Satisfaction guaranteed


September 30, 2013

Ankita Rai , Business Standard

New Delhi , September 30, 2013

starbucks mumbai In the cancellations and returns section on its website, e-commerce poster boy Flipkart says, "We want you to have an absolutely headache-free shopping experience…In case there is an issue with the product you have received, our Free & Easy Returns promise has got you covered." On its part, lifestyle products portal touts a "30-day no questions asked return policy." The concerned section on the website says, "Though we strive to give you a great customer experience each time you shop with us, if at all you are not 100 per cent satisfied with your purchase, you can return your order for a full refund of paid price.", which describes itself as India’s favourite online mall, also guarantees a full refund if a customer is not satisfied with a product. The website claims, "Guaranteed resolution of complaints within a maximum of 30 days/Full refund if not resolved."

Get the drift? If attracting consumers to pay up for a product they could neither touch nor feel was the biggest task in the first phase of the industry’s growth, handling product exchanges and returns is emerging as the next battlefront of e-commerce companies in India. It is easy to see how easy return can offer an e-commerce site a strategic advantage: The two windows open to customers to get a feel of an e-commerce brand are the website interface and the order fulfilment process. If customers see there is something missing in either of these, chances are they will never get back for a repeat purchase. Needless to say, with very differentiation in terms of products on offer and customer interfaces, e-commerce sites are bending over backwards to make sure consumers are at ease even when they revoke an order or send back a purchase.

This is a particularly big headache for lifestyle products companies.

"The industry average would be under 20 per cent but the return rate can be as high as 60 per cent in the case of fashion apparel," says Devangshu Dutta, chief executive officer, Third Eyesight. "In categories where products are more or less standardised, such as, books and DVDs, returns are low-may be in the 7 per cent range," he adds.

Like with everything else, it is easy to claim you have a great return policy but it is difficult to pull it off without a hitch. To be fair, the whole process of return management can leave you in a daze. First, reverse logistics is much more than just management of product returns. It involves putting together checks that minimise the number or possibility of returns, disposal, gatekeeping as well as all other supply chain issues after the sale of a product. "In 70 per cent of the cases, the cost to process the return (pick up, ship back, depreciation, refurbishment) can be higher than the value of the product," says Hitendra Chaturvedi, founder & CEO, Green Dust, a pioneer in reverse logistics.

Now look at the kind of imponderables it entails. The uncertainty regarding the kind or quality of return, the generation time or the distribution of the reverse logistics makes it difficult to put it down to a routine. Also, the scale benefits of storage and transportation would not apply to returns/exchange due to the random and sporadic nature of product transfer. Third is the problem of cash flow.

If cash on delivery (COD) has made life easier for customers, it has also added to the misery of merchants in case of a return. The problem is that the COD system creates a delay in a payment to go through. Courier companies generally hold the money for two weeks, which means the e-commerce company has to restock inventory before the cash from its last sale has arrived. Then there is the logistics fee. Major logistics companies charge the e-commerce firm a transaction fee (Rs 50) plus a percentage of the amount (about 1 per cent) collected. Some courier company also charges an extra Rs 50 to Rs 100 as return fees to ship the merchandise back to the point of origin.

You can imagine the plight of merchants. Now let’s look at the options available to e-commerce companies by way of managing the whole process efficiently and keeping the costs down.


Starbucks gets off to a spirited start in India


September 27, 2013

Sagar Malviya, The Economic Times

Mumbai, September 27, 2013

starbucks mumbai The world’s most popular coffee brand Starbucks sold coffee, snacks and merchandise worth Rs 14.6 crore in the first financial year of its operations in India ending March, averaging almost Rs 1.5 crore per outlet from its 11 doors in just five months since opening its first outlet in Mumbai last October.

The homegrown Cafe Coffee Day, with around 1,200 stores (at the end of FY13) makes Rs 38-40 lakh from each of its outlets yearly, according to a person who has studied the model of the company. Costa Coffee does business of a crore a year from its best selling outlets, but, on an average, it nets Rs 60 lakh from its 100-odd outlets. Coffee Bean and Tea Leaf, a niche premium chain sells coffee and food items worth Rs 3.5 crore annually in each of its 32 outlets.

The company, Tata Starbucks, a joint venture between US Chain Starbucks with Tata Global Beverages, closed its year end with total six stores in Mumbai and five stores in Delhi, which generated the total revenue of Rs 14.61 crore during the financial year ended March, according to its latest annual filings. It opened its first store in late October last year.

Experts, however, feel that while initial sales of Starbucks is substantially high by industry standards, its per store sales might drop going forward.

"Other than the initial rush of consumers due to the launch ‘novelty’, another factor contributing to high sales of current Starbucks outlets is that they are all in high-footfall marquee locations, and are all much larger than competing cafe brands," Devangshu Dutta, chief executive of retail consultancy Third Eyesight, said.

"Sustaining high sales per square foot over the years is the challenge to meet as the chain expands into other locations, possibly with smaller outlets," he added.

A Tata Starbucks spokesperson said its business in India continues to exceed expectations though establishing a successful business takes time. "Our measure of success is in the number of customers who come back to our stores. We are focused on a long-term, disciplined and thoughtful growth in this dynamic market, and committed to working towards exceeding expectations of our customers and building a strong presence in the market," the spokesperson said.

Starbucks currently operates 20 stores in the country. It plans to open around 100 Starbucks cafes in the country by next year to match up to established rivals and is building a war chest for expansion by more than trebling its authorised capital to Rs 220 crore.

RBI blocks “interest free” plans


September 27, 2013

Nupur Acharya, The Wall Street Journal

Mumbai, September 27, 2013

On the back of a surprise increase in a key interest rate last week, India’s central bank dealt another blow to banks this week by asking them to stop encouraging credit-card use with misleading “zero interest” payment plans.

While credit card issuers have been working with retailers to offer special no interest offers for years, the Reserve Bank of India said the plans were misleading as they often have hidden costs.

The banning of this standard promotion could prove to be a dampener for banks and consumer product manufacturers ahead of the festival season that begins in less than ten days.

Zero interest payment plans have become popular in the last couple of years with most big electronics and consumer durable stores offering them. The trend spread when smart phone and tablet manufacturers introduced them to push up the sale of their expensive devices.

While the drawn out payment plans for the purchases had no interest, they often included a processing fee. Meanwhile consumers that bought the products using the plans sometimes had to pay a higher price than those that paid in cash.

The RBI felt that the plans were just camouflaging the interest and passing it on to consumers as a fee or higher price. It said that any discount on prices should be passed on to all customers.

“The very concept of zero percent interest is non-existent and fair practice demands that the processing charge and rate of interest charged should be kept uniform,” The central bank said in its notification. “Such schemes only serve the purpose of alluring and exploiting the vulnerable customers.”

The end of the plans won’t affect most people, some industry analysts said, as the value-for-money conscious Indian consumer has always been aware of the other costs of the interest free plans.

“Consumer sentiment is fairly cautious on spending, especially high-price consumer durables, given the general economic scenario,” said Devangshu Dutta, chief executive officer with Delhi-based Third Eyesight, a retail and consumer durable consulting firm.

(This piece appeared in the Wall Street Journal blog titled "India Realtime".)

Break-even eludes More, but expansion on track


September 26, 2013

Raghavendra Kamath, Business Standard

Mumbai, September 26, 2013

Aditya Birla Retail Ltd (ABRL), retail arm of the Aditya Birla Group, had been eyeing break-even in 2012-13, the sixth year of its operations. But that milestone remains elusive, with the retailer, which runs hypermarkets and supermarkets under the More brand, posting losses of Rs 510 crore last financial year, according to disclosures made with the registrar of companies.

Though losses fell marginally from Rs 535 crore in 2011-12 and net sales rose eight per cent to Rs 1,037 crore against Rs 962 crore in 2011-12, analysts say More’s focus on supermarkets is delaying break-even. ABRL runs 513 supermarkets and 15 hypermarkets, with an area of about two million sq ft across 60 cities.

Despite elusive profits, it has no plans to slow expansion. It is considering launching six-eight hypermarkets and 40-50 supermarkets every year. Pranab Barua, the group’s business director (apparel & retail business), says the retail chain has focused on profitable growth and this has reduced operating losses about 30 per cent.

“Some of the key factors that have impacted our profitability include improvising our margins. Moreover, we have done considerable work towards enhancing in-store consumer experiences in the business and laying a solid foundation for strengthening our supply chain,” he says, adding More was already making profits at a network level for both the formats.

More isn’t alone in struggling for profits. Other retail giants that entered the fray around the same time are also bleeding. Spencer’s Retail, an RP-Sanjiv Goenka Group company, which opened stores under the Spencer’s brand in 2006, recorded a net loss of Rs 2,091 crore in 2012-13 against Rs 2,554 crore in 2011-12. In the same period, Spencer’s sales rose to Rs 13,470 crore from Rs 12,063 crore. The company aims to record Ebitda (earnings before interest, tax, depreciation and amortisation) break-even in the third quarter of 2013-14. Sunil Mittal’s Bharti Retail, which opened stores in February 2007, recorded accumulated losses of Rs 1,522 crore in 2012. During 2012, revenue rose to Rs 1,581 crore, against Rs 1,021 crore in 2011.

The only exception was Reliance Retail, which opened its first store in October 2006, when the Birla group entered the retail business. Reliance Retail posted profit before depreciation, interest and tax (Pbdit) of Rs 78 crore in 2011-13. In the June quarter of 2013-14, the chain became the largest retailer in the country, with a revenue of Rs 3,474 crore and operating profit of Rs 70 crore, beating Kishore Biyani’s Future Retail (revenue of Rs 2,217 crore).

The Aditya Birla Group had made a big-bang retail foray, acquiring 172 store-strong South-based retail chain Trinethra Super Retail in 2007. Though Birla had plans to set up 1,000 stores at an investment of Rs 9,000 crore by 2010, the slowdown upset its calculations. Left with unviable stores and dwindling sales, the chain shut about 100 loss-making stores in 2009 and 2010, and an additional 40 last year. Barua defends this, saying the team was “focused on qualitative growth, not just quantitative growth”.

Abneesh Roy, associate director (institutional equities and research), Edelweiss Securities, says, “Small neighbourhood stores in organised retail have not done well. They are not able to compete with kiranas. If you look at Reliance, they follow a different model, where they are focusing on hypermarkets and cash-and-carry stores now… retail players should look at hypermarkets and cash-and-carry stores seriously.”

A top executive of a large corporate group which competes with Birla Retail, says “I think they are finding it difficult to see a turnaround with pure grocery play. The Pantaloons chain they acquired is in a different basket. If you look at Reliance, they have a combination of jewellery, durables, value, cash and carry and others which is adding value.”

“Even if electronics and jewellery grow during festivals, they will help in a big way,” he said.

Devangshu Dutta, chief executive of Third Eyesight, a retail consultant, says “for the last 15 to 18 months, business conditions were bad due to inflation, slow economy and other factors which have led to poor consumer demand. This financial year will also be tough. Secondly, retailers are also facing supply side issues. Input costs of fuel, employees and other items have shot up. When store level productivity is down, corporate level productivity will also be down,” Dutta adds.

Barua, however, is confident that ‘,more’ will see double-digit growth this year too.

Confusing rules deter foreign supermarkets from India


September 11, 2013

Salil Panchal, AFP
Mumbai,September 11, 2013

A year since India reduced foreign investment barriers to its retail sector to spur flagging economic growth, confusing rules and political uncertainty are keeping overseas supermarket giants away, analysts say.
In September 2012, the government allowed foreign stores to set up 51-percent-owned joint ventures in India which they had eyed for years as a potentially lucrative market.

So far, there has been no rush to open outlets, despite further easing of entry barriers in August.

"There’s no comprehensive consolidated government paper on Foreign Direct Investment (FDI) — just updates and statements. It’s not a good sign," said retail analyst Anil Talreja of global consultancy Deloitte.

Last month, US giant Walmart sought more government clarifications on FDI, having earlier said it was unable to fulfill sourcing guidelines stipulating 30 percent of products must come from small-scale industry.

"India is an important market for us and we continue to study the implications of the new FDI policy on our business," a Walmart spokeswoman told AFP.

In September 2012, Walmart said it aimed to launch its first retail store in India within the next 18 months to two years but has made no recent mention of the target. The firm, like French supermarkets Carrefour and Britain’s Tesco, operates in India as a wholesaler with local partnerships but is yet to set up its own stores.

Devangshu Dutta, head of retail consultancy Third Eyesight, said "regulatory complexity" was an issue for brands "evaluating the costs against benefits" of entering the country.

The inability to woo big foreign firms is a blow for India, keen to attract outside investment to help boost its sliding economy.

The rupee has fallen by nearly a fifth against the dollar this year, economic growth is at its slowest in a decade and the current account deficit, the broadest trade measure, is at a record high.

With elections due by next May, the Congress-led government now seems more focused on populist measures, such as a huge food-for-the-poor scheme, than on streamlining FDI policy — a politically sensitive issue, analysts say.

After new FDI in retail rules were passed last year, protests erupted among shopkeepers and labourers who feared a loss of jobs and collapse of small family run stores.

The majority of the retail sector remains dominated by traditional family owned shops and small grocery stores, but organised retail — mostly chain stores — is expected to jump from eight to 24 percent of the market by 2023, according to consultancy Technopak.

The central government has left it to each state to decide whether foreign retailers can set up shop — and so far only 11 out of 28 states have expressed a keenness for overseas chains.

Sonam Udasi, Mumbai’s IDBI Capital research head, said there were "too many different noises" over foreign investment to reassure players. "Most will wait until a new government comes to power," he told AFP.

One of the few foreign retailers to commit to India in recent months is Swedish giant Ikea, which plans to open 25 stores as part of a wider push into emerging markets.

"In the first phase, we will plan stores in main cities," an Ikea spokeswoman told AFP, declining to be more specific about a timeline. The firm’s India chief, Juvencio Maeztu, has said it is willing to wait "five years" to find perfect store sites.

While foreign supermarkets hold back from India, domestic chains are rapidly expanding, underlining the potential of a middle-class — expected to cross 250 million people by 2015, consultancy McKinsey estimates.

The Future Group, India’s largest retailer, plans to grow by 1.5 to two million square-feet of retail space each year over the next three years, says "retail king" Kishore Biyani who controls the group.

"Aspirational growth in India remains strong. This will drive consumption, which we feel could be three to four percent above economic growth," he told AFP.

Another Indian giant, Aditya Birla Retail, says it has "aggressive" plans to open up to eight new hypermarkets and more than 40 new supermarkets this year.

Rival Reliance Retail, which sells everything from vegetables to electronics, aims to hike revenues five-fold to 500 billion rupees ($7.5 billion) by 2016.

As local players push ahead, the wait for foreign supermarkets will likely continue until the economic outlook and regulatory climate clears, experts say. "The current FDI policy should be discarded, it’s ill-informed and ill-advised," Technopak chairman Arvind Singhal told AFP. "The government could have done so much more. We’ve muddied the waters," he said.