World’s second-largest apparel retailer Hennes & Mauritz wary of entering in India

Sarah Jacob, The Economic Times

Bangalore, January 30, 2012

The world’s second-largest apparel retailer Hennes & Mauritz (H&M), which usually enters large markets on its own, is not so sure about opening shop in India despite finding the market "interesting".

Earlier this month, India relaxed laws allowing foreign retailers to wholly own their businesses with the rider that they source 30% of their products from SMEs with revenues not exceeding Rs 5 crore. Until then, foreign investment was limited to 51% or retailers were forced to franchise.

But the Swedish retailer is not entirely convinced by the norms which make it mandatory for the foreign retailer to source from small and medium industries in India, a retail executive in India said.

"India is one of the many interesting markets for H&M, but we have yet to decide if, and in that case when, we would open stores there," Hacan Andersson, H&M’s press officer said. He, however, did not comment on the new sourcing norms.

The Stockholm-headquartered chain operates around 2, 500 stores across 43 countries posting revenues of 128.8 billion kronor (around $19 billion). Another Swedish giant Ikea, which too was keen on entering the Indian market with 100% control of operations, has been non-committal. It is still studying the guidelines — the SME sourcing being a contentious issue.

"If a supplier can meet the sort of volumes required by a global retailer the size of H&M, it will not be defined an SME," Amit Bagaria, chairman of retail planning consultancy Asipac Projects, says.

"The opening up of the market has not really moved the needle for foreign retailer interest so far," Raghav Gupta, principal at management consulting firm Booz & Co, says.

The government, on its part, introduced the local sourcing norm to expand domestic manufacturing.

"It’s a deal breaker. Clearly, the government didn’t think through this policy," said another retail consultant on condition of anonymity, who is negotiating with a couple of overseas brands to facilitate their India entry.

Experts say it is not a tall order for multi-billion dollar global retailers to source as much as 30% of their India sales from domestic manufacturers. H&M, for instance, already sources finished goods from the around Rs 2,200-crore Bombay Rayon and Rs 1,100-crore Gokaldas Exports.

But it’s the size of manufacturers they are now expected to work with that has caught foreign retailers in a bind. SMEs are defined as those whose initial investment in plant and machinery is between Rs 25 lakh and Rs 5 crore.

H&M is known to have sourced nearly a crore shirts from a single Indian exporter last year, the sort of volumes an SME would be unable to handle. As soon as a supplier invests more than Rs 5 crore to meet higher volumes, it ceases to be an SME.

On the other hand, working with numerous small and micro industries is unlikely to be favoured either because the retailer will not be able to ensure uniform quality standards, analysts say.

But some believe that H&M could still accommodate India without altering its global sourcing strategy. "It could source high-fashion products or those that require hand embroidery from SMEs in small volumes and sell it at a premium in its international flagship stores," Promodh Sharma, chairman of Fifth Avenue, said. Fifth Avenue is a $100-million sourcing management company headquartered in Chennai.

"Global brands are also now looking at sourcing in India for the Indian market as it would make economic sense in the long run," Sharma adds.

By entering India, Ikea would immediately gain as it meets a need gap in the home accessories and furniture market as no Indian player has the breadth of their merchandise. H&M, on the other hand, would have to compete with international fashion brands in India such as Tommy Hilfiger, Esprit and Spanish brands Zara, and Mango.

H&M began exploratory talks only once when its biggest rival Inditex’s Zara and American competitor Forever 21 opened shop in India, experts say.

All three are fast-fashion brands or those known to turn around catwalk trends at affordable prices by refreshing styles routinely. While Inditex entered a JV with Tata Group’s retail division Trent, Forever 21 is being franchised by Hello Retail India.

India’s growing economy, when compared to Europe and North America, is the biggest draw for foreign retailers. Nearly 20 foreign fashion brands have being launched annually since 2005, according to management consultancy Third Eyesight.

Economic uncertainty in a number of markets has had a negative effect on consumption resulting in fiercer competition for consumer spending, H&M said in its latest full-year report. However, foreign retailers will not look at India just as a short-term fix.

H&M plans to add 275 new stores this year primarily in China, the US and the UK. Bulgaria, Latvia, Malaysia and Thailand will open their first H&M stores this year too.

While some say H&M would do well to not postpone Indian plans, others such as Booz’s Gupta say sportswear makers and denim giants have reaped handsome returns from India, but western womenswear market is still not as big, ad H&M is largely a womenswear retailer.

"I will not be surprised if some foreign fashion brands wait another 3-5 years before entering the market," Gupta adds.

In fact, unlike Chinese women, Indian women are still in the process of switching from ethnic to western womenswear. "Which Indian city can take 9 Zara stores?" asks Bagaria, "Not even Mumbai or New Delhi." But Zara has 9 stores in Beijing.

Retailers likely to curb sale periods after prolonged discounts in 2012

Mihir Dalal & Suneera Tandon, Mint (A Wall Street Journal Partner)

Bangalore/New Delhi, January 28, 2013

Later in the year, growth picked up as a combination of improved consumer confidence and a flurry of festivals prompted shoppers to hit the stores.After weak demand and piled-up inventory forced clothing retailers to give discounts for longer than usual in 2012, companies such as Arvind Lifestyle Brands Ltd, DLF Brands Ltd and Lifestyle International Pvt. Ltd say they will not extend their sale period this year.

Last year, some retailers started offering discounts early and extended them till the end of March as they dealt with the overhang of a post-recession boom in retail: massive inventory.

The end-of-season sale lasted as long as seven-eight weeks, against the norm of four-five weeks, industry executives said.

In the first half of 2012, too, discounts were extended for unusually long as slowing economic growth and high inflation hurt demand.

However, growth picked up later in the year as a combination of improved consumer confidence and a flurry of festivals prompted shoppers to hit the stores.

“In the first two weeks of the sale period, we’re 10% above last year on a like-to-like basis. This year, by 15 February, the main part of the sale will be over. There will probably be a couple of weeks of silent sale after that, at most,” said J. Suresh, chief executive officer (CEO) of Arvind Lifestyle, which runs the Megamart chain and sells brands such as Flying Machine and Tommy Hilfiger.

Madura Fashion and Lifestyle’s Louis Philippe will not extend its discounts for longer than four weeks this year as sales growth in the months following the Diwali festival season had been “strong” at over 25%, brand head Jacob John said.

“Sales have been good for us since August. It’s been a combination of the FDI (foreign direct investment) announcement by the government, which helped consumer sentiment, strong and early winterwear sales, plus the numerous marriage season dates post-Diwali,” said Rachna Aggarwal, CEO of Indus-League Clothing Ltd, which owns brands such as Indigo Nation and Scullers.

Indus League’s sales growth had averaged 15-20% from August to December, she added.

Retailers and experts also said that due to the insipid demand last year, companies haven’t kept a large amount of inventory.

“The sentiment is more positive than before, so we will see timely sales in 2013. Stock and inventory is being maintained keeping that in mind, we won’t see a desperate situation like last year,” said Dipak Agarwal, CEO of DLF Brands.

“Last year inventory had been stocked up, but reality fell short of expectations and so (inventory) had to be liquidated. This year retailers have been more careful,” said Devangshu Dutta, CEO of retail consultancy Third Eyesight. “A number of brands have also started giving huge discounts earlier in the (end-of-season-sale) rather than towards the end, so sales may not be stretched out as last year.”

Indus League has already started shipping in fresh merchandise when a majority of clothes in its stores are last year’s leftovers and still bear the on-sale sign.

Department store chain Lifestyle, too, will introduce a new spring-summer merchandise in the first week of February, a company official said.

However, Rajive Ranjan, managing director at German retailer S. Oliver Fashion India Pvt. Ltd, expects early sales will continue in India for sometime as retailers’ dependence on discounts is high.

“But as retail will mature, this trend of multiple and preponed sales will mature too. In the coming years, more retailers will move down stock within the season and dependability on sales will go down,” he said.

Third Eyesight’s Dutta warned that though revenues are likely to show strong growth in the second half of 2012, retailers’ profits will take a hit as many companies offered promotions continually. “Many companies were offering promotions throughout the festival season starting from October. So my sense is that the second-half topline (revenue) will be good, but margins will take a hit,” he said.

Median Ebitda margins for the retail sector are likely to decline by 50-75 basis points in 2013, India Ratings said in a report last week.

Ebitda, or earnings before interest, taxes, depreciation and amortization, is a measure of profitability. A basis point is 0.01%.

“Sales in 2012 were driven by discount offers,” India Ratings said, “and the trend is likely to continue in 2013, providing volume growth at the cost of margin.”

Bombay Store aims to grow younger

The Hindu, BusinessLine
Purvita Chatterjee, January 20, 2012

The Bombay ‘Swadeshi’ Store at Fort in Mumbai may have patriotic leanings (it was started in 1906 by Indian patriot Bal Gangadhar Tilak and businessman Munmohandas Ramji) but today the home décor and gift retailer does not want to be perceived as an old-fashioned store brand catering primarily to NRIs.

It is hoping to attract youth with its new brand, The Elephant Company, a young, quirky brand with products ranging from magnets and key chains to more expensive offerings such as wall clocks, at prices between Rs 200 and Rs 4,000.

Bombay Swadeshi Store, the parent company, has already spun off its Bombay Store brand as an independent subsidiary under the Bombay Store Retail Company.

It is now planning to add two new subsidiaries for its new brand of The Elephant Company and the e-commerce business, which are expected to serve as growth engines.

Speaking to Business Line, Mr Asim Dalal, Managing Director, The Bombay Store, said, “While Bombay Store is a serious brand, The Elephant Company is a colourful brand with youthful flavour. We are looking at more aggressive growth for this brand vis-a-vis the Bombay Store brand. We expect to take this brand to tier 2 & 3 cities and also intend selling it at other retail stores.”

The Elephant Company has a host of colourful products with graphics from India. “It’s all about the unique things in India which are put on plain vanilla products such as T-shirts and mugs to bags, cushion covers and clocks. The brand is not premium and we also intend selling it through the e-commerce route,” explains Mr Dalal.

There are already counters of The Elephant Company within the premises of retailers such as Crosswords and WH Smith and there are plans to launch stand-alone stores in the future. “We would be setting up smaller stores ranging between 170 sq. ft. and 250 sq. ft. in malls for The Elephant Company. Consumer insight tells us that people are not looking to buy the same old things which Bombay Store is already selling at its 17 outlets,” added Mr Anaggh Desai, CEO, The Bombay Store.

According to Mr Devangshu Dutta, of Third Eyesight, a retail consultancy, “Bombay Store had more generic products which could be replicated. But now with The Elephant Company, the store has products marked with its own brand where it can also command healthier margins.” Besides, the store has also created private labels such as Ishstyle (for fashion) and Chai Patti (for tea), which could lead to better margins.

The Bombay Store is also tapping into the overseas markets and has identified places such as Singapore, Dubai, London and Sri Lanka, which have considerable tourist attraction. It has already tied up with franchising solutions company Francorp International to make a foray into these new markets. “While franchising is an option, we may also form joint ventures in the markets which allow FDI,” added Mr Dalal.

The Rs 33-crore Bombay Swadeshi Store has already sold 14.9 per cent of its equity to investment company Fidelity Investrade to raise money for expansions in the past. “We need about Rs 30-odd-crore for funding the operations of the new subsidiaries like The Elephant Company and the e-commerce operations and may approach our existing investors for it,” said Mr. Dalal.

Spar plans tie-ups with multiple firms

Sapna Agarwal, Mint (A Wall Street Journal partner)

Mumbai, January 19, 2012

Dutch-based supermarket chain Spar International plans to partner with multiple firms to expand its retail presence in India, a senior company executive said on Wednesday.

This is a model the retailer practices globally, but in India currently it has at least 10 hypermarkets—in Karnataka, Maharashtra, Andhra Pradesh and the National Capital Region, among other places—in partnership with only Landmark group’s Max Hypermarket India Pvt. Ltd.

“The new partnerships will be for entering new regions and developing new formats to penetrate the market,” said Gordon Campbell, managing director of Spar International.

The chain follows a licensee model globally and has multiple partners in other emerging markets. For instance, in China, it has six retail partners and in Russia, eight.

In each of these countries, too, it will increase the number of licensees to 20 by 2015, Campbell said, but declined to give details on the number of partners the company would seek in India. It is looking to open 20 stores in the next three years with its existing partner Max. “So far, Max has invested close to Rs.600 crore in setting up hypermarkets and all our stores have achieved break-even within six months of starting operations,” added Campbell.

The new partners will help Spar aggressively ramp up the retail chain’s operations and expand its reach. For this, it is also tweaking its strategy by entering the supermarkets retail format.

In contrast, home grown retailers such as Reliance Retail Ltd and Aditya Birla Retail Ltd, which runs the More chain, have been focusing on the hypermarket format in the last few quarters after opening hundreds of supermarkets.

Spar’s global rival Wal-Mart Stores Inc. is present in India in a joint venture with Bharti Enterprises, and French retailer Carrefour SA is in the cash-and-carry business in which 100% foreign direct investment (FDI) is allowed.

The Indian government has put liberalization of foreign investment in multi-brand retail on hold in the face of resistance from within and outside the ruling coalition.

Earlier this month, it allowed 100% foreign direct investment in single-brand retail, but did not give any indication when it would free up multi-brand retail.

The size of retail industry in India is $450 billion and 8% of this market is organized retail, according to Technopak Advisors Pvt. Ltd, a retail consultancy.

“There is a huge potential for hypermarkets in India. The challenge is finding the right real estate,” said Devangshu Dutta, chief executive officer of Third Eyesight, a retail consultancy firm.

Global QSRs Dissecting the Indian fast food pie

Global quick-service restaurant brands are expanding their footprint in the quickly evolving Indian market. But some are also falling by the wayside.

Here are some perspectives from the industry (ET Now telecast video – about 6 minutes):

Click here

Will luxury brands lap up 100 pc FDI?

Pallavi Srivastava, Pitch

New Delhi, January 13, 2012

Contrary to popular belief that allowing 100 per cent in single brand retail will give impetus to luxury brands in India and bring down costs, experts do not have high hopes.

The government of India, a couple of days ago decided to allow 100 per cent FDI in single brand retail product trading. Till now, only 51 per cent FDI was permitted. However, there’s no FDI still allowed in multi-brand retail trade.

The decision, according to a government notification is aimed at attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices.

Marketers and brand experts have welcomed the decision as it paves way for more reforms which had taken a back seat lately. Ramesh Srinivas, Partner, Management Consulting, KPMG Advisory Services; and Purnendu Kumar, Vice President, Retail & Consumer Goods Division, Technopak, feel that opening up the sector to 100 per cent FDI “is a good thing” and “brands will love it”.

However, they are disappointed with the riders that the government has put in, particularly the one that makes proposals involving FDI beyond 51 per cent, mandatory sourcing of at least 30 per cent of the value of products sold from Indian ‘small industries/village and cottage industries, artisans and craftsmen’.

The government notification defines ‘Small industries’ as industries, which have a total investment in plant and machinery not exceeding US$ 1 million. This valuation refers to the value at the time of installation, without providing for depreciation. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a ‘small industry’ for this purpose.

While many international brands looking to invest in India could ignore the conditions, luxury brands still would not find the market conducive enough. “Most luxury brands will find it very difficult to source from small vendors for fear of brand and quality dilution. This condition will dampen enthusiasm of most foreign luxury brands,” says Srinivas.

Devangshu Dutta, CEO, Third Eyesight, feels that many luxury players already have their supplier base set up, so unless they are look at setting up a supplier base in India separately, they may not be able to comply with the 30 per cent sourcing restrictions. “Especially because it takes certain amount of lead time to develop the suppliers’ network and achieve a certain standard. That lead time should be allowed for luxury marketers who don’t have a supplier base in the country,” he says.

The permission for 100 per cent FDI in single-brand retail could be good news for some luxury brands who wants to take control of their operations in India. Dutta feels that many brands may still want to stick with an Indian partner because it will provide them knowledge about the consumer insight, market conditions and provide management support. “Not everybody will rush to convert existing joint ventures into 100 per cent ownership,” he says.

Another aspect that experts feel that could be a hindrance for luxury market to is the small size of the market in India. Consumers of luxury brands in India are global consumers and as demanding as luxury consumers in a European country or probably even more. “So the standards of quality and service among luxury brands in India are already fairly high. So there won’t be much change on that front,” Dutta says.

On the positive side, experts feel that advertising and promotions of luxury brands might go up a bit if there are new brands looking to create a niche for themselves in the market.

Kumar feels that what eventually will give fillip to the luxury market in India is the “reduction in import duties.”

(This article was published in the magazine "Pitch".)

Nod for 100% FDI in single brand retail

Vrinda Oberai

RETAILER, New Delhi, January 12, 2012

The Manmohan Singh government has finally given its nod for the relaxation on the existing 51 per cent FDI in single brand retail, increasing it to a much awaited 100 per cent.

The move has paved way for single brand foreign retailers’ to own 100 per cent of their operations in the country, possessing fully-owned stores here. However, the decision comes accompanied with a rider that 30 per cent of the value of products sold would have to be mandatorily sourced from small Indian industries/village and cottage industries, artisans and craftsmen, (collectively referred to as ‘suppliers’).

The new policy is advantageous for international players like Gap, Starbucks, Adidas, Nike, etc, as it allows them to buy out domestic partners and fully own Indian operations. Also, according to sources, it is learnt that foreign brands still prefer the JV mode or franchise model of doing business in the country. The reasons for the same can be many, the immediate ones being a nascent luxury market, shooting real estate costs and also, most importantly, the knowledge possessed by a local partner.

The new norm is no big game changer for some and this is further confirmed by the comment that we received from Marks and Spencer. "India is an extremely important market for Marks & Spencer. Our journey in India has been exciting so far and our Joint Venture partner, Reliance Retail, has helped us transform our position in this dynamic market. We have been able to open larger stores and realign prices to serve our customers better in India. We have also benefited from working with a partner, which has significant local experience and expertise in managing logistics. We are very happy with our current relationship with Reliance Retail and don’t plan to do anything differently following the recent announcements on FDI,” commented Martin Jones, CEO, Marks and Spencer Reliance India.

Harish Bijoor, Brand Expert and CEO, Harish Bijoor Consults Inc, opined, “I do believe this is a positive early signal of what is due in multi brand retail. In many ways, this is the trailer of the movie to come, hopefully post the assembly elections. This will excite single brand retailers. I hope this sends the right message to the right retailers.”

The shares of retail firms like Pantaloons Retail, Koutons, Provogue India and Shoppers Stop rallied sharply, following the Cabinet’s FDI announcement. A positive expectation from the decision is that a bolder initiative shall soon follow for FDI in multi-brand retail, too. “I think this is a step in the right direction, more so as this gives an extremely positive intent as far as the government and reforms are concerned. This will now have a snowballing effect, going forward in other sectors crying for reforms like aviation,” said Sugato Bose, Brand Head, Pure Home+Living.

Bose added, “As far as Indian brands are concerned, I do not immediately see any major shakeout of any kind in the immediate future. This will only make sense if any Indian brand is looking to sell out. On the other hand, we will definitely see renewed interest in a lot of international mainstream as well as fringe brands to enter the Indian market now.”

FICCI also gave its ‘happy’ reaction to the decision of the Cabinet. “The move will not only mean more FDI but also lead to employment and more choices for consumers. Global retailers are bound to bring in global best practices and technology that will lead to a more competitive marketplace benefiting the consumers. The sourcing clause will lead to a direct benefit for the SME sector,” said Dr Rajiv Kumar, Secretary General, FICCI.

Devangshu Dutta, Chief Executive, Third Eyesight, also shared his view point and said the government can benefit, in terms of indirect and direct tax collection, from these more structured, “on-the-books” businesses. “We cannot run 21st century supply chains on dirt roads, with unpowered storage and a poorly educated workforce. The benefits of FDI in retail will remain largely unrealised for the overall nation if there is no simultaneous investment by the government in three key areas – transport infrastructure, electricity and education. The Indian government must be a ‘co-investor’ and active partner in developing and maintaining these aspects much more aggressively,” wrote Dutta in one of his recent blogs. (Click here to read it: "FDI in Retail: More Heat than Light")

(This article was published in the magazine "Retailer".)

Single-brand retail reform could see changes on high street

Pia Heikkila, The National

UAE, January 12, 2012

Indians could soon experience the unique frustration of assembling Scandinavian flat-pack furniture as stores such as Ikea are to be allowed to open in the country under new laws on foreign direct investment (FDI).

The government is allowing single-brand retailers such as Ikea, Nike, Starbucks and Marks & Spencer to operate in India without local partners.

Previously, to operate in the country, a foreign company was required to take a local partner and could hold no more than a 51 per cent share in the joint venture.

The likes of Ikea stand to benefit most from the decision, said Devangshu Dutta, the chief executive of Third Eyesight, a consultancy.

"It is an important step for those companies who want to control the Indian business directly and completely," he said. "Ikea is such an example. It has mentioned in the past that it finds limited value from having a partner in the business and that it would like to control the value chain from source to consumer."

The decision was the latest development in wrangling over the FDI rules. In November, the government announced it was planning to ease the strict rules preventing multi-brand retailers such as Carrefour and Tesco from operating in India, but the change was scrapped at the last minute amid a political backlash.

Why all the drama? Because there is big money at stake. The Associated Chambers of Commerce and Industry of India estimates that the country’s retail sector will be worth US$1.3 trillion (Dh4.77tn) annually by 2018.

India is ranked as one of the world’s most lucrative markets for retailers because of increasing consumption by its growing middle class.

Market watchers say the potential for FDI is huge.

"Retailers who are willing to source domestic manufacturing units to enter the emerging retail scene of India will surely come in," said Raghu B Viswanath, the managing director of Vertebrand Management Consulting. "Along with them, brands like Ikea and fashion brands who have been long awaited in India, bringing in investment along with them."

Many overseas brands will still find it useful to have partners that understand the complex Indian business environment and can also share in the financial risks.

"The move will not change the retail landscape dramatically," said Saloni Nangia, the president of Technopak retail consultancy. "There may well be few more brands entering the country, but many will still need partnership because local partners have a better understanding of the market."

Indian suppliers enjoy some protection, as the new policy mandates 30 per cent sourcing from local small and medium enterprises for any retailer looking at more than a 51 per cent stake in an Indian retail business.

"This could be a barrier for companies that are viewing India mainly as an export market, since they would need to invest additional time and management effort in developing local sourcing links," Mr Dutta of Third Eyesight said. "For retailers who already have sourcing links in India, this will not be a problem."

India is determined to become more open for businesses. The FDI move comes a week after the country unveiled a move to increase foreign-investor access to its stock market. The government is also considering raising the cap on FDI in the aviation sector.

(This article was published in The National on January 12, 2012.)

Never mind 100% FDI, foreign chains may not rush in

The Hindu, BusinessLine

Bureaus, January 12, 2012

India Inc has welcomed the lifting of the foreign direct investment (FDI) limit to 100 per cent on single brand retail. Stocks of Indian retailers also rose on the announcement, signifying a thumbs up from investors. But retail sector specialists do not expect a stampede of investments any time soon.

Says Mr Shubranshu Pani, MD, Retail, of real estate consultancy, JLLM, “I do not see a sudden surge of investments. Foreign chains will take on local partners because the rider of 30 per cent local sourcing is something that does not happen overnight. At the same time, these foreign chains will get into agreements, where they have an option of taking their stake to 100 per cent at a later date.”

Under the earlier policy, where a controlling 51 per cent stake was permitted in single brand retail, the response has not been overwhelming. Over the last five years, total FDI inflows in this sector amounted to $44.45 million, a tiny fraction of total FDI inflows.

Luxury retailers were expected to take most advantage of the relaxation. But the local sourcing clause is a major worry. Mr Oliver Petcu of CPP Luxury Industry Management Consultancy Ltd, which has been actively covering India, believes the revised legislation change is “absurd and impossible to apply” in luxury retailing. “Even if there would have been items which could have been sourced locally, the mere thought of international luxury brands being forced into sourcing locally, just because they want to operate directly is going to be a major setback for the already dormant and under-performing Indian luxury market,” he said in a blunt analysis posted online.

“The 30 per cent rider is not what every brand can fulfil,” adds Mr Purnendu Kumar, Senior Vice-President, Retail, Technopak.

The tax structure is another issue. “Absence of 100 per cent FDI was not holding back investments in luxury retail space. It is duties on these products rather than lack of funds, which is a problem,” Mr Kumar points out.

Real estate players, especially those focused on luxury retailing, are also treading cautiously. The Prestige Group, which developed India’s first luxury mall, ‘UB City: The Collection’ in Bangalore, feels that it would be ‘premature’ to gauge the impact of this.

Mr Venkat K. Narayana, CFO, Prestige Group, says at present, the company is in favour of developing its ‘Forum Mall’ concept, which caters to the mass. “The decision to build more luxury malls depends on the interest or awareness of the brands and also affordability, as the targeted customers are an elite few,” he adds.

More than the investment issue, cracking the Indian consumer will be a tougher challenge, analysts say. “I do not see a dramatic shift in the retail space. A luxury brand needs a consistent experience in a new market,” says Mr Devangshu Dutta, CEO, Third Eyesight.

India Inc, though, is upbeat about the development, with industry bodies such as FICCI, CII and Assocham welcoming the move. Overall, says Mr Goldie Dhama, Associate Director, PwC, “Allowing 100 per cent FDI in single brand retail will help in bringing in new products, brands and best practices. It will also help companies already present in India in ramping up their production as they will be able to fund the Indian businesses.”

Brand consultant Mr Harish Bijoor does not think this would make a dramatic difference to the brand presence of foreign brands that are already here. “It would, of course, provide the overseas brand the complete ownership in managing the brand, rather than depend on local franchisees to grow the brand here. This would make a difference to new entities which are entering the country now. They will gain the most. Otherwise, I don’t see the landscape changing much.”

Indian apparel retailers extending discount sales period

January 12, 2012

Apparel retailers in India are extending their end-of-the-season discount sales period to clear inventory that has been piled up due to slowdown witnessed in earlier months.

Apparel sales in India have been affected due to the increase in prices by 30-40 percent in last 12 months. The rise in the price of raw material and the imposition of excise duty by the Government on branded apparels has led to the increase in prices.

The consumer sentiment had also been affected due to rising inflation that had left shoppers with lesser money to spend on clothing, according to analysts.

Mr. Abhinav Zutshi, Brand Head – Jack & Jones (India), told fibre2fashion, “Winter season was little delayed this time. Secondly, the market did not get enough boost that it needed during October-December period – the best quarter for retail. So, most companies have either advanced or extended their sale period to cover up on that.”

“People have become skeptical because of recession in Europe and the US. So, people are holding back the money in big cities. Secondly, customers have more choices now. There are more brands, so the money is getting split among brands, especially in big cities,” he adds.

Analysing the approach of extending discount sales, Mr. Devangshu Dutta, Chief Executive, Third Eyesight, says, “The decision about timing and duration of any retailer’s discount sale, and the level of discounts offered are determined by two major factors: how much inventory needs to be cleared, and what the competition is doing.”

“Sales over the last few months have been below expectations, and I believe retailers have also been careful in growing the square footage. Put together, that means that there is excess inventory in the stores and distribution centres that needs to be sold, to free up cash and to create space for fresh merchandise. This is especially true in cases where there is a clear season-based change of merchandise as it happens with most fashion brands,” he explains.

Explaining consumer sentiment and discount sales equation, he says, “Consumer spending, especially discretionary purchases such as fashion, is highly susceptible to sentiment. At this time, consumers are certainly being careful with their money, though the spending sentiment has not hit the lows seen in 2008 and 2009. In such an environment, discount sales are certainly a way to get consumers into the stores. The problem, of course, is that everyone is spending on “loud advertising” at the same time. For most retailers, it is a Hobson’s choice – to spend on promoting discounts, or to not promote at all.”

Forecasting about the current year for apparel retailers in India, he comments, “Everyone has to remember the old saying: ‘This, too, shall pass!’ India’s growth story will continue, more people will come into the folds of the middle-class. Apparel retailers just need to ensure that their business is alive and around to benefit from that growth. If margins have to be sacrificed to achieve better cashflows, it is better to do that, than to hold out the pricing.”

Mr. Aditya Nadkarni, Brand Head – Debenhams at Planet Retail, adds, “The speed of evolution of the Indian customer is amazing, its like stone rolling down the hill – the speed increases at an accelerated pace. The consumer is very aware of the international trends and is also now very demanding about the offer, the price, the ambience, etc. So, it is very important for apparel retailers to be ready to serve today’s customer.”