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.
(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:
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.
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.
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.
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.
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.