Retail officials say that the Horeca segment will not be the primary focus of their cash-and-carry business. Rather, their target audience – apart from their own chain of Reliance Fresh stores – will be other retailers, or the kirana stores.
"The cash-and-carry business is an integral part of a retail supply chain in a country like India, where distribution and logistics are major problems," says a Reliance Retail spokesman. "Reliance’s entry into the segment will help improve its other retail formats. Typically, retailers attempt to own the supply chain to give them control and better prices that benefits the end consumer."
The majority of Reliance Retail’s more than 1,000 retail outlets are located in Tier 2 cities, and the company is working to spruce up logistics and transport to better serve those cities. But the officials gave no details on the scale of investment.
At the AGM, Ambani set up an ambitious target of Rs 10,000 crore in revenues from the retail business in three years (of which cash-and-carry is part), or the end of FY14. On current revenues, that translates into a compound annual growth rate of just over 25 per cent. Making that kind of cash will carry Reliance Retail a long way.
(This story was published in the Businessworld Issue dated 20 June 2011.)
admin
June 7, 2011
Pallavi Srivastava
New Delhi, June 2011
The jeanswear brand, Levi’s had been losing its premium image
with the launch of Signature, which was launched in 2006. Making
ammendments, Signature has morphed into Denizen. Is it a mere
name change or are there any cosmetic changes as well? And more
so, will the new branding pull the brand back into the premium
league?
While Denizen carries the price tag of Signature (between Rs.
799 and Rs. 1,499), Denizen is being positioned as a youth brand
targeting the 18-28 male and female. Signature, meanwhile, was
positioned as a mass brand.
Also, Denizen claims to be giving a more customised offering to the Asian consumers. Sanjay Purohit, Managing Director, Levi Strauss India, says, "Denizen is the next evolution of Signature, be it in terms of product, retail or marketing. It aims to deliver to growing consumer aspirations, which are increasingly reflecting global trends and also strengthen the position of Levi’s."
Can the phase out be smooth? Devangshu Dutta, Chief Executive,
Third Eyesight is optimistic. "The phasing out of Signature
may cause short-term pain operationally, but Levi’s has phased
out other brands earlier – even Dockers, which was a much more
iconic brand."
The challenge for Denizen, however, will come from the growing
number of international brands making headway into the mid-segment
in India. K J Singh, CEO & Co-founder, Evolve Brands, says,
"The challenges for Denizen are huge especially when all
the foremost – large and local brands are vying for the same target
audience and it’s very difficult to identify any specific differentiation
– branding, awareness and information on the customisation."
However, Tarang Gautam Saxena, Senior Consultant, Third Eyesight expects Denizen "to strengthen Levi’s position in the affordable segment."
In the global scheme, Denizen is a brand focused at emerging
markets like India, China and Brazil. In fact, it’s first time
in the history of Levi’s that a brand has not been launched in
the US.
Ajay Naqvi, EVP and Head of Mudra North & East, stresses
that Denizen would need a sharper positioning than just the youth
or the designs. "Ultimately, the success or otherwise of
Denizen will depend not only on cuts, style and the pricing; but
what the brand stands for in the consumers’ mind," he says.
Purnendu Kumar, Vice President- Retail & Consumer Goods,
Technopak Advisors agrees. "The key for Denizen to be a success
will depend on the brand’s ability to keep the product fresh and
happening as this set of consumers is much more trendier and fashion
forward," he says. Otherwise, Denizen may start on the same
path as Signature.
And to strengthen its association with the youth, Denizen has roped in actor Imran Khan, as its brand ambassador. The company will be relying heavily on television advertising to get a fair share of consumers’ mind.
Apart from that in-store advertising, digital and outdoor too
are key elements of Denizen’s marketing plans.
(This article appeared in the June 2011 edition of Pitch
magazine.)
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June 4, 2011
Raghavendra
Kamath & Nivedita Mookerji, Business Standard
Mumbai,
June 4, 2011
Three years after its experimentation with cash-and-carry retail fizzled out, Reliance Industries Ltd (RIL) plans a strong comeback. At its annual general meeting today, Chairman Mukesh Ambani said Reliance Retail would soon relaunch this format, so far dominated by companies such as US major Walmart in joint venture with Bharti Enterprises, German giant Metro and French heavyweight Carrefour.
With its re-entry into the cash-and-carry segment, Reliance Retail aims to bargain harder with producers and vendors and, in turn, improve margins of its chains, pointed out a company executive.
According to RIL’s annual report for the financial year 2010-11, the retail units of the company such as Reliance Fresh, Reliance Hypermart, Reliance Digital Retail, among others, posted losses in excess of Rs 350 crore. RIL did not invest new funds in the retail arms during the last financial year.
“It is a volume play. When a cash-and-carry venture buys 5,000 pieces from a manufacturer, 1,000 can go to the Reliance Fresh, which was earlier ordering the same from the same manufacturer at higher costs. Now it can leverage on higher volumes and get better margins,” the RIL executive said. He added that “having B2C (business to consumer) and B2B (business to business) makes sense”. “The more we expand the more we will gain from cash and carry. We can also develop and sell brands in those stores,” he said.
International majors which operate cash-and-carry outlets in India, did not comment on the development. Walmart was not available for comment, as its senior officials are travelling for a shareholders’ meeting in the US.
When contacted, a Metro Cash & Carry spokesperson said “We do not comment on the activities/strategies of other companies.”
Carrefour did not comment either.
As far as competition goes, Bharti Walmart, which had opened the first cash-and-carry store in India in 2009, operates six outlets and plans to open 20 more in two years. Metro Cash & Carry, which opened its first outlet in 2003, has six stores and is looking at a total of 50 in another five years. Carrefour began its cash-and-carry operation in India late-2010, and has not unraveled its expansion plans yet.
Gwyn Sundhagul, former chief marketing officer and director of Tesco Lotus, is CEO of value formats such as Reliance Super and Reliance Hyper. Sundhagul is from Thailand.
An analyst said RIL’s re-entry into the cash-and-carry format was a positive for the industry.
“Organised retail is the need of the hour, and organised players are required in the supply chain side,” he pointed out.
He, however, argued that cash-and-carry business was extremely cutting edge in terms of margins. In terms of timing, he said RIL was perhaps ready to start cash-and-carry right now as it is operating limited formats, as against too many earlier.
Naimish Dave, director at Strategy Consultants, a global consulting firm, said, “My feeling is that it is one more cash-and-carry player in the market. Cash-and-carry is a level playing field. Being an Indian player does not bring any major advantage.” If RIL has deep pockets, most others have that too, he said.
Devangshu Dutta, chief executive of Third Eyesight, a retail consultancy, said, “All the cash-and-carry players such as Walmart and Metro have decided to expand in a particular way. RIL’s (re-)entry into this segment will not change the cash-and-carry space.”
Aditya Birla Retail CEO Thomas Varghese said, “Cash-and-carry is not a profitable business. It’s a low margin and high sales business.”
(This article appeared in Business Standard on 4 June 2011.)
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May 26, 2011
Sapna
Agarwal, MINT (A Wall Street Journal Joint Venture )
Mumbai,
May 26, 2011
Major Brands (India) Pvt. Ltd, the local franchisee for fashion apparel and accessories brands such as Mango, Aldo, Charles & Keith and Nine West, will form a joint venture with French womenswear retailer Promod.
This changes the existing franchise agreement between the two. Both firms will raise their investment in the brand locally, said Kamal Kotak, country head, Major Brands. Promod will hold a 51% stake in the venture and Major Brands the rest.
India has nine Promod stores, and contributes less than 3% of the brand’s global revenue. The venture will set up 40 stores in the five years, with contributions from the region expected to account for 15-20% of Promod’s global revenue, Kotak said.
The venture will also explore opportunities to raise sourcing from India for Promod’s global operations of more than 900 stores. It may also consider price cuts in India.
In the past, brands such as Marks & Spencer and Ermenegildo Zegna have changed from franchisee operations to joint venture partnerships. Both the brands have tied up with Reliance Retail Ltd. Marks and Spencer, which entered India in 2001, also cut prices by around 30% and started sourcing from the country when it formed its venture with Reliance Retail in 2008.
In the past three-four years, the business model has changed for such businesses, said Devangshu Dutta, chief executive officer, Third Eyesight, a consulting firm focused on the retail and consumer products sector.
“Earlier in the 1990s, the preferred route to enter India was (being a) licensee as import duties were high,” he said. “Then, in the last decade, it changed to franchise, and in the last three-four years, it’s a joint venture as India becomes a strategic market for global marketers.”
Major Brands has 80 stores and a portfolio of 10 brands across women’s fashion, footwear, accessories and kids apparel, Kotak said.
“By 2015, the company plans to have 500 stores and revenue of Rs.1,000 crore,” he said. For fiscal 2011, the firm’s revenue grew 40% to Rs.200 crore. Kotak declined to give details on profit made by the privately held firm.
“Over the next 12 to 18 months, we will add four-five new brands to our portfolio,” said Kotak, who is in talks with some 10 European and US brands that are looking at an India presence. He didn’t name any of them.
Major Brands launched its apparel brand Queue Up late last year. It will launch kidswear brand JFK later this year. On average, the investment for a 1,500 sq.ft store is Rs.80 lakh to Rs.1 crore.
“In next 12 months, we will invest Rs.50 crore for expansion,” said Kotak. The capex will come from promoters’ equity and bank debt.
Earlier in the year, Spanish brand Mango appointed DLF Ltd as another franchisee as it sees opportunity for growth. Mango, which contributes close to 25% of Major Brands’ revenue in India, has tripled the number of stores and turnover in the past five years. “We believe that India will be within our top 10 countries in terms of turnover in 2015,” Daniel Lopez, managing partner and deputy general manager of Mango, said in an email. Globally, Mango has 1,400 stores and a revenue of €1.27 billion.
admin
May 21, 2011
Vishal
Krishna , Businessworld
Mumbai,
May 21, 2011
Six years ago, when B.S. Nagesh, the then managing director of Shoppers Stop (SSL), started mentoring Govind Shrikhande to become the next head of the company, the world was a different place. SSL, which revolutionised organised retail more than a decade-and-a-half ago, ruled. Competition from new kids on the block — Westside, Lifestyle and Pantaloon Retail — was little, while the company’s healthy profits were simply the icing on the cake.
Nagesh had the luxury of taking things slow. As the company catered to the premium segment of society, it made sense to set up shop only in the right demographic areas, and get the fundamentals of the concept right.
However, things changed before long. Future Group’s Pantaloon opened its 40th standalone store, while SSL was still at its 24th. Then SSL was hit by global recession — buyer sentiment dipped, and in 2008-09, it posted losses of Rs 65 crore. Consumers downgraded purchases, which affected SSL’s profits more than its rivals’ who catered mostly to comparatively lower-income groups. Shrikhande, who took over as managing director of SSL from Nagesh in July last year, now had a loss-making company on his hands, and it was time to introspect.
Even as he stuck to higher-value brands, Shrikhande took a relook at everything else — from rentals to marketing costs. The result was that operating costs fell from Rs 400 per sq. ft in 2008 to Rs 100 per sq. ft in 2010-11. “The company has since reworked the business model. It has control over its working capital expenses and is low on debt,” says Shrikhande.
Next on the hitlist was high inventory costs. SSL earlier worked on the buy-out model of sourcing — merchandise was bought from brand owners at factory price and SSL solely managed the inventory. This meant that it was stuck with unwanted stock and incurred huge inventory costs when sales fell — also a big reason behind recession taking such a toll on SSL. In 2009, Shrikhande introduced the consignment model, where vendors manage inventory, while SSL picks up only those items that sell in the store. Nearly 80 per cent of the revenues now come from the consignment model.
“Top apparel retailers have succeeded this year because they have been managing their merchandise better. Controlling cash outflow from inventory has helped them make a comeback,” says Pinakiranjan Mishra, national leader for consumer practice at Ernst & Young (EY).
The comeback translated into SSL posting net profits of over Rs 75 crore in 2010-11. In the March quarter, its topline grew by 60 per cent to reach Rs 662 crore, though net profits were down to Rs 7 crore. In comparison, Trent’s Westside grew 34 per cent and posted net profits of Rs 14 crore for the same period. Pantaloon, which follows a July-June year, posted net profits that was only 2 per cent of the Rs 1,032 crore turnover in the third quarter.
(Click image to view enlarged version)
SL also enjoys a low debt-equity ratio of 0.69 and an interest
cover of 10.51 times (that is, it has sufficient cash to pay interest
on debt). It also has a healthy debt service coverage ratio (DSCR)
of 1.63 (that is, there is enough cash to run the business after
paying off interest and debts). If the DSCR falls below 1, a company
has to dip into promoter funds to pay off debts.
The Counter’s Open
SSL is now back in the black and Shrikhande wants to ensure that
it stays there. He has built a strong analytics team, which helps
make sense of the data collected from stores. The data is used
to predict customer behaviour and select merchandise accordingly.
It also helps the company tell brands the kind of merchandise
they ought to stock with SSL. This lowers inventory costs and
increases margins.
The company also has a revenue-share agreement with brands where they work on a shop-in-shop model, within the store. The inventory risk is shared and SSL benefits from increased revenue if the brand creates enough churn. For example, says 42-year-old customer Bandana Narwal, a self-confessed SSL fan: “Shoppers Stop has more international brands that connect with my work profile and lifestyle.”
The company’s loyalty programme, First Citizen, has over 2.5 million members and analysing their buying patterns helps promote sales. “This allows us to plan our offers and discounts, and target consumers better since 80 per cent of our sales happen because of the loyalty programme,” says Vinay Bhatia, vice-president of marketing.
SSL, which has over 700,000 fans on Facebook, uses the social networking site to promote new styles. In fact, it even has plans of making a mobile app, though that is still some time away.
An area in which SSL lags and which Shrikhande is now concentrating on is private labels. At present, private labels form only 25 per cent of SSL’s total sales, compared to over 80 per cent for Pantaloon, Trent and Lifestyle.
Devangshu Dutta, CEO of retail consultancy Third Eyesight, maintains that private labels should form a large part of the offering as their margins are at least 60 per cent of the retail price. They also attract more customers.
“I shop a lot at SSL, but I prefer Lifestyle because of
their private labels, which fit my monthly budget of Rs 3,000,”
says Rekha Sebastian, a 23-year-old MBA graduate who has recently
begun work in an HR company in Chennai.
Starting Something New
While Nagesh’s strategy was to go slow, Shrikhande is in
a hurry. The total number of SSL stores has risen from 24 in 2008
to 38, with six added in 2010-11 itself. SSL now controls 2.3
million sq. ft of retail space, up from 1.3 million sq. ft just
three years ago. What’s more, in the next 30 months, SSL
plans to take the total number of stores to 60, covering over
3.6 million sq. ft, with an investment of Rs 442 crore, most of
which will come from internal accruals.
Of course, competitors, too, are expanding. Lifestyle plans to have 58 stores in three years, from 28 now. Pantaloon, too, is gunning for a similar number, up from 50 stores. In terms of size, Pantaloon has about 15 million sq. ft now, SSL 2.5 million sq. ft and Trent Westside about 2 million sq. ft. The companies plan to spend about Rs 500 crore each over the next five years on expansion.
At stake is the Rs 60,000-crore organised apparel market. The size of the entire Indian retail industry, say experts, is $400 billion. According to EY, organised retail is about 6 per cent of this pie, of which apparel retailers make up 50 per cent. “I expect organised retailing to be around 10-12 per cent in five years. Our business opportunity is growing within this pie,” says Shrikhande.
Although investment and the store count for SSL is similar to its competition’s, execution plans are different. While retailers such as Pantaloon and Lifestyle are increasingly focusing on Tier-2 towns, SSL aims to stick to the top eight or 10 cities including Pune, Bangalore, Hyderabad and the four metro cities. “We will open in Tier-2 cities, but since 75 per cent of the sales come from metros and Tier-1 cities, we have decided to increase our presence here,” says Shrikhande. SSL will open nearly 80 per cent of the new stores in the top 24 cities.
“Our target customer is a family; we are building business
around them,” says Shrikhande. On the cards is expansion
of its hypermarket format, Hypercity, which has nine stores now
and is yet to break even. The company operates large format stores
(55,000-100,000 sq. ft). SSL will use most of its internal accruals
to open 17 more such stores over the next two years at an investment
of Rs 100 crore. The number of Crossword bookstores is likely
to increase from 65 to 110 in three years, and that for Mac —
a high-end cosmetics joint venture with Estee Lauder — from
17 to 30 by 2014.
One part of the plan is also to expand its cash-guzzler, Home
Stop, a home décor store on the lines of Pantaloon’s
Home Town, to six stores. In 2009, when there were only four Home
Stop stores, expansion was put on hold. “Furniture retailing
slowed down two years ago, but we see it picking up again,”
says Shrikhande. The company plans to invest Rs 60 crore on this.
Over the past few years, SSL has moved into speciality retailing also. Today, it has 25 Mothercare stores, a maternity and infant care store that started out as an exclusive franchise agreement with Mothercare UK. It has also made a foray into airport retailing and runs duty-free stores at the Bangalore international airport under a joint venture with the Nuance Group. The company is even looking at the entertainment sector and has bought 45 per cent stake in an entertainment and gaming outfit called TimeZone.
Shrikhande sure has his hands full.
(This article appeared in the Businessworld issue dated 30 May 2011.)
