Sarah Jacob , The Economic Times
International fashion brands Versace, Corneliani and Guess are all set to break away from their Indian partners, joining a growing list of international fashion brands struggling to settle down in India.
Italian luxe brands Versace and Corneliani are expected to part ways with little-known Delhi-based firm Blues Clothing Company , three industry executives with knowledge of the development told ET.
"It is the case of a small firm going beyond its means," a retail executive said. "This business needs deep pockets." He said a team from Versace would be travelling to New Delhi this week and could scout for new partners. Email queries sent to Versace and Corneliani remained unanswered.
Dinesh Sehgal, MD of the family-controlled Blues Clothing, denied a split. But he admitted that a Corneliani store and one or two Versace stores are being shut.
Sehgal said his company, formed in 1996 with the aim of becoming the largest retailer of suits in the country, plans to pump in funds into the business but would not dilute equity. Other international brands Blues Clothing retails in India include Cadini and John Smedley.
PLANET RETAIL’S WRONG GUESS
Meanwhile, Guess is changing hands after its long-time partner Planet Retail decided to restructure its business. The American clothing maker will now tie up with Major Brands, the marketer of Mango and Aldo in India.
Ramesh Tainwala, co-owner and chairman of Planet Retail, says letting go of Guess is part of the firm’s restructuring plan.
Planet Retail had expected increasing buying power in India to help it break even by 2012-13. But it will take twice the time now, says Tainwala.
That is mainly because most Indians prefer to buy luxury products from abroad because high import duty makes these products costlier here than elsewhere. Also, while rentals in a metro like Mumbai is comparable to global cities, the average sales per sq ft per day in a shop in Mumbai is one-tenth of Hong Kong and one-fourth of Dubai.
"Controlling the bleed is the name of the game," says Tainwala. "I have no doubt that retail will be profitable. But I doubt if that is two, five or seven years from now," he adds.
Despite such issues, the luxury garment business is thriving in India with foreign brands rushing in to make the most of a fast-growing economy, thriving middle class and Indian consumers’ rising aspirations and growing exposure to western products.
Madura Fashion & Lifestyle, in fact, is in talks to convert its licensing and distribution deal with Esprit into a joint venture.
While India recently allowed 100% foreign investment in single brand retail, most international brands prefer to have a local partner for the complex Indian market. But often, the partner does not invest enough to scale up the brand.
About one-third of the more than 150 international fashion brands launched in India over the past seven years have either changed partners or exited the market. Around 26 brands have changed partners, while 23-26 exited the market with at least half of those later returning either as a wholly-owned subsidiary or with a new partner, says consumer goods and retail consultancy Third Eyesight.
Reliance Brands President and CEO Darshan Mehta says, "The single-biggest reason for conflict between foreign brands and their partners is when the interests of both parties are not aligned."
Differences also crop up over brand positioning , choice of store location and partners’ inability to offer services at global standards, industry players say.
"There has been an explosion in the number of brands entering India but there have not been as many stores," Devangshu Dutta, chief executive of Third Eyseight, says. "This suggests either that brands have to wait it out or their proposition is not as relevant to the market," he adds.
Writankar Mukherjee and Sarah Jacob , The Economic Times
Kolkata/Bangalore, March 23, 2012
So what if they are in their late sixties, the Ghoshs have a weekly ritual of tucking into burgers and fries mostly at the McDonald’s outlet in Kolkata’s Mani Square mall. The couple, whose children are settled abroad, often proceed to unwind with friends at a cafe later. "Its a nice feeling to hang out in places. You feel young at heart, can spend time without interruption and the food is yummy," Indranil Ghosh, a retired banking executive, says while his wife Meera, a retired schoolteacher, is busy with her fish burger.
Eating out joints, including youth centric quick service restaurants such as McDonald’s and Subway, now have a loyal clientele among senior citizens.
Many restaurants are offering special loyalty cards and comforts of blankets and shawls besides reaching out to old-age homes to woo what they say is a booming club of elders feeling young and having enough spare time and money.
This comes at a time when sales have been declining at quick-service and fine-dining restaurants in recent months because of lower discretionary spends by regular consumers. "There is a change in perception and a shift of guests from a very high-flying dining to young and lively restaurant formats or a youthful cafe," says Amit Burman, chairman of Lite Bite Foods, which owns chains such as Subway, Asia 7, Zambar and Punjab Grill.
"This is also noticed from the fact that a lot of our senior citizen guests actively operate Facebook and Twitter accounts and become member of our online forums," he says. The likes of McDonald’s, Mainland China, Little Italy, Subway and Punjab Grill estimate that 60+ age-group consumers account for up to 15% of their sales. "The trend of senior citizen-led families eating out is fast becoming prominent, more so in the tier II and III towns," says Rudra Kishore Sen, director at McDonald’s India (North & East).
WOOING THE ELDERLY
McDonald’s is now developing a menu specifically targeted at this age group and reaching out to old-age homes. It is also evaluating a loyalty programme to grow its relevance as a true-bred family restaurant. Mainland China, a fine-dining Chinese restaurant chain owned by Specialty Restaurants, has introduced some off-the-menu dishes steamed butter noodle (for easy chewing) and special steamed fish (where soya garlic sauce replaced the more spicy chilli soya sauce) for senior citizens and offers complementary dessert for the elderly.
Restaurants have also become attentive about smaller comforts for this age group. At Specialty Restaurant outlets, adult diapers are kept on standby. Just in case the air-conditioning is too much for this age group, shawls and blankets are offered up at many restaurants. Little Italy, an 18-outlet chain finedining restaurant chain, offers reading glasses and is also introducing grab bars or rods to help older people maintain their balance in washrooms. "Many senior citizens find the font size too small on the menu," Raj Mehta, MD of Little Italy Group of Restaurants, says.
Another chain, Barbeque Nation is training its staff in emergency medical assistance like helping a customer suffering from sudden heart attack, which it says would be most beneficial for this age group.
MORE MONEY, MORE TIME
These eat-out joints are tweaking their offerings because a growing chunk of senior citizen have more disposable income due to increase in pension income by the central and state governments as well as increased income-tax exemption limit, say analysts.
While the frequency of eating-out may not be as high, senior citizens are typically more profitable consumers. "This group is less likely to look at the right side of the menu (where the price would be)," says Devangshu Dutta, chief executive officer of management consultancy Third Eyesight. They usually have fewer domestic pressures such as loan repayment commitments, rent or education of children. "They tend to not only have more spare money but spare time too," Dutta says. Anjan Chatterjee, chairman and MD of Specialty Restaurants, which runs 82 restaurants across brands such as Mainland China and Oh! Calcutta, says senior citizens are the most loyal customers.
"They may not be marketer’s first choice, but our experience shows that their bill sizes are at least 10% more than when the youngsters dine," he says. And they account for a significant number of population, though much less than the youth. Babita Jayaram, vice president-operations at BJN Group, which runs restaurants such as Firangi Paani, Aromas of China, Indijoe and Khansama, feels there is no need to segment the older consumer as food preferences do not typically change when they turn 60.
"Consumers only become more health conscious as they become older, which is why they are free to customise their food order for lesser oil or spices," he says, adding over 30% of BJN Group consumers are above 60 years. Raj Mehta of Little Italy says more and more old consumers are now curious to experience what the younger generation favours.
Shweta Jain, Indiaretailing.com
Mumbai, March 14, 2012
The session on “Workwear Market Scenario in India” on the second day of the ongoing InFashion 2012 at Mumbai focussed on the consumption potential of the workwear segment and highlighted how the general attitude towards “uniformed people” has to change for the category to evolve. The panelists said that though the consumption of workwear in the country is low, it has a lot of potential to multiply.
A six-member panel discussion moderated by Devangshu Dutta, Chief Executive, Third Eyesight, revealed the necessity to follow three main actions – identification, branding and uniformity – to enhance and grow the segment. Sharing their thoughts were prominent personalities from the fashion retail industry, such as Sunil Tibrewal, COO, Uniform QMAX; Vikas Todi, Director, SPARSH Textiles; Mukesh Vijaywargi, President, Klopman; Anupam Bansal, MD, Liberty; Sejal Shah, M10Uniforms, and; Kishore Kothari, Director, Ranjit Silk Mill.
India in increasingly becoming a significant player in the world economy and is witnessing a rise in employment figures in the organized sector. In this backdrop, the future of the workwear segment in the country is certainly bright. A major growth factor for the industry is businesses that have begun to focus on branding, such as schools, hospital, and hotels. As these continue to grow and open multiple branches across the country, they create demand for uniforms, boosting the prospects for the workwear segment.
“Comfort is a primary factor for all workwear, so colours, fabrics and functionality play a pivotal role in the equation and have to be designed according to the requirements of the job,” said Tibrewal of Uniform QMAX.
Todi of Sparsh Textiles said people are increasingly ready to spend on uniforms because the mental attitudes and financial issues that prevented the growth of the sector earlier are improving. The panelists were of the view that education, awareness and cultural change are some of the important aspects that have to be promoted among the consumers to create a positive outlook towards workwear. In the current market scenario, uniforms are considered as something forced upon people, rather than accepted by them on their own, they felt.
To give a boost to the workwear segment, the speakers stressed on promoting the concept of uniforms in tier II and III towns of India which are the hubs of many industries. The need of the hour is to create awareness where there is a potential market, but there is also the concern about duplication in design that needs to be address, they said.
Throwing light on another aspect of the segment, Bansal from Liberty said that their company makes three kinds of shoes under the workwear category: safety shoes such as weight-bearing ones and non-piercing gum boots which are need-driven but their awareness is low; uniform shoes which are for corporate use, and; school shoes which are gradually becoming fashionable and trendy.
The industry experts believed that workwear could be more technology driven, offering innovations such as stain-free, anti-creasing, and fire-resistant products to make them more functional. Also, promotional events are a huge opportunity to players in this category. In events such as the Indian Premier League, a huge amount of knitted fabrics was consumed to manufacture the tees and jerseys of cricket players, they pointed out.
Meghna Maiti Mar, Financial Chronicle
Mumbai, March 14, 2012
Major Brands India, the India partner of premium brands such as Mango, Charles & Keith and Aldo is now looking to add some heft in the affordable brands segment by inking a joint venture (JV) with France-based Happychic group. The JV expects to target the mass segment of apparel retailing with a diversified offering.
“The company is in talks with Happychic for a JV agreement,” said at least three officials in the know of the development. “Major Brands is looking to diversify into the mass segment to break the price-point barrier and use its expertise in Indian retail on a wider platform,” said industry experts.
An email sent to Major Brands India on March 13, 2012 seeking comments on the Happychic JV did not elicit any response till the time of going to press. When contacted at the “India Fashion Forum”, Christophe Ader, international development and partnerships supervisor of Happychic declined comment. “Major Brands is doing very well in the Middle East. The JV could be its India strategy to try out lower tier brands to increase profitability,” said Harminder Sahni, founder and MD at Wazir Advisors.
“Retailers dealing only with the high luxury brands become very restricted. The JV would be a sensible move to broaden the business opportunities,” said Devangshu Dutta, CEO at Third Eyesight, a consulting firm focused on retail and consumer products sector.
Major Brands has been the partner in India for international brands such as Aldo Accessories, Inglot, Le Senza, Nine West, Queue Up and Promod. Happychic has three brands in its portfolio — Jules, Brice and Bizzbee. While Brice is a menswear brand in France, Poland and Belgium. Jules is targeted at youth, while Bizzbee is a teens’ brand.
(This article appeared in the online version of the Financial Chronicle.)
Among consumer sectors, very few can match up to fashion in terms of its global nature. Despite food having led the way in global trade through spices, it is the fashion sector that led the global march of brands. As the economies in Europe and Asia recovered and grew, historical colonial linkages as well as modern culture-vehicles such as movies carried images of what was cool in the benchmark culture. Fashion brands were the most identifiable representation of cool.
India itself has known international fashion and luxury brands for several decades. From the mass footwear brand Bata to the top-notch luxury of LVMH, some of whose most important global customers included the rulers of Indian princely states, international fashion brands have an age-old connection with India.
In spite of these old links, the absolute base of consumers for fashion brands was small, and for them, prior to the 1980s , India was a relatively low potential market with low attractiveness and low probability of success.
A transition began in the 1980s, as India moved emphasis from central planning and a restrictive economy to a more liberal business regime, and brands and modern retailers started growing in presence gradually. During this transition period, other than the notable exception of Bata, it was mainly Indian brands that were at the forefront of modernisation of retail in India, with the first retail chains being set up for textiles, footwear and clothing. Though the seeds were laid earlier – Liberty is credited with the launch of the first ready-to-wear shirt brand in the 1950s, Raymond with the first ready-to-wear trouser brand in the 1960s – the growth started in real earnest only in the 1980s when apparel exporters such as Intercraft (with brands like “FU’s”), Gokaldas Exports (“Wearhouse”), and Gokaldas Images (“Weekender”) also tried their hand at modern retail, as did corporate groups (“Little Kingdom” for kids and “Ms” stores for womenswear).
Yet, even in the early to mid-1990s, when western companies looked at the Asian economies for international growth, West Asia and East Asia (countries such as Japan, South Korea, Taiwan and even Thailand) were seen as more attractive due to higher incomes and better infrastructure. In the mid-1990s there was a brief upward bump in international fashion brands entering the Indian market, but by and large it was a slow, steady process of increase.
By the mid-2000s, however, a very distinct shift became visible. By this time India had demonstrated itself to be an economy that showed a very large, long-term potential and, at least for some brands, the short to mid-term prospects had also begun looking good. In a few years, from 2005 onwards, the number of international fashion brands entering the market has increased 4-fold.
Market Still Evolving, but Brands are Confident
The sheer number of brands that are now present in India and the new ones that are entering every year is a clear sign of strengthening confidence among international brands that India is now one of the most important markets that they cannot ignore for long.
There is a visible acceleration of growth in absolute revenues, too, being achieved by individual brands. Brands such as Levi Strauss, Reebok, Louis Philippe (a British brand formerly owned by Coats Viyella, now by Aditya Birla Group for India and other territories) and its sister brands took perhaps 12-15 years to break through the threshold of Rs. 500 crores (Rs. 5 billion) in sales turnover, but industry opinion is that the “0 to 500” trajectories today are faster and that younger brands are likely to take less time – under a decade – to cross the threshold. While modern apparel retail currently contributes less than 20 per cent of the total apparel market, with growing incomes and increased availability of modern retail environments, consumers are spending more on branded fashion than ever before. In the year closing March 2012, at least 2-3 additional brands (including Indian ones) are expected to cross the Rs. 500 crores threshold.
Clearly, there are few markets globally that can support potential growth from zero to US$100 million in a decade, with the potential to even reach a billion-dollar mark within the next couple of decades. However, some of these markets are already hugely competitive, and also going through painful economic churns. India, on the other hand, is a market that is at the earliest stages of consumer growth – it is, in the words of the managing director of a European brand, a market where “a brand can enter now and live out its whole lifecycle”.
In fact, it is tempting to compare the emerging golden bird of India to the golden dragon of China where western brands seem to have rapidly established as products of choice for the newly affluent Chinese consumer during the last 15 years or so.
In our work with brands and marketers from around the world, we have to constantly remind them that not all emerging markets are the same. The explosion of luxury and premium brands in China during the last decade or so has happened on the back of explosive economic growth that came after a long cultural and economic vacuum. When the new money wanted links with the old and when uniform grey-blue suits needed to give way to something more expressive, well-established western premium and luxury brands provided the most convenient bridge.
On the other hand, in India “discernment” may be a new experience to the newly-rich Indians for whom brands can be a valuable guide and “secure” purchase, but discernment and taste are not new to India as a whole. More importantly, differentiation and self-expression never disappeared even during India’s darkest years of “socialistic” economics. Therefore, the Indian market has a more “layered” approach to the premium fashion market and will continue to grow in a more fragmented, more organic manner than the Chinese market. There would be multiple tiers of growth available for international as well as Indian brands. For international brands customisation and Indianisation will be important. This is already visible in bespoke products by Louis Vuitton and Indian products by brands such as Canali (jackets) on the one hand, and significant re-thinking on product mix and pricing by brands such as Marks & Spencer. That brands are willing to rethink their position in the context of the Indian market demonstrates that they see India as a strategic market, worth investing in for the long term.
Another sign of the growing confidence amongst international brands in the Indian market is the number of companies that are looking at directly investing in joint ventures, or even going further to set up wholly-owned subsidiaries in the country.
It is worth keeping in mind that setting up a subsidiary is a decision that is not taken lightly, regardless of the size of the business and the amount of investment, since it involves a disproportionate amount of management time and effort from the headquarters during the launch and early growth phase where revenues are small and profits non-existent.
Among our clients, brands have taken the decision to step into an ownership structure in India when they feel that India is too strategic a market to be “delegated” entirely to a partner (whether licensee or franchisee), or that an Indian partner alone may not be able to do justice to the brand in terms of management effort and financial capital.
In the last few years we have seen several brands take the plunge into investing in the Indian business, among them S. Oliver (Germany), Marks & Spencer (UK) and Mothercare (UK).
During 2011 specifically, Promod changed its franchise arrangement with Major Brands into a joint-venture that is majority-owned by Promod. From its launch in 2005, the brand has opened 9 stores so far. However with the new JV in place, the venture is reported to be looking at opening 40 stores in the next five years.
Most recently, Canali was one of the brands that moved into a majority-owned joint-venture. The brand entered in India in 2004 through a distribution agreement with Genesis Luxury. This has recently given way to a joint venture between the two companies that is owned 51 per cent by Canali. The brand currently operates five exclusive stores in India has plans to accelerate the brands growth in India by opening 10-15 stores over the next three-four years.
The Impact of FDI Regulations
If a “theme of the year” has to be picked for the Indian retail sector in 2011, it must be ‘Foreign Direct Investment’. The debate during the year was hardly a clean and clear “pro vs. con” exchange of ideas. It was a motley mix of extreme lobbying for and against FDI, some balanced reasoning on why FDI should be allowed, and also moderate voices calling for governing the speed at which and the conditions under which foreign investment could be allowed. In many cases there seemed to be dissenting voices emerging from within the government. One possible impact of this uncertainty through the year was that several brands postponed their decisions regarding the potential entry and the strategy that they would follow in India with regard to partnership or investment.
In November 2011, the Indian government announced that 100 per cent foreign investment in single brand retail and 51 per cent foreign ownership of multi-brand retail operations, but was forced to back-track due to vociferous opposition from several quarters. At the very end of the year, the government finally reopened 100 per cent foreign ownership retail operations, albeit limiting it to single brand retail businesses. However, it allowed this under the condition that the Indian retail operation would source at least 30 per cent of its needs from Indian small and mid-sized suppliers.
The condition of 30 per cent domestic sourcing from SMEs is well-intentioned – aiming to provide a growth platform for India’s manufacturing enterprises – but unachievable for brands that do not currently source any serious volumes from India. In fact, for most international fashion brands India contributes less than 10 per cent of their total sourcing, in many cases well under 5 per cent.
Under these circumstances, we shouldn’t expect any dramatic changes, though we do expect the growth in joint-ventures and subsidiaries to continue in the coming months and years.
If an international brand perceives India to be at the right stage of development, and it wishes to exert significant or complete control over its Indian presence, then a majority or completely owned subsidiary seems the most logical step, and the brand will find a way to structure its involvement in India appropriately.
However, many brands that today have a 51 per cent ownership in India are stopping short of climbing to 100 per cent until they can sort out how to meet the SME sourcing conditions.
Getting Over the Sourcing Hurdle
The problem with the 30 per cent sourcing rider is simple. When a brand launches in India, it would like to present the consumer with the most complete product offering that showcases its capabilities and positioning as relevant to the target consumer in India. In most instances, the brand would not be sourcing the full range of its merchandise from India.
This is not a problem if the brand approaches the market through a wholesale or franchise structure, or even with a retail business that is not owned by it 100 per cent.
But for a retailer that wants to own the Indian business completely, complying with the 30 per cent domestic sourcing restriction means developing a new set of suppliers in India from scratch, pulling in the design and product development staff to work with them, and to develop ranges that suit not only the Indian market, but also other markets around the world. Simply putting together an India-specific sourcing team to replicate the entire range to buy small volumes for the Indian business is neither practical nor feasible for most of these brands. This means that the product development and sourcing team must be willing to see India as a strategic supply base for the future, just as their selling-side colleagues may be seeing it as a strategic market.
In this context it is worth repeating something that I have said before: retail managers are generally risk averse, and like to move in packs – where there are some brands, more come in and create a mutually reinforcing business environment. The presence of other international brands – especially from their own country – helps in creating a familiar context at first sight and encourages further exploration of the market. At least for the executives handling international retail expansion, India presents a more ‘familiar’ and ‘developed’ face today than ten years ago.
However, the explosive growth that we have witnessed in terms of the number of brands present in India is not mirrored by the growth of fashion sourcing out of India. In fact, even when compared to what has happened in the global textile, apparel and footwear sourcing environment since quotas were removed in 2005, the India’s export growth looks dispiritingly low, even stagnant. China still remains the largest source for fashion products, while countries such as Bangladesh, Indonesia and Viet Nam have grown their share aggressively. India’s share of clothing exports is a lowly one-tenth that of China.
In our work related to global sourcing strategies for western retailers, on an objective measurement matrix of sourcing competitiveness India rates highly. In several cases, sourcing from India as a hub (and, for European retailers, Turkey as a hub) has been seen as a logical counterweight to balance out the high concentration of current sourcing in China.
However, product development and sourcing is not entirely an objective process – in fact, sourcing habits are sometimes the hardest to change. The buyer’s subjective experiences – sometimes buried deeply in the past career – have a significant role to play. A conversation from 2001 with the sourcing head of a European brand sticks in my mind, when he said, “I don’t really want to buy anything from India – Indian suppliers can do a very limited product range, quality isn’t always good and the shipments are always late.” On probing further, I discovered that his last transaction was in 1992, after which he never set foot in India again. Much as we might present statistics and facts about the developments in the Indian textile and apparel industry, a personal injury early in his career has left a deep scar that obviously influenced this gentleman’s buying decisions worth over €300 million in global apparel sourcing, or about €700-800 million worth of sales.
There is clearly much to be done in terms of encouraging modernisation and better organisation amongst apparel suppliers, and making those changes visible to buyers. Even brands that are well-engaged with the Indian supply base have between 40-70% of their people here focussed on in-line and post-production quality issues. We are today at a stage where larger and better-equipped apparel exporters would be best placed to address the needs of international brands within India, but find the volumes too small to bother with setting up entirely different documentation and accounting processes.
Health & Safety and Labour compliances are also areas in which the brands will not forego their corporate standards. Can we imagine a brand saying that its European customers do not want their products made in sweatshops, but for the Indian consumers of the brand this is not (yet) an issue? While this may be a fact, would a high profile brand risk its global reputation to source competitively for its small Indian business?
So a government dictat to international brands’ fully-owned subsidiaries to ensure that they source 30 per cent of their needs is not enough. At best it will encourage some of the brands to start looking at India more seriously, but a more likely scenario for most brands is that they will carry on business as usual until the supply base in India pulls up its socks, or until the business in India becomes large enough to be interesting to their existing Indian suppliers who are currently focussed on exports.
Certainly the government itself needs to do much for more manufacturing-friendly policies, as well as focussed investment in infrastructure that can provide rapid, efficient and cost-effective transportation from the country and within the country.
It is time to bridge the gap between “textile exports” and “fashion retail” in the country. Remember, the explosive growth of brands in China followed the manufacturing explosion, not the other way round. Until the Indian apparel, textile and footwear manufacturing sector grows strongly, the actual volume growth of modern fashion retail will remain hobbled, regardless of the number of brands that enter the market.
To me this statement by a senior professional from one of Hong Kong’s largest apparel companies says it all: “The Indian industry looks like a formidable competitor, the day it decides to wake up.”
Drawing the Full Circle of Confidence
In closing I would like to mention the least acknowledged, but a very important part of the growth of international brands in India: the acquisition of brands overseas by Indian companies. The Aditya Birla group laid an early foundation when it bought out, for India and several other territories, the perpetual rights for Coats Viyella’s brands including Louis Philippe, Van Heusen and Allen Solly. Lerros was a slightly different example – being a brand that was set up by the House of Pearl in Germany – but that also circled back to India. More recently (2010) we have the example of the Swiss company Switcher Holdings, whose with brands including Switcher, Respect and Whale, was bought by PGC Industries.
In markets such as the EU, there are today brands that may be available because they are finding difficult to survive in harsh trading environments and that do not have the financial or management bandwidth to take on initiatives in growing markets like India. These offer a legitimate growth platform for Indian companies that are strong in manufacturing those product categories and want to move higher up the value chain from being a generic commodity “supplier”.
Although exporters may initially approach these brands for franchise or license relationships, to some it soon becomes clear that if they are in a position to make an incremental investment they could well own the perpetual rights and perhaps the whole business, rather than investing in building up someone else’s brand, especially in the business in India is likely to grow very rapidly. Obviously, this new-found confidence needs to be backed with solid management capability, but as other consumer goods companies such as Tata (beverages, automotive), Mahindra (automotive) and Dabur (personal care) have shown, it is entirely feasible to look at growth in India as well as internationally by using an existing international brand as a stepping stone.
It also presents a challenge of classifying such brands as international or Indian. Bata was founded in the Czech Republic and went global from there – however, today it is legitimate to treat it as a Canadian brand since its headquarters moved there in the 1960s. Among other products, Gloria Jean’s Coffee was founded in the USA, but is now completely Australian-owned. In that sense, today would that not make Louis Philippe, Allen Solly, Switcher Indian brands?
I think this puzzle is a challenge that many people in the industry in India would look forward to contributing to.
Additional comment after reading the following blog post on Forbes on Single Brand Retailing (March 12, 2012):
Policies restricting foreign investment are not the biggest barrier to entering the Indian market. Brands and retailers that are clear that India is a strategic market with which they wish to engage will find a way. Even the largest global retailers have created structures that allow them a toehold in the market, awaiting a larger opening, despite the current ban on FDI in multi-brand retail.
The biggest barrier to entering India is actually the comfort zone within which the management team of an international retailer or brand may be operating. For some, the business environment of India needs at least a small step outside that comfort zone, for others it needs a big leap of faith.
There are encouraging signs of this happening already. Research carried out by Third Eyesight shows that the number of foreign brands operating in India in the fashion segment alone have quadrupled since 2005-2006, and a significant chunk of these are operating with direct investment in the Indian operations, whether as 100 per cent owned subsidiaries or as joint-ventures, indicating their growing comfort and confidence in the market.
One last word of advice: assess the opportunity pragmatically; don’t come looking for “a small percentage of the 1.3 billion population” in the short term – it takes time and patience to develop a meaningful share in the market.
Madhurima Nandy, MINT
Bangalore, March 11, 2012
Planet Retail Pvt. Ltd, which sells a clutch of international clothing and accessory brands in India, has shrunk both its expansion and investment plans on the back of a weak global economy and slow sales.
The retailer of Guess, Body Shop, Accessorize, Next and Nautica brands in India may also miss its 2015 break-even target.
Planet Retail, after a substantial restructuring and clean-up
exercise in 2010, embarked on an expansion plan not just for a
wider reach but also to bring in new brands and build existing
ones. All that is on hold now.
“The plan now is to restructure and reduce the pace of expansion across our brands and recast investment plans to half,” said chairman Ramesh Tainwala, adding that it shouldn’t be surprising if Planet Retail is unable to break even as planned by 2015. He didn’t disclose revenue details.
Planet Retail also has a licence to run a chain of Debenhams lifestyle stores in the country.
“Macro-environment issues such as rupee depreciation, weak retail sales in the last two quarters were not at par with expectations for most premium brands and the entry of FDI (foreign direct investment) in the retail sector not happening anytime soon, are some of the reasons that forced us to restructure business,” said Tainwala, who is also president, Asia-Pacific and West Asia, at Samsonite.
Many global brands in India have changed their pricing, positioning and sourcing strategies during the slowdown of 2008-09 to adapt to the local consumer palate, while some including Dockers and Springfield decided to exit the country.
Global brands that have survived and done reasonably well in India, such as Marks and Spencer, have incorporated some flexibility to adapt to the local market, said Devangshu Dutta, chief executive of retail consultancy firm Third Eyesight.
The UK-based retailer restructured prices and sales strategy to suit the Indian market three years ago, and decided to source locally, making it possible for the company to price its products competitively.
Marks and Spencer recently said it will continue to open stores in India and source locally. Six new stores were opened in 2011-12 and Marks and Spencer Reliance India Pvt. Ltd will continue to expand in the country as a priority market, a company spokesman said by email. Besides local sourcing and pricing, even designs have been adapted to India, he said.
Planet Retail’s global brands, on the other hand, are entirely imported.
The retailer has shrunk its investment plan of Rs200 crore by half and is deciding on whether it should focus its capital on existing brands or on a few strong ones such as Debenhams and Accessorize.
Retail sector analysts said that brands that come into India through licensing agreements, such as the brands Planet Retail sells, face challenges in terms of both pricing as well as their product mix.
Tainwala admitted that both pricing and positioning may have been an issue for some of Planet Retail’s brands in India, and these aspects are being reworked.
For instance, Next, which had 15 stores earlier, now has only two in Delhi. Its positioning is being widened from being a garments-only brand to include accessories. Planet Retail will open a full-format Next store in Pune that will have the look and feel of any of the brand’s UK stores.
“We will consolidate our brand portfolio and exit one-two brands if required. For both Next and Guess, we will do an honest evaluation of (the) brands’ potential over the coming months,” said Tainwala.
Another retail analyst, who didn’t want to be named, said premium brands such as Guess will need a substantial capital input to grow. “What largely went wrong with both Next and Guess is that both the brands were not positioned appropriately here and prices were way too high,” he said.
Planet Retail had intended to grow aggressively to 300 stores by 2014 from 80 now, but expansion will be scaled down now.
While international premium brands may be dealing with their unique problems in India, domestic brands have not downsized their expansion momentum despite sales slowing.
Jacob John, brand head, Louis Philippe, a premium menswear brand under Madura Fashion and Lifestyle, said the brand opened 40 stores in 2011, including some large ones of 3,000-10,000 sq. ft, despite sales dropping due to an inevitable price rise.
“We increased prices by almost 30% last year and may raise them further by 10% and we will remain aggressive on expansion plans this year too,” said John. Relatively, most domestic premium brands such as Louis Philippe have an entry-level pricing of Rs1,500 or below for a shirt and only compete with foreign brands for their high-end segments.
Malini Goyal, The Economic Times
New Delhi, March 11, 2012
Satish Kumar used to hate shopping. The 43-year-old techie from Delhi found the crowds intimidating and the haggling tiresome. The fickleness of his mother and wife jangled his nerves. Kumar would come back from shopping in a foul mood.
To keep things simpler, the Kumar household divided its shopping chores a few years ago. His wife took care of shopping for veggies, clothing and household items. Kumar had the job of lugging the groceries from the kirana shop, even though Mrs Kumar prepared the monthly list of items to buy. And finally, Kumar called the shots on big ticket purchases like a TV or a fridge.
Of late though, things have changed. In January, Kumar stepped out with his family on an impromptu shopping spree in which he ended up splurging Rs. 50,000 at the Great India Place, one of the largest malls in the country. The shopping list: shoes, a warm jacket for the next winter and three formal shirts that he didn’t need but liked. While at it, the Kumar’s also bought new curtains and changed their mixer-grinder.
"Modern retail format is changing the way men shop," says Adrian Terron, VP, Nielsen India. "Traditionally, they do not succumb to sales, stick to their favourite brands and do not indulge in impulse buys. No longer so in India," he adds. Retail watchers contend that a combination of factors – better shopping environment, a wide variety of products and brands, nuclear households, better disposable incomes and a growing breed of metrosexual men – is making middle class Indian men shop like never before.
From apparels to accessories, gadgets to grooming products, their shopping list is expanding.
Why Do They Shop?
Damodar Mall, president, Food Bazaar, sees more and more men shopping. At least 40% of the shopping carts that are wheeled into the billing counter of Future’s high-end food retail chain, Foodhall, have a man paying the bill. With multiple shoppers from a family, bill sizes are typically 25% higher than a single shopper. "Self service modern store with comfortable environment is luring more men into the stores," says Mall.
The rising footfalls of male shoppers can be gauged by looking at the ever increasing display space for male grooming products at shopping malls. Companies like Garnier and Emami are tapping the fast growing market. In 2009, Garnier entered the male grooming segment with Garnier Men. Within three months, it became the second largest player in the men’s skin care market.
FMCG company Marico recently paid $100 million to acquire the male grooming products of Paras Brands from Reckitt Benckiser. Emami’s Fair & Handsome, targeted at men, is growing at 23% and Emami’s revenues from the product were Rs. 162 crore in 2011.
Jewellry is another area that is doing brisk business. In an interview with ET last year, R Radhakrishnan, MD of GRT Jewellers said male jewellery accounted for 20-25% of total sales. Kolkata-based Shree Ganesh Jewellery has launched a men’s jewellery range under the brand, Gaja.
Not surprisingly, a Euromonitor 2011 study reports that India has overtaken the US to become the third largest men’s luxury jewellery market.
So, what has made the Indian man fall out of love with the couch and take to the shopping cart? The biggest reason: modern retail.
Malls today have everything under one roof. "It is no longer so physically exhausting. It has become lot more fun," says Kumar. With a range of stores and activities – from gadgets to furnishings to clothes, accessories, food and game zones – all available under one roof, solo shopping trips are fewer. "Earlier a man had to tag along and bear the drudgery if the store was not relevant to them. Today in a mall, there are options all under one roof which is making the difference," says Arvind Singhal, chairman, Technopak Advisors.
What Men Want
Remember the old Surf detergent campaign and the almost shrewish Lalitaji? Well, before modern retail started off in India, women shoppers ruled the shopping space, thanks to their better bargaining skills which mattered so much while dealing with mom and pop stores.
Today, "discounting is a lot more formalised," says Terron. From the end of season sale to 26th January bonanza, bargaining is no longer ad hoc and random. It is lot more structured, transparent, more pervasive and hence more acceptable for men today. Devangshu Dutta, CEO, Third Eyesight, says because the buying process is becoming complex and information led, deals and bargains are becoming a lot more mainstream.
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Shilpa Phadnis, The Times of India
Bangalore, March 9, 2012
Titan Industries, which started as a watch brand in 1984, is taking a fresh gamble-to turn into a full-scale lifestyle company. The firm’s youth brand Fastrack will drive this transformation, an effort partly to ensure that the parent brand Titan is shielded from any risk. Fastrack is already into watches and eyewear, and now it is looking at categories like bicycles, helmets, shoes and apparel.
Titan’s play in the lifestyle category is similar to what US watch and accessory brand Fossil did — diversifying into eyewear, handbags, jewellery, shoes and apparel (in some geographies). Fastrack started as a sub-brand of Titan in 1998 targeting early jobbers, but is now a separate business unit. "Fastrack is the logical vanguard to present a range of lifestyle products since it targets the young — not only is this a large and growing population, they have a propensity to experiment with style, where Titan’s design advantage can be leveraged," said Devangshu Dutta, CEO of retail consultancy Third Eyesight.
Titan has picked categories where the market is fragmented and design is a key differentiator. It is betting on its marketing expertise that has built brands in categories where brands did not exist before, the best example being the Tanishq brand in jewellery. "Over 1 million two-wheelers are bought every month in India. With unorganized players currently driving the helmet business, we see large business potential. We are looking to launch helmets in the next financial year," said Ronnie Talati, VP and business head for Fastrack and New Brands.
Design leads fashion, so Fastrack will do the design and marketing in-house, and outsourcing manufacturing. "We want to source helmets from China. We still have to work out the logistics for bicycles," Talati said. Talati wants to make Fastrack a Rs 3,000 crore brand in the next 5 years.
Priyanka Golikeri , Daily News & Analysis (DNA)
Bangalore, March 7, 2012
There was a time when ready-to-eat and ready-to-make edible products relating to India’s traditional cuisine were available only at neighbourhood provision stores. Now, they are careening their way into ultra-modern supermarkets / hypermarkets across India, as if to give company to Western foods like Dutch Gouda and Edam, and the Italian Parmigiano.
Take the Big Bazaar at Malleswaram in Bangalore for example. Right opposite the entrance, a wheel-cart, emblazoned with the Hinglish term “Banana Mandi”, sells traditional bananas like yalakki (yellow-skinned finger-sized bananas), nendran (big- sized plantains used in making crisps), red banana and poovan (small-sized). This mandi (Hindi for market) is run by the husband-wife couple Baburaj and Jyothi.
Four paces ahead, another kiosk — it is operated by Bhagyalakshmi Butter and Gulkand Store, a popular Bangalore outlet of 1953 vintage — sells bottles of syrupy-sweet gulkand (dried rose petal jam). Next up: a 30-square-feet kiosk run by Murugan Ghee and Butter, another well-known local store of 60 years’ standing,now peddling avakai (spicy mango pickle of Andhra Pradesh), puliogare mix (tamarind-and-lemon-flavoured rice), gongura pacchadi (herbal pickle), bisi bele bhaath (rice savoury) and vangibhaath powders, all stocked in transparent glass jars.
Step out and saunter a few hundred metres across to the Spar
Hypermarket. A similar sight greets you. Glass jars laden with
murabba and chunda (both mango pickles), pudina (mint) and putani
(fried chana dal) chutney powders enliven the food section. Trays
full of nipattu (disc shaped crispy snacks), dink (edible gum)
laddoos, and sakarpare (flour and sugar snacks) jostle for space.
There is a simple reason why mega-retailers stock traditional Indian food. It expands the customer base and builds loyalty, say retailers. And by absorbing well-known local stores into their fold, retail chains hope to ensure goodwill. Good PR, if you will.
While some neighbourhood vendors open kiosks within retail outlets, others supply their food items to retailers who then display them beside FMCG mainstays like noodles, chocolates and biscuits.
Thus, the outlet becomes a destination for wide-ranging grocery from pickles to international foods, says Venkateshwar Kumar, Big Bazaar’s vice-president in charge of south India operations. Gaurav Gupta, director, Deloitte India, says that local food items act as an additional product category for existing customers while bringing in new customers.
Furthermore, with the growing number of migrants in metros, outlets look to provide a “taste of home”, says Devangshu Dutta, CEO of Third Eyesight, a consulting firm. “This extends market share as new shoppers are targeted,” says Mohit Kampani, chief of merchandising and operations, Spencer’s Retail.
At the Spencer’s outlets, which vary from 2,000-50,000 square feet in size, the food-and-beverages (F&B) section occupies 60% of the floor space. Local fare like mathri (spicy and savory crackers), pinni (sweet dish from wheat flour), tapioca chips and sorpotel (non-vegetarian delicacy) started treading in over a year ago. “This is already making 3% contribution to the overall F&Bbusiness,” says Kampani.
Likewise, at Spar, F&B is a key category covering nearly one-third area in hypermarkets measuring 50,000-60,000 square feet, says Ponnu Subramanian, senior vice-president, merchandising (foods). “Traditional items are stocked on different shelves across the section.”
For local vendors, on the other hand, a presence within modern retail ensures wider reach. Since opening a 120-square-feet kiosk at Spar two years ago, U S Mahendar, managing partner of Hatti Kaapi, a chain serving South Indian filter coffee and snacks like bisi bele bhaathand khara bhaath, has seen a 40% growth in business each year. “Hypermarkets guarantee footfalls,” says Mahendar, adding that their Rs7-8 pricing for a cup is “minuscule” in a mall set-up and helps in pooling people.
Today, the Hatti Kaapi kiosk sells an average 1,500 cups on week
days; the count zooms up to 3,000 on weekends.
Jyothinathan, who mans the Murugan Ghee kiosk, says monthly sales always exceed Rs10 lakh, with the average bill per customer exceeding Rs200. “The footfalls are about 500 on week days and double that on weekends.”
It’s not hunky dory all the way. Local vendors say often the rentals at retail chains are exorbitant and prevent their entry into newer malls. Going to every big retailer is not viable, says Mahendar. Why? Some retail chains, he says, demand a 30-40% share in profits “which is impossible for players like us who sell each cup for Rs7-8.”
For retailers, sourcing local food items has its own set of challenges. Traditional food processing industry is highly fragmented, say experts, with 75% of the units belonging to the unorganised sector. Moreover, some units neither have trained manpower nor clean manufacturing facilities to generate quality produce.
“This makes procurement of products tough. We have a team of trained manpower who visit and give guidance on food quality and new product lines,” says Spencer’s Kampani. Kumar says Big Bazaar has tie-ups with specialists in community food from where they source the products. “Most products are sourced locally which helps in keeping costs to a minimum. We also stock products from women entrepreneurs,” says a spokesperson from Bharti Retail which operates Easyday (neighbourhood stores) and Easyday Market (compact hypermarkets).
The Times of India
March 5, 2012
Prepaid cards have become the latest retail tool to keep consumers hooked to brands. They offer convenience and safety, because customers don’t have to carry cash, and they often come with a variety of offers , including discounts.
Brands like Cafe Coffee Day, Pizza Hut, Provogue, Kaya, Fastrack, Gili and a host of others have launched prepaid cards. A prepaid card works like a debit card with a PIN number that can be redeemed at the brands’ outlets. The cards in India are based on the closed loop model – that is, they can be redeemed only at the brand’s stores. "When I have money loaded on the card, the tendency to come to the same place is higher," says K Ramakrishnan, marketing president at Cafe Coffee Day. The brand’s card Cafe Moments , launched this month, offers a 5% bonus on cards with a value of Rs 100 to Rs 499, 7% on Rs 500 to Rs 999 and 10% on Rs 1,000 and above.
A prepaid card obviates the need to pay cash every time, and it also enables faster accumulation of bonus points or other offers . Prepaid cards in India are currently being used more as gift cards. Some brands have used it to launch a promotion or a service. What the prepaid gift card did for Kaya was to generate incremental walk-ins ," says Suvodeep Das, marketing head at Kaya Skin Clinic. In Kaya prepaid cards, currency can be reloaded in multiples of Rs 500 to up to Rs 2 lakh. Kaya sells about 250-300 gift cards a month.
Global Prepaid Exchange recently estimated that the size of the organized prepaid gift card and gift voucher market in India is Rs 2,000 crore and would grow to Rs 8,000 crore by 2015. "The acceptance of gift cards in proportion to vouchers has increased significantly," says Pratap T P, chief marketing officer at QwikCilver Solutions , a provider of prepaid card solutions.
However, Devangshu Dutta, CEO of retail consultancy Third Eyesight, says growth in prepaid cards would be restricted by the fact that they can be used only at a particular brand’s outlets. "Also, a customer cannot claim the minimum residual value in the card. He will have to top it up to redeem it," he says.