admin
June 22, 2014
Raghavendra
Kamath, Business Standard
Mumbai,
June 22, 2014
Aditya
Birla Retail, which started operations in 2007 with the brand
‘more’, was looking to break even in FY 2013. The wish
remains unfulfilled — still.
Spencer’s Retail, part of the Sanjiv Goenka group which started in 1990s and opened stores in the modern format in 2006, was originally looking at a breakeven in financial year 2010-11. After missing two fresh goal posts, the retailer now says it hopes to break even in the next couple of quarters.
Birla and Spencer’s are just two of “the many supermarket chains, promoted by big corporates during 2006-08, are still making losses. While Star Bazaar opened its first store in 2004, it began expanding only post 2006. Sunil Mittal’s Bharti Retail, Raheja-owned Hypercity, Tata-owned Star Bazaar are also yet to turn profitable.
Consultants said ideally, retail ventures should break even in five to six years, but the tough economic environment and some not-so-prudent decisions have put paid to any such efforts.
According to a recent report by Crisil, the top 10 food and grocery retailers such as Aditya Birla’s more, Bharti Retail, Raheja owned Hypercity, the food and grocery business of Reliance Retail, accumulated losses worth Rs 13,000 crore in FY 2014. Crisil estimated that these retailers have invested about Rs 19,000 crore.
According to the report, Avenue Supermarts, which runs D Mart stores and Future Value Retail which runs Big Bazaar and Food Bazaar, are the major retailers which are profitable. Crisil said Future had the first mover advantage and Avenue had a low cost model which helped them to break even.
So what is holding back these chains from being profitable?
Besides the competition from kirana stores and the inherent low margins in food and grocery retail, costs associated with people, property and supply chain seem to the major issues that posed challenges to the chains floated by corporates.
While the retailers did not respond to mails, consultants say they were doing many things to achieve faster profitability. Hypercity is reducing the sizes of stores from 1, 00,000 sq ft to 40,000-50,000 sq ft and increasing share of fashion which carries high margins. Star Bazaar is also halving store sizes of large format stores and coming out with mid-sized and small sized stores to achieve faster profits. Spencer’s is looking to open 80 stores and focusing on improving its supply chain.
Crisil says the losses of the top grocery retailers will mount by about 30% over the medium term and may peak in 2017. After that, half of the players will start break even. Apart from Spencer’s which is looking to break even this financial year, even Hypercity is looking at Ebitda level profits this year. Since the developers have deep pockets and they see potential in the retailing business, they will continue to invest in retail, it said.
Some say one of the major reasons for the failure to have a consistent strategy over the years is the many changes at the top. Sanjay Badhe, former head of marketing at Aditya Birla Retail, says Birla Retail has seen too many changes in management and operations. “They need clarity in management,” he adds.
While Birla made Sumant Sinha, the group’s M&A specialist as CEO when it launched the business, Sinha quit within one and a half years. Thomas Varghese was then made CEO but in 2012 he was shifted to the textiles business and replaced by Pranab Barua, who came from Aditya Birla Nuvo. Late last year, the retailer named Vishak Kumar, CEO of its both formats.
Reliance Retail has also changed its top leadership frequently. While it debuted with Raghu Pillai as CEO of value formats. He was replaced by Gwyn Sundhagul who came from Tesco, Thailand in 2010. In a major rejig next year, Reliance Retail named Rob Cissell, former chief operating officer of Walmart China, as CEO.
But retail consultancy Technopak Advisors chairman Arvind Singhal said Reliance was firm on getting the right people on board. “Some people worked and some did not. But now they have good team in place,” Singhal said, adding some retailers stuck to people who did not deliver or stuck for too long.
Dipankar Halder, CEO at PingStripe and former head of supermarkets at Bharti Retail believes that some retailers are making losses due to their top heavy organizations with costs that are disproportionate to their store level costs. “Successful retailers abroad pay very good salaries to store managers because they are the people who drive the sales. But here we get cheapest guy at stores and have number of presidents and vice presidents at top,” he adds.
Indian retailers had to deal with expensive properties while running their stores. Indian grocery retailers pay rents which are almost double of what retailers pay abroad. But the chains earn 2-3% net margins in food and grocery. Ideally, hypermarket chains should pay 2.5 to 3% as% of rents to revenues to make them viable and supermarket chains should pay five to six% as% of revenues.
“Once you build a high cost base that is created for rapid expansion, it is easy not to reduce it. The quickest option available then is to scale down operations,” said Devangshu Dutta, chief executive of Third Eyesight, a retail consultant.
Though retailers such as Aditya Birla, Reliance, Spencer’s expanded aggressively between 2006 and 2010 to build scale, most of them exited unviable stores.
Aditya Birla shut over 150 super market stores in the last five years while Spencer’s exited cities such as Pune to focus on profitability. Even Reliance closed 50 shops, and exited three formats —Reliance Kitchen, which sold modular kitchen furniture, Reliance Wellness, a beauty and lifestyle chain and Delight, its non-veg store.
There are supply chain issues as well. According to Badhe, retailers such as Star Bazaar and Aditya Birla’s More are still sorting out their supply chain issues and could see improvements soon while Reliance has got its processes right. Pingstripe’s Halder says many retailers make the mistake of not treating unbranded items such as fresh produce, and meat as a separate category.
“You buy products such as meat, fish and fresh produce from middlemen, obviously the store level profits will come down. The more you do it, you have to share the profits,” said Halder.
Kumar Rajagopalan, chief executive of retailers body Retailers Association of India, says that inability of retailers to build scale at state levels and local taxes are posing challenges to retailers to be profitable. “It is scale per state, or in many cases per city, and not scale per nation thanks to the cascading effect of taxation like local sales tax, local entry tax, etc. It takes time to build that kind of scale.” Rajagopalan states.
Though retailers such as Reliance Retail tried a ‘farm to
fork’ strategy, it did not take off the way it wanted due
to opposition in many states. “Most of them open their distribution
centres according to taxation and not according to transportation,”
says Kumar, adding ”once GST comes in, they can set up large
DCs at one place instead of multiple DCs."
(Published in Business Standard .)
admin
June 21, 2014
Vikas
Kumar, Outlook Business
New
Delhi, June 21, 2014
On Gurudwara Road in central Delhi’s bustling and crowded
Karol Bagh market, it is easy to miss the nondescript, grey four-storey
building that houses Aero Group’s corporate office. Entering
the reception, you feel as if you have been transported to a trading
house from the 1980s. The ageing paint and weathered wood paneling
gives the sense of a company steeped in its past, nowhere close
to the youthful and vibrant image of Woodland, the popular homegrown
adventure brand it represents.
That is, until you step into the cramped but modern elevator that takes you up to the first floor. Here, gleaming workspaces, open layouts, wall cabinets whose doors cleverly double up as writing boards all give out a fresh vibe of a company gearing up for the future.
Clearly, Woodland is a brand that’s being refreshed for a new innings. The transformational process has been underway for some time now, says MD Harkirat Singh. “We needed to reinvent the way we do business, because if we didn’t change, somebody else would have come in,” he says.
Since its launch in 1992, Woodland has single-handedly built a small category — outdoor lifestyle — and grown it through a mix of sharply targeted advertising for its young buyers, community building and events and alliances with environmental organisations such as the World Wildlife Fund and the United Nations Children’s Fund. In doing so, it has cleverly straddled an expanding adventure gear market.
“Woodland connects with the outdoor lifestyle image without being dependent on it,” agrees Devangshu Dutta, CEO, Third Eyesight, a retail consulting firm.
Now, Singh and his team are upping the ante. Preparations have been underway for a couple of years: a new line of innovative products has been unveiled and the brand extended into specialised categories within the adventure and outdoors space. Take, for instance, shoes and garments used in mountaineering, trekking, cycling and equipment for rappelling. The idea was to address the needs of entry-level users and not necessarily professional climbers and trekkers to begin with. “Some products need safety approvals and we may not go for them right now,” points out Singh. For sourcing such products, it has tied up with global manufacturers. A few of these products have already been introduced, such as GoPro outdoor cameras and climbing stick sourced from an Italian company, and trekking umbrellas from a German supplier.
The initial response has been encouraging, prompting Woodland to work on a plan to introduce five to ten new products each year. “Right now, I am holding a Woodland shoe with Gore-Tex lining and a Vibram sole, which will cost you only Rs 8,000 a pair,” says Singh, who is down south visiting the company’s Kochi store. The point Singh wants to make is this: Woodland makes shoes that are comparable with global brands.
But old-time sellers such as Avinash Kamath of Mumbai’s Avi Industries haven’t heard of these yet. He remembers the company’s traditional range being perceived as rugged but bulky and unsuitable for climbing mountains. “Their shoes are 50% heavier compared with European brands,” he says. Started by his father in the ’70s, the business is run by Kamath, a seasoned mountaineer. Stores such as Avi, Adventure18 in Delhi and Cliff Climbers in Dehradun have been the go-to places for gear for professional or early mountaineers. They are also the key influencers for the category, which grows mainly by word-of-mouth. Kamath is pleasantly surprised when told about Woodland’s advanced range. “If they have such products, they should be promoting them.” It’s exactly what Woodland is trying to do with marketing and innovation.
Brand push
From selling shoes to adding apparel (extending into a more formal line of wear under the Woods brand), the Rs 1,000-crore group has come a long way from its origins as a supplier of finished leather uppers to footwear manufacturers across the globe. An impulsive decision to replicate a design that the Aero Group was manufacturing for an Italian client and test it in the Karol Bagh market led to the creation of a brand that is now available in 4,000 multi-brand outlets and boasts of 450 exclusive showrooms in around 200 cities. In the past few years, Woodland has been clocking 13% to 18% growth (see: On a firm footing), compared with 20% for the overall footwear and apparel market. But Singh is in no hurry to grow any faster. Though he wants the company, which earns 60% of its revenues from footwear, to be seen as a more entrenched and focused player in the outdoor wear and adventure gear business, which currently accounts for a negligible share of revenues.
The reason — the adventure sports market is gradually picking up pace in India on the back of corporate outbound programmes and a general sense of awareness through television. Trekking, climbing and rapelling have been most popular in that regard. It’s a category that barely existed among the most passionate of adventure lovers — trekkers, mountain hikers and climbing enthusiasts. “The outdoor category is a huge universe. We are addressing only a small part,” says Singh. And the company is doing that by creating awareness of the category, celebrating everyday heroes. Woodland’s brand ambassadors include people such as Loveraj Singh Dharmshaktu, an assistant commandant in the Border Security Force who has climbed Mt Everest five times; Planning Commission employee and ace endurance runner Arun Bhardwaj; Deeya Suzannah Bajaj, who at 14 was the first and youngest Indian to go kayaking in the Arctic Ocean in Greenland; and Archana Sardana, who is the country’s first woman B.A.S.E. jumper, skydiver and scuba diving instructor. Woodland, in fact, developed special gear — a flappy bird-like jacket — for Sardana for B.A.S.E. jumping, considered among the riskiest sports since it involves leaping off buildings and bridges with a small parachute.
Apart from using images and videos of these ambassadors and sharing details of their achievements on its website, Woodland also leverages them as field testers for its ongoing product development and design process. Dharmshaktu, who has been tapped for his feedback on a new range of jackets, has also been hired as a consultant for an upcoming adventure zone being created on the outskirts of Delhi. Located on a 100-acre property on the Faridabad-Gurgaon Road at the foothills of the Aravallis, Singh says the zone, which is likely to be ready in six months, will serve as an events hub to connect with its audience and demonstrate its newer range of mountain gear.
True to its Timberland-inspired positioning, Woodland has stayed consistent over the years about what it stands for — rugged, outdoorsy and for people with a desire to explore and seek adventure. Communication, too, has remained largely consistent with the brand’s core values. “Over the years, it’s been the most well-defined brand I’ve worked on,” says Tanul Bhartiya, senior VP at Lowe Lintas & Partners, the agency that’s been handling the brand since its launch in India, now under division Karishma Advertising. While Woodland’s advertising is largely print-centric, over the years, there has been a greater push towards digital marketing to stay connected with its target group — 18-24 year olds. The rethink process was kicked off four years ago, when Singh enrolled for a two-week Taking Marketing Digital course at Harvard Business School with Amol Dhillon, vice-president, strategy and planning. That led to a digital marketing push for the brand that continues over popular platforms such as Facebook, LinkedIn and YouTube. Woodland now has 3.2 million fans on Facebook and 6,000 followers on Twitter. Its in-house social media content team is currently working on a Woodland TV app for iOS and Android, and a quarterly digital adventure magazine modelled along the lines of Redbull’s Red Bulletin. “Brands have to be their own content creators,” says Dhillon.
All these initiatives assume importance as the larger market for adventure and sports goods opens up in the country.
Continued below…
admin
June 13, 2014
Rashmi
Pratap, The Hindu Businessline
Mumbai,
June 13, 2014
In
a market where homegrown and multinational companies alike make
a beeline for the hinterland, here’s one that has boarded
a bus to urban India after becoming a household name in villages.
Jyothy Laboratories has meticulously targeted rural consumers
to grow its brand into the country’s fifth-largest in the
fast-moving consumer goods category.
Every month, truckloads of Ujala fabric whitener and detergent, Maxo mosquito repellent coil and Exo utensil cleaner arrive at the doorstep of retailers in lakhs of villages, saving them precious time and transportation costs. The goods are also sold on credit, which is a major draw for rural retailers such as Gyaneshwar Kadam of Ajang village in Maharashtra’s Dhule district. “We are always short on working capital. Credit is a big help. Even our buyers prefer to pay after they get their wages. So I don’t stock products of distributors who don’t give me credit,” he says.
This, then, is the story of thousands of retailers who now swear by Jyothy Labs products. “In rural India, we have the first-mover advantage. Since we went to villages first, gave them respect and credit, we get trust in return. Big companies don’t give credit, but I ensure my distributors do it. The moment you give credit, people become your patrons,” says Ullas Kamath, joint managing director of Jyothy Labs, best known for its Ujala fabric whitener.
City shops beckon
The company’s products are available through 2.9 million outlets, and it supplies directly to one million of them. Now, as it readies to spread into every urban nook and corner, it has re-jigged some strategies. To begin with, it has added more products to its line-up.
“When you are in business, you want to spread your risks as well as product portfolio. And that’s what we have done,” says Kamath.
The company acquired 50.9 per cent in loss-making Henkel India, a subsidiary of Germany’s Henkel AG, for ?60.73 crore in March 2011. With that it attempted to improve its rural-urban sales mix. Before the acquisition, 65 per cent of its Ujala sales came from rural India. “Now it is 50:50 from urban and rural. That is how Henkel has helped. They have distributors in urban areas and that network has improved our reach,” Kamath says.
Earlier, retailers and stockists in urban areas were reluctant to take on Jyothy Lab’s products. “Along with Henko (Henkel’s detergent brand), we are able to push other categories too like personal care and liquid mosquito repellent. And people are accepting it.”
Villagers buy more
“In rural India, the consumption per family might be small but the number of families is so large that it outgrows urban India,” says Kamath. His assumption is not without basis. Rural spending at ?3.75 lakh crore far outstripped urban consumption at ?2.994 lakh crore during 2009-12. Rural consumption per person exceeded the urban equivalent by 2 per cent, according to CRISIL and data from the National Sample Survey Organisation.
But for a national presence, Jyothy has to look beyond rural India. “In moving to urban India, there will be more opportunities than challenges. Migratory population in cities is humongous. And their needs are more like those of rural consumers — whether it is the kind of products or even the price they are willing to pay. If a company can ensure a good supply chain across large cities, it can grab a substantial chunk of the market,” says Devangshu Dutta, chief executive at consulting firm Third Eyesight.
Jyothy has accordingly made changes in its management structure. Its top team now has 17 people, including the CEO, S Raghunandan. Each brand head operates in a silo. “We have brought in a new management team to grow the categories. We give them enough money to spend on a brand and understand the reasons behind their performance or non-performance.”
The gamble seems to be paying off. Raghunandan, an FMCG veteran, has helped the company restructure and cut the distributor margin from eight per cent to six per cent.
Advertising and sales spend has increased by 65 per cent to ?135 crore in FY14. “Brand expenditure continues to pay returns over a long period of time,” says Kamath. He points out that even when MNCs advertise, they not only grow their own brands but also create new categories. “Everybody’s brand grows as people know a product exists and then they compare similar products.”
Global dream
Jyothy Labs is looking to launch newer products and re-launch some others. “We should be in at least two more categories in a few years. The aim is to be among the top three players in each category,” Kamath says.
That does not appear to be daunting. Henkel can still buy a 26 per cent stake in Jyothy Labs by 2016. That would give Jyothy the financial muscle to take on the biggies. Moreover, an equity partnership with Henkel should allow it to hop onto the German company’s wide international network and ride into emerging markets.
But until then, Kamath and his team are busy marking the miles and the milestones on the road to urban India.
(Published in The Hindu BusinessLine .)
admin
June 11, 2014
Pia
Heikkila, for the International Bar Association
Mumbai,
June 11, 2014
The
unprecedented victory by Narendra Modi in the world’s biggest
democratic elections in India has created what can only be described
as a wave of optimism, with many hoping that the country’s
economic and business climate will now take a similarly dramatic
turn for the better.
Foreign investors are watching closely in the hope that the country’s new Prime Minister is able to move swiftly to implement much needed change.
This optimism isn’t without foundation: there have already been promises to make India more investor friendly and resolve ongoing issues plaguing several foreign companies.
Core supporters were amongst the business and enterprise classes, thanks to the visible changes achieved in the state of Gujarat where Modi was the Chief Minister for the last 12 years.
Akil Hirani, managing partner of Indian law firm Majmudar and Partners and Vice-Chair of the IBA Asia Pacific Regional Forum, said the Modi has already shown potential for turning the country back onto a growth path. ‘Changes were achieved in Gujarat in terms of better roads, greater electricity connectivity and foreign investment. With a resounding majority, the government is well poised to bring about the same changes nationwide,’ Hirani says.
The ‘Modi Wave’ was born out of widespread frustration at corruption scandals and India’s inability to sustain growth. To show that Asia’s third-largest economy is open for business and on the right track, action is needed quickly. ‘Steps such as making the tax environment more friendly, working towards a time bound implementation of the Goods and Services Tax, cleaning up the balance sheets of state-owned banks, are needed initially,’ says Hirani.
But there needs to be more than words and promises: movement in a consistent direction over a long period is vital for the country’s economic success.
‘Modi has specifically mentioned that governance needs to build further on what has already been built so far. Sustained economic progress is not feasible if inconsistent or even mutually opposing policies are adopted […] Momentum for equitable development takes a long time to build in a country the size of India,’ says Devangshu Dutta, the Chief Executive of Indian management consultancy company Third Eyesight.
India’s tax battles against foreign companies have been attracting headlines and raising concerns with potential investors for some time: uncertainty about taxes and regulation in India has discouraged companies from expanding into the country. There are a considerable number of examples. Vodafone has been fighting a multi-billion tax bill through courts in connection with its 2007 purchase of the Hong Kong based Hutchinson Whampoa’s India operations. Nokia is another well-known case: the Finnish company is alleged to have wrongly claimed exemptions for software imports and is taking its legal challenge against a judgment of the Delhi High Court to India’s Supreme Court.
The list goes on: Royal Dutch Shell, General Electric and Microsoft are just few of the household names that are fighting tax cases in India.
Companies have now begun seeking assistance from bilateral pacts and pursuing international arbitration. But help may be on its way as Subramanian Swamy, widely expected to take a key policy role in the new government, announced recently that his top priority will be to change tax regulation, which experts agree could aid India’s return to economic growth.
‘They should repeal the retrospective amendment that was introduced after the Vodafone decision,’ says Vivek Kathpalia, partner at the Mumbai-based law firm Nishith Desai Associates and a member of the IBA Asia Pacific Regional Forum. ‘This will send a very positive message to the world that India is open for business and that there exists regulatory certainty.’
Kathpalia added: ‘The other is the introduction of the Goods & Services Tax. The government has said that they will try and build a consensus for this amongst all the states of India. Once implemented, this alone will add around two per cent to India’s GDP.’
India’s new Government has promised it will try to create a level playing field for all investors by limiting bureaucracy. ‘Modi’s aim is to have more governance and less government, and to this end, he has reduced the number of ministries and ministers in his government. In addition, he seeks accountability, responsiveness and results from his team members, which will benefit everyone,’ says Hirani.
India also needs more foreign direct investment (FDI). The previous government did introduce a slew of economical reforms, such as changes in the banking and retail sectors that were hailed as successes. But, in order to achieve a steady flow of FDI, the government needs to implement further reforms, and not just focus on the stock market performance. ‘They have understood that for India to creep back to a growth rate of 8–10 per cent, development is the only solution,’ says Kathpalia.
The new government’s upcoming budget will be closely watched and may give indications of what’s to come. ‘The stock markets, though not a perfect barometer of real change, have displayed positive market sentiment,’ says Kathpalia.
(Published on IBAnet.)
admin
June 9, 2014
Mayu Saini, Women’s Wear Daily (WWD)
New Delhi, June 9, 2014
In
another fillip for onlinefashion retail in India, FashionandYou,
one of the pioneers in the online fashion retail space, has raised
$10 million in funding, the company said Monday.
The etailer, which got a boost from its early partnership with
Lakme Fashion Week is known for its focus on designers and its
flash sales model.
Aasheesh Mediratta, chief executive of FashionandYou.com, said
that the additional investment would help "acquire more customers
to bolster our flash sale dominance and build a more cohesive
brand."
Competition in the fashion retail segment has intensified over the last few months, especially with the acquisition of fashion portal Myntra by Flipkart last month. After the acquisition, Flipkart said that it would invest $100 million to further the growth of Myntra.
"Fundamentally, nothing has changed in the market," Devangshu Dutta, an analyst and chief executive officer of Third Eyesight, observed. "E-commerce platforms still need a path-to-profit; their business models have so far been driven mainly by discounts and promotions in a race to the bottom that no one is winning. Customer acquisition costs have dropped in recent months, as competition has thinned, but remain high. What is most worrying is low customer retention and the lack of differentiation – these are the foremost challenges to be addressed."
Snapdeal, Koovs, Jabong, and several other online apparel retailers
are trying hard to keep up in the race for the Indian customer’s
online wallet, and competition continues to intensify.
(Published in Women’s Wear Daily (WWD).)
