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September 8, 2013
Rachit Vats, Financial Express
New Delhi, September 8, 2013
Early this year, Gurgaon residents Abhishek Salwan, 33, and his
wife decided to cut down on their weekly visits to the local hypermarket
and started preparing a monthly grocery list instead for their
local grocer.
Salwan is not alone. An increasing number of people are turning
to traditional kirana stores to tame rising budgets, in the process
impacting the usually resilient fast moving consumer goods (FMCG)
sector.
A sector that remained defensive even during the dark days of
2008 is seeing a slowdown this year, especially in modern retail.
As per market researcher Nielsen, the overall FMCG growth numbers
for H1 2013 came down to 11%, from last year’s 17%. The impact
on modern trade, which contributes about 7% of the total FMCG
market, saw growth rate come down to 11% during H1 2013, from
34% in the same period last year. Just two months into the third
quarter, the numbers have seen only a marginal improvement owing
to the festival season. Modern trade has been growing over 20%
over the last few years.
“There is a restructuring in the industry. Sales are lower
than last year on a same-store basis. While there is a slowdown,
the growth numbers are still in double digits at 12%,” Spencer’s
Retail president & CEO Mohit Kampani said, adding, “The
major trend is that consumers are not upgrading as they were doing
earlier. Further, retailers are not opening newer stores and even
pulling out of existing properties.”
“There is a tendency to cut down on discretionary spending,”
Devangshu Dutta, chief executive of retail consultancy firm Third
Eyesight said, adding, “In the Indian context, modern trade
can end up suffering because it can be perceived to be either
more expensive than traditional retailers or consumers feel they
are overspending due to wider choices and promotions.”
While the likes of Hindustan Unilever and Future Group were not
forthcoming with numbers, sources said till 2012, HUL’s modern
trade was growing at 32%, faster than traditional trade at 17%.
In H1 2013, the company’s traditional trade is growing faster
at 7% while modern trade growth is at 6%.
Take Future Value Retail, the listed arm of Future Group that
runs grocery chains such as Big Bazaar and KBFairPrice, for instance.
The company’s net sales for the six months ended June was
at R3,801 crore, a surge of 4.5% compared to the same period last
year even as its gross margin during the period remained flat
at 24.7% while the EBITDA margin grew to 8.1% from 7.5%. The retailer’s
store strength during the period came down as Big Bazaar store
numbers came down to 159 from last year’s 162. Food Bazaar
store numbers fell to 29 from the earlier 46. While the company
did not give a break-up of FMCG and apparel sales, joint MD Rakesh
Biyani admitted it has been focusing on increasing share of sales
in the high-margin fashion category.
“FMCG drop is a function of the market and inflation — overall, sentiment is down. Modern trade is a very mixed story and has to be seen in that light — players are reworking their business models and as a result comparison over years is not necessarily on a like-for-like basis. Surely, for the more organised and better players, store-wise performance is improving,” KPMG Transaction Services partner Mohit Bahl said.
(This article appeared in Financial Express on September 8, 2013)
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September 3, 2013
Priyanka
Pani & Bindu Menon, The Hindu Businessline
Mumbai/New
Delhi, September 3, 2013
For retailers, there is nothing sweeter than the sound of cash registers ringing in a potentially exciting business season.
There are so-called inauspicious times, such as aadi and karkidakam in South India, and the forthcoming ‘shraadh’ (September 19-October 4), chaturmas and pous in North India. These are periods when most people do not make any major purchases, like a house or a car. Even weddings do not take place during these periods.
Given how consumption declines during this time, retailers try to excite consumers into opening their purse strings with attractive offers. “In the last few years, due to (promotional) campaigns, people have been buying during the ‘inauspicious period’ as it is followed by the wedding season in Kerala,” says Alukkas Varghese Joy, MD of Joyalukkas. “This year, we have seen marginally higher growth over last year.”
Nalli’s, India’s largest saree retailer, has an aadi sale every July.
SCHEMES GALORE
Ajit Joshi, Managing Director of Croma, a leading consumer durables retailer, says that during this period, a lot of finance partners and product manufacturers come up with various schemes, including low down-payment, low processing fees and attractive interest rates. “Such initiatives help us sail through this pre-festival period,” adds Joshi. This is resulting in highersales — about 20-40 per cent more than on a normal day.
Earlier, retailers used to witness bumper sales only during big festivals such as Onam, Diwali or Dasara . Now, with the industry more organised and with the entry of foreign brands, there is a huge competition to attract more customers.
The off-season sale trend, which kicked off in South India in the early 2000s, has now spread across the country.
Devangshu Dutta, from marketing research firm Third Eyesight, says that earlier, festival peaks could account for as much as 70-80 per cent of a brand’s annual sale. But in the last 10-15 years, consumers with higher discretionary incomes have tended to spread their spending round the year. Besides, the availability of multiple brands and increase in the number of stores has also improved product visibility year-round. The number of discount periods has also increased, encouraging customers to de-link their purchases from the festival period.
“It is better for retailers to have a more consistent and predictable flow of customers than managing huge peaks, which are impossible to forecast and difficult to fulfil,” says Dutta.
Some retailers do not seem to think there is a ‘season’ for sales. Future Group, which has pioneered celebrating local community festivals, believes each day is an opportunity and runs offers even on weekdays.
(This article appeared in The Hindu Businessline on September 3, 2013)
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August 26, 2013
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August 26, 2013
Abhilasha
Ojha, Business Standard
New
Delhi, August 26, 2013
It was supposed to be a fancy sea-facing mall boasting high-end
brands and an unmatched shopping experience. It turned into a
nightmare for the owner, Bhumiraj Group, when brands started pulling
out of Full Stop Mall on Palm Beach Road, the Marine Drive of
Navi Mumbai
A similar fate awaited Gold City Mall in Navi Mumbai’s
premier Vashi area; it is now an office complex teeming with people
who bear no resemblance to the inveterate mall hopper
In Delhi, Star City Mall in Mayur Vihar had hoped to capitalise
on the rush of people who would walk in and out of the bustling
metro station nearby. That was not to be and the management decided
to lease the place out to corporates to set up their offices and
to some banquet hall owners to rent it out for weddings and other
functions
These are just a few examples of malls that have either shut shop or tweaked their original glitzy plans faced with poor footfalls, low brand pull and sheer mismanagement. Numbers tell the extent of trouble. Roughly 250-300 malls came up in the country over the last two years but 70-80 per cent of the spaces in these malls lie vacant. Around the same time, as many as 40 malls have shut shop, according to Squarefeet Advisory, a mall management company.
The economic slowdown has landed especially heavily on the old-line department stores that anchor many malls. As their sales and profits have tanked, they’ve been pulling out of malls, much to the distress of the smaller merchants who depend on the larger stores to feed them traffic. These trends are hitting the market capitalisations of most of the largest owners of retail real estate. Of course, the slowdown was the catalyst, but competition from online retailers has been the continued driver.
Cushman and Wakefield estimates only 50 per cent of the scheduled malls came up in the top eight cities of India in 2012. And only 250 new ones are being planned in the next two years, while there is space for at least 2,000 malls. A clear marker for shopping centre distress.
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To start on the right foot: |
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Fail-proof the business plan: Focus on the development of retail brands and not solely on quick returns on investment; The primary responsibility should be that of catering to the consumer catchment and driving footfalls for the retail occupants. The other requirements follow from this simple premise Do a thorough recce of the catchment: Ask questions like can the catchment support the development in terms of consumer footfall and spending? Is there a connect between the needs of the immediate catchment and the occupants of the mall? Are there too many malls in the catchment area? Offer good occupant mix: You cannot have mall occupants who have little relevance for the target consumer. You cannot have the same type of retailer; this would cannibalise rather than provide a healthy mix Ensure good access: Accessibility and connectivity to get the traffic smoothly in and out of the mall is a must; ensure there is adequate parking space Avoid under sizing: A small-sized is a straight handicap because it will lack variety, which is de rigueur in the business, and you run the risk of getting dwarfed by the next big mall that throws its hat into the ring Focus on design: This involves making the mall brands ‘visible’, ensuring appropriate ‘zoning’ in terms of entertainment, multiplexes, kids’ areas, food courts etc. This will result in better customer flow management DEVANGSHU DUTTA, Chief Executive, Third Eyesight |
Is India’s love affair with the mall over? Experts say this is not the end of the road but a time for introspection. Most malls go through cycles just like the economy: New malls get popular, then traffic begins to die down, then the mall enters a lull phase where anchor stores are leaving/being replaced or the mall simply closes altogether. Also, for many Indians, especially people under 20, the mall is their first experience with organised commercial activity, their first brush with fashion and entertainment, the first place they get their concept of style.
In short, this would be the time to draw lessons from the experiences of mall owners who have been forced to change the script.
Study the catchment area
The first generation malls in India were flagged off in the mid-nineties without much research or understanding of the market, say analysts. As crowds began to throng to these places, many others simply replicated the idea without a clear view of what works in the business and what doesn’t. The slice-and-sell-AC-shops-within-a-big-box approach didn’t work simply because it lacked planning and management and made no provision for demands emerging in the future.
It may come as a surprise but "this is an industry driven by real estate, not retailing", says a consultant. The experience in India, in fact, has been similar to the US market in the early years of mall development as documented by Paco Underhill in his 2004 book The Call of the Mall: A Walking Tour Through the Crossroads of Our Shopping Culture. As he points out, the industrial appearance of the mall and its box-like stores do not express the attempts of retailers to attract customers, but the efforts of developers to squeeze the maximum profit from a construction project. While some of the smarter developers quickly altered the recipe and came back from the brink of disaster, there were others that became a case study of sorts on how not to run the business.
Against this background, the biggest lesson, so to speak, has been that the mall business is like any other business. And like any other business, a thorough understanding of the consumer is the first and the most basic requirement for the business. Says Rajat Wahi, partner, KPMG India, "It is very important to look at the consumer and shopper profiles of the catchment areas before renting space to brands."
This was a lesson that Delhi’s Select City Walk, one of the most successful malls in the country, kept in mind while starting out. Spread over 1.3 million sq ft, which also include landscaped open spaces, the mall was designed keeping in mind the affluent female consumer used to shopping in premier South Delhi markets. The product mix was designed to offer quintessential Indian boutique brands such as Good Earth, Fab India etc alongside international labels such as Zara, Mango, Tommy hilfiger.
Mind you, it is as much about the brands as it is about the ambience in the mall. "You want to have a mall where the shopping experience is enhanced and people want to keep coming back," says Wahi. Some new mall owners are creating "zones" (read, multiplexes, food courts, kids’ play area) to meet the changing needs of the shoppers and upgrading services like access, parking (in terms of even lanes leading up to the malls), security, providing prams for children etc, going as far as to organise regular events around celebrity visits, shopping festivals, flea market fiestas etc to ensure footfalls and consumer involvement. The amenities draw the consumer in for reasons other than to just purchase items.
Here’s how Crossroads, which was acquired by retail czar Kishore Biyani from the Piramal Group of Industries for a staggering $66 million, made the transition. The Mumbai-based mall started floundering when the building’s poor design – which allowed consumers to have a dekko at the mall’s signature brand Pyramid but didn’t allow them to notice other brands that were housed there too – made things difficult for a majority of the brands housed therein.
Given the high tenant turnover, customer loyalty began dwindling.
Rechristened Sobo Central, not only was the mall’s floor layout changed to offer all brands better visibility, there was also been more emphasis on putting together the right mix of food, fun and shopping experience.
Speaking of design, at Delhi’s Select City Walk, the layout is such that at a quick glance, the consumer can easily read the labels/logos of 12-15 brands.
Be open to change
The shift to a revenue share model has also proved to be a win-win for brands and mall owners. Take DLF, which moved to a revenue sharing model when many of its branded malls started faltering. The group initially gave out space on a first-come-first-serve basis besides offering shops to those who promised higher rentals.
This essentially meant there was no thought given to the brand mix. What made it worse was that DLF allowed many investors to buy the shops and rent them out later. The result: no sense of ownership and low overall accountability from brands. This proved a thorny issue at the time of discussions regarding renovation or even during promotional activities.
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What went wrong: |
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The initial euphoria of developing shopping
centres has faded from the time retailers started insisting
on revenue share and minimum guarantee rather than the pure
rent model. With the new scenario, retailers’ ability
to pay is limited by their sales. As a result, they offer
rentals that they can afford, and mall developer often begin
to evaluate other asset categories like offices and residential,
since offices provide fixed rentals and residential comes
with the inbuilt advantage of up-front cash — neither
of which are available in the mall format. Such a scenario can lead to a mall closing
down as a retail establishment and reinventing itself into
another format. In the case of older centres — many
of them were created without adequate planning or preparation,
were not in the right location, or did not have the right
size or tenant mix. Following are the lessons worth learning:
Malls must, over a period of time, evolve
their tenant mix and offerings so that sales — and
therefore rentals — continue to grow. In the event
that a catchment does not sustain the development or there
is too much completion, retailers will choose the dominant
mall. When a shopping centre is not the preferred
one for retailers, value retailers come in – when even
value retailers cannot sustain, it is usually because of
a combination of reasons. These could be: bad location,
bad design, lack of adequate parking, lack of professional
mall management (often the result of strata selling spaces)
and a mall’s inability to find alternate usages of
space. Anuj Puri, Chairman & country head, Jones Lang LaSalle India |
An altered revenue share approach, says Pushpa Bector, vice-president, mall head and senior vice-president, leasing, DLF’s Mall of India, has allowed DLF to take a long-term view into mall management (that includes positioning, zoning, tenant mix, facility and finance management, promotions and marketing) and genuinely look into – and support – all the brands present in the malls with interesting promotions that can drive footfalls. The effort has helped: DLF Promenade has a footfall of 1 million customers per month and round-the-clock operations and better management have ensured higher loyalty among consumers.
Some malls have taken the scope of mall management one step ahead – they track performance of brands, collecting data on per sq ft sales, the sales of a brand and other parameters. This helps them run a diagnostics check on the brands under the roof and figure out whether the brand is using space optimally or there is need for rationalisation. In the bargain, malls have improved yields as new brands have come in at higher revenue share deals and existing ones have delivered better performance within smaller spaces.
Looking at the kind of damage poor planning brings in its wake, other malls are making sure the customer has the right brands and packaging. Inorbit Mall, which began its innings in Mumbai’s Malad area in 2004, carefully took into account the catchment and decided to focus on five anchor tenants (Shoppers Stop, Lifestyle, Spencers, Fame, and Time Zone). The management routinely studies the performance of retail brands, engages with customers to gather feedback and proactively looks out for promising brands that can be a part of the property.
The demand for space in malls like Select City Walk in Delhi or Inorbit Mall or High Street Phoenix in Mumbai is so high now that it has had to right size the stores of existing brands or relocate some within the premises to accommodate new ones. Select City Walk, for instance, has cut down the Levi’s store from 2,700 sq ft to 800 sq ft to accommodate Superdry and Dune Shoes. Next London has shed about 1,000 sq ft of flab, helping the mall welcome Apple.
Will all this be enough to bring the shoppers back to the deserted malls? Mall managers do have a lot on their plates already. Few new malls are being built, and just too many are being ‘repurposed’. Because of their location, keeping in mind the spiralling real estate costs, malls are not accessible to an increasingly elderly population; technology products are taking larger bites out of customers’ wallets as opposed to the traditional fare malls have to offer; online shopping has grown by leaps and bounds; and more and more women have less and less time to shop.
While teenagers and young adults will continue to patronise the mall as an ‘affinity centres,’ to borrow a phrase from Underhill, most real estate professionals understand more profound changes are afoot.
(This article appeared in Business Standard on August 26, 2013.)
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August 20, 2013
Sapna
Agarwal, Mint (A Wall Street Journal Partner)
Mumbai,
August 20, 2013
Indian men and women are becoming more picky when it comes to
dressing. Formal wear is increasingly giving way to a trendier
line of clothes that includes casual sports and lifestyle apparel,
according to stylists, analysts and retailers.
Consider the case of Shilpa Kapoor, 26, a marketing professional
with a multinational company whose shopping list includes “fitted
dresses, racerback tops in funky prints, Aztec print skirts, sequin
shorts, one of those awesome colourful bubble necklaces, and one
of the funky rings maybe in a serpent form or any other designs”.
Consumers such as Kapoor, who are tuned-in to the latest global
fashion trends and the increasing availability of international
fashion at affordable rates, are causing non-food retail sales
in India to surge even as the economy recorded its lowest growth
in a decade in fiscal 2013.
“Gone are the days when you wore just anything and spending
on clothes was considered trivial. Dressing well is an important
part of the personality and about how you want to present yourself,”
said Pampa Biswas, a stylist who works with an advertising agency.
The fashion space, say experts, comprises four consumer segments:
Image Seekers, for instance, are driven by the need to be fashionable.
Conformists prefer branded apparel to blend with their peer group.
Perfection Seekers wear branded apparel for quality assurance,
good fit and internal satisfaction, while Variety Seekers seek
a range of clothes, but are mainly driven by prices and discounts.
“Image Seekers are the most fashion conscious consumers
and our research shows that this group has increased in India
by about 25% in the last 4-5 years in the metro cities,”
said Raghav Gupta, principal, Booz and Co., a consulting firm.
In 2011, the Indian apparel market was estimated to be Rs.190
crore, growing at an annual average growth rate of more than 9%
and is likely to be at Rs.295 crore by 2016, according to a report
by Booz and Co. Close to 20% of this market is organized and growing
at a higher rate of 18%.
Retailers agree with the trend. At department retail chain Shoppers
Stop, the sales of formal wear have been decreasing and that of
the trendier lines like casual sports and lifestyle apparel increasing.
In the last two years, the contribution of formal brands to the
category has come down from 44% to 38% while trendier casual sports,
lifestyle and bridge to luxury brands contribution to the category
has increased from 56% to 64%, said Govind Shrikhande, managing
director, Shoppers Stop Ltd.
The availability and accessibility of international brands has
contributed largely to the trend.
“There is a dramatic shift in the way consumers are shopping.
They are taking fashion risks,” said Sanjeev Mohanty, managing
director of Benetton India. Over the past year, Mohanty has changed
his views from needing an India-specific collection at his stores
to now rolling out global collections as soon as they are launched
because of “globalization of fashion”.
Similarly, home-grown brand Zodiac launched a trendy casual wear
brand Z3 in 2008 and repositioned the brand in 2010 to mirror
global fashion trends. “It’s our ability to predict
international menswear trend for spring-summer 2013 and bring
it alive,” explains Salman Noorani, president and managing
director, Zodiac Clothing Co. Ltd.
Moreover, big fashion brands, including Zara, Vero Moda and
Tommy Hilfiger, have entered the country in the last seven-eight
years.
“Of the total 200 odd brands present in India across
apparel, footwear and jewellery, 150 were launched between 2005
and 2012,” said Devangshu Dutta, chief executive at Third
Eyesight, a retail consulting firm.
And over the years the brands have gained scale and are making
their presence felt. For instance, CK entered India in 2007 and
now has 27 stores. Zara entered in 2010 and has nine stores. Steve
Madden entered in 2011 and has seven stores. Diesel entered in
2010 and has 11 stores.
Moreover, the success of brands such as Zara is seeing incumbent
retailers sharpen their offerings as they compete for the customers’
wallet. Zara, the joint venture with Inditex Trent Retail India
Pvt. Ltd, posted a revenue of Rs.404.80 crore in fiscal 2013,
according to Trent Ltd’s annual report for fiscal 2013.
“There have been nine new launches in the sports and lifestyle
segment in the last three years,” said Vinay Bhatia, senior
vice-president, marketing and loyalty at Shoppers Stop, citing
examples of incumbents such as Louis Philippe (LP), premium menswear
brand launching LP, Arrow launching Arrow Sport and Van Heusen
launching Van Heusen Sport besides brands such as Celio, Gas,
US Polo entering into the market.
What also is helping drive the sale of fashion wear is the large
young population. The 21-30 year-old consumer is very conscious
of looks and image and is willing to spend, said Mohanty of Benetton,
adding that this profile contributes to 70% of the retailers overall
revenues as compared to 50% two years ago.
Not that older consumers are not experimenting with fashion.
“The 30 to 50 year-old segment is more interesting. They
have a bigger wallet and less pressure on the wallet,” said
Darshan Mehta, chief executive officer, Reliance Brands Ltd which
retails brands like Steve Madden and Diesel.
To be sure, India remains one of the toughest retail markets
to crack. In the last two years, nine brands have had to shut
shop driven by poor foot falls, high rentals and limited shopper
value in terms of brand options available, according to a Reliance
Brands Ltd January 2013 report.
Additionally, as the economic growth slows and inflation persists,
consumers are tightening their belts.
An India Ratings, a Fitch Ratings Ltd July report estimates that
a wage rate increase at 9.4% for fiscal 2013 as compared with
10.4% consumer-price inflation “will affect household savings
rate and discretionary spending”.
“Poor consumer sentiment is manifested in the low quarterly same-store-sales growth trend since fiscal 2012, driven by higher pricing with no significant improvement in volumes. Also, discounting may further dampen margins,” said the India Ratings report. Same-store-sales growth measures compares sales of retail stores that have been open for a year or more.
There is growth, though, at a slower rate. “Last year, we grew like-to-like sales at 30% and now we are growing at 18-20%,” said Dipak Agarwal, chief executive officer of DLF Brands Ltd, which retails brands like Mango and Boggi.
