Sarah Jacob & Sagar Malviya, The Economic Times
Bangalore/New Delhi, 30 May 2012
Sluggish demand has led lifestyle retail chains to post weak same-store sales in January-March 2012 and lower growth estimates for this fiscal.
Driven by new stores, most retailers clocked 20-30% sales growth in January-March. But same-store sales, or sales from stores that were operational last year, grew in single digits. Samestore sales are an important indicator of consumer demand and the health of the retail industry. Retailers don’t expect things to improve this fiscal as demand is subdued. The downturn began after Diwali, and the increase in the prices of essential commodities, lower salary increments, adverse macro-economic conditions and government inaction dented consumer confidence.
"We would have targeted double-digit like-to-like growth if the year looked better," said Govind Shrikhande, MD of department store Shoppers Stop. Shoppers Stop’s revenues grew 27% to Rs 621.35 crore in the January-March quarter, but samestore sales grew 10%. Volume growth contributed just 1% to the increase in same-store sales while price hikes made up the rest. "Prices have risen and imports are getting costlier. These developments start impacting consumer demand after a point," said Shrikhande.
Rival Lifestyle International, which operates stores under the Lifestyle and Max brands, said it clocked sales of over Rs 2,500 crore last fiscal and has targeted revenues of Rs 4,500 crore by 2013-14.
Demand Subdued in April-May
"The second half of last year was not good and it’s apparent in our bottom line," said Lifestyle International MD Kabir Lumba. He refused to divulge figures as the company is unlisted. "Given the current market conditions, we have lowered our growth estimates by around 10%," Lumba added.
Pantaloon Retail posted an increase of 7.6% in sales for the three-month period ended March 2012, but same-store sales rose just 3.6% – the lowest in 13 quarters. Retailers say demand is subdued in the first two months of the current fiscal as well. "The overall sentiment has been poor and it is reflecting even in May," said J Suresh, CEO of Arvind Lifestyle Brands and Retail. The 10% excise duty on branded garments last fiscal has impacted Arvind’s value format Megamart, which posted a growth of 11% in same-store sales during the quarter against an 18% increase in the year-ago period. However, its lifestyle brands business – which includes Arrow, US Polo and Flying Machine brands – grew 27% in the fourth quarter in terms of same-store sales.
Same-store sales have slowed down despite retail chains extending end-of-season discounts and advancing them by up to three weeks to liquidate inventory. "This helped them post higher sales on a sequential basis. However, margins of most retailers took a hit," said Sangeeta Tripathi, a senior analyst with Sharekhan. Margins were further squeezed by higher interest rates, fuel and real estate costs.
The slowdown in like-to-like sales has forced retailers to explore new strategies to drive sales. Shoppers Stop, for instance, is focusing on store events as well as new loyalty card schemes and has recently lowered prices of private label brands by 5%.
Experts say stores can boost sales by improving shelf displays and promoting private labels. "Significant work can be done to make the product on the shelf more compelling for the buyer, both in terms of merchandising and placement. Retailers can also differentiate by looking at their private labels not just as additional margins but as brands that fill a gap," said Devangshu Dutta, chief executive of retail consultancy Third Eyesight.
Puneesh Garg, Outlook Money
30 May 2012
Following the emergence of modern trade norms in the 1990s, India’s $550 billion to $600 billion retail sector, has been growing at 15 per cent annually. However, in the organised retail sector, which makes up for 8 per cent of overall retail space, the last 6-9 months witnessed a decline in growth.
The recent decision by market leader Pantaloon Retail India (PRIL)
to sell its controlling stake in the “Pantaloons store”
business to a bigger and deep-pocketed Aditya Birla group—which
also runs its own fashion stores like Madura Garments—to
reduce its ballooning debt of around Rs. 8,000 crore is only a
reflection of the overall retail space. And, this may just be
Says Devangshu Dutta, CEO, Third Eyesight, a retail consultancy: "As the margins are thin and operating costs continue to rise, I would expect more retailers looking to sell completely or partly to other business groups and, as and when they are allowed, also to foreign investors.”
Like Dutta, many experts have already started talking about mergers & acquisitions in the post foreign direct investment in retail scenario. A Pricewaterhouse-Coopers’ report, on winning in India’s retail sector, says consolidation is expected as the market dynamics take over to create a more competitive marketplace following the entry of multinational companies. However, it seems that consolidation has started even before foreign companies were allowed to make inroads.
Says Dutta: “The Indian consumer market is in a curious state of mixed development. It is far from being “mature”. The bulk of the market is still addressed by traditional and fragmented retail operations. Yet, there are M&A activities among larger groups, something that is usually seen in highly consolidated and developed markets.”
Ankur Bisen, associate vice-president, Technopak Advisors, a consulting firm, adds: “Many retailers have realised that the strategies of the West can’t be adopted in the Indian context. As organised retail grows there can be more surprising outcomes.” But, what does the Pantaloon-Aditya Birla Group deal mean for listed players? Let’s explore.
Soon to be renamed as Future Retail India, PRIL has come a long way since it launched its fi rst “Pantaloons format” in Kolkata in 1997. Over the years, it had become the leading fashion retail format in India with 65 stores, a combined retail space of around 2 million sqft and a turnover of around Rs. 1,700 crore, Pantaloons is set to hand this fl agship format division to India’s prominent conglomerate, Aditya Birla Nuvo (ABNL). On the face of it, the deal looks positive as the Biyani’s will be able to reduce around Rs. 1,600 crore debt by demerging 2 million sqft of the total 16.3 million retail space. Says Ankur: “Though PRIL started as the fashion retailer, over the years it added another format and now Pantaloons is just a small part of it”.
However, Pantaloons was the most profi table division in terms of margins. While retaining part ownership and management of Pantaloons, the Biyanis will focus on the food & grocery and value-apparel formats — Fashion at Big Bazaar and Brand Factory. Incidentally, ABNL’s More competes with Biyani’s Big Bazaar. PRIL also wants to sell stakes in Future Capital Holdings and insurance business to raise funds and pare down its debt further. While retail consultants feel that by reducing debt, PRIL’s focus on the FMCG space can take it to higher trajectories in the medium term.
Speaking on the condition of anonymity, an analyst tracking the company, says: “Though the company has managed to reduce around Rs. 1,600 crore of debt, and may further pare it down by selling stakes in its non-core businesses, it will be left with low-margin business. Besides, it is facing slowdown on operational fronts too, the same store sales growth has not been encouraging for the last 6-9 months”. Therefore, the stock may be de-rated once the deal goes through.
Biyanis selling out to Birlas may not be cheered by Pantaloons’ investors, but participants say, it will give ABNL the much-needed opportunity to expand its own brands such as Louis Philippe, Van Heusen, Allen Solly and Peter England from Madura Fashion & Lifestyle. This will also catapult ABNL to the pole position in the branded fashion space. With a pan-India presence, ABNL is a $4 billion conglomerate with interests across sectors—from financial services and telecom to fashion and lifestyle. Since fashion and lifestyle forms 12 per cent of the group (before the Pantaloons buy), valuing the company based on its retail presence is a difficult task. So, investing in its retail business is ill advised for now.
OTHER RETAIL STOCKS
With around 3.1 million sqft of retail space, Shoppers Stop is yet another pioneer in the organised retail space in India. It is predominantly present in tier 1 and tier 2 cities. It has presence in value retailing through the Hypercity chain of stores. The company’s consolidated revenues and profits were Rs. 2,505 crore and Rs. 43 crore, respectively, in FY12. At this price, the stock trades at 1.12 times its sales.
Similarly, Trent, a Tata enterprise, is also a fashion-cum-food
and merchandise retailer. The company has 61 Westside stores.
The latest annual results said the company earned a meagre Rs.
7 crore on sales of Rs. 1,700 crore, resulting in a price-to-sales
ratio of 1.40. This is pretty high compared to PRIL and US major
Walmart which trades at 0.28 times and 0.45 times, respectively.
Then there are other retail chains forming a small part of bigger group companies—Reliance Trends owned by Reliance Industries and Spencer’s by RP-Sanjeev Goenka Group—that have also failed to make profits from their retail businesses.
One would have made huge money in Pantaloons 10 years ago, as the Indian economy was connecting with the world and organised retail was making inroads. Says Charles Munger: “When you’re an early bird, there’s a model that I call "surfing"—when a surfer catches the wave and stays there, he can go a long, long way.”
Pantaloons was the surfer in the great retail wave and has been rewarded well. However, since 2006 a Pantaloons investor have not gained much at a time the markets rose around 57 per cent. The Shopper Stop and Trent stocks also moved along the same way. Apart from low margins, the retail sector is also facing a number of bottlenecks on the policy front. The goods and services tax (GST), which was to be implemented in April 2012, remains in suspension and the ector has not been given industry status. Says Ankur: “Organised retail, despite limitations, will grow leaps and bounds in the next decade. There will be many surprises along the way as companies discover the right Indian model of retailing”
So, investors must wait till the retail sector gets its turn. Invest only if you find deep discount on these stocks, similar to the discounted merchandise at retail stores.
Sarah Jacob , The Economic Times
Bangalore, 23 May 2012
American doughnut maker Krispy Kreme has flagged off its India plans barely a week after rival Dunkin’ Donuts opened shop in the country, setting the stage for a doughnut onslaught in a country that loves pizzas and burgers as much as dosas and pav bhajis.
Krispy Kreme Doughnuts, which operates around 700 stores worldwide, signed its first franchisee deal in India with Bedrock Food Company to open 35 Krispy Kreme outlets in North India in five years, the US firm announced last week.
New Delhi-based Bedrock also holds franchisee rights for American sandwich chain Subway, operating about 185 Subway restaurants in north, west and south India.
Doughnut — a fried, ring-shaped snack often glazed with sugar or filled with cream, which is widely consumed on the go with coffee across the US — may well be the next big-ticket western food item that Indians will tuck into, going by the hectic activities in this nascent industry.
“It does not matter who entered first. It is not a 100-metre race but more of a marathon,” Dev Amritesh, President& COO-Dunkin’ Donuts India, Jubilant FoodWorks, says.
Dunkin’ Donuts, which has partnered with Jubilant Foodworks in India, will open its third store in Delhi this month. It is targeting 80-100 stores in five years.
Existing players such as Mad Over Donuts, Donut Baker and SH Donut Empire too have drawn up aggressive expansion, while Donut Factory plans a relaunch.
Mad Over Donuts plans to open 50 outlets across cities such as Chennai, Hyderabad, Ahmedabad and Chandigarh this fiscal.
Donut Baker, owned by Global Franchise Architects that also owns of Pizza Corner, and Mumbai-based SH Donut say they will venture out of Bangalore and Mumbai, respectively.
Most western restaurant chains are turning to India as sales slow in mature markets and the higher-spending Indians willingly experiments with new cuisines.
Perhaps these entrants are also enthused by the success of pizza chains that have invested large amounts into marketing and clockwork home delivery to find loyalists for a product that once was alien to Indian tastes as doughnuts are today.
“Earlier people said India was a country for tea, but coffee has seen huge growth in demand,” Devangshu Dutta, chief executive of retail consultancy Third Eyesight, says. “There is latent demand for doughnuts too both because Indians have a palate for sweet products and because our exposure to western snacks is increasing through films and travel.”
India’s increasing young population is the key to these chains.
Priced Rs 30-50 for a doughnut, some chains are targeting young professionals and college students, while others are reaching out to children.
Most doughnut chains model themselves as all-day outlets and serve coffee, sandwich and other products.
“Quick service restaurants are transactional, offering a standardised, limited menu and positioned as value for money. Cafes offer an experience but are mostly focused on beverages. We are a food cafe, addressing the segment between the two,” Amritesh of Dunkin’ Donuts says.
Branded as Dunkin’ Donuts & More in India, the chain will retail sandwiches, bagels, milkshakes and coffee along with doughnuts.
Companies say it’s also important to serve other products because doughnuts may take time to grow in the market.
“Doughnuts will grow over a period of time. But we have to look at other product categories too,” Tarak Bhattacharya, COO of Mad Over Donuts, says.
The Singapore-headquartered firm is adding a range of coffee, bubble teas and cupcakes to its menu.
Amit Tacker, founder of Donut Factory, a homegrown brand that shut stores across malls last year, says finding the right location is the key to success. “Location is a big factor in new product food retail,” says Taker who will open a Donut Factory at New Delhi’s Khan Market in July-August.
Joseph Cherian, global chief executive of Donut Baker owner Global Franchise Architects, says entry of global biggies such as Dunkin’ Donuts and Krispy Kreme will help grow the category with their deep pockets and brand recall.
But not everybody is convinced about doughnuts’ success in India.
“Doughnuts and coffee are breakfast concept globally and Indians are ready for that only in certain pockets,” says Gaurav Marya, president of Franchise India Holdings, which helps brands find franchisees in India.
ET Bureau, The Economic Times
Bangalore, 10 May, 2012
Dutch retailer Spar International and Dubai-based Landmark Group’s Max Hypermarkets have decided to part ways in India by the end of this year after the two developed differences over expansion strategy.
While Spar was keen on partnering multiple national and regional retailers to expand in the country, Max Hypermarkets wanted a strategic investor for the business, Dr Gordon Campbell, managing director of the 31-billion euro (approx 2 lakh crore) Spar International, said.
The companies will now pursue separate growth plans in the country, they said in a joint statement.
Max Hypermarkets operates 13 Spar Hypermarkets across Karnataka, Maharashtra, Andhra Pradesh, New Delhi and the national capital region under a licence agreement signed in 2007.
The two have decided not to renew the licence after it expires in December.
Viney Singh, MD of Max Hypermarkets India, said the company will rebrand its hypermarkets-or, large-format food & grocery stores that also stock general merchandise, electronics and apparel-once it decides on its future course. "We believe that it is good to have in the long term, strategic investor partners to run the hypermarket business in India," he said.
Spar, which has 12,000 stores across 35 countries, does not financially invest in any market, but signs license agreements with independent retailers in different markets to use the Spar brand name.
It also provides technical know-how and expertise for the front-end and supply chain for its partners. In fact, it had first entered the Indian market with Mumbai-based Radhakrishna Foodland in 2004.
Spar is now looking for multiple partners in India. "Given our experience now, we believe we have the opportunity for other partners to develop it (stores) at a quicker speed. We would be interested in tying up with 4-5 partners for different regions," Campbell said, on a call from Amsterdam.
He said Spar has established contact with a few partners across regions, but refused to clarify whether they were corporates or standalone chains.
Campbell said Spar is willing to open supermarkets in India. The size of its supermarkets are around 1,000-2,000 square metres, while hypermarkets are above 4,000 sqm.
Spar aims to finalise new relationships quickly so that its brand does not have to wind down. Campbell said this would be possible if new partners have operational stores that can be converted into Spar.
Analysts say there is limited risk to brand Spar if it is absent from the Indian market for a few months because its footprint is limited.
"Food and grocery is bought within a limited radius. As long as the brand’s reappearance is handled well, there is no real damage expected," Devangshu Dutta, chief executive of retail and consumer goods consultancy Third Eyesight, said.
He also said that it would not be difficult for Max Hypermarket to find a foreign partner, given Landmark Group’s presence in India and international retailer interest in the market. Landmark Group operates department store Lifestyle International in India.
"They could also come up with their own brand and partner a financial investor as they would have the operational expertise now," Dutta says.
The $12-billion organized food and grocery retail market that is projected to grow at a compounded rate of 30% over next five years, according to estimates by Technopak Advisors.
Mumbai, 9 May 2012
While the deal gives Birla access to the most profitable chunk of the fashion retail business, the debt ridden Future Group can now get rid its burden over an expectedly short period. For Biyani, weighed down by Rs 5,800 crores debt, and with limited avenues to raise fresh equity from foreign investors, the deal brings immediate cash of Rs 800 crores in the BSE-listed flagship Pantaloon Retail (PRIL). It will also be able to transfer an equivalent Rs 800 crores of debt to the demerged entity, helping PRIL to cut debt to Rs 4,200 crores.
Explaining that Pantaloons and Aditya Birla have different reasons to get into the deal, Ankur Bisen, Associate Director-Retail, Technopak Advisors says, “It is a great deleveraging opportunity for evolution of Future Group. Though it started with Pantaloons, over the last 15 to 20 years, it has actually evolved as a retailer operating in various retail formats. Even though Pantaloons was probably the jewel in the crown, but it is to some extent a non-core activity for the Future Group. Realizing that they would like to grow as a retailer and not as an apparel brand owner, the Group must have gone ahead with this deal.” And goes on to add “If you look at the kind of debt pressure the Future Group has, it stands to gain in the short term with this deal.”
But experts feel, the deal goes more in favor of the AV Birla Group, since Biyani loses a large chunk of the high-margin, fast- growing fashion retail business. Aditya Birla Nuvo, which through its subsidiary Madura Fashion & Lifestyle, controls apparel brands such as Allen Solly, Louis Philippe, Van Heusen and Peter England, and the acquisition of majority stake in Pantaloon, will enable it to cater to customers at the lower segment in the value chain. With its bouquet of brands, Madura can not only attract the young it also gets to more than double the Group’s retail space from 1.6 million sq. ft. to 3.65 million sq. ft. And the combined entity’s turnover will go up by almost 80 per cent. Pantaloons’ Rs 1,700 crores turnover will add to Madura’s Rs 2,145 crores top line.
“The Aditya Birla group gains significant control over one of the largest modern large-format chains in the country. Since Madura Garments is also one of the largest branded suppliers in the market, a better integrated value-chain may provide it some margin advantage. However, it is likely to be also careful not to sour its position as a supplier to the other large format retailers through anti-competitive practices,” opines Devangshu Dutta, Chief Executive, Third Eyesight, a consulting organization for retail and consumer goods sector.
However, it would be interesting to see how competitors Shoppers Stop and Lifestyle react to this move. Further it would be also interesting to see whether the $35 billion (over Rs 180,000 crores) Aditya Birla Group, which has yet to stop losses in its food and grocery chain ‘More’, now sell it off to a potentially more viable food and grocery chain, in the same manner as Biyani.
(This story was published in Fashion United.)