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Buyers’ love for discounted luxury products spawns fakes online

Ankita Rai, Business Standard
New Delhi, February 15, 2014

Beware when you see 50 per cent off online on your favourite Chanel, Birkin or Louis Vuitton bag that you have been eyeing for long. Chances are it is a Chinese piece of art and a perfect imitation. While e-commerce websites are hailed for the wide assortments and discounts they offer, the medium has come under fire for increasing sales of counterfeit products.

A recent Assocham report puts the size of the fake luxury products market in India at Rs 2,500-3,000 crore. That is 5-6 per cent of the overall luxury products market in the country, which is worth Rs 49,000 crore. The market for fake goods is driven largely by web shopping portals that account for over 25 per cent of the overall market for fake luxury products in India, says the report. Fake products account for 7 per cent of the global luxury products industry worth Rs 19,69,920 crore.

"Fashion brands are among the most counterfeited or pirated products because of the high margins they offer," says Devangshu Dutta, chief executive, Third Eyesight. A big chunk of the market for fake luxury goods is constituted by accessories such as watches, handbags, sunglasses, perfumes and jewellery. And this market is growing at a rate twice that of the market for genuine luxury goods.

The market for fake luxury goods in India is likely to touch Rs 6,000 crore in 2016. "About 80 per cent of these counterfeit products come from China," says Nymex Consulting chairman David Abikzir. "Most of the e-retailers buy and re-sell products and don’t control the trademark of the product sold. So, it is no surprise that e-retailers are playing a key role in the market of fakes," says Abikzir.

Agrees Dutta, "On the supply side, China has become a major manufacturing and sales hub for outright fakes as well as the better quality ‘replicas’, and unfortunately is as much the prime source for counterfeit sales around the world as it is for legitimately manufactured products."

"An obvious advantage that online counterfeit sellers have is that the customer is unable to see or touch the physical product until it is delivered, so there is no sensory filter the customer can apply before buying the product," he adds.

That is not to say only e-commerce sites are to blame for the rising sales of fake goods. It is common knowledge that many consumers who are not able to afford originals purchase counterfeits on global websites, points the co-founder of an e-commerce portal specialising in electronic goods. "Many websites hawking counterfeits have their domain names registered outside India, and are therefore outside the country’s jurisdiction," he says.

Brand consultants agree there is an urgent need to educate customers on brand heritage and create awareness about original products. According to the Assocham report, certification of authenticity and quality of products by luxury goods makers, digital serialisation/authentication, multi-channel protection and inclusion of appropriate technologies in product labelling are steps that can be followed by luxury goods manufacturers to combat counterfeits.

While most of the popular e-commerce players screen products before putting them up for display on their websites and also offer consumers a certificate of brand guarantee along with the product, many smaller sites may not have the wherewithal to screen products. Another issue is that the e-commerce space in India is primarily discount-driven.

"Some of the websites themselves in a bid to drive their top line and keep their own margins intact may have engaged in loose sourcing practices, unknowingly or knowingly, thus becoming a channel for counterfeit products," says Dutta.

In a bid to overcome the problem of fakes and to become more accessible to a wider group of customers, many luxury brands have introduced lower priced lines as well as individual products that are more affordable, or smaller pack sizes to drive trials. "A tight economy and a value-for-money seeking consumer pose a significant and constant challenge to genuine brands to prove their worth," says Dutta.

Arun Chandra Mohan, co-founder of Jabong.com, adds, "E-retailers should work directly with brands and avoid agents and middlemen. This way they can make sure that the fake doesn’t enter their product pipeline."

(Sourced from Business Standard)

India – A Growth Trajectory for Global Fashion Brands

2013 has been a mixed year for retail in the Indian market with multiple factors working in favour of and against the business prospects.

Economic growth had slowed to 5% for 2012-13 (as per advance estimates by The Central Statistics Office, Government of India), down from 9.3% in 2011. The ray of hope is that the growth rate is expected to rebound to 6.8% in 2013-14. Spiralling inflation, with prices of some basic vegetables shooting up almost eight to ten times, distracted the consumers from discretionary spending. The year hardly saw irrational expansions by retail businesses as they primarily focused on bottom line performance.

While the Government of India liberalised Foreign Direct Investment (FDI) policy in retail in September 2012, international investors have been slow to respond and sizeable foreign investments have been announced only recently at the end of 2013.

The political environment also took unexpected turn with the success of Aam Aadmi Party (AAP) at the Delhi Assembly Elections held towards the end of the year. This may augur in a new era of politics driven by performance and results but in the short term it could restrict market access for international multi-brand retailers, as the AAP has declared their opposition to investment from foreign multi-brand retailers.

So is India still a strategic market for international fashion brands to look at?

FDI Policy – Clarifications and Impact

India’s Foreign Direct Investment (FDI) policy has come a long way with foreign investments now being allowed in multiple sectors including retail, telecom, aviation, defence and so on. The Indian government is now exploring the possibility of allowing FDI in sectors such as railways and construction.

The year 2006 was a significant year for international brands in fashion and lifestyle space as the Government of India allowed up to 51 per cent foreign direct investment in the newly-defined category of “Single Brand retail”. In September 2012 the Indian Government liberalised the retail FDI policy to allow foreign investment up to 100 per cent in single brand operations and up to 51 per cent in multi-brand retail albeit with certain conditions related to the ownership of the brand, mandatory domestic sourcing norms for both single-brand and multi-brand retailers and additionally certain investment parameters for the backend operations of the multi-brand retail business. The idea was to attract foreign investment in retail trading a part of which could flow into improving the supply chain while providing Indian businesses access to global designs, technologies and management practices.

Large Investments in the Pipeline

The investments flowed in slowly initially. Some of these have looked at converting existing operations, such as Decathlon Sports which was present in India through a 100% owned subsidiary in cash and carry business. The brand is converting its cash and carry business in India to fully-owned single brand retailing business.

But there have been some significant moves as well. A record breaking FDI proposal in single brand retail is the Swedish furniture brand IKEA’s, that had to apply three times since December 2012 before its’ proposed investment of €1.5 billion (Rs. 101 billion) received the nod from the Government. However, the proposal is reportedly still in the works, as Ikea looks to structure the business to comply with the laws of the land. And as the year came to a close the Government cleared Swedish clothing brand Hennes and Mauritz’s (H&M) US$ 115 million (Rs.7.2 billion) investment proposal. According to news reports the brand had already begun blocking real estate with the goal of launching its stores in India at the soonest.

While the initial response to the relaxation of FDI policy spelt positive inflow for single brand retail, there was no new investment forthcoming in multi-brand retail. The existing foreign multi-brand retailers present in India through the cash and carry format showed a marked lack of interest in switching to a retail business model. On the other hand Walmart, the only foreign multi-brand retailer having access to a network of retail stores through its wholesale joint venture Indian partner, Bharti Enterprises Ltd., ended its five year long relationship and has restricted itself to the wholesale business. Though the company cited that it was disheartened by complicated regulations, it was also caught up in its own corruption investigation as well as allegations that it had violated foreign investment norms. The sole bright spot was the world’s fourth largest global retailer Tesco proposing and getting approval for a US$ 115 million investment into the multi-brand retail business of its partner, the Tata Group. At the time of writing the precise scope of this investment remains unclear.

If you want the full paper please send us an email with your full name, company name and designation to services[at]thirdeyesight[dot]in.

Two Indian States Bar Foreign Supermarkets, Denting Investor Confidence

Anjana Pasricha, Voice of America

New Delhi, February 14, 2014

In India, two newly elected state governments have rolled back decisions to allow the entry of foreign supermarkets. This is yet another blow to the country’s hopes of winning foreign investment in the retail sector, and could further shake global investor confidence in India.

The decision by the northern Rajasthan state earlier this month to bar foreign direct investment by overseas retail chains such as Walmart followed a similar move by Delhi.

New local governments took charge in both states in December — led by the Bharatiya Janata Party in Rajasthan and the Aam Aadmi Party in Delhi. Both parties oppose foreign supermarkets, fearing they could take away local jobs.

The federal government allowed global retailers to enter India more than a year ago in the face of stiff political opposition, but it left it to individual state governments to make the final call. So far, fewer than half the country’s 28 states have given a go-ahead to foreign retail chains.

Arpita Mukherjee at the Indian Council of International Economic Relations in New Delhi said the decision by the Delhi and Rajasthan governments will further dampen the enthusiasm of foreign retailers, who are already disheartened by tough regulations on their entry into a market that she called “very difficult to operate."

“This is the first time that we have a rollback of the policy, and that gives very, very wrong signals to investors. India is a large market, but it is a highly fragmented market and our growth rate has slowed down. India is not an easy market to set up your supply chain,” said Mukherjee.

So far, Britain-based Tesco is the only global chain to propose an investment in India. It announced in December that it will invest $110 million and partner with a local company to set up three to five local stores every year.

That is some positive news for India, which had hoped to attract billions of dollars in a retail market estimated to be worth $500 billion.

However, industry analysts think most retail chains are waiting to see who takes charge of India’s next government after elections, to be held by May. The ruling Congress Party, which allowed the entry of supermarkets, is expected to lose power. The BJP, which is tipped to win, is broadly considered more business-friendly. However, the party opposes foreign supermarkets on the grounds that they could impact the livelihood of small shopkeepers – a core support base.

Devangshu Dutta, head of Third Eyesight consultancy, which focuses on the retail sector, stressed the importance of predictability for foreign investors.

“If there is one thing that any investor looks at, it is predictability in any form. From that perspective, any reversal, and especially quick reversals, are negative, and that makes any investor who is already cautious even more cautious. Unfortunately that is the environment we are operating in at the moment,” said Dutta.


What happens in the retail sector could be key as India seeks to restore international investor confidence and give fresh momentum to its flagging economy.

(Sourced from Voice of America.)

There’s Always Room for More

Arunima Mishra, Business Today

Mumbai, February 11, 2014

When New York ice cream giant Haagen-Dazs entered China, it did not compete with other ice cream companies. Instead, it aligned itself with luxury brands.

Kolkata-based Pabrai’s Fresh & Naturelle Ice Creams is doing something similar. Instead of competing with rivals such as Amul and Kwality Walls, it positions itself as a relatively upscale brand. It supplies to five-star hotels such as the Marriott, Taj and ITC chains, and The Imperial in Delhi. It also supplies to high-end caterers in the national capital.

Fresh & Naturelle’s founder, Kunal Pabrai, is preparing to open a second ice cream plant that can produce 20,000 litres of ice cream a day, and it will increase his company’s capacity 20-fold in the next decade. His father Anuvrat Pabrai, who is Advisor and Chief Mentor at the company, says: "We want this capacity before 2015 as there’s so much demand. Our current plant produces 2,000 litres of ice cream a day, and can be upgraded to 4,000 litres." Fresh & Naturelle ice cream is currently available in ten cities, and Pabrai plans to expand business to four more. He even plans to sell his ice cream in Australia, Dubai, Indonesia, Singapore and the UK – ambitious plans for a company founded in 2008.

Mumbai-based Natural Ice Cream, too, is growing. What started in 1984 with a single store in a Mumbai suburb has 115 franchise outlets now, mostly in Maharashtra and Karnataka. It sells only through franchisee parlours, not other retail outlets. By the summer, the Rs 75-crore company plans to open stores in Chandigarh, Delhi, Jaipur, and Ludhiana. And it plans to expand to Dubai and Singapore in two years.

In value terms, the organised segment of India’s Rs 3,000-crore ice cream market has been growing at 19.5 per cent a year for the last five years, says R.S. Sodhi, Managing Director of the Gujarat Cooperative Milk Marketing Federation Ltd, maker of Amul brand products. "Many established food and lifestyle trends, such as limited edition, indulgent, natural and premium ingredients have led to the establishing of ice cream ranges under claims of ‘premium’."

"Demand is very high in India," says 29-year-old Srinivas Kamath, Director, Kamaths Ourtimes Ice Creams Pvt Ltd, which makes Natural Ice Cream. "There’s demand from Kolkata, Bhubaneswar and Guwahati. Once we enter North India, next will be East India."

Natural Selection

One growth area, according to Rachna Nath, Executive Director and Leader of Retail & Consumer at PricewaterhouseCoopers (PwC), is gourmet and natural ice cream. The latter is made without artificial ingredients. Fresh & Naturelle’s Pabrai gives the example of cocoa powder. "Only one per cent of cocoa powder available the world over is naturally processed," he says. "It takes 15 to 17 days to naturally alkalise the cocoa powder that we use in our chocolate ice cream. When it’s done with alkalis, it tends to lose its nutrients." He says naturally made cocoa powder is an effective antioxidant. He adds: "We use only fresh fruit, no canned fruit ."

Nath says natural ice creams are a niche and premium market, and are seen as healthier than regular ice cream. "It’s expensive," she adds. "However, the upper middle and upper class are ready to spend more."

Gourmet flavours are a big part of premium positioning. Fresh & Naturelle has flavours such as chandan (sandalwood), matcha (Japanese green tea) and Kolkata meetha paan. Natural Ice Cream has seasonal fruit flavours such as sitaphal (custard apple), and festive ones such as the Makar Sankranti Special with sesame seeds and peanuts, and prasadam for Ganesh Chaturthi, with bananas, dry coconut and raisins. Nestle’s Movenpick, recently relaunched in India, plans to launch a masala chai flavour by the year-end.

Besides gourmet and natural products, there could be other requirements in the premium range, such as low-fat and sugar-free ice cream, and ice cream cakes, says B.M. Vyas, a 40-year Amul veteran and now Director at Mumbai-based Parag Milk Foods. Natural ice cream companies face competition from gelato and frozen yogurt. Although not technically ice cream, gelato is a premium, natural, healthy frozen dessert, and therefore a direct rival.

Amore Gelato lists 27 stores on its website. Gelato Vinto (whose products are priced at Rs 49- 97 a scoop) has 50 company-owned and franchise outlets. Gelato Vinto wants to increase its market share to around nine per cent from the current four or five per cent. Chief Operating Officer Akshay Batra says: "We have a warehouse in Ludhiana, and plan to open one each in Aurangabad and Pune soon." He says new factories will come up in Chennai and Mumbai, in addition to the one in Delhi. With regard to expansion, he says: "Our main focus will be on franchises, so we can concentrate on production." He says the company plans to open around 75 new stores by the end of the calendar year.

He says perceptions are changing as Indian consumers become more health-conscious. "This is where my product comes into play more than industrial ice-creams, because it’s 96 per cent fat-free," he says. "We also offer sugar-free flavours. In terms of quality and flavour, we don’t have much competition."

PwC’s Nath notes that among the mass-market companies, Vadilal has started a gelato chain called Melt In. Rajesh Gandhi, Managing Director at Vadilal Industries, says his company is now doing a test run of its artisan gelato. "We need a year to see the results first, after which we will decide further on Melt In," he says.

Devangshu Dutta, Chief Executive at retail consulting firm Third Eyesight, says: "Gelato is considered a healthier option than ice cream, but it needs to be moved from the counter quickly, and nobody has yet succeeded nationally as a gelato chain in India."

Fresh & Naturelle’s Kunal Pabrai says only a small fraction of consumers prefer gelato. "The Indian consumer wants ice cream any given day," he says. But he can expect competition from mass-market companies, too. Amul plans to launch Creme Rich, a super-premium ice cream brand, and India’s first Greek-style frozen yogurt, this summer. "Creme Rich products will have the finest natural ingredients … to create the magic of indulgent and luxurious super-premium ice cream category," says Managing Director Sodhi. "Though it will not be completely natural, it would be made from fresh milk and dairy cream."

Global Rivals

Natural ice cream companies face competition not just from the mass-market Amuls and Vadilals, but also from global giants such as Nestle and Haagen-Dazs, who are expanding in India. Haagen-Dazs, marketed by General Mills India, has nine lounges, sells at supermarkets and events, and plans to expand in India.

Nestle is pushing its Movenpick super-premium ice cream brand in India, through its Delhi-based import and distribution partner, Star Speciality Foods (SSF). Movenpick offerings include tropical fruit sorbets and sorbet-and-ice-cream combinations. The brand was originally launched in India in 2001 by the Movenpick Group. Nestle acquired the business in 2003 (it is now owned by Nestle Super Premium, part of the Switzerland-based Nestle Group). Distribution in India had been limited, and Nestle is now relaunching the brand in India through SSF.

M.V.M. Rao, South Asia consultant at Nestle Super Premium, says the company plans to work on this niche segment through three channels of distribution. The first is hotels, restaurants and catering, the second is retail outlets (Nestle calls them ’boutiques’), and the third is selective retail outlets such as gourmet food stores. It has a boutique each in Chennai and Kolkata, and will open a third in South Delhi’s Select Citywalk mall later in February.

By April, Movenpick will open in Mumbai and Bangalore, says SSF Director Tarun Sikka. Jorrit Castelein, International Commercial Manager for Asia, Oceania and Africa at Nestle Super Premium, says: "Bangalore and Hyderabad are among the focus cities for Movenpick." He says his company plans to introduce four new flavours in the Asian market this summer, and take the masala chai flavour to other countries.

He says: "We hope to expand at a reasonable pace this year. On consolidation of the concept, expansion will be more aggressive." Rao adds that the company plans to launch an Asia-specific range with some ingredients from India. He says its products are imported from Switzerland, so exchange rates can affect pricing (currently Rs 175 a scoop, or 83 per cent of Haagen-Dazs’s Rs 210).

Rao says: "The Indian consumer has always had a sweet tooth, and our sweeter flavours – such as Caramelita and Maple Walnut – are fast-moving. However, our bestseller is Swiss Chocolate." India is a developing market, he says, so Movenpick’s pricing is not comparable with advanced markets, where the price is typically 50 to 60 per cent above the market average.

Nascent Business

Parag Milk Foods may enter the ice cream market too, says Vyas. "India is going to be the largest ice cream market in the world, as it’s the largest producer and consumer of milk," he says. "The trend is that we will move up the value chain from milk to milk products in the next two decades."

Ice cream does not figure prominently in the Indian diet, according to industry experts. "However, in recent years, in the super-premium segment, awareness has been growing about the qualitative aspects of gourmet and luxury ice creams," says Castelein of Nestle Super Premium. "So there’s a spurt in this segment. The business, however, is nascent, and has a long way to go in terms of development and volumes." He says he is positive about growth prospects, because Nestle has "a good consumer base to work with". He adds: "As our current business is very small, we are hopeful of a higher-than-median market growth rate for the segment this year."

Discerning customers are everywhere. The trick is to make products available and affordable. Fresh & Naturelle seems to have got it right with its high-end positioning and a sensible price range of Rs 39 to Rs 79 a scoop. The company’s turnover grew 60 per cent last year to Rs 6 crore. That’s slower than the 100 per cent growth rate before that, says Pabrai, and explains that growth has slowed because the company is consolidating its business. He says his rivals are global brands such as Movenpick, which are priced much higher.

Parag’s Vyas says that cold chain development, and more outlets in hotels, gardens and railway stations, will help improve sales. "When I launched ice cream in 1996 at Amul from only fresh milk and fresh cream, consumption was 100 ml per person per year in India, which is 400 ml now," he says. With the market growing as fast as it is, reaching four litres per capita will not take another 18 years, he adds.

(Sourced from Business Today issue dated 2 March 2014.)

Police attach brand owned by NSEL borrower; say more such action likely

Sharleen D’Souza, Business Standard

Mumbai, February 8, 2014

The economic offences wing of the city police on Friday attached a brand belonging to P D Agro, in the National Spot Exchange (NSEL) payment default case. P D Agro owes Rs 637 crore.

It is the first occasion in which the EOW has taken such an action. It was done under the Maharashtra Protection of Interests of Depositors (in Financial Establishments) Act.

PD Agro, the third largest borrower from NSEL in the Rs 5,600-crore payments scam, owns Dunar Foods, a brand of rice which has a good name in northern India, West Asia and Europe. The brand is valued at a minimum of Rs 1,000 crore, say EOW officials.

They said they’d attach more brands, of other NSEL borrowers who are yet to repy. They declined to divulge details.

Experts say the immediate impact will be on the trade and distribution network of the brand. “The impact depends on the customer experience and government action,” said Devangshu Dutta, head of Third Eyesight, a retail and consumer consultancy.

So far investigating authorities in many such cases, including that of NSEL, have attached properties, cash, bank accounts, stocks, shares and so forth but not the brand itself.

So far in this case, the police has attached assets worth Rs 4,565 crore. These include assets of NSEL’s promoters and directors, apart from those of borrowers.

Currently, EOW is also looking at brokers’ involvement; investigations are still on.

A court on Friday granted bail to Lotus Refineries’ director Arun Kumar Sharma, one of the NSEL borrowers.

(Sourced from Business Standard .)

Zara’s Indian unit Inditex Trent made profits in two out of the three years

Sagar Malviya & Rasul Bailay, The Economic Times

Mumbai/New Delhi, February 4, 2013

With a rotten economy and an unemployment rate of 26%, Spain’s brand image may be in tatters, but not that of one particular Spanish brand – Zara. In India, where some of the best-known international labels have met their Waterloo, Zara has proven to be adept at selling fine feathers to the fashion-conscious.

The world’s most popular ‘fast fashion’ brand, Zara’s Indian unit Inditex Trent – a joint venture between the brand’s owner Inditex with Tata Group’s retail arm Trent – has made profits in two out of the three years it has been around. In contrast, Levi Strauss continues to be in the red despite being in India for over a decade.

Zara has replicated a model that has worked for it globally – creating affordable, copycat versions of the latest fashions or designer-wear and making them available to shoppers in double-quick time. Inditex not only owns Zara, it also controls almost every bit of operations – from design to distribution and a large chunk of manufacturing. If a new style is not a hit within a week, it goes off the shelves. Even popular styles don’t stay long. There is no warehousing and reorders are rare.

"Zara is known for its fresh fashion delivery every week. Their weekly delivery supply chain is the best in the world. Consumers always think these clothes will go out of stock if they don’t buy them quickly," said Vineet Gautam, country head for Bestseller Retail, a rival of Zara’s that sells brands such as Vero Moda and Jack & Jones.

In the first half of 2012, Inditex clocked revenues of US$9.3 billion (Rs. 49,000 crore).

The Indian unit made profits of Rs. 38.3 crore and Rs. 22.5 crore in the previous two financial years, documents filed with the registrar of companies show. Zara declined comment for the report.

Jaspal Singh Sabharwal, a partner with Everstone Capital, a private equity fund with investments in retail chains, said Zara in India churns out more than 10,000 designs in a season and that helps it stay relevant to customers. Moreover, customers visit Zara stores – there are nine of them – some 14 times on average in a year, resulting in 85% of merchandise being sold at full price compared with the industry average of 60%.

Zara’s early success in India reflects its global growth.

Amancio Ortega Gaona, who was last year named the third-richest man in the world, founded Zara as a maker of lingerie in the northern Spanish town of La Coruna in 1963. Today, there are 1,600 Zara stores in 85 countries.

Industry executives said demand is only part of the reason for Zara’s financial success in India. It strikes hard bargains with landlords and mall owners, keeping real estate costs in control. Most of Zara’s back-end and merchandise sourcing are handled by Inditex while the Tata expertise is mainly for identifying real estate and locations. Of the eight directors on the board of Inditex Trent, just three – Trent’s vice-chairman Noel Tata, Inditex Trent’s Chief Financial Officer P Venkatesalu, and the company’s MD Sanjay Rao – are Indians. Rao, who was financial controller at Inditex in North America, moved to India to launch the operations.

As Zara expands in India, experts said the challenge will be to sustain sales momentum. "There might not be many locations which could give them high sales per square foot. Also, as they open more stores, the initial scarcity value could erode," said Devangshu Dutta, chief executive of retail consultancy Third Eyesight.

Inditex Trent plans to open over 18 stores in the next three years in cities such as Mangalore, Surat and Indore, said a person aware of the plans.

The pitfall could be that shoppers in these cities may not have the same attraction for Zara despite having the propensity to spend on international brands. Several mall owners are also getting wary about renting stores to Zara.

Levi India tapers vendor base

Vaishnavi Bala, Financial Express

Mumbai, February 3, 2014

It’s been close to two decades now but Levi Strauss India can’t seem to get the right fit. The apparel maker is watching its bottom line — losses in FY13 came in at Rs 161.7 crore — and is letting go of stores and vendors. In a big overhaul over the last 18 months, the iconic brand has shed more than 100 vendors with the base down to just 30, and 40 unviable outlets have also been shut.

“Price rises coupled with low consumer sentiment thus impacted demand in the marketplace resulting in higher inventories. Additional costs had to be incurred on discounting during the end-of-season sale and on consumer promotions to stimulate demand, significantly impacting profitability of the company. Similar trends were observed across all key listed apparel brands,” the company said in a filing with the Registrar of Companies.

In a competitive market, Levi Strauss wasn’t able to draw customers and was compelled to cut its losses. A director of Levi Strauss India told FE on condition of anonymity, “We have been ruthless in closing unprofitable stores and cutting down on our vendors.”

Clearly, Levi’s, which slugs it out with brands like Lee and Wrangler, hasn’t been a success is the mass segment and has scrapped its Denizen label; it has also phased out Dockers. As a result, revenues were lower by 34% in FY13 at Rs 485 crore in FY13. In the previous year, revenues had risen 24%.

But the Indian subsidiary of the iconic jeans brand isn’t giving up yet. “While we have shut 45 unprofitable stores, we have also set up 70 outlets over the past year,” the director quoted above said. That leaves the chain with some 400 exclusive stores.

The company said in an emailed reply to FE that it does not share any specific details of stores or financials in the country.

When Levi Strauss entered the Indian market in 1994-95, it was served by just a handful of vendors. “Over a period of time, the number of vendors increased since there was more product variety,” said Devangshu Dutta of retail consultancy Third Eyesight.

Bangalore-based Prateek Apparels, which started making jeans for Levi’s eight years ago, supplies roughly 40,000 units a month. “Due to a slow market we have seen some dip in demand and last year our monthly sales dropped to 10,000 units,” said the company’s general manager Shiva Prasad.

The US multinational acknowledged the weakness in the Indian market in its latest annual report. “In Asia, revenues declined due to stiff economic headwinds in the key markets of China and India, and the exit of the Denizen brand. We’ll continue to focus on key emerging markets, focusing on getting our business back on track in China and India,” the company said. About 16% of the company’s revenues comes in from the Asia-Pacific region, with China forming a large chunk of it, followed by India.

With consumer demand slipping in a sluggish economy, retailers are trying to survive by changing the product mix, right-sizing stores or closing down unviable outlets. Like other foreign brands in India, Levi’s is positioned as an aspirational brand but may have to change tack to attract value-conscious customers much the way Marks & Spencer has done.

(Sourced from Financial Express .)

Rajasthan bars foreign supermarkets in latest blow for chains

Tony Munroe, Reuters

Mumbai, February 2, 2014

The Indian state of Rajasthan has barred foreign direct investment in supermarkets, an ominous sign for global retailers who covet India’s vast but fragmented retail sector if the country’s main opposition Bharatiya Janata Party (BJP) comes to power nationally in upcoming elections.

The BJP is considered to be more investor-friendly than India’s ruling Congress party but opposes foreign direct investment in supermarkets because of its impact on small shopkeepers. It unseated Congress in Rajasthan’s state elections in December.

The Associated Chambers of Commerce and Industry of India criticized Rajasthan’s policy reversal, made on Friday, saying it would "dent and shake" global investor confidence.

"If one party reverses the decision of its rival dispensation upon change of guards, the policy and political risks for global investors would definitely increase in India, scaring them away," D. S. Rawat, secretary general of ASSOCHAM, said in a statement.

In late 2012, the government of Prime Minister Manmohan Singh opened India’s $500 billion retail industry to foreign operators, allowing companies such as Wal-Mart Stores Inc (WMT.N) and Tesco Plc (TSCO.L) to own majority stakes in Indian chains for the first time.

However, India left it up to individual states to decide whether or not to allow foreign retailers.

So far, fewer than half of India’s 28 states have adopted the policy, making it harder for retailers to exploit economies of scale by setting up sourcing and cold storage networks that could serve stores in contiguous states.

Stringent local sourcing rules and worries that the policy might be overturned have also kept most global supermarket chains on the sidelines.

Polls show the BJP is on track to win the most seats nationally in elections due by May. However, no party is expected to win the 272 seats needed for an outright majority, meaning the biggest party will seek to form a coalition with regional parties.

TESCO IS LONE INVESTOR

Tesco, the world’s third-largest retailer, in December unveiled a relatively modest plan to invest $110 million in Tata Group’s Trent Hypermarket Ltd (TREN.NS) to open stores in the states of Maharashtra and Karnataka.

Maharashtra is home to the Indian financial capital, Mumbai, and is led by a Congress party alliance. Neighbouring Karnataka, where the technology hub of Bangalore is located, is run by a Congress government.

"We have noted the decision of the state government and will bear it in mind as we consider our future plans," a Tesco spokesperson told Reuters.

In October, Wal-Mart, the world’s biggest retailer, walked away from its partnership with India’s Bharti Enterprises to set up retail stores, citing unfriendly regulations. Wal-Mart still runs wholesale outlets in India.

Last month, the newly-elected Aam Aadmi (Common Man) Party government in New Delhi barred foreign supermarkets in the capital.

The Indian economy grew 4.5 percent in the last fiscal year, or less than half its rate in the years before the global financial crisis, and sluggish investment due in part to inconsistent policies has contributed to the slowdown.

"From any investor’s perspective – foreign or domestic – he is looking at how predictable the environment is in the future," said Devangshu Dutta, chief executive officer of Third Eyesight, a retail consultancy.

"The policy framework and the overall environment are not encouraging the foreign investor to take that call," he said.

(Additional reporting by Aditi Shah, Nandita Bose and Prashant Mehra; Editing by Kim Coghill)

(Sourced from Reuters.)