RDigital snaps at Croma’s heels


July 28, 2013

Raghavendra Kamath, Business Standard

Mumbai, July 28, 2013

Reliance Digital, the consumer durables and infotech (CDIT) retail chain of Reliance Industries, is becoming a challenger to Croma, run by Tata Sons-owned Infinity Retail.

Though Croma is the “first large specialist retail chain for electronics and durables” (as it calls itself) for electronics and durables with its Croma mega stores, small version Zip stores, kiosks and online vertical www.cromaretail.com, Reliance Digital seems to be doing everything to catch up with the pioneer.

While Croma, which set up its first store in 2006 in Mumbai, has 90 stores, Reliance Digital, which debuted a year later in Ghaziabad in the National Capital Region, has about 151 stores which includes 19 iStore in tie-up with Apple Inc.

Reliance opened nearly 46 stores in FY 2013 and 12 stores in Q1 of FY 2014 while Croma’s numbers are not known. It is looking to open 15 stores this financial year.

Retail experts say the renewed focus of Reliance on its digital formats has been prompted by the fact that this business has been the first to break even among all its formats. For the financial year 2013, Reliance Digital made a profit after tax of Rs 64 lakh on a turnover of Rs 2,166.38 crore. In FY 2012, it made a loss of Rs 55.13 crore on a turnover of Rs 1,234.04 crore. The digital vertical contributed 19 per cent to Reliance Retail’s Q1 FY 2014 turnover at Rs 3,474 crore and had a like-to-like growth of 17 per cent during the quarter.

In comparison, Croma, whose revenues were around Rs 2,500 crore in the last financial year, is looking at a 30 per cent growth this year. The retail chain saw break-even at the profit before depreciation, interest and tax level in FY 2013 and is looking at a net profit this year.

Retail experts say organised chains such as Reliance and Croma are eyeing the huge organised opportunity in the CDIT market, which is pegged at around Rs 125,000 crore, and organised trade is just 10 per cent of that. The total market is expected to double by 2016.

“There is no surprise that Reliance is looking at this segment so seriously. At their revenue target of Rs 40,000 crore- Rs 50,000 crore, CDIT will be the second biggest area after food,” said Arvind Singhal, chairman of Technopak Advisors, a retail consultant. “The market opportunity is so much that there is room for more players.” Pankaj Gupta, practice head, consumer & retail, Tata Strategic Management Group (TSMG), said,”The bigger competition is between organised and unorganised players.”

Business model

Croma entered the segment and tied up with Australian retailer Woolworths for sourcing and backend support. Subsequently, Croma bought the India wholesale arm of Woolworths. This partnership gave Croma a strong footing in sourcing, offering a wide variety of products and price advantage vis-Ă -vis others, and also helped them in private label development, said consultants.

Croma sells over 6,000 products and has 200 private labels in niche categories. The chain is looking at 7-10 per cent of its turnover to come from private labels.

Since the beginning, Croma followed a deeper penetration strategy in cities such as Mumbai and Bangalore where it is present. The early mover advantage gave Croma access to prime properties, strong partnership with vendors and good customer recall among others, retail consultants said.

Beginning with large format stores, Croma rolled out Zip stores and kiosks at airports, hypermarkets and so on and launched its e-commerce venture.

Reliance Digital, on the other hand, hired services of retail consultants and domain experts for the retail rollout and took care of its backend operations itself. For Reliance, forging a tieup with Apple for iStore was one of the plus points, though it also started focusing on smaller Digital Express stores later. These stores mostly stock high- tech connectivity and entertainment products Here, it brings in the services of ResQ, its multi-product service, to explain and inform about high-technology products.

However, Reliance insiders say unlike Croma, the company is not focusing much on the e-commerce. Croma, on the other hand, is expecting a Rs 2,000-crore turnover within two years from its e-commerce venture.

Reliance also launched durable and electronics private labels under the Reconnect brand which contributes five per cent of Digital’s revenues. The products are 20-30 per cent cheaper than national and overseas brands.

Reliance Digital says ResQ is its biggest differentiator, as no other retail chain has such a multi-product, multi brand and multi-location service network.

Though retailers such as Vivek’s in Chennai has tried out multi-brand service centres in the past, some consultants, however, say such ventures are challenging given the lower margins in the business, price sensitivity and fickle mindedness of consumers. “Service does not help you attract customers unless you get them through word of mouth,” said Devangshu Dutta, CEO of Third Eyesight.

On its part, Croma has a 24-hour call centre support besides the Croma Care Centre for its private label products.

International brands to raise prices on weak rupee


July 22, 2013

Anshul Dhamija, The Times of India

Bangalore, July 22, 2013

International retail brands will increase prices in the upcoming Autumn-Winter season, with the rupee depreciation having raised costs for them.

The rupee has depreciated by 12% against the dollar since February.

The new season for shoppers, which would begin in the second week of August, is expected to see most international brands raise prices by at least 10%.

German sports lifestyle brand Puma has seen costs escalate by 30% since January this year. "So far, we haven’t passed on the burden to consumers, but this Autumn-Winter season we will increase prices by about 10%," said Rajiv Mehta, MD, Puma India.

He said if the company passed on the entire cost increase to consumers, sales would take a beating. Puma’s India business has been growing at a cumulative annual growth rate of 37% over the last six years.

International apparel and accessories brands such as Tommy Hilfiger, Mango, Promod and Zara are expected to revise prices as their high percentage of imported content does not allow them to absorb the costs entirely.

Mukesh Ambani’s fashion business Reliance Brands, which has franchise agreements with premium to luxury brands Kenneth Cole, Paul & Shark, Diesel and Ermenegildo Zegna, among others, is also said to be looking at a price revision for the upcoming full-price fashion season.

On the other hand, Daniel Hechter and Manchester United, part of Kishore Biyani’s Future Group-owned Indus League Clothing, which have a 10% exposure to imports, are unlikely to increase prices. Benetton and M&S are the other international brands that won’t be impacted by the dollar due to a high percentage of local sourcing.

Pinakiranjan Mishra, partner and national leader (retail and consumer products) at consulting firm Ernst & Young, says that since brands are already offering huge discounts, any steep price hike in the next season could dampen consumer spending. "It will be difficult for consumers to accept anything above a 15% price increase," said Mishra

For franchises of ultra-luxury international brands, the problem could be particularly acute. Genesis Luxury – which markets and distributes labels such as Armani, Jimmy Choo and Paul Smith – has been advertising large discounts to revive waning sentiments of luxury shoppers. And this elite segment has the option to buy at neighbouring shopping hubs such as Dubai and Singapore.

"International brands that operate on a franchise model in India, where the local franchisee has a high exposure to currency fluctuations through imports, will definitely have to go in for a price increase," said Devangshu Dutta, CEO of retail consultancy Third Eyesight. He added that international brands that have set up JVs in India might look to absorb the increase in costs, with a view that the situation is a short-term phenomenon.

At present, both domestic and international brands are riding high on the year-end sale season, as consumers are lapping up discounts ranging between 30% and 50%. These are expected to further deepen to as high as 70% with the sale season entering its final leg. Dubai-based Landmark Group’s multibrand retail store Lifestyle has already reported 50-60% growth in sales over last year’s end-of-season sale.

FDI in retail: Experts call for more than ease in approvals to boost investment


July 17, 2013

Farah Bookwala, CNBC-TV18 / Moneycontrol.com

Mumbai, July 17, 2013

The government is making yet another push to attract FDI in retail.

The Prime Minister on Tuesday relaxed norms by allowing 49 percent FDI in single-brand retail under the automatic route.

While this may improve sentiment in an industry marred by regulatory hurdles, CNBC-TV18’s Farah Bookwala reports that analysts call for measures more powerful than the hike in FDI limits to boost overseas retail investment.

The government may have eased single-brand FDI norms on Tuesday, but not too many are left impressed. Prior to the Prime Minister’s meeting held on Tuesday evening, every single-brand retail proposal had to be ratified by the FIPB. Now, the government will allow foreign retailers to make an equity investment of upto 49 percent in a single-brand venture through the automatic route without requiring the FIPB’s nod.

But analysts say this alone is unlikely to convince foreign retailers who have refused to jump into the fray so far.

Devangshu Dutta, chief executive, Third Eyesight, says, "I doubt it will make significant difference to plans of foreign retailers. From a foreign retailer’s point of view, anything above 26 percent and below 51 percent means the same thing from the point of view of control."

Others add that while it is now easier to step into the Indian market without the FIPB’s nod, seeking its approval was never really a concern for global retailers.

Pinaki Ranjan Mishra, national leader — retail, EY India says, "The assumption that seeking an FIPB nod is a negative thing is wrong. I haven’t heard of anyone saying going to government and seeking approval is bad. But that’s not the real problem for foreign retailers. What they want is relaxation of norms that are not practical to business. So though attempts are being made to address the issue, the real problem lies elsewhere."

Most analysts reckon that foreign participants who are serious about entering India will eventually find a way to get here in the next couple of years. But if the government wants to attract mega bucks , it has to not only simplify norms for multi-brand retail, but also do away with the distinction between single and multi-brand retail.

Retailers take the differentiation call


July 16, 2013

Sayantani Kar, Business Standard
Mumbai, July 16, 2013

A few weeks ago, taxis painted with familiar multicoloured stripes waited at toll booths at entries to the city of Thane to ferry passengers for free to a newly-launched hypermarket. HyperCity, the Shoppers Stop-promoted grocery chain, had opened shop in a new mall. It had even advertised waiving of toll tickets for shoppers who did not take the cabs.

Not just shoppers in Thane, it was clearly gunning for ones in locations beyond it, which are in no way underserviced. Hypercity itself has another outlet in close proximity.

Driving footfalls is indispensable now with rising grocery bills. Hypermarkets are battling consumers looking to cut consumption. But playing on price by offering lower rates might not be the way out. Devangshu Dutta, CEO of the retail consultancy, Third Eyesight, says "Retailers want not to bring down the grocery bill but to drive more footfalls and increase the total basket size of the consumer. When consumers cut discretionary spending, retail brands have to ensure a mix of merchandise that will be high on items consumers don’t downtrade on or cut."

Promotion weeks

Ashutosh Chakradeo, chief merchandising officer at HyperCity Retail says, "For the last three months, every Friday we have gone in for our ‘Blockbuster’ promotions of one or the other kind. We are aware of the customers feeling the pinch, hence, we have stepped up our promotions that help us retain the footfalls. We see around 25-35 per cent growth in footfalls due to our Friday promotions."

"Individual promotions by the retailers can save anywhere between 10-30 per cent on the consumer’s bill. But physical combo-baskets that retailers offer (combining various household groceries for a all-in-one offer) actually make the consumer increase her basket size with products she might not have intended to buy," says Dutta. He points out that pricing power is also limited for the retailer because of maximum retail price on most branded products that users buy. It does not allow pricing flexibility as seen in the US, and neither does the APMC markets, which don’t allow retailers to go the farm-to-fork way in fresh groceries. "But these are loss leaders, segments where retailers anyway take a hit because they drive footfalls. Retailers can then increase the basket size of the consumers who walk in with other products of higher margins using visual merchandising, promotions and shop layouts," explains Dutta.

"Spencers has not seen much of a slowdown because we still enjoyed 16 per cent same store sale growth last year and clocked 14 per cent growth in April-June, this year," says Mohit Kampani, president and CEO at Spencer’s Retail, RPSG’s retail business, when same store sales of some players have been in the single digits. Kampani mentions its ‘price architecture’ model that ensures a store also stocks the lowest-priced variety available in the catchment area. That leads to Spencer’s storing 22-25 per cent more SKUs (stock keeping units or varieties of a product) than others, claims Kampani. "But then our sales per square-feet are high and hence it does not lead to large inventory. Most hypermarkets play the price game so we have to spend more to discount for the consumers too," says Kampani. He says that it had increased discounting from 0.7 per cent to 0.8 per cent over the last year.

Potent merchandising mix

Kampani mentions Spencer’s wants to sharpen its focus on food, with a decent balance of non-food groceries. "Not only do we have more than the usual 12,000-15,000 SKUs in food but we have been rolling out our experiential counters at all our hypermarkets. These include a delicatessen, bakery, gourmet spice and dry fruits counters," says Kampani. Merchandising is done inhouse, unlike some players who outsource such sections. It has tied up with trainee sommeliers to advise consumers in the liquor section and trained staff to interact with shoppers in the bakery. Such measures increase the confidence of the shopper, especially when she is looking to add items that are new to her basket.

A lot of hypermarkets are incorporating similar strategies with a focus on food, despite lower margins than merchandise like durables and apparels.

Ankur Bisen, vice-president (retail and consumer products), Technopak says, "Brands have moved away from larger formats and the higher margins in non-food are being traded-off by some retailers for food which is inflation- and recession-proof." Kampani says that food and groceries have not seen downtrading but premiumisation has suffered. But even then, items in personal care categories have felt no such pressures.

However, for some, an equal focus on non-food is working out. Bisen also says that retailers are increasing their categories that are brand agnostic but command high margins such as plasticware, tableware, and apparel like plain t-shirts and innerwear. Hypercity, which is yet to break even at a company level, claims they have achieved operational profitability at an overall store level through such a mix. Chakradeo says, "We are focusing on high margin categories such as apparels and home, which are seeing upfront placements in our stores, investments and also new products. For the last seven quarters (since 2011), we have been profitable at the overall store level. Our target is to achieve company-level profitability now."

Cutting down to size

Right-sizing the stores are also seeing hypermarkets unlock greater profitability. Bisen says, "Retailers have been rationalising the space in their hypermarkets, as we would see empty aisles in big box formats earlier."

Chakradeo says, "We are aiming for profitability through leaner and compact stores." HyperCity may have started with big box stores seen in the US (huge areas with a vast merchandise mix) but it is now focusing on smaller stores. "Apart from the big box model comprising 50,000-60,000 square-feet space, we have our penetration stores, measuring not more than 30,000 square-feet. These are to grow in cities we are already present in." In fact, hypermarkets are increasingly exploring cities they are already present in to make the most of economies of scale. "Overall, there are huge cost savings – in advertising promotions, and supply chain. Why spread across 10 cities for Rs 1,000 crore in revenue, when you can get the same from just five?" asks Chakradeo.

Kampani of Spencer’s says, "We wanted to get rid of artificial space dedicated to non-food. The larger call for us is to go for compact hypermarkets. Because, organised players cannot beat traditional markets in non-food items because they are already strong. So, we have chosen to complement them rather than compete with them."

Just as Hypercity went all out to bring traffic in for the new mall, malls too are extending additional support to their potential anchor stores. One of the players point out that new malls in cities like Bhopal and Ranchi are customising research to explain the catchment area better, waiving leases for the first few months to ensure profitability of the hypermarkets, opting for rent payments after the store turns profitable.

Why we love Zara


July 11, 2013

Shefalee Vasudev, Mint (A Wall Street Journal Partner)

New Delhi, July 11, 2013

Just when the word “boom” has begun to sound believable in the context of India’s fashion industry, the soaring success of Zara, the world’s biggest symbol of industrial fashion, proves how polarized India is as a shopping republic. It turns the competitive game of ready-to-wear retail into a foxing ball game. Every retail brand here is pushing at the exclusivity factor through brand presence, sponsorships and advertising. Yet what’s really selling is commonality, with every 12th person having the same satin pyjamas, oversized bags, Oriental print shirts and tweed jackets.

On the big scale there is little or no difference between us and the mass shopper in Denmark, Venezuela, China or Canada. That’s what the latest annual report of Inditex Trent, the joint venture between Zara brand owner Inditex, a Spanish company, and the Tata group’s retail arm Trent, indicates.

Zara recorded 56% sales growth, an annual sales turnover of Rs.405 crore through nine existing stores in India, in the 2012-13 financial year. This puts it not just ahead of the country’s top apparel brands but ready-to-wear prêt made by fashion designers. This story has echoed earlier in other parts of the world, where Zara beat giant fashion chains like H&M and Topshop, but with apparel brands in India like Shoppers Stop, Westside, Louis Philippe, Allen Solly or ColorPlus barely managing a grip on the tightrope, its success raises new questions on retail competitiveness. Set to stock ready-to-wear by the handloom-loving designer Aneeth Arora (Pero), who won the first Vogue Fashion Fund award, from next month, Wills Lifestyle, which also sells creations by other Indian designers (usually insipid mini collections), may have to do a lot of process work to compete with Zara. As will those like Ritu Kumar’s sub-brand Label, which offers good price competitiveness in the ready-to-wear segment.

“I don’t remember the last time I went to a Wills Lifestyle or Allen Solly store and yes, I prefer Zara to any other Indian fashion brand,” says 27-year Raashi Sikka, a television professional who till recently worked with event management company Wizcraft International. A self-confessed shopaholic who wears Zara at least five times a week and goes to Zara stores about thrice a month, she says she finds the brand stylish, comfortable and buzzing with new stock. Sikka adds that for a single working woman, Zara is worth the money, even if durability is not among the brand’s strong points.

Girlie gush pours out of Zara fans. Like 23-year-old Ankita Grover, who works for e-commerce website Jaypore as a merchandising assistant. “I insist on Zara gift vouchers for my birthday and other occasions,” says Grover, adding that while her usual budget is Rs.2,000-3,000, if she had Rs.20,000 in a certain week she would still spend it at Zara—she visits the store every week to look around, if not buy. She even got Zara vouchers for her parents on their wedding anniversary, knowing all too well that they would be passed down to her.

Confessions that make 24-year-old Neha Varma smile. She is from the same flock, describing Zara as her PMS pill. “I have never felt the heady rush as I did when Zara first opened in India. I go very often and save carefully for the expensive items,” she says. Varma too prefers Zara over Western prêt made by Indian designers.

Fast, funky, stylish, trendy and exciting, with something new to offer every week, stocking everything from separates to casual basics, jackets to layering options—this vocabulary has exhausted and enlivened Zara buffs the world over ever since the brand from Inditex SA first launched in 1975. The subject of numerous business case studies globally, Zara thrives in the midst of global fashion by being trendy but never original; yet it always puts out its reproductions before the international catwalk collections make it to the stores. It is now bought voraciously in more than 80 countries in the world, through about 1,800 stores. Eighteen more stores will be added in India this year.

“Amancio Ortega Gaona, the founder of Inditex, thought that consumers will regard clothes as a perishable community just like yogurt, bread or fish, to be consumed quickly rather than stored in cupboards, and he has gone about building a retail business that makes freshly baked clothes,” wrote Devangshu Dutta in “retail @ the speed of fashion”, a case study on Zara for Third Eyesight, a specialist consulting firm on consumer products and the retail sector.

Many experts have tried to analyse the secret of Zara’s success. It all boils down to the brand’s ingenious utilization of store staff everywhere in the world to share customer feedback instantly, helping it cater to fast-selling trends in a short time and simultaneously create a lovable problem of plenty for the buyer. About 1,200 styles in 26 collections swim out to Zara stores every year. “Their formula of success lies in production, it is based on the fastness of DHL couriers, to use a metaphor, and McDonald’s taste and tango all at once,” says designer Hemant Sagar of the duo Lecoanet Hemant. Even as the top design houses in the world now invest in research and development to create products that would be difficult for Zara to match, Sagar says Zara’s retail model makes India’s “cultural hand-me-down mentality” worth reflecting upon. “India’s identity crisis in designing, dressing and shopping that reflects in retail is a long way from getting resolved,” he says, adding that no big name will come out of India until designers begin investing in technology as a priority.

Zara suppliers too swear by its incredibly fast response time. “Zara outsources most orders to India between August and April and their teams work rapidly from one stage to another, from fabric sample to product and clearance in a matter of weeks, if not days,” says Shriram Goyal, managing director of Dhruv Global, a knitting apparel company, one of Zara’s many manufacturing suppliers from India. Zara’s trendiest items are made closest to home in Spain, so that the production process takes only two-three weeks. The rest is done in other markets. Goyal explains how Inditex outsources manufacturing to countries based on market strength, like beaded and embellished work to India, polyester and other prints to China and tailored stuff to Bangladesh, where labour is cheapest.

Industry veterean Alpana Prasad, director of ESSquare, an Indian buying agency which supplies to a classic, ready-to-wear brand from the UK and competes with Zara in world markets, agrees. “Zara’s inter-departmental linkages are excellent and their designers are constantly on their toes. They invest in technology and fabric development, offering about 500 colours across different styles every year,” says Prasad.

Inditex founder Ortega, now retired, has famously never given an interview, nor has he paid any star to endorse his brand. The brand keeps the media at arm’s length, allowing only select spokespersons to make occasional comments. Yet fashion websites all over the world and magazines feature celebrities in Zara alongside the globe’s top trendsetters swathed in luxury brands, elevating its value. Indian fashion blogs like High Heel Confidential regularly show celebs in Zara, the most recent being actor Madhuri Dixit in a printed shirt arriving at the International Indian Film Academy awards (IIFA) festival at Macau on 7 July.

It makes it a deep pool for Indian brands and designers to swim in. The former may need completely reinvented platforms of display, retail and sale to come anywhere near creating a fast-fashion brand and the latter may just have to accept that their creations will remain a niche aspect of fashion buying even in their own country.