admin
September 19, 2012
Leonie
Barrie, just-style.com
September
19, 2012
Moves last week by the Indian government to open the country’s multi-brand retail sector to foreign investment have been hailed as everything from a “historic decision” to a “big bang” reform.
But observers also warn that far from reviving economic growth, the plans come with so many restrictions that they may well deter overseas firms from investing in the country. And the prospect of strong opposition from within the ruling coalition may also mean the measures have to be abandoned before they have a chance to get off the ground.
After all, relaxation of foreign direct investment (FDI) rules in India has long been a contentious issue, and it was just nine months ago that a similar plan was rolled back in the face of fierce opposition.
At the time, the government was able to ratify its decision allow up to 100% FDI in single-brand retail – but was forced to suspend plans to extend FDI to 51% in multi-brand retailers.
It now hopes the latest raft of reforms settle outstanding concerns about easing investment restrictions.
Under the proposed new rules, multi-brand retailers such as Wal-Mart, Tesco and Carrefour will be allowed to own a 51% stake in supermarkets, but with conditions that include:
This last point also applies to single-brand operations in India. At the moment, if they have more than 51% foreign investment, at least 30% of merchandise must be sourced from small and mid-sized Indian companies, artisans and craftsman.
Who stands to benefit?
The changes would enable single-brand companies to take complete control of their Indian businesses, as long as 30% or more of the merchandise on sale is already sourced locally.
It’s an attractive market, since India’s single-brand retail sector is valued at roughly $7bn, and is expected to reach $20-25bn in value over the next five years. The country also boasts a growing population, including 300m individuals identified as ‘middle-class’ with a purchasing parity equivalent of $30,000/year.
As retail consultancy Third Eyesight notes, this is an important change and “opens up possibilities of sourcing from the retailers’ current supplier base that may comprise of larger companies.” It may also lead to the growth of Indian companies who benefit from being plugged into the retailers’ global supply chains.
However, the management consultancy also points out that, conversely, for multi-brand retailers the sourcing stipulation remains a significant barrier, “since neither the retailer nor the SME vendor base would be able to draw upon efficiencies of scale with growth of the retailer’s business in India, nor benefit significantly from any export opportunities presented by the retailer.”
It also notes that the local sourcing requirement will remain a barrier for brands that do not source any significant volumes from India.
The changes would also mark a milestone for international retailers of multi-brand products who have until now been restricted to cash and carry formats and “back-end” supply businesses. “This is a significant motivator for global retailers who are looking at future decades of expansion,” Third Eyesight says.
The Washington based US-India Business Council (USIBC) describes the government as “courageous” for making another attempt to push through the reforms, and says it “serves as an assurance to investors that its economic liberalisation agenda is back on track.”
“India’s supply chain infrastructure will see improved efficiencies and expertise, consumers will benefit from increased quality and choice, and inflation and rising food costs will be tamed,” says Ron Somers, president of USIBC. “These big bang reforms send a crystal clear signal that India is open for business.”
Meanwhile, the Confederation of Indian Textile Industry (CITI) hails the decision for encouraging organised retailing and its centralised procurement and improved supply chain management. This, in turn, will reduce costs for businesses and prices for consumers, especially for textiles, and push up consumption,” its chairman SV Arumugam claims.
The Apparel Export promotion Council (AEPC) agrees that the move “will give a much-needed fillip to the entire textiles industry.” Its chairman, Dr A Sakthivel, notes employment opportunities, increased manufacturing activity and a rise in demand for cotton products and yarn are among the likely benefits.
“Domestic demand is going to pick up,” he enthuses, adding: “It will lead to easing of inflation in the country and small and medium enterprises will also benefit out of this policy change. Gradually GDP will pick up and economic outlook will improve.”
“This historic decision is going to be beneficial to domestic textile and garment export industry in a big manner and would also encourage overseas big retailers to source from India.”
A note of caution
But it’s important not to get too carried away just yet.
Fierce opposition from both outside and within India’s coalition government means there is no guarantee policy decisions will go ahead.
Indeed, Mamata Banerjee, founder and leader of All India Trinamool Congress, Chief Minister of West Bengal and member of India’s ruling coalition, has already announced her opposition to the reforms.
A key catalyst in last year’s abandoned attempt to drive change, she said yesterday (18 September) that the Party would resign in protest over plans to open the door to foreign investment in the retail sector.
Leftist parties have also called for a national strike on Thursday in protest at the plans and at other reforms announced last week, including a hike in diesel prices.
Another word of caution comes from Jon Copestake, retail analyst at the Economist Intelligence Unit. He notes the situation arising “appears to be identical to the postponed attempt to do so last December, when the government approved the easing of restrictions but was forced to backtrack by widespread popular opposition. It may still be premature to see the measures succeed in becoming law.”
(This article appeared in just-style.)
admin
September 18, 2012
Written By Devangshu Dutta
Among consumer sectors, very few can match up to fashion in terms of its global nature. Despite food having led the way in global trade through spices, it is the fashion sector that led the global march of brands. As the economies in Europe and Asia recovered and grew, historical colonial linkages as well as modern culture-vehicles such as movies carried images of what was cool in the benchmark culture. Fashion brands were the most identifiable representation of cool.
India itself has known international fashion and luxury brands for several decades. From the mass footwear brand Bata to the top-notch luxury of LVMH, some of whose most important global customers included the rulers of Indian princely states, international fashion brands have an age-old connection with India.
In spite of these old links, the absolute base of consumers for fashion brands was small, and for them, prior to the 1980s, India was a relatively low potential market with low attractiveness and low probability of success.
A transition began in the 1980s, as India moved emphasis from central planning and a restrictive economy to a more liberal business regime, and brands and modern retailers started growing in presence gradually.
During this transition period, other than the notable exception of Bata, it was mainly Indian brands that were at the forefront of modernisation of retail in India, with the first retail chains being set up for textiles, footwear and clothing. Though the seeds were laid earlier – Liberty is credited with the launch of the first ready-to-wear shirt brand in the 1950s, Raymond with the first ready-to- wear trouser brand in the 1960s – the growth started in real earnest only in the 1980s when apparel exporters such as Intercraft (with brands like “FU’s”), Gokaldas Exports (“Wearhouse”), and Gokaldas Images (“Weekender”) also tried their hand at modern retail, as did corporate groups (“Little Kingdom” for kids and “Ms” stores for womenswear).
Yet, even in the early to mid-1990s, when western companies looked at the Asian economies for international growth, West Asia and East Asia (countries such as Japan, South Korea, Taiwan and even Thailand) were seen as more attractive due to higher incomes and better infrastructure. In the mid-1990s there was a brief upward bump in international fashion brands entering the Indian market, but by and large it was a slow, steady process of increase.
By the mid-2000s, however, a very distinct shift became visible. By this time India had demonstrated itself to be an economy that showed a very large, long- term potential and, at least for some brands, the short to mid-term prospects had also begun looking good. In a few years, from 2005 onwards, the number of international fashion brands entering the market has increased 4-fold.
Market Still Evolving, but Brands are Confident
The sheer number of brands that are now present in India and the new ones that are entering every year is a clear sign of strengthening confidence among international brands that India is now one of the most important markets that they cannot ignore for long.
There is a visible acceleration of growth in absolute revenues, too, being achieved by individual brands. Brands such as Levi Strauss, Reebok, Louis Philippe (a British brand formerly owned by Coats Viyella, now by Aditya Birla Group for India and other territories) and its sister brands took perhaps 12-15 years to break through the threshold of R5 billion in sales turnover, but industry opinion is that the “0 to 5000” trajectories today are faster and that younger brands are likely to take less time – under a decade – to cross the threshold. While modern apparel retail currently contributes less than 20 per cent of the total apparel market, with growing incomes and increased availability of modern retail environments, consumers are spending more on branded fashion than ever before. In the year closing March 2012, at least 2-3 additional brands (including Indian ones) are expected to cross the R5 billion threshold.
Clearly, there are few markets globally that can support potential growth from zero to US$100 million in a decade, with the potential to even reach a billion- dollar mark within the next couple of decades. However, some of these markets are already hugely competitive, and also going through painful economic churns. India, on the other hand, is a market that is at the earliest stages of consumer growth – it is, in the words of the managing director of a European brand, a market where “a brand can enter now and live out its whole lifecycle”. In fact, it is tempting to compare the emerging golden bird of India to the golden dragon of China where western brands seem to have rapidly established as products of choice for the newly affluent Chinese consumer during the last 15 years or so.
In our work with brands and marketers from around the world, we have to constantly remind them that not all emerging markets are the same. The explosion of luxury and premium brands in China during the last decade or so has happened on the back of explosive economic growth that came after a long cultural and economic vacuum. When the new money wanted links with the old and when uniform grey-blue suits needed to give way to something more expressive, well-established western premium and luxury brands provided the most convenient bridge.
‘In India “discernment” may be a new experience to the newly-rich Indians for whom brands can be a valuable guide and “secure” purchase, but discernment and taste are not new to India as a whole’.
On the other hand, in India “discernment” may be a new experience to the newly-rich Indians for whom brands can be a valuable guide and “secure” purchase, but discernment and taste are not new to India as a whole. More importantly,differentiation and self-expression never disappeared even during India’s darkest years of “socialistic” economics.Therefore, the Indian market has a more “layered” approach to the premium fashion market and will continue to grow in a more fragmented, more organic manner than the Chinese market. There would be multiple tiers of growth available for international as well as Indian brands. For international brands customisation and Indianisation will be important. This is already visible in bespoke products by Louis Vuitton and Indian products by brands such as Canali (jackets) on the one hand, and significant re-thinking on product mix and pricing by brands such as Marks & Spencer. That brands are willing to rethink their position in the context of the Indian market demonstrates that they see India as a strategic market, worth investing in for the long term.
Another sign of the growing confidence amongst international brands in the Indian market is the number of companies that are looking at directly investing in joint ventures, or even going further to set up wholly-owned subsidiaries in the country.
It is worth keeping in mind that setting up a subsidiary is a decision that is not taken lightly, regardless of the size of the business and the amount of investment, since it involves a disproportionate amount of management time and effort from the headquarters during the launch and early growth phase where revenues are small and profits non-existent. Among our clients, brands have taken the decision to step into an ownership structure in India when they feel that India is too strategic a market to be “delegated” entirely to a partner (whether licensee or franchisee), or that an Indian partner alone may not be able to do justice to the brand in terms of management effort and financial capital. In the last few years we have seen several brands take the plunge into investing in the Indian business, among them S. Oliver (Germany), Marks & Spencer (UK) and Mothercare (UK).
During 2011 specifically, Promod changed its franchise arrangement with Major Brands into a joint-venture that is majority-owned by Promod. From its launch in 2005, the brand has opened 9 stores so far. However with the new JV in place, the venture is reported to be looking at opening 40 stores in the next five years.
Most recently, Canali was one of the brands that moved into a majority-owned joint-venture. The brand entered in India in 2004 through a distribution agreement with Genesis Luxury. This has recently given way to a joint venture between the two companies that is owned 51 per cent by Canali. The brand currently operates five exclusive stores in India has plans to accelerate the brands growth in India by opening 10-15 stores over the next three-four years.
The Impact of FDI Regulations
If a “theme of the year” has to be picked for the Indian retail sector in 2011, it must be ‘Foreign Direct Investment’. The debate during the year was hardly a clean and clear “pro vs. con” exchange of ideas. It was a motley mix of extreme lobbying for and against FDI, some balanced reasoning on why FDI should be allowed, and also moderate voices calling for governing the speed at which and the conditions under which foreign investment could be allowed. In many cases there seemed to be dissenting voices emerging from within the government. One possible impact of this uncertainty through the year was that several brands postponed their decisions regarding the potential entry and the strategy that they would follow in India with regard to partnership or investment.
In November 2011, the Indian government announced that 100 per cent foreign investment in single brand retail and 51 per cent foreign ownership of multi- brand retail operations, but was forced to back-track due to vociferous opposition from several quarters. At the very end of the year, the government finally reopened 100 per cent foreign ownership retail operations, albeit limiting it to single brand retail businesses. However, it allowed this under the condition that the Indian retail operation would source at least 30 per cent of its needs from Indian small and mid-sized suppliers.
The condition of 30 per cent domestic sourcing from SMEs is well-intentioned – aiming to provide a growth platform for India’s manufacturing enterprises – but unachievable for brands that do not currently source any serious volumes from India. In fact, for most international fashion brands India contributes less than 10 per cent of their total sourcing, in many cases well under 5 per cent. Under these circumstances, we shouldn’t expect any dramatic changes, though we do expect the growth in joint-ventures and subsidiaries to continue in the coming months and years.
If an international brand perceives India to be at the right stage of development, and it wishes to exert significant or complete control over its Indian presence, then a majority or completely owned subsidiary seems the most logical step, and the brand will find a way to structure its involvement in India appropriately. However, many brands that today have a 51 per cent ownership in India are stopping short of climbing to 100 per cent until they can sort out how to meet the SME sourcing conditions.
Getting Over the Sourcing Hurdle
The problem with the 30 per cent sourcing rider is simple. When a brand launches in India, it would like to present the consumer with the most complete product offering that showcases its capabilities and positioning as relevant to the target consumer in India. In most instances, the brand would not be sourcing the full range of its merchandise from India.
This is not a problem if the brand approaches the market through a wholesale or franchise structure, or even with a retail business that is not owned by it 100 per cent. But for a retailer that wants to own the Indian business completely, complying with the 30 per cent domestic sourcing restriction means developing a new set of suppliers in India from scratch, pulling in the design and product development staff to work with them, and to develop ranges that suit not only the Indian market, but also other markets around the world. Simply putting together an India-specific sourcing team to replicate the entire range to buy small volumes for the Indian business is neither practical nor feasible for most of these brands. This means that the product development and sourcing team must be willing to see India as a strategic supply base for the future, just as their selling-side colleagues may be seeing it as a strategic market.
In this context it is worth repeating something that I have said before: retail managers are generally risk averse, and like to move in packs – where there are some brands, more come in and create a mutually reinforcing business environment. The presence of other international brands – especially from their own country – helps in creating a familiar context at first sight and encourages further exploration of the market. At least for the executives handling international retail expansion, India presents a more ‘familiar’ and ‘developed’ face today than ten years ago.
However, the explosive growth that we have witnessed in terms of the number of brands present in India is not mirrored by the growth of fashion sourcing out of India. In fact, even when compared to what has happened in the global textile, apparel and footwear sourcing environment since quotas were removed in 2005, the India’s export growth looks dispiritingly low, even stagnant. China still remains the largest source for fashion products, while countries such as Bangladesh, Indonesia and Viet Nam have grown their share aggressively. India’s share of clothing exports is a lowly one-tenth that of China.
In our work related to global sourcing strategies for western retailers, on an objective measurement matrix of sourcing competitiveness India rates highly. In several cases, sourcing from India as a hub (and, for European retailers, Turkey as a hub) has been seen as a logical counterweight to balance out the high concentration of current sourcing in China.
However, product development and sourcing is not entirely an objective process – in fact, sourcing habits are sometimes the hardest to change. The buyer’s subjective experiences – sometimes buried deeply in the past career – have a significant role to play. A conversation from 2001 with the sourcing head of a European brand sticks in my mind, when he said, “I don’t really want to buy anything from India – Indian suppliers can do a very limited product range, quality isn’t always good and the shipments are always late.” On probing further, I discovered that his last transaction was in 1992, after which he never set foot in India again. Much as we might present statistics and facts about the developments in the Indian textile and apparel industry, a personal injury early in his career has left a deep scar that obviously influenced this gentleman’s buying decisions worth over €300 million in global apparel sourcing, or about €700-800 million worth of sales.
There is clearly much to be done in terms of encouraging modernisation and better organisation amongst apparel suppliers, and making those changes visible to buyers. Even brands that are well-engaged with the Indian supply base have between 40-70% of their people here focussed on in-line and post- production quality issues. We are today at a stage where larger and better- equipped apparel exporters would be best placed to address the needs of international brands within India, but find the volumes too small to bother with setting up entirely different documentation and accounting processes.
Health & Safety and Labour compliances are also areas in which the brands will not forego their corporate standards. Can we imagine a brand saying that its European customers do not want their products made in sweatshops, but for the Indian consumers of the brand this is not (yet) an issue? While this may be a fact, would a high profile brand risk its global reputation to source competitively for its small Indian business?
So a government dictat to international brands’ fully-owned subsidiaries to ensure that they source 30 per cent of their needs is not enough. At best it will encourage some of the brands to start looking at India more seriously, but a more likely scenario for most brands is that they will carry on business as usual until the supply base in India pulls up its socks, or until the business in India becomes large enough to be interesting to their existing Indian suppliers who are currently focussed on exports.
Certainly the government itself needs to do much for more manufacturing- friendly policies, as well as focussed investment in infrastructure that can provide rapid, efficient and cost-effective transportation from the country and within the country.
It is time to bridge the gap between “textile exports” and “fashion retail” in the country. Remember, the explosive growth of brands in China followed the manufacturing explosion, not the other way round. Until the Indian apparel, textile and footwear manufacturing sector grows strongly, the actual volume growth of modern fashion retail will remain hobbled, regardless of the number of brands that enter the market.
To me this statement by a senior professional from one of Hong Kong’s largest apparel companies says it all: “The Indian industry looks like a formidable competitor, the day it decides to wake up.”
Drawing the Full Circle of Confidence
In closing I would like to mention the least acknowledged, but a very important part of the growth of international brands in India: the acquisition of brands overseas by Indian companies.
The Aditya Birla group laid an early foundation when it bought out, for India and several other territories, the perpetual rights for Coats Viyella’s brands including Louis Philippe, Van Heusen and Allen Solly. Lerros was a slightly different example – being a brand that was set up by the House of Pearl in Germany – but that also circled back to India. More recently (2010) we have the example of the Swiss company Switcher Holdings, whose with brands including Switcher, Respect and Whale, was bought by PGC Industries.
In markets such as the EU, there are today brands that may be available because they are finding
difficult to survive in harsh trading environments and that do not have the financial or management bandwidth to take on initiatives in growing markets like India. These offer a legitimate growth platform for Indian companies that are strong in manufacturing those product categories and want to move higher up the value chain from being a generic commodity “supplier”.
Although exporters may initially approach these brands for franchise or license relationships, to some it soon becomes clear that if they are in a position to make an incremental investment they could well own the perpetual rights and perhaps the whole business, rather than investing in building up someone else’s brand, especially in the business in India is likely to grow very rapidly. Obviously, this new-found confidence needs to be backed with solid management capability, but as other consumer goods companies such as Tata (beverages, automotive), Mahindra (automotive) and Dabur (personal care) have shown, it is entirely feasible to look at growth in India as well as internationally by using an existing international brand as a stepping stone.
It also presents a challenge of classifying such brands as international or Indian. Bata was founded in the Czech Republic and went global from there – however, today it is legitimate to treat it as a Canadian brand since its headquarters moved there in the 1960s. Among other products, Gloria Jean’s Coffee was founded in the USA, but is now completely Australian-owned. In that sense, today would that not make Louis Philippe, Allen Solly, Switcher Indian brands?
I think this puzzle is a challenge that many people in the industry in India would look forward to contributing to.
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admin
September 18, 2012
Vandana,
The Week
September
18, 2012
There
was a time when the Murjani Group was synonymous with luxury retail
in India. It offered Indians a taste of luxury by bringing in
iconic brands such as Gucci, Jimmy Choo, Bottega Veneta and La
Perla. However, the “luxury powerhouse” exited all its
joint ventures in just about two years, and has now moved to premium
lifestyle brands.
What went wrong? “Imbalance between franchisers and franchisees is one of the biggest challenges for luxury retail in India,” says Mohan Murjani, the group’s chairman. Experts note that though margins are quite high in luxury business, Indian partners often get only a small share.
The Indian luxury market is going through a shake-up. Even as the country went full throttle in projecting itself as the most happening destination for luxury sales, recent developments seem contradictory.
About one-third of 150 international fashion brands launched in India since 2006 have either changed partners or exited the market. Twenty-six brands changed partners, and as many brands exited the market, says consumer goods and retail consultancy Third Eyesight.
Take the case of Alfred Dunhill. The British luxury menswear
and accessories brand is winding up its India operations. It has
already shut its stores in Delhi, Mumbai and Bangalore. Dunhill
was partnering Brandhouse Retails, which also deals with global
brands such as Reid & Taylor, Belmonte and Carmichael House.
Analysts say the disconnect between partners is one of the major reasons for ‘separations’. Deals fall apart when one fails to meet the other’s expectations. In the case of Dunhill, S. Kumars, which owns Brandhouse Retails, apparently did not have sufficient experience to market a luxury brand. Most brands in its portfolio are, at best, premium.
“Luxury is a high-gestation business. You need to wait for eight to ten years to reap the returns. S. Kumars might not have wanted to wait for that long,” says an investment banker who has worked on deals with the brand.
Also, store expansion of luxury brands happens at a slow pace. For instance, in the past four years, Dunhill opened just three stores in India.
“Basically, there is a very different thought process needed to market luxury,” says Neelesh Hundekari, principal at consultancy firm A.T. Kearney. “The luxury market in India is still at a very nascent stage. Consumers in India are still evolving and we have not even completed a cycle.”
While Dunhill chose to quit India, several other luxury brands have been breaking away from partners and realigning their India operations. DLF Brands, the retail vertical of India’s largest real estate developer, recently parted ways with Italian luxury major Giorgio Armani. It has also put on hold its expansion drive with Salvatore Ferragamo.
DLF Brands started off in 2008 with huge plans. It even started a dedicated luxury shopping destination, Emporio Mall, in Delhi. But it could not maintain the momentum. With the parent company under financial stress, DLF Brands was not able to invest into its partner brands. Also, it could not reach its five-year targets, which restricted growth further.
The group is now going the Murjani way and gradually freeing up its portfolio of luxury brands. “Luxury is a futuristic business at the moment in India. The premium segment is much more profitable and scalable,” says DLF Brands chief executive officer Dipak Agarwal.
He adds that luxury brands do have a big future in India, but they will need another five to seven years to achieve a strong scale and market size. “For us, size with speed was important,” he says. The company opened only four Ferragamo and three Armani stores since it entered the luxury brands segment in 2008 as expansion of such brands in a limited market was difficult.
In comparison, its British partner in the premium segment, Mothercare, which sells prams, pushchairs, car seats, baby clothes and maternity dresses, entered India in 2009 and already has 42 stores. It will add another 15 outlets this year. Understandably, DLF has planned aggressive expansion for premium brands in its portfolio.
Another separation story is of Delhi-based Blues Clothing Company and Italian brands Versace and Corneliani. Blues, which started off as a suit retailer, shot to fame by tying up with the two marquee brands. But the partnership hit the wall as, sources say, Blues did not have sufficient financial wherewithal and management bandwidth.
“International brands are looking for Indian partners who have the ability to facilitate growth and help multiply their presence across the country, housing them in the right environment and coming up with out-of-the-box ideas,” says Roasie Ahluwalia, general manager (marketing), Genesis Colors, which markets Burberry and Jimmy Choo.
The global slowdown, too, has been a spoiler. “It extends the gestation period for a business to break even. It also reduces the ability of companies to pump money into a venture,” says Devangshu Dutta, CEO, Third Eyesight.
And to top it all, policy roadblocks—chiefly FDI in retail—have irked foreign brands planning Indian launches. “It is a great disappointment that the government has not been proactive in pushing policy reforms,” says Tikka Shatrujit Singh, chief representative in Asia, Louis Vuitton Moet Henessey. “Instead of encouraging investment, they have delayed the whole process. And for want of a suitable avenue, investments may go elsewhere.”
(This article appeared in Week.)
admin
September 17, 2012
Nupur Anand, Daily News & Analysis (DNA)
Mumbai, September 17, 2012
Trousers
at 80% off, a pair of Reebok sneakers for 60% less, buy two shirts
and get four free.
Discounted apparel stores that include Cantabil, Koutons, Vishal
Retail and Loot had created a buzz with such too-good-to-believe
offers when they first appeared on the retail scene a few years
back.
The deals, available round the year, were good enough to tempt
even the tight-fisted shoppers.
And with inflation pushing up apparel prices, these firms were
expecting a windfall and long queues before their stores.
However, things haven’t turned out as per expectations as fewer
footfalls and inventory pile-ups have reduced the industry to
half in the last one year.
Experts said the discounted apparel industry, which was estimated
to be Rs 2,000 crore till 2010-11, is now not worth more than
Rs. 1,000 crore.
Extended sale seasons by regular brands to beat economic slump,
adverse impact of an excise duty hike, negative brand perception
and "deceptive" pricing have led to the decline of discounted
apparel stores, they said.
Consequently, stores that went on an expansion spree during 2008-2010
have been consolidating and closing down several stores across
cities. The excise duty hike of 12% in 2012 Union Budget has been
a huge dampener for the industry.
Abhishek Ranganathan, analyst at MF Global, said the tax was
required to be paid on the MRP (maximum retail price). "So
even if the company was selling the clothes at a discount it had
to bear the excise duty on the full price. These companies generally
work on margin of 15-20%. Following the duty hike, the retailers
have seen margins slipping to single digits," he said.
Big brands and other retailers stretching sale seasons to
counter competition and slowdown made matters worse for discount
stores.
Gimmicky discounts, too, drove consumers away. "Most
discount retail stores generally went for an inflated original
price and then offered a huge discount on it. As a result, the
net saving of the customer was very less and so they could see
through the fictitious discounts being offered," said Devangshu
Dutta, CEO of retail consultancy Third Eyesight.
Experts said that consumer perception of these brands being "cheap"
as they came with huge discounts probably hit sales.
"Not every one wants to be seen sporting a discounted brand
that offers ‘buy two get three free’," said a retail analyst.
No wonder Megamart, another apparel chain, is looking to get
rid of the discounted tag.
Though analysts don’t see a future in this business model, there
are still takers for it.
"The fact that several retailers in this space have shut shops spells huge opportunity for us. We know the mistakes these brands have made and so keeping that in mind we are treading carefully," said Punit Agarwal, director, Promart, a new entrant in the discounted apparel segment.
Also, the creation of affordable fashion by big retailers like Pantaloon, Max and Reliance is luring consumers that are looking for a value deal.
admin
September 15, 2012
Nupur Anand, Daily News & Analysis (DNA)
Mumbai, September 15, 2012
India’s retail industry, which is pegged at US$450 billion, could expand manifold with the opening up of foreign direct investment (FDI) on Friday.
Currently, the so-called modern trade — or retail chains – have only 5% share of that pie.
The catch, however, is that the 51% FDI decision has been left to the state governments. That’s where implementation problems will arise, said experts.
Trinamool Congress (TMC) that rules West Bengal has given a 72-hour notice to the government to change their decision. TMC, which is a key ally of the Congress, had managed to push back reforms in retail sector last year. After stiff opposition from TMC, BJP and Left, the government had to beat a hasty retreat in November 2011.
But Union minister of commerce Anand Sharma said the government is firm on its decision and there would be no rollbacks.
The opposers contend that entry of foreign retail chains will wipe out smaller, traditional players.
Arvind Singhal, chairman of Technopak Advisors, a retailing consultancy, strongly refutes this.
“Even when modern retail started in India there was hullabaloo that the mom-and-pop stores will be wiped away. This has been proven to be wrong. And if Indian retailers have not managed to harm the unorganised sector, there is no way foreign investments will. It has been already proven that both organised and unorganised sectors can co-exist without much friction.”
“Investments flowing in also means more jobs will be created,” said Akash Gupt of PriceWaterhouseCoopers. “As organised retail expands, it will hire more people.”
The government has pinned a few riders when opening up: Foreign entities will have to invest 50% in setting up back-end operations and 30% of the sourcing has to be done from small and medium enterprises.
The sourcing norm, however, is likely to be eased.
Analysts said these two rules will create more and better quality jobs.
What about pricing?
“The price will not be impacted majorly. If anything, it may come down due to stiff competition. Better infrastructure will also ensure that the quality of the products increases tremendously,” said Anil Talreja, partner, Deloitte Haskins & Sells.
The riders also include that any multi brand entity should have an investment of $100 million (Rs 500 crore) and the stores can be opened up only where the population is more than 10 million. At present, there are 53 cities in India that fit this bill.
Analysts said the largest investments are likely to flow into the food segment.
This decision will also be a big relief for cash strapped domestic players such as Future Group.
“Even global brands will be on the lookout for a strong domestic partner. This will provide the global players a customer base, infrastructure facilities and will reduce the gestation period,” said Devangshu Dutta of Third Eyesight, a retail consultant.
But investments are unlikely to flow in very soon. “Companies will take time to assess the market and make investments accordingly. They will also wait for the political situation to stabilise,” said Singhal of Technopak Advisors. The developments have warmed the cockles of Raj Jain, president of Wal-Mart India, the unit of the world’s biggest retailer.
“We are grateful that the government has realised and appreciated the value that we will bring to strengthen the Indian economy,” he told Reuters. “This policy change will allow us to connect directly with the consumer and help save them money.”
(Published online in DNA on 15 Sep 2012.)
