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Global brands relook at India partnerships

Fashionunited

Mumbai, 27 June 2012

Global brands are betting big on India, this despite no clarity on FDI in multibrand retail. In fact, statistics from Department of Industrial Policy and Promotion (DIPP) the nodal agency that clears such foreign investments reveal that a number of top brands have put forth their proposals of either increasing stake in JV or expanding their presence in India.

American apparel-maker Tommy Hilfiger is one of them. The brand plans to open 500 stores in India over the next five years to capitalize on the brand’s increasing popularity in the country. It has informed the Department of Industrial Policy and Promotion (DIPP) that it is looking at increasing the footprint in India.

In a separate DIPP application, French fashion brand Promod SAS has also filed for a 51 per cent stake in a joint venture with local Modex Trading. Modex is co-owned by Tushar Ved, the promoter of Major Brands, which currently owns Promod’s franchisee rights in India. It may be noted that a study by management consulting firm Booz & Co had revealed that around 100 multinational retail and consumer companies had entered India between 1990 and 2010. As many as 86 companies entered before 2009, and a little over a fifth of this (or 18 companies) changed their partnership model.

Retail analysts say it would be interesting to see whether there is scope for Tommy Hilfiger to open 500 stores in India and whether Promod with low recall value before it launched in India and a limited footprint would experience a game change post forming the joint venture since Major Brands’ portfolio also includes Mango, Charles & Keith, Aldo and now even Guess. The four-decade old brand, which claims to refresh its collection with 100 new products every two weeks, competes with women-centric, trendy brands such as Zara, s.Oliver and Esprit. Meanwhile, even Madura Fashion & Lifestyle (MF&L) is in the process of converting the distribution agreement it signed with Esprit in 2005 into a joint venture.

With MNC brands establishing themselves with the low-risk and low-return model through franchisees and distribution agreements, they are now looking at forming JVs by scouting for able partners. For instance, UK-based retailers Clarks, and Marks & Spencer, have extended their distribution or franchise agreements into joint ventures with Future Group and Reliance Retail respectively.

In the recent past, there have been major partnership reshuffles in India that included Giorgio Armani parting ways with DLF Brands and going for a franchisee deal with Genesis Luxury, Versace, Corneliani and Guess, who too are scouting for a new local partner to start afresh, and Guess planning a tie up with Major Brands, the marketer of Mango and Aldo in India.

As consumer goods and retail consultancy Third Eyesight explains, 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 and 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.

Talking about a revolution

(This piece appeared in ‘The Strategist’ supplement of the Business Standard newspaper, on 2 July 2012.)

Modern retail is equated with a more structured and systematised organisation, hence the term “organised retail”. This term is weighted with expectations of greater capability, better competitiveness and greater benefits for industry and society. However, if we take organised to mean better for the consumer then, often, our age-old corner shop and the local cloth-merchant-turned-fashion-retailer appear more organised and better at delivering more relevant products to us at lower prices with superior services than most of the new corporate chains.

Over the last two decades or so, there has been a steady transformation of the retail landscape and the consumer’s shopping attitudes. There are many more people with much more money in hand to spend at their discretion today than ever before. This has encouraged the growth of brands, Indian and international, as well as the emergence of modern retail chains and malls. The transformation is most visible in our largest cities, with some locations already having built a surplus of mall space. A generation is growing up in these cities that takes malls for granted, and that completely avoids the more traditional retail spaces.

There has certainly been a gold-rush, among companies, investors, real estate developers, even professionals looking to put the “next big thing” on their resumes. The true impact, however, is still very limited, very shallow for the country overall. In fact, in locations with high concentration of modern retail, the impact has even been negative in terms of poorly developed space, rising costs, and stressed infrastructure to the detriment of the local inhabitant.

The impact of this growth is little understood, much less guided or planned for the long term. There are loud voices both for and against corporatised modern retail, but there is very little balanced discussion. There are several laws binding or restricting retail activity, but very little policy enabling it, whether we look at modern retail or traditional, corporate or individual owner-driven stores.

Here are some major issues that we need to tackle, at the policy level and within retail businesses:

  • Regulatory frameworks: For the most part, our laws are obstructive rather than productive or directional. The multiplicity of authorities that a retail business must deal with doesn’t help either including various central ministries, state-level ministries, and myriad municipal departments, local utilities and other authorities.
  • Space and Infrastructure: Retail is mostly an afterthought, either as a small fraction of poorly developed space within an urban development, or as massive glitzy shopping malls that have no correlation to their surroundings. Either there is not enough good space, or too much without adequate support services. A retail centre needs to be a positive part of the local ecosystem in every way, rather than an unwanted cancerous growth.
  • Integration with the local economy: We all intuitively know that shopping is an intensely local and personal activity. Yet, in the race to gain efficiencies of scale, modern retail managers take national or international template-based approach. Decisions are made centrally, products shipped by distant suppliers and the labour force is also often drawn from outside. There is little local relevance left and hardly any contribution to generating healthy economic activity in the store’s vicinity.
  • Diversity of choice and competition: We need to think through how the economic balance of power is handled between retailers and their suppliers, to maintain healthy diversity for the sake of the consumer. The evolution of modern retail business models can shrink rather than increasing the consumer’s choice. Strategic sourcing, partnering and collaboration are buzzwords that drive increasingly narrow supply-development, and retail-side consolidation means fewer channels to the consumer. For wider impact across the economy a diverse and vibrant design, development and manufacturing base is needed that can effectively compete within itself and externally.

We need to drastically rethink the role of retail in our society if we want India’s urban centres to be healthier, dynamic and sustainable in every possible way. Retail is the one economic activity that touches the daily life of virtually everyone – modernising it is an imperative. Modern retail should not mean space more expensive than that in rich economies, for a handful of companies selling brands to an elite fraction of India’s population. We shouldn’t treat it as the exclusive party to which only large companies are invited, whether Indian or foreign. For a true movement from “unorganised” to “organised retail” we need to have brands and product offerings that meet the needs and budgets of the real Indian middle class and below, delivered in an affordable and inclusive way, in cities that thrive with retail at their heart as part of the social and economic infrastructure.

Perhaps we even need a National Mission to holistically think through how we can improve the quality of the entire retail ecosystem! This may is the only way to create a true retail revolution in India and use it as an engine for wider economic and social growth.

Indian men take to shoes – MINT video

There was time when there were two choices for the middle-class Indian male of all ages—(usually) Bata or (occasionally) the Chinese guy who made shoes to order. Over the years, other brands also entered the market. Things have changed. While it may not reach the scale of an all-consuming obsession, there’s now a strong enough market in India for several upscale overseas and local brands to think it worth their while to vie for custom here, as Paromita Banerjee of Mint discusses in this video.


The article from Mint by Sapna Agarwal & Byravee Iyer is available here.

Men join women in the boot camp

Sapna Agarwal & Byravee Iyer, MINT

Mumbai, 26 June 2012

Women love their shoes. The attachment defines leading ladies as varied as Imelda Marcos—widow of former Philippine dictator Ferdinand Marcos and star of her own soap opera—and Carrie Bradshaw, the narrative lead in Sex and the City, who famously has a thing for her Manolo Blahniks. Countless devotees of Jimmy Choo and Christian Louboutin are also testament to the passion.

As for men, time was when there were two choices for the middle-class Indian male of all ages—(usually) Bata or (occasionally) the Chinese guy who made shoes to order. Over the years, other brands also entered the market. The thing is, men, too, like their shoes. It may not reach the scale of an all-consuming obsession, but there’s a strong enough market now in India that several upscale overseas and local brands think it worth their while to vie for custom.

“Men’s love affair with their shoes is gathering a lot of steam,” said Darshan Mehta, chief executive officer of Reliance Brands Ltd, a subsidiary of Reliance Industries Ltd that retails brands such as Steve Madden, Diesel, Zegna and Timberland in India.

In November, Reliance Brands announced a joint venture with US-based apparel, footwear and accessories brand Kenneth Cole. The pre-launch market research for Kenneth Cole suggested that men were keen on the brand.

Mehta wasn’t too surprised. Men’s footwear may account for just 20% of the shoe stock at Steve Madden, but contributes over one-third of the overall revenue in the shoe category.

The trend has picked up in the last couple of years, with the palette extending beyond standard black or brown.

“Two years ago, we could not even think of selling red and blue loafers. Now they are the fastest selling,” said Dipak Agarwal, chief executive officer, DLF Brands Ltd, which retails Salvatore Ferragamo and Boggi in India.

He attributes the changes to increased global exposure, Indians travelling abroad, and the so-called metrosexual male trend, which translates into men spending more time and effort on personal grooming.

Over the years, the range has evolved “from men just wearing the basic black and brown formals to sporting varied colours and different occasion wear from formals to smart casuals”, according to Vikram Raizada, executive director, marketing, retail and business development, Tara Jewels Ltd. Raizada buys shoes every time he travels abroad—four times a year on average.

Shoes that may cost anywhere in excess of $100 have become an impulse buy for men. “If they see the right colour, pattern, size, they just pick it up,” said Mehta of Reliance Brands.

R. Burman, a Mumbai-based fashion photographer whose clients include Vogue and GQ, expounds on his shoe-buying philosophy.

“Buying shoes is like buying a piece of art. It is not necessarily about a need. It’s about appreciating the craftsmanship of the product. Sometimes it’s about comfort, sometimes it could be badly constructed but looks phenomenal,” he said.

Even a slowing economy has not deterred companies from seeking to enter the country.

Indian men are also more likely to look for technology in shoes than women. They would tend to be convinced, for instance, by features such as air-based cushioning and breathable shoes, said Ramprasad Sridharan, chief executive officer, Clarks Future Footwear Ltd, a joint venture between the 186-year-old British brand and the Kishore Biyani-led Future Group. The venture opened the first Clarks store in April 2011 and plans to raise the current 19 outlets to 100 as soon as possible, regardless of the uncertainty in the Indian economy.

For Puma Sports India Pvt. Ltd, the Motorsport lifestyle offering is the fastest growing category. Sales of the line’s shoes at Rs.4,500-7,000 a pair rose 10-15% last year, said Rajiv Mehta, Puma’s managing director for South Asia.

“Since 2006, the number of international shoes and accessories brands entering the market has increased fourfold,” said Tarang Gautam Saxena, a senior analyst at retail consultancy firm Third Eyesight. She noted that there are close to 200 international fashion brands in India, with more than one-quarter of these operating predominantly in the footwear and accessories category. More want to come in.

“Close to a dozen foreign brands are interested in entering the Indian footwear market,” said Kanchan Lall, associate vice-president, Tecnova India Pvt. Ltd, a consulting firm that helped luxury French luxury footwear designer Christian Louboutin launch his first store for women in New Dehi in February.

Last September, Louboutin launched his first men’s store in Paris. His shoes can easily cost more than $2,000 a pair. “Louboutin may consider retailing his men collection in India,” said Lall.

Indian retailers have also been seeking to establish themselves at various price points.

In April, Tata International Ltd announced a joint venture with Wolverine World Wide Inc., whose portfolio of footwear brands include Merrell and Caterpillar.

Meanwhile, apparel brands including Van Heusen, Louis Philippe and Allen Solly are also focusing on footwear.

“We found that there was an unmet need for style sought after by the discerning consumer,” said Jacob John, brand head, Louis Philippe, which diversified into men’s footwear in April 2010 and now sells about 60,000 pairs of shoes a year priced on average at Rs.4,500.

The market opportunity is seen as substantial. The country’s per-capita shoe consumption is the lowest in the so-called BRIC grouping of Brazil, Russia, India and China. In 2011, it was $7.2 in India compared with $25.7 in China, $81.5 in Russia and $107.3 in Brazil, according to Euromonitor, a global market research agency.

With more men paying attention to their footwear, ancillary businesses such as shoe laundries are slowly picking up.

Not surprisingly, most of their customers are male, according to Shashank Bharadwaj, who started a shoe laundry business in Bangalore eight months ago along with friend Chitra Ambareesh. The business, which charges Rs.150 per pair, has broken even, he said. Customers are happy to pay this much for shoes that cost Rs.20,000 and more.

To explore further, watch the Livemint video by Paromita Banerjee.

IKEA to enter India, invest 1.5 billion Euros in stores

Nandita Bose and Matthias Williams, Reuters

Mumbai/New Delhi, 22 June 2012

Swedish retailer IKEA , the world’s largest furniture maker, is opening up in India, marking a crucial step for the Indian government whose policy flip flops related to foreign investment have damaged market confidence.

The company, known for huge stores selling flatpack furniture and accessories, said it would invest 1.5 billion euros ($1.9 billion) to open 25 stores in Asia’s third-largest economy after initially balking at India’s sourcing requirements.

IKEA’s plans, announced by the Indian government after a meeting between the company’s CEO and India’s trade minister in Russia, could give a boost to the embattled government of Prime Minister Manmohan Singh, which was forced in December to backtrack on plans to allow in foreign supermarket operators.

While the government removed foreign investment caps in single-brand retail in January, it imposed a condition that foreign retailers source 30 percent from local small and mid-sized enterprises, dampening the enthusiasm of retailers for the plan.

"It’s a baby step but it has definitely sent the right signal out … The government is trying to convince international investors, India is still open for business," said Devangshu Dutta, consultant with Third Eyesight, a retail consultancy said.

The Indian economy which grew at its slowest pace in nine years has been badly hit by political roadblocks to economic policymaking battering corporate investor sentiment.

But the company, following similar moves in China and Russia, plans to cash in on India’s burgeoning urban middle class, which, having grown up on pop culture, generates a strong demand for owning international brands and lifestyle products such as furniture.

SOURCING

On Friday, India said the company had discussed its reservations over the sourcing policy with the government.

"IKEA had certain reservations about sourcing norms which were discussed with the DIPP (Department of Industrial Policy and Promotion) officials; suitable answers of which were provided leading to the decision to invest," the Indian government said in a statement.

The company does not yet have any stores in India but sourced $450 million worth of goods from the country last year, a figure it aims to lift to $1 billion in coming years.

It sources goods such as textiles and carpets from 70 suppliers and 1,400 sub-suppliers in the country, the company said.

"The mandatory sourcing clause that requires goods to be sourced from small and medium enterprises will remain a challenge," IKEA spokeswoman Malin Pettersson Beckeman told Reuters by phone on Friday.

The Singh government is keen to bring global supermarket chains such as Wal-Mart Stores Inc and Carrefour SA into India, in hope of improving the efficiency of supply chains in a country where roughly one-third of fresh produce rots before it gets to market.

However, foreign direct investment in supermarkets has been opposed by owners of one-off shops, which account for roughly 90 percent of India’s $450 billion retail sector, as well as by members of the ruling coalition.

IKEA said its investment will be made over 15 to 20 years.

India’s Commerce Ministry said IKEA will initially invest 600 million euros and a further sum of up to 900 million.

"These investment estimates have been drawn up based on our experience in countries like China and Russia," Beckeman said.

Industry officials, however, said that the Swedish firm’s entry will not really shake things for the domestic market given the number of stores it plans and the period of investment.

"It’s not going to shake up the entire domestic market but it will set a benchmark model for others to follow in India’s nascent furniture and home products market," Dutta said.

Ikea to invest €1.5 bn in India, set up stores

Asit Ranjan Mishra, Vidhi Choudhary & Sapna Agarwal, MINT

New Delhi, 22 June 2012

Swedish furniture retailer Ikea will invest as much as €1.5 billion (around Rs. 10,740 crore today) in India, chief executive Mikael Ohlsson told trade minister Anand Sharma, signalling an endorsement of the country by a high-profile investor, something that’s been rare of late.

Sharma said in a government press release on Friday that Ikea will initially invest €600 million and subsequently an additional estimated €900 million “for initial establishment of 25 retail stores in a wholly owned subsidiary”. Ohlsson and Sharma met in St Petersburg, Russia on Thursday.

While Ikea confirmed in a press statement that it will invest €1.5 billion in retail expansion “over the coming years”, it didn’t refer to the retail stores, nor did it give a timeline for the investment.

Ikea’s decision will come as a symbolic boost for a government that’s been criticized for being unable to push through policies and turning investors off the country at a time when it needs them badly as growth splutters amid global uncertainty.

The gross domestic product (GDP) growth slowed to a nine-year low of 5.3% in the March quarter.

“This quantum of investment at a time when India is facing challenges of credibility both within and outside the country sends a positive statement from a business outlook perspective,” said Arvind Singhal, chairman of Technopak Advisors Pvt. Ltd, a management consultancy firm.

Sharma also met Olaf Koch, CEO and chairman of German wholesaler Metro AG on Thursday in Russia. Koch expressed satisfaction over his firm’s investment in India and apprised the minister about expansion plans in the country. “He also informed that soon they will raise the number of their stores from 10 to 16 in the country,” the statement said. A Metro spokesperson in India declined to comment on the expansion plans.

Ikea said it has already applied to the department of industrial policy and promotion (DIPP) to be allowed to establish a fully owned subsidiary in India.

“We expect DIPP to expeditiously process our application and present the same before the Foreign Investment Promotion Board (FIPB) for consideration of the government of India,” the company said. “Once our application is approved by the government of India, we will be able to share more information about our intentions to establish retail operations in India.”

The government had hoped its decision to remove the 51% ceiling on foreign direct investment (FDI) in single-brand retail in November would persuade high-profile brands such as Ikea, Louis Vuitton, Cartier, Armani and Rolex to invest in fully owned stores in India.

But a condition requiring 30% local sourcing from small industries in India has been a stumbling block. Small industries are defined as those with a total investment in plant and machinery not exceeding $1 million.

Friday’s commerce ministry statement said Ikea had certain reservations about the sourcing norms and discussed those with DIPP officials. “Suitable answers…were provided leading to the decision to invest,” the release said, without elaborating.

Ikea said it will source at least 30% of the purchase value of products sold in India from its “direct and indirect supply chain comprising Indian small industries”. However, it said the mandatory sourcing norm remains a challenge “in the longer term” and asked the government to review the requirement and “provide flexibility”.

Ikea Trading (Hong Kong) Ltd-India, headquartered in Gurgaon, employs 140 people and sources many popular Ikea items from India such as textiles, rugs, plastics, lighting and metal products for its global supply chain. Currently, it is working closely with 70 suppliers and 1,450 sub-suppliers, including many small industries.

According to the Sweden India Business Guide 2011-12, Ikea’s annual turnover in India is $645 million, while its global turnover is $31.4 billion. Worldwide, it employs 127,000.

Ikea is known to adapt to local market requirements. For instance, in Turkey and China, emerging economies similar to India, Ikea offers home delivery and assembly as a service. The company also takes time to scale up operations and has just half a dozen stores in China in its 10 years of operations there.

“It will be interesting to see where the company sets up (shop) and how it adds value to the manufacturing and supply chain logistics in India,” said Mark Ladham, president, home division, at Future Group, which has 38 stores in 19 cities.

Devangshu Dutta, chief executive officer, Third Eyesight, a Delhi-based retail consultancy, said Ikea is known to have large stores that exceed 100,000 sq. ft and are designed as all-day destinations for shoppers with café and restaurant options.

“In India, one of the biggest challenges is realty and they may adopt a more pragmatic approach here and consider smaller stores (because of high property prices). What they do needs to be seen,” Dutta said. “Additionally, Ikea is favoured for its very cheap products. But the reason they are cheap is largely because the cost of assembly and delivery is borne by the customer. If the company offers these services, it will have to relook at its prices very carefully.”

Technopak’s Singhal also said Ikea, which is known for developing vendors globally, will maintain this tradition. “This step will encourage growth of manufacturing set-ups for SMEs (small and medium enterprises),” he said.

Dhvani Modi, research analyst at ICICI Direct, a Mumbai-based brokerage, said the opening up of FDI in single-brand retail was a positive move for the country.

Boosting sourcing from India will encourage job creation and better development of the sector as a whole.

The Indian cabinet’s bid to allow 51% FDI in multi-brand retail was scuppered by intense resistance from within and outside the ruling coalition.

In a bid to revive the initiative, trade minister Sharma wrote to the chief ministers of Uttar Pradesh, Punjab and Orissa on 19 June seeking their support on the issue.

Suntory forms JV with Narang Group subsidiary to enter India’s non-alcoholic beverage market

Sarah Jacob, The Economic Times

Bangalore, 14 June 2012

Japanese conglomerate Suntory, known for its whiskies and beers, has picked up majority stake in a subsidiary of Mumbai-based Narang Group to enter India’s non-alcoholic beverage market.

Suntory Beverage and Food Asia, which manages the M&A strategy and administration of group companies of the ¥1,802.8-billion (approx Rs 1.3 lakh crore) Suntory Holdings in Southeast Asia, has bought 51% stake in Narang Connect.

"The joint venture (Narang Connect is rechristened Suntory Narang) is focused on premium, healthy, coffee-based and carbonated beverages," Rahul Narang, founder and chairman of Narang Group, said.

This is the group’s second joint venture with a multinational, having partnered French giant Danone for Qua and B’lue water in 2010.

"In the next 3-5 years we will be a major player in India, right under Coca-Cola and PepsiCo, and the largest players in the premium beverage segment," Narang said.

He did not divulge the valuation of Narang Connect, which provides coffee solutions for the Horeca segment and markets Lindt chocolates, Illy Coffee and in-house brand Karma coffee in India.

Established in 1899, Tokyo-based Suntory is one of the oldest liquor firms in Japan. In India, it began marketing Hibiki blended whisky and Yamazaki single malt last year through a tieup with Radico Khaitan.

Suntory also makes brands such as Oolong tea, Boss coffee, recently-launched Espressoda and zero-calorie drink Pepsi Nex, which was created as part of its three-decade-old partnership with PepsiCo.

Narang said the venture will launch low sugar or vitamin-infused drinks priced around Rs 30-35 for a 330 ml bottle.

"We would look at creating localised products, which is where Suntory’s research and development and manufacturing expertise will come into play," he added.

Suntory Narang has begun locally manufacturing citrus-soda Orangina through third parties and will roll it out across markets by October. Brands CC Lemon and Boss coffee will be launched after that.

Independent manufacturing was not on the immediate horizon, but the company did not rule out extensions into food categories in the future. Narang has been named the executive chairman of the firm. Avik Sanyal has been internally promoted within Narang Group to the post of COO of the JV, which is targeting sales of 700 million Japanese yen, or about Rs 50 crore, in the first year of operation.

Narang Group has a distribution network covering around 1.5 lakh points of sale across India, Narang said. Having entered the beverage segment by distributing premium bottled water Evian and energy drink Red Bull in 2003, Narang struck a joint venture with Danone in July 2010.

Analysts say there is significant room for growth as the Indian packaged beverages market. "Although there is intense competition in the beverage segment in terms of retail and advertising, the Indian per capita consumption of branded drinks is still very low," Devangshu Dutta, chief executive at consumer goods and retail consultancy Third Eyesight, said.

The total value sales of packaged soft drinks (including on-trade and off-trade) was Rs 35,150 crore in 2011, up 21.4% from 2010, market research firm Euromonitor International said. It added that value sales will increase 19.5% a year to reach Rs 85,500 crore by 2016.

Narang has ruled out a conflict of interest between the two joint ventures. While Danone is focused on products in the still water segment, the Suntory JV will focus on the sparkling or carbonated drinks segment.

Instead, he said there are synergies between the two ventures. "This deal gives us scale and we can share support functions, logistics, warehousing and IT. This helps build the businesses for all and joint benefits of costs, including for Danone," Narang said.

Indian Retailers Retrench As Reform Hopes Dashed

Nandita Bose, Reuters

Mumbai, 11 June 2012

India’s largest supermarket operator, Future Group, is having a clearance sale: its financial service business and flagship clothing brand are gone, and more deals are in the pipeline.

Six months after the government backtracked on plans to allow foreign retail giants such as Wal-Mart Stores and Carrefour to form joint ventures, cash-starved domestic chains are selling assets, shutting stores, and scaling back expansion plans.

It seems improbable that retailers could be in such trouble in India. They have the world’s second-largest population, increasingly affluent consumers, and limited competition.

But things are tough for supermarkets, a relatively new business sector in India, with every major chain losing money. The economy has lost momentum, compounding problems of high food inflation and low retail prices, and expensive real estate.

Foreign partners would bring experience, expertise and funds, but many in the industry do not expect a decision on foreign investment in supermarkets before elections in 2014.

"These companies have realised there is no point standing still and bleeding more, waiting for the government to act," said Debashish Mukherjee, partner and vice-president with consultancy AT Kearney.

Alternative Funding

With foreign investment ruled out, many supermarkets, which account for 70 per cent of organised retail in India, are looking to private equity investors or hitting up their billionaire owners for more capital as they continue to bleed.

"Foreign private equity firms are in talks with smaller businesses which are less capital intensive. So this option is ruled out for the big boys," said an investment banker who did not wish to be identified.

Last November, after years of delay, the prospect of a foreign partner appeared tantalisingly close for the domestic chains. India said foreign supermarket operators would be able to own up to 51 per cent of a joint venture.

Industry euphoria proved short-lived. Under pressure from ruling coalition allies, the government backtracked in an embarrassing reversal that has come to symbolise the inability of Prime Minister Manmohan Singh’s administration to enact reforms.

Indian traders and middlemen vehemently oppose allowing foreign chains into a $450 billion retail industry where 90 per cent of sales are made by informal "kirana" stores, which are generally family run.

Proponents argue the infrastructure and investment that can be brought by the likes of Wal-Mart would go far to ease crippling food inflation and a high rate of food spoilage.

"We are going cautious with our expansion plans," said Mark Ashman, chief executive of Hypercity, the hypermarket arm of Shoppers Stop, which, like many of its rivals, hopes to join forces with an overseas retailer once the rules change.

"If foreign direct investment was allowed, the appetite for expansion for us would certainly be higher," he said.

A Smaller Future

Future Group, controlled by Kishore Biyani, known as the father of Indian retail, recently sold control of its financial services arm Future Capital to private equity firm Warburg Pincus.

Future, which sells groceries under the Big Bazaar and Food Bazaar brands, announced the deal days after it sold a controlling stake in its flagship clothing brand Pantaloon. The two deals will wipe about $1 billion in debt from its books.

"Our intention is to exit from non-core businesses and focus on core retail business," a company spokesman said, adding Future Group aims to be debt-free by the end of the fiscal year in March 2013.

"Two recent deals are not the last ones from us."

Future is now in talks to sell a stake in its food processing and manufacturing business to Japan’s Lawson Inc, Japan’s No.2 convenience store chain, a source with direct knowledge said, adding a deal would be finalised soon.

Lawson spokesman Shin Ichikawa said the company was in talks with several potential partners about entering India, but declined to name them and said nothing had been decided.

Future Group also plans to exit its insurance joint venture with Italy’s Generali, although a possible deal is further off, said the source with direct knowledge who declined to be identified.

Scaling Down

As well as selling assets, Future Group, which operates more than 1,300 grocery stores covering 16.5 million square feet (1.5 million square metres) across its different formats, is also scaling down growth plans.

The source said the group will only open 2 million square feet of retail space this fiscal year, instead of a previously announced 2.5 million square feet (230,000 square metres).

Future is not alone. Aditya Birla Retail has shut 50 of its More supermarkets and is closing loss-making outlets in Mumbai, Delhi and Pune to focus on hypermarkets, a company source said.

The company, part of the Birla conglomerate, has also sought another Rs 300 to 400 crore from controlling shareholder Kumar Mangalam Birla, the source said.

Even mighty Reliance Industries, the conglomerate controlled by Mukesh Ambani, India’s richest man, has been unable to make money in retail after six years in the business and 1,300 stores.

Still, it has no plans for a foreign partner and is pushing ahead with expansion of its supermarket chains.

"Food and grocery retailers have been suffering in most of the major markets," said Devangshu Dutta, consultant with Third Eyesight.

"Many believed India to be insulated, but that’s not the case."

Anita Dongre creates designer labels for masses

Abhinav Mohapatra, Pitch
Mumbai, 11 June 2012

The Indian fashion retail industry is witnessing a massive transformation with the growth of organised retail and increasing fashion sensibilities of the Indian mass consumer. Taking a cue from the emerging trends in the Indian fashion industry, Anita Dongre, lifestyle and fashion designer has created a niche in this space on the back of a strong market segmentation strategy and a well-planned retail presence.

If you’ve got it, flaunt it

The upper and upper middle class of the consumer segment does look where it is investing its money, even in the small things like apparels, but also wants to carry a style statement for the same. Eyeing an opportunity in the growing mass apparel market, Anita Dongre is bringing high street fashion to the mass consumer.

“As more Indian women step out to active working lives, they are looking for styles that draw upon Indian design influences and sensibilities, but are fresh, with cuts and silhouettes that are convenient to wear,” says Devangshu Dutta, Chief Executive, Third Eyesight. He also adds that the apparel market in India is far from saturated and in spite of the entry of international brands, there is ample scope for growth of Indian brands. “However, the challenge for design-based businesses in India is to create an organised structure that allows the business to scale.” Dutta adds.

Currently, Dongre’s brands’ retail presence is strong with 75 exclusive brand outlets and over 250 Multi Brand Outlets. She plans to expand her presence beyond Indian borders and fully transform into a global lifestyle brand. “We are looking to expand demographically, looking to expand to different continents.” Dongre shares.

Market segment must in fashion industry

In principle, for any successful business or marketing plan it is imperative to have a market segmentation strategy in order to understand who exactly the consumer/market is; and the fashion industry is no exception to this rule. Hence in order to expand her brand’s reach to various potential TGs, Anita Dongre categorised three kinds of probable consumer sets. Dongre explains, “We actually started with mid premium and mass segment and are now moving to offering a premium brand. We wanted to target all the segments and product the best in each. Our labels cater to various tastes and requirements and internally, we treat each brand as a separate unit when it comes to design, marketing and strategy.”

Her brand portfolio consists of high street Western wear label AND, Indo-Western fusion labels like Global Desi and IInterpret, Timeless bridal wear, Grassroot that caters to ethnic fashion and organic wear, and AD Man, which is her foray into menswear. Most of her brands have strategically occupied the shop in shop format in various lifestyle chains like Shoppers Stop and Pantaloons.

Though multi brand outlets sport many such designer brands which do create awareness for these products but also are not able to compete with mainstream brands such as Levis, Pepe, UCB and USI etc. Hence, Third Eyesight’s Dutta feels that the strongest brand is one that stands out as distinctive in a department store environment and also has the ability to support a stand-alone exclusive store. For that, the product range has to be both wide and deep, and the ‘handwriting’ of the brand must be distinct from its competitors, season after season. Dongre has hence kept the emerging fashion consciousness among men consumers and started an apparel line catering to the same. She adds, “We have also started small with Timeless and AD Man and are looking to take these two all over India.”

Explaining the fashion industry structure at apparel design segment, V Rajesh, retail subject matter expert says that there are three levels the top end, that have players like Rohit Bal who cater to specific targets and extremely niche category, at the next level there are these top end designers who have their own line of clothing and boutiques like Ritu Beri, and at the bottom there are those who are from the merchandising background and design for major retail outlets like Shoppers Stop and Lifestyle. Dongre fits all the three.

Hence, he adds that apparel is more a functional product with the change of trends and time the role of the designer who has a more hands on job also changes accordingly. “In addition, these affordable designers have a plus point, they have a craving to be unique and stand out. That is why they look for clothes that are affordable as well as have a signature design. The only minus point in that in India nobody has respect for intellectual property rights,” he adds. Thus, there is a lurking threat of imitation in the apparel market in India.

Affordable designer tag

Nevertheless, the retail expert thinks that today the mass segment obviously cannot afford apparel showcased in Lakme or Wills fashion week. Thus, if they get a chance of getting apparels by the same designer at a much affordable rate, it is a good proposition for both the consumer and the marketer.

Thus, the budding apparel entrepreneur has consciously kept the prices of her more popular brands AND and Global Desi between Rs 1,500 and Rs 4,000. Thus, the value for money proposition and a designer tag not only suit the pockets of her various TGs but also fills the aspirational need of the consumer.

In addition, according to brand expert and columnist Santosh Desai, Indians are bent up on value for money, they look at the price point and from that perspective there are many different designers to look at in today’s market. The Indians look at affordable apparels that have got the signature tags of these designers. “Therefore we see a balance being created between the seriousness of the designers and the price tag that comes with their signature apparels,” he adds.

Desai strongly feels that there is an overall need in the market today and there is a good opportunity for designer brands to flourish. As Indians look for originality that distinguishes them from the mainstream, these designer brands are changing their view from being on the top end of the pyramid to catering to the masses at the bottom too. “In the case of Anita Dongre, she has originality and distinguished design that attracts the market, also she has many brands running under one umbrella and a more than one line of apparel,” Desai sums up.

Modern retail: Small town India checkmates metros

Priyanka Golikeri , Daily News & Analysis (DNA)

Bangalore, 6 June 2012

For IT professional Meena Sarma, living in Mysore no longer implies a small-town existence. The historical city has everything, from corporate parks and hotels to dazzling malls.

Being a shopaholic, she is glad that from salad dressings and Dutch cheese to the latest apparel and footwear brands, everything is available within reach, the precincts of her neighbourhood or office complex, just like in any other megalopolis.

A welcome change, says Sarma, as this was not the scenario some years ago. Earlier, we could shop only at neighbourhood mandis and local stores, she says. “As there were hardly any supermarkets and hypermarkets within easy reach,” she adds.

This meant stocking up on her favourite food and clothing brands during every visit to Bangalore. Nowadays, the 28-year old, who earns Rs. 35,000 monthly, prefers buying groceries and perishables from any of the organised outlets dotting her street.

At least thrice a week, she ends up making a trip to the supermarket, spending an average Rs. 200-300 per visit. In contrast, her visits to the local kiranas have come down to a trickle.
“Unless it’s a sudden realisation of oil or flour getting over at home, I don’t visit the provision store next door.”

Sarma likes the air-conditioned ambience, the discounts on MRP given on certain products, not to forget the spread of international savoury and dairy food.

Tier II towners like Sarma, who breeze into retail outlets twice or thrice a week, are a chief reason behind the surge in growth in modern trade in non-metros. Data by Nielsen show that tier II markets like Surat, Indore, Jaipur, Vizag and the like are witnessing rapid growth in modern trade (see table). Not only are these places registering strong double-digit numbers, but are often clocking more growth than established markets like Mumbai, Chennai and Kolkata.

Like the metropolitan shopper, tier II and III town shoppers also display the same purchasing power and willingness to buy a wider category of brands, say experts. Jamshed Daboo, CEO, Trent Hypermarkets, says there is a distinct trend towards shopping in a modern environment that offers a variety of local and international products. Trent has 15 hypermarkets measuring 35,000-80,000 sq ft, including those in small towns like Aurangabad, Surat and Kolhapur.

Others like Spar have outlets in towns like Coimbatore, Vijaywada and Mangalore spread across 35,000-40,000 sq ft.

Likewise, the Bharti Walmart joint venture also has a presence in tier III towns like Ludhiana, Guntur, Meerut, Agra, Amravati and the like. It operates 17 wholesale cash-and-carry stores spread across 50,000-100,000 sq ft in such places. “Often, breakfast cereals, canned food, jams and salad dressing are hot favourites with customers,” says Daboo, adding that all the stores stock products by British retailer Tesco – with which Trent has an agreement – and other international goods priced between `30-500 per unit.

Devangshu Dutta, CEO of consulting firm Third Eyesight, says tier II towns have done well for retailers primarily because rentals and other associated costs are lower while competition from modern trade is limited.

“But the challenge is to ensure there is repeat purchase and basket sizes are gradually upgraded with people buying more rather than splitting their baskets across stores,’’ says Amitabh Mall, partner and director, Boston Consulting Group.

The consumer basket is often split between stores as people still prefer to go to traditional stores for certain products. “Like buying rice from mandis or fruits and vegetables from the local sabziwalla,” says Mall.

Also, though stores in small towns exude optimism, at times the productivity is just marginally below those in metros, according to experts. General outlets in metroes spread between 80,000-1 lakh sq ft witness monthly footfalls exceeding 6-10 lakh. But in small towns, the picture is slightly different, as stores are smaller in size and population less.

Dutta says a small town may not be able to support a store more than 15,000-25,000 sq ft, even with a similar “one-stop-shop” offer.

Says Viney Singh, MD, Max Hypermarket India, “Our stores in small towns have an average footfall of 150,000 per month and this is growing at about 5%.’’