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April 24, 2012
Writankar
Mukherjee and Sarah Jacob, The Economic Times
Kolkata/Bangalore,
April 24, 2012
More than 750 electronics outlets have either stopped selling Samsung products or cut back on fresh orders after the Korean brand slashed dealer margins on its televisions and home appliances early this year.
Samsung has initiated talks with several retail chains to resolve the issue, but says the development will not impact its sales.
Videocon-owned Next Retail, the country’s largest electronic retail chain, and large regional chains such as Vijay Sales, Kohinoor, Girias, Adishwar and Great Eastern all say Samsung’s new terms are unacceptable in an industry that is struggling with high operating costs and wafer-thin margins.
These chains, which sell more than 500-crore worth of Samsung products a year, warn that Samsung’s move may benefit its rivals, particularly LG.
"There is a strong possibility of rival brands increasing their share due to the scenario," said KS Raman, director at Next Retail, which has reduced its order book with Samsung. But Samsung said its overall business plans are in place and that besides a couple of channel partners, all key dealers continue to maintain healthy stocks.
"Given the fact that our business is growing very strongly, we need to keep evolving and strengthening our channel policies so that channel partners sustain their healthy growth," Samsung India VP (Home Appliances) Mahesh Krishnan said. "We are confident that these couple of channel partners will soon be getting back on the growth track with Samsung," he added.
A team from the firm’s South Korean headquarters visited India during March-April to draw feedback from its key dealers.
Samsung cut dealer margins by 3-8% early this year after a tough 2011 when soaring raw material prices and depreciating rupee drove up input and import costs, and sales took a hit. Retailers say they work on a net margin of 5-7% and face high operating costs from rentals, promotional expenses and manpower payouts. Samsung’s margin cut has significantly dented their profitability."Smaller dealers can survive but big ones with high overheads are already bleeding and will bleed more due to Samsung," said BA Kodandarama Setty, CMD of Vivek’s Retail, a Chennai-based electronic chain with more than 50 outlets.
"We are evaluating the scenario, even though we have not reduced Samsung business till now," he said.
Adishwar India, which operates a chain of 50 stores across Karnataka and Andhra Pradesh, and Vijay Sales, which operates 43 stores across Maharashtra, Gujarat and New Delhi, have stopped fresh orders from Samsung since February.
Samsung accounted for 120 crore of Vijay Sales’ business of around 1,500 crore last fiscal.
Vishal Mewani, director of Kohinoor Televideo, a 12-store chain in Mumbai, said that although it is not possible to avoid a brand like Samsung, the retailer has stopped pushing the brand. This may help rival brands such as market leader LG. The two Korean firms together control almost 50% of the 38,000-crore Indian consumer electronics market.
LG India, which lost out to Samsung in overall revenue for two consecutive years, tempered its margin cuts to 1-2% to take advantage of the situation, retailers say.
"LG is also undertaking changes in the market system and talking the same language, but the margin cut is not hurting us and its much more gradual," Mewani said.
Nitesh Giria, director of Girias, which runs 27 durable stores in Karnataka and Tamil Nadu, said: "As most product features are similar across brands, it is not hard to draw customers to other brands if they are displayed well in a large store."
Giria said his chain is in talks with Samsung and although a deal is yet to be signed.
Girias stopped stocking Samsung products since January. It raked in 90 crore worth of business from Samsung in 2011, on a turnover of 550 crore this fiscal.
Under its new channel policy, Samsung reduced the direct dealer margin and added norms such as uploading details and serial numbers of each Samsung product sold, retailers said. The dealer also has to assure greater in-store display for the brand. If these norms are met, margins can be increased by 1% for each parameter.
Samsung India’s Krishnan says the objective is to ensure healthy sales momentum and profitable growth for the channel and the company.
"The policies are now more oriented towards driving sales to end customers and growing the business in a healthy manner through joint business planning with our channel partners," he said.
The idea is to increase average sales price, which will benefit dealers. "If we can increase the average selling price of the company’s products, the margin cuts will be some what compensated," said Pulkit Baid, director of Great Eastern, a 13-store chain based in Kolkata.
This is probably the first time in India that retailers have joined hands to put pressure on a consumer goods company for better margins. Earlier, there were some individual cases, like Future Group boycotting some products. The trend shows the growing importance of modern trade.
Analysts tracking the sector say there is a possibility that Samsung may lose some market share. "But it is not clear whether consumers would trade up to higher-priced brands or trade down," Devangshu Dutta, CEO of retail consultancy Third Eyesight, said.
admin
April 24, 2012
Meghna
Maiti , Financial Chronicle
Mumbai,
April 24, 2012
Noel
Tata-led Tata International on Monday said it had entered into
a 50:50 joint venture with Wolverine World Wide for the wholesale
distribution of Wolverine’s ‘Merrell’ and ‘Caterpillar’
footwear and apparel brands in India.
“This venture is in line with Tata International’s strategy of growth, focusing on growing presence in footwear distribution and retail in domestic and international markets,” said Noel Tata, managing director of Tata International and half brother of Ratan Tata, the chairman of Tata Sons. The joint venture will have an arrangement with Trent, where Noel Tata is the vice chairman. Trent operates more than 50 department stores in India and the Star Bazaar range of hypermarkets in addition to Zara stores in India. Devangshu Dutta, chief executive of retail consultancy firm Third Eyesight said, “Tata International has experience in footwear while Trent has expertise in retail. With that combination they should be able to manage the value chain well.”
“This new partnership demonstrates the progress we are making towards our goal of expanding the retail presence of our brands through stand-alone stores, shop-in-shops and selected wholesale distribution. This joint venture model follows the successful strategy of our owned operations in the US, Canada and much of Europe,” Blake W Krueger, chairman and CEO of Wolverine Worldwide said in a statement.
“Operating this new business model in India allows the Merrell and Caterpillar footwear brands to get close to their target consumer, while providing keen insights into brand development opportunities,” the company said in a press statement.
Wolverine World Wide is one of the world’s leading marketers of branded casual, active lifestyle, work, outdoor sport and uniform footwear and apparel. The company’s portfolio of brands includes Bates, Chaco, Cushe, Hush Puppies among others.
admin
April 23, 2012
Writankar
Mukherjee, The Economic Times
Kolkata,
April 23, 2012
Hair
stylist Jawed Habib, who runs a chain of more than 300 salons
across India, plans to take his venture global in a strategic
partnership with Procter & Gamble, the world’s largest consumer
goods company.
Procter & Gamble will not pick up equity in the venture, but will provide bridge financing and help identify locations as well as the kind of services to offer and how, said Habib who has finalised plans to set up three salons in London and one in Singapore.
"Our initial thrust will be Europe and we want a big presence in London and Paris," the chairman and managing director of Jawed Habib Hair & Beauty Ltd said. He said the company plans to open more than 50 salons abroad over the next two years. An email sent to P&G India regarding its business plans in this partnership remained unanswered.
But why would the maker of Pantene shampoo and Gillette razors support Habib’s global foray? Because his salons use P&G’s Wella brand hair colour and hair care products-a practice that his international salons will follow.
Experts feel it’s a good branding opportunity for P&G since consumers tend to show allegiance to brands that good salons use.
"For P&G, reaching out to consumers through Habib, who has attained an influential status among consumers, can be a smart way of building the brand," Devangshu Dutta, CEO of retail and brand consultancy Third Eyesight, said.
Habib plans to invest in his first set of salons abroad. He will use the franchisee route to expand. Habib says each salon will need an investment of Rs. 50-60 lakh.
Other Indian salons brands such as VLCC, Shahnaz Hussain, Blossom Kochhar and Naturals Beauty Salon too are expanding their business overseas. VLCC, for instance, recently announced plans to invest Rs. 50 crore to set up salons across Africa, the Middle East and Asia.
"The potential is much more in overseas markets, since consumers in matured markets like Europe spend almost 20-25% of their earning on grooming and beauty as compared to some 5% in urban India," said Habib whose salon chain reported a Rs. 50-crore turnover last year.
Habib is also launching a range of hair care products that he plans to roll out in the global salons. There will be 20 products, manufactured under third-party arrangement.
admin
April 21, 2012
Vishal Krishna, Businessworld
Bangalore, April 21, 2012
On
10 April, the Department of Industrial Policy and Promotion (DIPP)
under the commerce ministry issued a circular to clarify the grey
areas in foreign direct investment (FDI). While the note titled
‘Consolidated FDI Policy’ answered some key questions
around foreign investment in multi-brand retail, it also put a
question mark over the e-tailing business in the country.
The note says: “E-commerce activities refer to the activity of buying and selling by a company through the e-commerce platform. Such companies would engage only in business-to-business (B2B) e-commerce and not in retail trading, inter alia implying that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well.”
So, e-tailing ventures should be business-to-business (B2B) to qualify for FDI. But in India, the bulk of the e-tailing business is centered around selling to the consumer, and not B2B. The foreign investments are also substantial. In 2011 alone, VCs invested close to $300 million in Indian e-tailing companies.
It is estimated that there are at least 220 such businesses, of which 50 per cent have received foreign funding from an angel or first round of VC investments. For example, Flipkart, which does multi-brand retailing of everything from books to mobiles, received $150 million from Accel and Tiger Global Management over three years. Companies such as Snapdeal and Myntra have also received foreign investment.
Interestingly, the 10 April circular per se is a reiteration of the 2010 circular. The government’s stand on the issue has remained the same, as is evident from its earlier notes. So how did India’s e-tailing companies manage to flout the norms? Since the nature of the back-end was not clearly defined, many of these companies attracted funding by creating a wholesale logistics or warehousing arm where 100 per cent FDI could be used. These logistics / warehousing companies would not have a website and they technically became the sourcing arm for the e-commerce business. But that too is a violation of the law because the e-commerce business is sourcing 100 per cent of the products from its trading arm, where only 25 per cent sourcing is allowed.
“There were investments made in the backend and that’s how the e-commerce business was structured,” says Devangshu Dutta, CEO of Third Eyesight.
However, some like Bharti-Walmart follow this rule. Bharti Retail’s 140 ‘easyday’ brick-and-mortar stores source only the stipulated percentage from Bharti-Walmart joint venture’s wholesale trading arm Best Price Cash and Carry. The same rule applies to e-tailing. Precisely the reason why Amazon entered India through a marketplace called junglee.com.
“One should read the press note before going and raising money from VCs,” says Amruto Basuray, CEO of babeezworld.com, a multi-brand baby products company.
K. Vaitheeswaran, founder and CEO of Indiaplaza.com, says that multi-brand retailing should be allowed to help the retail business. “Anybody who takes VC investment into the warehouse business and then supports a multi-brand e-tailing business has ignored the government note, which says that the website should itself be servicing B2B customers,” he says.
Analysts warn that if the government takes action against e-tailing
companies that flout the FDI norms, many of them will close down.
They can continue in business if they sell in the B2B category,
but it is unlikely as the business models of these companies are
streamlined to service individual customers and not small and
medium enterprises.
(This article appeared in the Businessworld issue dated 30
April, 2012.)
admin
April 20, 2012
Prince
Mathews Thomas, Forbes India
New
Delhi, April 20, 2012
All
Ajay Jain wanted was for people to buy his photographs. Though
he was an engineer and an MBA and had worked in various industries
ranging from IT to media, his passion lay in travel and photography.
But he was not able to sell enough of his pictures through exhibitions. So he started a gallery and started marketing it online. Yet, nothing really worked. That’s when the 41-year-old decided to transform the gallery in South Delhi’s Hauz Khas Village into a café with wi-fi, coffee, tea and cookies. The attraction was that all of it was free. Customers could just put whatever they felt like in a small box kept at the entrance of the tiny hangout with a dozen tables of different sizes and shapes. The box was kept in such a way that no one could see who was putting what in.
“I have got everything from a torn Rs 5 note to Rs 500 and dollar and euro bills,” says Jain.
The idea worked as more and more people came visiting and brand Kunzum began to gain popularity, both online and offline.
Kunzum Travel Café is four years old now and gets about 100 customers on a typical week day. The number swells to almost 200 during the weekend.
The “treasure box” at the entrance gets an average Rs 50 per cup of coffee or tea that Kunzum serves.
“The money covers my overhead costs that include staff salaries and electricity bills,” says Jain who bought the space three years ago.
Along with books and photos, he now has added more revenue streams—advertisements inside the café, ‘specialised’ travel services and events like book readings and movie screenings that can bring Rs 6,000 for a two-hour booking.
While Jain admits that he initially discouraged backpackers “who would laze around the whole day doing nothing”, his clientele has since filtered itself. Today his average customer is a well-to-do professional in the 20-40 year age bracket, loves travelling and alternative cinema (most of the movies screened at Kunzum fall into this category) and most importantly, has a conscience.
“I usually pay about Rs 100 to Rs 150 every time I visit Kunzum,” says Abhinav Maker, a 27-year-old lawyer who likes the cafe for its “homely feel”. In the one-off time that he didn’t pay, a “guilty-feeling” made Maker go back to Kunzum and compensate for “not being good”.
Martin Spann calls this the “social norm” reason that drives consumers to pay even if they can get away without shelling out money. In his study with colleagues Ju-Young Kim and Martin Natter—Pay What You Want: A New Participative Pricing Mechanism—the economist found that customers also paid “because they don’t want the business, which they like, to close down”. This, says the professor at University of Munich, is the “strategic reason”.
Jain is not the first one to bet on the honesty of customers to build a business and brand. In July 2007, musician Prince was initially ridiculed when he gave away copies of his album Planet Earth for free. But the ridicule turned to admiration when his 21 concert dates were sold out.
In similar success stories, in 2010 Humble Indie Bundle, a video game was distributed using the “pay-as-you-wish” model, raising $11 million in revenues. The success helped it raise $4.7 million from venture capital firm Sequoia Capital.
In India, the Annalakshmi food chain has for 26 years let its customers decide the bill in most of its outlets. But with volunteers as waiters and kitchen help, the hotel chain works on a not-for-profit model. Internationally, though, many food outlets, including Lentil As Anything in Australia and One World Café in the US have used pay-as-you-wish as a successful business model.
But traditionally, a business like Jain’s is limited by its inability to scale, says Devangshu Dutta of consulting firm Third Eyesight.
Adds Saloni Nangis of Technopak: “A few formats which are targeted at the premium niche audience would be fine, but extending this to a broad consumer base would be a challenge.”
Jain has been lucky until now. Hauz Khas Village, with its fashion studios and art galleries, attracts exactly the kind of crowd that Kunzum targets. More importantly, the café is surrounded by an affluent South Delhi neighbourhood.
The Kunzum community has 25,000 members across Facebook and Twitter, and includes subscribers to Jain’s online newsletter.
“It is a profitable business and am hoping to reach Rs 1 crore in revenue at the end of this year,” adds Jain. He is in the middle of developing travel-content applications that will be available on Kindle and iPad. That’s easy. The tricky part is scaling up. Jain is planning cafes in Gurgaon and Bangalore where rents are higher.
He says he has money stashed away to open more outlets but wants to perfect a business model that will survive on rental space. He is incubating a bigger play in travel services to be hosted from the café. “There are a lot of niche travel products that the mainstream travel companies don’t provide and we want to fill that gap,” says Jain.
He is also on the verge of franchising the Kunzum brand, with the first franchisee outlet expected to come up in Connaught Place, the popular shopping destination in the capital. That is perhaps the biggest asset that Jain has built by doling out coffee and cookies—the Kunzum brand.
(This article appeared in Forbes India Magazine of 27 April,
2012.)
