Kumar Birla gets all of Pantaloons chain

Meghna Maiti, Yassir A Pitalwalla, Financial Chronicle

Mumbai, April 30, 2012

Kumar Mangalam Birla has done what Mukesh Ambani could not. Birla has sewn up a deal to acquire a 50.01 per cent in Pantaloons, the retail format of Pantaloon Retail India (PRIL). For this, Pantaloons will be demerged from PRIL.

It is a two-stage deal involving a Rs 800 crore cash payment, assumption of a similar amount of debt and an open offer for a minimum 26 per cent to shareholders of the demerged Pantaloons format-owning company.

The Future group on Monday said it intended to demerge the Pantaloon retail format from the listed PRIL. The demerged entity will be automatically listed in the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), said a press release issued by the Birla group.

Officials associated with the deal told Financial Chronicle that the Pantaloons format was being valued at over Rs 2,600 crore. PRIL’s market capitalisation was Rs 3,895 crore at the end of Monday.

“It is a good deal for the shareholders. Since a sizeable business is going out of the group, there could be a dent on future numbers,” said Sangeeta Tripathi, senior equity research analyst at Sharekhan.

But Kishore Biyani of PRIL will still retain a stake in the fashion retail business through formats such as Central, Big Bazaar and Brand Factory, among others.

Devangshu Dutta, CEO of Third Eyesight, a specialist retail consultancy firm, said, “Certainly, by hiving off part of the company, the Future group will pay off debt and ease the load on it to an extent.”

The demerged unit is expected to have sales of Rs 1,700 crore in the year to June 30 this year. It is also expected to expand its network by around 20 stores a year.

In contrast, the Aditya Birla Nuvo (ABN) subsidiary Madura Fashion & Lifestyle recorded revenue of Rs 2,145 crore in calendar 2011. A Future group press release said that Nimesh Kampani’s JM Financial acted as the sole financial adviser to the transaction.

“This is a very interesting combination and shows consolidation is happening in the industry. The cash infusion will help PRIL focus on the food business and make its balance sheet healthy,” said Nikhil Chaturvedi, managing director of Provogue (India).

“The retail business is very time consuming and needs deep pockets. The deal shows that Biyani must have taken a decision to become debt free. The Birlas will have better controls and will be able to extract better margins from this business,” said Dilip B Jiwrajka, MD of Alok Industries which controls the H&A chain of apparel stores.

The deal brings together the first generation Biyani family that’s behind India’s largest organised retailer and the Birla family, which runs the $35 billion Aditya Birla group. It is a win-win transaction for Birla who gets the most profitable fashion retailing business of PRIL. As for PRIL, which had a debt of Rs 4,200 crore, it gets to reduce its net debt load by Rs 1,600 crore to Rs 2,600 crore.

“This deal is positive for the industry as Madura has experience in fashion retailing. This will be a good extension for the Birlas, as they are putting in money in an established store chain. The Birlas will also be able to push their own brands through these stores,” said Asim Dalal, managing director of The Bombay Store.

“PRIL has always been vocal about debt-restructuring. This is a good step towards re-aligning the organisation,” said Saloni Nangia, senior VP of Technopak Advisors.

ABN will pay PRIL Rs 800 crore in lieu of debentures, which will get converted, into equity of the demerged entity. PRIL, in turn, will transfer the net assets of the Pantaloons format business via a court scheme of arrangement with debt of Rs 800 crore and Rs 800 crore convertible debentures.

ABN will make an open offer for a minimum 26 per cent of shares in the de-merged entity so as to ultimately hold a minimum 50.01 per cent of the spun-off unit post conversion of the debentures.

Biyani, who founded the Future group and is its CEO, said in a statement, “We are honoured to be associated with India’s pre-eminent and among the most respected business houses. We always had a great admiration and respect for the businesses developed by Madura Garments. This marks a unique coming together of brands and enterprise that will create significant value for customers, suppliers and all stakeholders.”

“There are massive synergy benefits between Pantaloons and Birla’s Madura Fashion & Lifestyle. The combined business will cater to the entire value chain of consumers from the value conscious middle class to top end customers,” said a senior official involved in the deal who requested anonymity as both Pantaloons and Aditya Birla Nuvo are in a silent period ahead of their results announcements for the quarter ended March.

Biyani started his retail sojourn in Kolkata with the first Pantaloons store in 1997 and the format has been very close to his heart. It operates a chain of 65 stores in 35 cities and another 21 Pantaloons factory outlets, making it one of the biggest fashionb retailers India. It has a combined retail space of over 2 million sq ft.

Madura’s brands Louis Philippe, Van Heusen, Allen Solly, Peter England, People and The Collective together have retail space of 1.6 million sq ft in the country. “The de-merged entity will hold the rights to the Pantaloons format for eternity and the valuation takes into account the brand valuation too,” said the man privy to the details of the deal.

“A fashion council comprising Rakesh Biyani, CEO of the retail business of the Future group, Kailash Bhatia, head of the fashion business of the group, and Pranab Barua, CEO of apparel and retail of the Aditya Birla group will form the council that will aid and advise the management of the de-merged entity,” he said.

“Rakesh Biyani and Bhatia will continue to manage the business. Madura Fashion & Lifestyle brands — Louis Philippe, Van Heusen, Allen Solly, Peter England and People — will join the reach, distribution and customer loyalty enjoyed by Pantaloons across the country,” said a Future group press release.

Kumar Mangalam Birla, chairman of the Aditya Birla group, said in a statement, “The proposed acquisition is in line with our strategic intent to be on the top of the league and to create the largest integrated branded fashion player in the country through an extension into the value segment. This acquisition will catapult the BSE listed Aditya Birla Nuvo to the pole position in the branded fashion space in all the segments with a pan India presence.”

“On completion of the acquisition, the two entities, ABN’s Madura Fashion & Lifestyle and PRIL, will work closely as partners to derive operational synergies, in terms of back end, supply chain and many other important value drivers of the business. We are delighted to have Kishore Biyani as our partner in the Pantaloons format business. Furthermore, to ensure continuity the current management team will continue to run the business,” added Birla.

PRIL said its board of directors would meet on May 3 to consider an issue of equity shares or instruments convertible into equity shares to investors on a preferential basis, subject to approval by an extraordinary general body meeting.

Aditya Birla Co To Buy Pantaloon In Rs 800-Cr Deal

Vishal Krishna, Businessworld

Bangalore, 30 April, 2012

It is a marriage of two companies with their business roots firmly entrenched in Kolkata. The $4-billion Aditya Bitla Nuvo has acquired a part of Pantaloon Retail India Limited’s lifestyle business called ‘Pantaloon’. Eighty-six such stores will now form part of a new entity, controlled by Aditya Birla Nuvo (ABN), which will be automatically listed on the BSE and the NSE.

A source from the Future Group added that ABN has for the moment acquired a minority stake by infusing Rs 800 crore through debentures, which will be converted to equity when the new entity is formed, where ABN will have a majority stake of 50.1 per cent. ABN will have the majority stake only after it makes an open offer to the shareholders of Pantaloon Retail India Ltd (PRIL). ABN will also infuse another Rs 800 crore to service the debt of Pantaloon. Both groups which are being advised by JM Financial are yet to decide the swap ratio that will determine the shareholding in the new entity. The word on the street is that PRIL will own 25 per cent in the new entity and will manage the operations of the 86 stores whose turnover is expected to touch Rs 1,700 crore this financial year ending June 2012.

More importantly it means that Rs 1,600 crore of debt will be wiped out from the balance sheet of PRIL, which has a debt of Rs 5,256 crore. “This is the first of the many steps to wipe off the debt in the Future Group,” says Devangshu Dutta, CEO of Third Eyesight.

According to SMC research the retail industry gathered new momentum during the year 2011. Different international brands were established. New shopping malls and department stores were seen sprouting across the country. In terms of growth, the organised retail segment in India is projected to be 9 per cent of total retail market by 2015 and 20 per cent by 2020. ABN’s business generates $ 4 billion in revenues, but its lifestyle business generates only $400 million in revenues.

Madura Fashion and Lifestyle is the largest premium branded apparel player in India. Louis Philippe, Van Heusen, Allen Solly and Peter England are the brands retailed through 1,082 exclusive brand outlets spanning across 1.6 million square feet of retail space. These brands are also retailed in more than 1,250 departmental stores and multi brand outlets. It has a strategic distributorship tie-up with leading brand Esprit and retails international brands under ‘The Collective’, a luxury store. But the day-to-day management of the new entity will be run by Pantaloon’s management team. Rakesh Biyani and Kailash Bhatia will continue to manage the business and a “Fashion Council” which will have the best talent from Madura Garments and Future Group will aid and advise the management with the objective to fully leverage the strengths of Madura Garments and Pantaloon.

This buyout will allow ABN to access markets where it was previously absent. Pantaloon is well suited for tier II and III towns. “The exponential growth experienced by retail sector is not just limited to the major cities,” says D K Aggarwal, MD of SMC Investments in Mumbai. He adds that the growing population and urbanization provides a huge market for organized retail. But why sell stake in a venture that was highly profitable for the Future Group and which had the highest concentration of private label in the business? “The rising debt levels of Pantaloon have been impacting the growth of the Group,” says Aggarwal of SMC. He adds that they have been paying about 60 per cent of their revenues as interest cost. This move is a bit surprising because the company had indicated rationalizing its non-core business and other JVs. But Pantaloon, due to its cash crunch was not able to grow its topline. This shows that Kishore Biyani, the MD of PRIL, had to sell one of his jewels which he essentially nurtured since 1997.

But some analysts call this a clever move by Mr Retail because retaining management control of the new entity will allow Kishore to continue his quest to win the Indian shopper. And this time with the help of the $35 billion Aditya Birla Group he can keep his story of making history in the Indian retail market intact.

Next, Vijay Sales and other retailers go slow on Samsung after margin cut

Writankar Mukherjee and Sarah Jacob, The Economic Times

Kolkata/Bangalore, April 24, 2012

More than 750 electronics outlets have either stopped selling Samsung products or cut back on fresh orders after the Korean brand slashed dealer margins on its televisions and home appliances early this year.

Samsung has initiated talks with several retail chains to resolve the issue, but says the development will not impact its sales.

Videocon-owned Next Retail, the country’s largest electronic retail chain, and large regional chains such as Vijay Sales, Kohinoor, Girias, Adishwar and Great Eastern all say Samsung’s new terms are unacceptable in an industry that is struggling with high operating costs and wafer-thin margins.

These chains, which sell more than 500-crore worth of Samsung products a year, warn that Samsung’s move may benefit its rivals, particularly LG.

"There is a strong possibility of rival brands increasing their share due to the scenario," said KS Raman, director at Next Retail, which has reduced its order book with Samsung. But Samsung said its overall business plans are in place and that besides a couple of channel partners, all key dealers continue to maintain healthy stocks.

"Given the fact that our business is growing very strongly, we need to keep evolving and strengthening our channel policies so that channel partners sustain their healthy growth," Samsung India VP (Home Appliances) Mahesh Krishnan said. "We are confident that these couple of channel partners will soon be getting back on the growth track with Samsung," he added.

A team from the firm’s South Korean headquarters visited India during March-April to draw feedback from its key dealers.

Samsung cut dealer margins by 3-8% early this year after a tough 2011 when soaring raw material prices and depreciating rupee drove up input and import costs, and sales took a hit. Retailers say they work on a net margin of 5-7% and face high operating costs from rentals, promotional expenses and manpower payouts. Samsung’s margin cut has significantly dented their profitability.

"Smaller dealers can survive but big ones with high overheads are already bleeding and will bleed more due to Samsung," said BA Kodandarama Setty, CMD of Vivek’s Retail, a Chennai-based electronic chain with more than 50 outlets.

"We are evaluating the scenario, even though we have not reduced Samsung business till now," he said.

Adishwar India, which operates a chain of 50 stores across Karnataka and Andhra Pradesh, and Vijay Sales, which operates 43 stores across Maharashtra, Gujarat and New Delhi, have stopped fresh orders from Samsung since February.

Samsung accounted for 120 crore of Vijay Sales’ business of around 1,500 crore last fiscal.

Vishal Mewani, director of Kohinoor Televideo, a 12-store chain in Mumbai, said that although it is not possible to avoid a brand like Samsung, the retailer has stopped pushing the brand. This may help rival brands such as market leader LG. The two Korean firms together control almost 50% of the 38,000-crore Indian consumer electronics market.

LG India, which lost out to Samsung in overall revenue for two consecutive years, tempered its margin cuts to 1-2% to take advantage of the situation, retailers say.

"LG is also undertaking changes in the market system and talking the same language, but the margin cut is not hurting us and its much more gradual," Mewani said.

Nitesh Giria, director of Girias, which runs 27 durable stores in Karnataka and Tamil Nadu, said: "As most product features are similar across brands, it is not hard to draw customers to other brands if they are displayed well in a large store."

Giria said his chain is in talks with Samsung and although a deal is yet to be signed.

Girias stopped stocking Samsung products since January. It raked in 90 crore worth of business from Samsung in 2011, on a turnover of 550 crore this fiscal.

Under its new channel policy, Samsung reduced the direct dealer margin and added norms such as uploading details and serial numbers of each Samsung product sold, retailers said. The dealer also has to assure greater in-store display for the brand. If these norms are met, margins can be increased by 1% for each parameter.

Samsung India’s Krishnan says the objective is to ensure healthy sales momentum and profitable growth for the channel and the company.

"The policies are now more oriented towards driving sales to end customers and growing the business in a healthy manner through joint business planning with our channel partners," he said.

The idea is to increase average sales price, which will benefit dealers. "If we can increase the average selling price of the company’s products, the margin cuts will be some what compensated," said Pulkit Baid, director of Great Eastern, a 13-store chain based in Kolkata.

This is probably the first time in India that retailers have joined hands to put pressure on a consumer goods company for better margins. Earlier, there were some individual cases, like Future Group boycotting some products. The trend shows the growing importance of modern trade.

Analysts tracking the sector say there is a possibility that Samsung may lose some market share. "But it is not clear whether consumers would trade up to higher-priced brands or trade down," Devangshu Dutta, CEO of retail consultancy Third Eyesight, said.

Tata International forms JV with Wolverine World Wide

Meghna Maiti , Financial Chronicle

Mumbai, April 24, 2012

Noel Tata-led Tata International on Monday said it had entered into a 50:50 joint venture with Wolverine World Wide for the wholesale distribution of Wolverine’s ‘Merrell’ and ‘Caterpillar’ footwear and apparel brands in India.

“This venture is in line with Tata International’s strategy of growth, focusing on growing presence in footwear distribution and retail in domestic and international markets,” said Noel Tata, managing director of Tata International and half brother of Ratan Tata, the chairman of Tata Sons. The joint venture will have an arrangement with Trent, where Noel Tata is the vice chairman. Trent operates more than 50 department stores in India and the Star Bazaar range of hypermarkets in addition to Zara stores in India. Devangshu Dutta, chief executive of retail consultancy firm Third Eyesight said, “Tata International has experience in footwear while Trent has expertise in retail. With that combination they should be able to manage the value chain well.”

“This new partnership demonstrates the progress we are making towards our goal of expanding the retail presence of our brands through stand-alone stores, shop-in-shops and selected wholesale distribution. This joint venture model follows the successful strategy of our owned operations in the US, Canada and much of Europe,” Blake W Krueger, chairman and CEO of Wolverine Worldwide said in a statement.

“Operating this new business model in India allows the Merrell and Caterpillar footwear brands to get close to their target consumer, while providing keen insights into brand development opportunities,” the company said in a press statement.

Wolverine World Wide is one of the world’s leading marketers of branded casual, active lifestyle, work, outdoor sport and uniform footwear and apparel. The company’s portfolio of brands includes Bates, Chaco, Cushe, Hush Puppies among others.

Jawed Habib to open 50 salons abroad with P&G help

Writankar Mukherjee, The Economic Times

Kolkata, April 23, 2012

Hair stylist Jawed Habib, who runs a chain of more than 300 salons across India, plans to take his venture global in a strategic partnership with Procter & Gamble, the world’s largest consumer goods company.

Procter & Gamble will not pick up equity in the venture, but will provide bridge financing and help identify locations as well as the kind of services to offer and how, said Habib who has finalised plans to set up three salons in London and one in Singapore.

"Our initial thrust will be Europe and we want a big presence in London and Paris," the chairman and managing director of Jawed Habib Hair & Beauty Ltd said. He said the company plans to open more than 50 salons abroad over the next two years. An email sent to P&G India regarding its business plans in this partnership remained unanswered.

But why would the maker of Pantene shampoo and Gillette razors support Habib’s global foray? Because his salons use P&G’s Wella brand hair colour and hair care products-a practice that his international salons will follow.

Experts feel it’s a good branding opportunity for P&G since consumers tend to show allegiance to brands that good salons use.

"For P&G, reaching out to consumers through Habib, who has attained an influential status among consumers, can be a smart way of building the brand," Devangshu Dutta, CEO of retail and brand consultancy Third Eyesight, said.

Habib plans to invest in his first set of salons abroad. He will use the franchisee route to expand. Habib says each salon will need an investment of Rs. 50-60 lakh.

Other Indian salons brands such as VLCC, Shahnaz Hussain, Blossom Kochhar and Naturals Beauty Salon too are expanding their business overseas. VLCC, for instance, recently announced plans to invest Rs. 50 crore to set up salons across Africa, the Middle East and Asia.

"The potential is much more in overseas markets, since consumers in matured markets like Europe spend almost 20-25% of their earning on grooming and beauty as compared to some 5% in urban India," said Habib whose salon chain reported a Rs. 50-crore turnover last year.

Habib is also launching a range of hair care products that he plans to roll out in the global salons. There will be 20 products, manufactured under third-party arrangement.

Endgame for E-Tail?

Vishal Krishna, Businessworld
Bangalore, April 21, 2012

On 10 April, the Department of Industrial Policy and Promotion (DIPP) under the commerce ministry issued a circular to clarify the grey areas in foreign direct investment (FDI). While the note titled ‘Consolidated FDI Policy’ answered some key questions around foreign investment in multi-brand retail, it also put a question mark over the e-tailing business in the country.

The note says: “E-commerce activities refer to the activity of buying and selling by a company through the e-commerce platform. Such companies would engage only in business-to-business (B2B) e-commerce and not in retail trading, inter alia implying that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well.”

So, e-tailing ventures should be business-to-business (B2B) to qualify for FDI. But in India, the bulk of the e-tailing business is centered around selling to the consumer, and not B2B. The foreign investments are also substantial. In 2011 alone, VCs invested close to $300 million in Indian e-tailing companies.

It is estimated that there are at least 220 such businesses, of which 50 per cent have received foreign funding from an angel or first round of VC investments. For example, Flipkart, which does multi-brand retailing of everything from books to mobiles, received $150 million from Accel and Tiger Global Management over three years. Companies such as Snapdeal and Myntra have also received foreign investment.

Interestingly, the 10 April circular per se is a reiteration of the 2010 circular. The government’s stand on the issue has remained the same, as is evident from its earlier notes. So how did India’s e-tailing companies manage to flout the norms? Since the nature of the back-end was not clearly defined, many of these companies attracted funding by creating a wholesale logistics or warehousing arm where 100 per cent FDI could be used. These logistics / warehousing companies would not have a website and they technically became the sourcing arm for the e-commerce business. But that too is a violation of the law because the e-commerce business is sourcing 100 per cent of the products from its trading arm, where only 25 per cent sourcing is allowed.

“There were investments made in the backend and that’s how the e-commerce business was structured,” says Devangshu Dutta, CEO of Third Eyesight.

However, some like Bharti-Walmart follow this rule. Bharti Retail’s 140 ‘easyday’ brick-and-mortar stores source only the stipulated percentage from Bharti-Walmart joint venture’s wholesale trading arm Best Price Cash and Carry. The same rule applies to e-tailing. Precisely the reason why Amazon entered India through a marketplace called

“One should read the press note before going and raising money from VCs,” says Amruto Basuray, CEO of, a multi-brand baby products company.

K. Vaitheeswaran, founder and CEO of, says that multi-brand retailing should be allowed to help the retail business. “Anybody who takes VC investment into the warehouse business and then supports a multi-brand e-tailing business has ignored the government note, which says that the website should itself be servicing B2B customers,” he says.

Analysts warn that if the government takes action against e-tailing companies that flout the FDI norms, many of them will close down. They can continue in business if they sell in the B2B category, but it is unlikely as the business models of these companies are streamlined to service individual customers and not small and medium enterprises.

(This article appeared in the Businessworld issue dated 30 April, 2012.)

At This Eatery, It’s A Free For All

Prince Mathews Thomas, Forbes India

New Delhi, April 20, 2012

All Ajay Jain wanted was for people to buy his photographs. Though he was an engineer and an MBA and had worked in various industries ranging from IT to media, his passion lay in travel and photography.

But he was not able to sell enough of his pictures through exhibitions. So he started a gallery and started marketing it online. Yet, nothing really worked. That’s when the 41-year-old decided to transform the gallery in South Delhi’s Hauz Khas Village into a café with wi-fi, coffee, tea and cookies. The attraction was that all of it was free. Customers could just put whatever they felt like in a small box kept at the entrance of the tiny hangout with a dozen tables of different sizes and shapes. The box was kept in such a way that no one could see who was putting what in.

“I have got everything from a torn Rs 5 note to Rs 500 and dollar and euro bills,” says Jain.

The idea worked as more and more people came visiting and brand Kunzum began to gain popularity, both online and offline.

Kunzum Travel Café is four years old now and gets about 100 customers on a typical week day. The number swells to almost 200 during the weekend.

The “treasure box” at the entrance gets an average Rs 50 per cup of coffee or tea that Kunzum serves.

“The money covers my overhead costs that include staff salaries and electricity bills,” says Jain who bought the space three years ago.

Along with books and photos, he now has added more revenue streams—advertisements inside the café, ‘specialised’ travel services and events like book readings and movie screenings that can bring Rs 6,000 for a two-hour booking.

While Jain admits that he initially discouraged backpackers “who would laze around the whole day doing nothing”, his clientele has since filtered itself. Today his average customer is a well-to-do professional in the 20-40 year age bracket, loves travelling and alternative cinema (most of the movies screened at Kunzum fall into this category) and most importantly, has a conscience.

“I usually pay about Rs 100 to Rs 150 every time I visit Kunzum,” says Abhinav Maker, a 27-year-old lawyer who likes the cafe for its “homely feel”. In the one-off time that he didn’t pay, a “guilty-feeling” made Maker go back to Kunzum and compensate for “not being good”.

Martin Spann calls this the “social norm” reason that drives consumers to pay even if they can get away without shelling out money. In his study with colleagues Ju-Young Kim and Martin Natter—Pay What You Want: A New Participative Pricing Mechanism—the economist found that customers also paid “because they don’t want the business, which they like, to close down”. This, says the professor at University of Munich, is the “strategic reason”.

Jain is not the first one to bet on the honesty of customers to build a business and brand. In July 2007, musician Prince was initially ridiculed when he gave away copies of his album Planet Earth for free. But the ridicule turned to admiration when his 21 concert dates were sold out.

In similar success stories, in 2010 Humble Indie Bundle, a video game was distributed using the “pay-as-you-wish” model, raising $11 million in revenues. The success helped it raise $4.7 million from venture capital firm Sequoia Capital.

In India, the Annalakshmi food chain has for 26 years let its customers decide the bill in most of its outlets. But with volunteers as waiters and kitchen help, the hotel chain works on a not-for-profit model. Internationally, though, many food outlets, including Lentil As Anything in Australia and One World Café in the US have used pay-as-you-wish as a successful business model.

But traditionally, a business like Jain’s is limited by its inability to scale, says Devangshu Dutta of consulting firm Third Eyesight.

Adds Saloni Nangis of Technopak: “A few formats which are targeted at the premium niche audience would be fine, but extending this to a broad consumer base would be a challenge.”

Jain has been lucky until now. Hauz Khas Village, with its fashion studios and art galleries, attracts exactly the kind of crowd that Kunzum targets. More importantly, the café is surrounded by an affluent South Delhi neighbourhood.

The Kunzum community has 25,000 members across Facebook and Twitter, and includes subscribers to Jain’s online newsletter.

“It is a profitable business and am hoping to reach Rs 1 crore in revenue at the end of this year,” adds Jain. He is in the middle of developing travel-content applications that will be available on Kindle and iPad. That’s easy. The tricky part is scaling up. Jain is planning cafes in Gurgaon and Bangalore where rents are higher.

He says he has money stashed away to open more outlets but wants to perfect a business model that will survive on rental space. He is incubating a bigger play in travel services to be hosted from the café. “There are a lot of niche travel products that the mainstream travel companies don’t provide and we want to fill that gap,” says Jain.

He is also on the verge of franchising the Kunzum brand, with the first franchisee outlet expected to come up in Connaught Place, the popular shopping destination in the capital. That is perhaps the biggest asset that Jain has built by doling out coffee and cookies—the Kunzum brand.

(This article appeared in Forbes India Magazine of 27 April, 2012.) to add B2B to B2C arm

Meghna Maiti , Financial Chronicle

Mumbai, April 17, 2012, the online retail venture of India’s largest organised retailer — Future group is supplementing its business-to-consumer (B2C) business with a business-to-business (B2B) initiative. This marks a major departure from its initial B2C positioning.

The Kishore Biyani-controlled group aims to extend the concept of offering deals, leveraging centralised warehousing and inventory management and volume purchases to companies; in an effort to tap into the corporate gifting market. “We will offer companies a wide range of products and killer deals on orders such as 100 units of a LCD TV or jewellery from Navras (its jewellery retail venture) using our back end network. While we are putting in place the systems and infrastructure to offer companies online access to this specialised catalogue exclusively for them, we have already started selling gift vouchers which can be used across the Future group formats to companies,” said officials familiar with Biyani’s plans.

According to officials, Futurebazaar’s B2B vertical started by selling Rs 10 crore of vouchers per month and has now got a target of around Rs 40 crore per month to be achieved in a quarter’s time. Once the products are available, the turnover is expected to rise further, according to officials familiar with the plans.

“We will take wish lists from customers for products across categories and service them. The group has launched the site around a month-and-a-half ago. We are testing the water now,” said at least three senior company officials. When contacted via email, a Future Group spokesperson said the company was ‘unable to participate in the story’.

“The group is leveraging its strength in its stores for servicing a wider network. They will use the volume available across their physical formats too, to meet the demand,” said Devangshu Dutta, CEO, Third Eyesight, a specialist retail consultancy firm.

The initiative will offer a platform where its clients will be able to connect with it through the online B2B sales site and via a dedicated team of executives.

“This venture needs to have very attractive prices and low-cost delivery,” added Dutta.

Globally, specialised online B2B ecommerce sites have had a great success; it may be a while before retail giants such as Future Group make a success of it, said industry experts. “The group should stick to B2C since this format is their forte. B2B is a different ballgame altogether,” said Jagdeep Kapoor, CMD, Samsika Marketing Consultants.

The group set up around five years ago and has recently been in the news for plans to sell a part stake in the venture. The site offers a whole assortment of merchandise including clothes, mobile phones, car accessories, home appliances, kitchen appliances, books, CDs, DVDs, gold, silver and diamond jewellery. It delivers products within three-four business days in over 1,500 cities in India, covering over 15,500 pin codes.

Mumbai bubble just waiting to burst

Pia Heikkila, The National

Mumbai, April 15, 2012

An average apartment, basic amenities and interiors in need of modernisation, is for rent in Worli Seaface in Mumbai.

"The apartment is suitable for a family or company executives," reads the property agent’s blurb.

Monthly rent? A mere US$17,000 (Dh62,442).

It’s even worse for those Mumbaikars daring to dream of buying their very own home. According to various agents, anyone with a budget of less than half a million dollars for a small one/two-bedroom apartment will be priced out of south, central and west Mumbai all together.

That seems quite lot in a city that can’t even offer clean water for most of its residents, proper roads or parks suitable for children.

It seems every inch of this island city has a high price tag. Recently there were reports of 10 square metre slum shacks being sold for $40,000.

It’s a city with a property bubble about to burst.

"Although some level of correction did take place during the slowdown, market activity over the last year and a half and reports indicate that prices have once again escalated to their peaks, keeping most projects out of the customers’ reach," says Sachin Sandhir, the managing director of the Royal Institution of Chartered Surveyors (RICS) South Asia.

"There is now a high inventory of unsold flats in the city, the reason clearly being over-pricing. Since most larger developers have considerable holding capacity, they have remained unyielding on their asking rates and now seem to have overplayed their hand," says Om Ahuja, the chief executive of residential services at Jones Lang LaSalle India.

The situation is so bad it has created a standoff between developers and potential buyers, with each party waiting for the other to blink first.

"Developers are offering discounts on the bargaining table, but remain firm on their officially quoted rates since lowering them would signal to the market that the long-awaited correction has finally arrived. However, we are seeing some relenting from investors who are saddled with non-moving properties and are desperate to cash out," says Mr Ahuja.

Market watchers say investors seem to be prepared to take a short-term hit.

"Sentiment has been impacted due to inflationary pressures and rising interest rates, which are only now starting to come down marginally," says Mr Sandhir.

"Slower GDP growth rate projections; shortage to the tune of 85 per cent in property and construction professionals available today, as highlighted by a recent RICS research and high debt burden of property developers have also impacted investor confidence in the sector."

Elsewhere in the country, while prices are nowhere near Mumbai’s level even in the capital Delhi, potential home buyers are – it seems – staying at home.

"Overall, with interest rates rising and the cost of home loans becoming dearer, coupled with continued price escalations, oversupply has set into the residential market in areas such as Delhi and National Capital Region. While markets in the south look to be relatively stable," says Mr Sandhir.

So how did Mumbai become one of the world’s most expensive cities?

It has been bursting at the seams for years. The surface area of Mumbai and its suburbs is almost 500 sq kilometres, but only 90 sq km of it is usable, the rest consisting of forest, government-owned land, salt caverns or other unusable land, according to the property research firm Liases Foras.

It’s not a lot of usable space for a city of nearly 21 million people.

Mumbai is India’s densest populated city with 27,000 people per square kilometre, and the brokerage Anand Rathi Research says the city will need an additional 30 sq km of residential developments by 2021.

Every week thousands of people move to the city, in search of a better life. Mumbai is the country’s financial capital and therefore has the highest job generation, which is why demand – even for properties that would be perceived as irrationally priced in other cities – is more or less a given.

"In metro cities, there is a significant and ongoing growth of immigrant population as the metropolises remain economic magnets," says Devangshu Dutta, the chief executive of Third Eyesight, a consultancy in Mumbai.

"However, the supply scarcity is also partially artificial, some due to government policies on land-use and some due to the major markets being led by investor-held properties."

The Mumbai market has attracted a fair number of players and risk takers too.

"Developers are willing to pay the steep prices of plots or redevelopment rights in Mumbai because they expect correspondingly high profit margins. Because of the high profit margins, Mumbai also has traditionally had a disproportionate amount of speculative property investment," says Mr Ahuja.

"There are a number of individual investors who have a capacity to hold a property empty for long periods if they don’t get the benchmark rates for lease or sale. This is demonstrated by the thousands of apartments and commercial office spaces that are empty because the asking rates are far in excess of what seems affordable to an actual user," says Mr Dutta.

Then there is the problem with lack of land, an issue in most Indian cities but particularly felt in Mumbai, which is surrounded by the sea.

"In Mumbai, land for new projects is scarce and what is available is priced extremely high. This exerts constant upward pressure on the prices of residential units in most central and suburban locations," says Mr Ahuja.

The Indian government must act before it’s too late.

"Government should facilitate land supply, offer better enforcement and stricter monitoring mechanisms, establish targets and lay down action plans, build capacity of town planners and other skilled property professionals, streamline approval processes for housing projects, among others, all of which would help contain costs, thus relieving some pressure on developer margins for affordable housing," says Mr Sandhir.

The experts say buyers should be given help.

"Research must be undertaken to assess a prospective homeowners’ requirements, not only as a factor of size and cost, but also as factors of accessibility and connectivity to basic amenities," says Mr Sandhir.

"Thus ‘affordability’ which is a relative term with different connotations for different individuals, needs to be assessed at a much broader scale."

(This article appeared in The National on April 15, 2012.)

Retail Still in the Cold

Janees Reghelini , Retail Today
Mumbai, April 2012

Once again the Central Government doesn’t seem to have listened to retailers’ calls. Janees Reghelini analyses this year’s budget.

Modern retail might be growing fast, but it is now starting to face considerably more obstacles than it did in its nascence. It is also having a much wider impact on India’s economy.

“Traditionally, retail has been known to be one of the largest employment generators in the world. For a country like India this is the biggest advantage. Policy changes by the government, for example, will open up strategic investment opportunities for global retailers. This, along with spurring employment creation, will have a significant positive impact on all stakeholders and will provide a necessary fillip to the growth of the Indian economy on the whole,” says Rajendra Kalkar, senior centre director, High Street Phoenix.

Having great expectation from the Union Budget 2012-13, retailers voiced a number of demands they feel would help.

One of the most obvious demands was granting industry status, although it wasn’t addressed once again.

Contributing to over 10 per cent of the country’s GDP, Indian retail is India’s second largest employer after agriculture. With an increasing market demand, the sector is expected to grow at a pace of 25 to 30 per cent annually. Providing industry status would be the first basic step to reform the sector, politically.

Kalkar feels retail would benefit from having a ministry for a number of reasons, not least because its role has changed profoundly over the last few years. “Today, large-scale retailers are no longer perceived as mere sellers of products. A modern, advanced retailer must be able to innovate and enrich the value of its offering throughout its network, integrating more goods and services under an umbrella brand that increases distinctiveness and loyalty. In order to do so, it is necessary to have an entrepreneurial ability orientated
Retail still in the cold towards the evolution of demand, a socially-focused company mission, and also a legislative landscape that allows for this innovation process,” he says

“The present value of the Indian retail market is estimated by the India Retail Report to be around $500 billion. For consumption of this size, a ministry is entirely justified for us.”

• Tax structure in India favors small retail business
• Lack of adequate infrastructure facilities
• High cost of real estate
• Dissimilarity in consumer groups
• Restrictions in FDI
• Shortage of retail study options
• Shortage of trained manpower
• Low retail management skillretail in India.

The advantages of such a status include greater focus on retail development, fiscal incentives for the industry, an availability of organised financing and the establishment of integrated insurance norms. Currently, retail businesses are answerable to a number of authorities, from local municipalities to a hotchpotch of central ministries — Consumer Affairs, Commerce, Urban Development and Human Resource Development, to name a few. “Due to the nature of the sector, while the accountability to many authorities will remain, many of the larger retailers are lobbying to be taken under the wing of one ministry that can be a single source of cohesive policy and also champion the sector’s cause, similar to other significant business sectors, such as the Ministry of Commerce Industry, Mining, Textiles and Telecommunications,” says Devangshu Dutta, CEO of Third Eyesight.

“We must provide retailers with the necessary incentive to improve their overall standards and practices by recognising retail as an industry. This also means encouraging large companies with large investments, so they will be able to bring new methods of working into the market much more quickly.”

Dutta firmly believes that, if given due attention and supported by a planning and policy infrastructure, organised retail could become an unexpected source of widespread economic benefit.

Indian retailers were expecting much more by way of GST from the Union Budget 2012; they had hoped to see definite plans for the roll-out of a formal GST regime. But no significant announcements were made on the FDI and GST fronts, although it was announced that efforts were underway to arrive at a consensus on FDI in multi-brand retail.

Guruduth Prabhu of the Shopping Centres Association of India (SCAI) has been particularly vocal about the contents of the Budget: “It was insignificant from a shopping centre point of view. The industry’s much awaited FDI in multi-brand retail was not even considered as the government is yet to arrive at a consensus.”

So what will it take to convince the government to open up FDI in multi-brand retail? There is a dire need to find a catalyst to speed up this process. Can agencies like SCAI play a role to make this happen?

“As a body, SCAI has been attempting to meet with ministers and convince them of the advantages of retail, but it is a process that is so time consuming. As an association, we will be attempting to motivate relevant ministries and educating them about organised retail, and particularly retail real estate, as a future driver in terms of employment opportunities and the growth of economy,” Prabhu says.

Shopping centres are an important asset class for investors and developers who believe in returns over a long-term investment. Presently real estate itself is trying to motivate the government for recognition. “We are also approaching the government for separate status for the retail real estate industry as we believe that this sector will be one of the major drivers of economy. Secondly, the sector feels that shopping centres should be considered as part of urban infrastructure. Opening up of FDI will have a positive impact by opening up a number of avenues for both retail and real estate. We urgently need a catalyst, and any directives by the Government to assist with the inflow of international retailers and brands into India would be welcome,” Prabhu says

Agreeing with Prabhu, Dutta also believes that we must view retail as part of urban and social infrastructure, and it needs adequate planning, support and guidance for growth, rather than being treated as a “trading activity”, an afterthought in the urban planning of the last few decades. “It should also not be overly consolidated. A healthy mix is needed between the large and the small, between local, regional, national and international,” he insists, adding that opening up FDI will help bring more international brands into the country to fill the ample retail space that India has on offer and plug the gap made by a shortage of Indian-grown brands.

The budget might have fully exempted branded silver jewellery from excise duty but it has still imposed a four-per cent import duty on gold bars and ore, and 10 per cent on platinum and coloured gems.

“This has led to a setback in the jewellery industry and the jewellers association has planned a three-day nationwide bandh to protest against new excise, customs duty and consumer tax on gold imports,” says Subhash Verma, CEO of Aerens Gold Souk Group. “Also, the downside of this increase in custom duty is that it will lead to the trafficking of gold through illegal channels and will reduce demand among consumers, who will have to pay more.”

It is important to consider both the positive and the negative aspects of the impact of FDI, says Ian Douglas Watt, director of Pioneer Property Zone. “Regrettably, most of the discussion revolves around the perceived negative aspects, rather than the opportunities that exist for both local and foreign retailers by embracing it as a positive contribution toward India becoming a major player in the retail space internationally.”

Comparing retail to the Indian cricket team, Watt says that to be considered one of the best in the world, it is important to look at developing strengths overseas. The cricket team cannot only play under a protected umbrella locally where wickets are prepared to suit their strength and nullify the strength of the competing teams. They need to master all conditions, and that is also the case for retail.

“Given the size of the Indian population and their aspirations, it needs to be recognised that the Indian retailer has to plan to be a major player in world markets in the future. Right now, because the retail industry has not had the opportunities to become globally competitive, it is at a disadvantage as it really does not have a full understanding of the standards of the other players,” he says.

The sheer force of weight once this happens will mean that Indian companies will have the potential to become significant players internationally, even if this might not be immediately obvious as there is just so much to do to meet local needs. Every international retailer that enters the Indian market creates an employment opportunity for local Indians and the demand for their goods will only be as much as the Indian consumer sees as the need.

It is important to note that by preventing international players from having a presence in India will only compel them to establish a rather stronger online presence to meet Indian demands. This will eventually place them at an advantage as they will have established a presence and developed a customer base without even having entered the country.

“They scrape off the cream with very little cost whereas if they were to establish a physical presence, they would have to do so with local conditions influencing how they operate,” adds Watt.

Kalkar says: “Reforming the corporate tax system is an international innovation we should look at. Retailers pay the highest effective tax rate of any industry. Simplifying the tax code will ease the industry’s tax burden so retailers can grow.”

He continues to address the supply chain as another huge challenge. “The government must support efforts to streamline the transportation of goods from manufacturer to retailer to customer. The industry opposes regulatory proposals that lengthen the supply chain, raise transportation costs, or undermine the rapid delivery of affordable products.”

On the government’s part, harmonisation of taxes and tarriffs across the country is another area that needs immediate attention, says Dutta. “We might be one nation, but we are not yet one economically integrated zone. This leads to fragmentation of manufacturing and distribution, inefficiencies and additional supply chain costs that are entirely avoidable.”

By the next general election in 2014, retailers hope that the scenario would have improved significantly.

Payal Chopra, director of PS Srijan Group, spells out his perfect-world scenario for 2014: “The ministry will understand the importance of the retail industry and the advantages of a regulated sector in retail. Retailers and retail developers will have a healthy understanding and will work together in bringing an organised set-up to India. Small- and medium-sized players will receive assistance from a ministry so that their presence is not eliminated; and big chains will also receive incentives so investment can flow.”

Recently, Tier- II and III cities have become major drivers for the progress of retail. “It is for sure that these cities offer major potential for more retail giants by 2014, not least with their low lease rentals compared to the metro cities; they also require lower overhead costs and offer greater availability of manpower at much lower cost,” states L.V.S Rajasekhar, CEO of LEPL. “One can only hope that by the next general elections, Indian retail will be a stronger entity by itself and work towards ensuring that all their current demands are met by then.”