admin
February 4, 2014
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.
admin
February 3, 2014
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 .)
admin
February 2, 2014
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.)
