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The Next New Thing: A Retail Store

Much has been written recently, with more than a touch of surprise, about ecommerce companies opening physical retail stores. Whether it is Amazon, Birchbox and Bonobos in the US, Spartoo in France, Astley Clarke in the UK or FirstCry and Flipkart in India, young tech-based ecommerce businesses are adopting the ways of the dinosaur retailers that they were apparently going to drive into extinction.

Perhaps, the seeds of the surprise lie in the perception that the ecommerce companies themselves built for their investors, the media and the public, that it was only a matter of time that the traditional retail model would be dead.

Or perhaps we should pin it on their investors for keeping the companies on the “pure-play” path so far – venture funds that have invested in ecommerce have largely taken the view that the more “asset-light” the business, the better it is; so they’re far happier spending on technology development, marketing, salaries, and even rent, than on stores and inventory.

After a bloody discounting and marketing battle, in a few short years, there are now a handful of ecommerce businesses left standing in a field littered with dead ecommerce bodies, surrounded by many seriously wounded physical retailers who are trying to pick up unfamiliar technology weapons. And their worlds are merging.

Which is a Stronger Building Material – Bricks or Clicks?

Online business models offer some clear strengths. Etailers have a reach that is unlimited by time and geography – the web store is always up and available wherever the etailer chooses to deliver its products.

An ecommerce brand’s inventory is potentially more optimised, because it is held in one location or a few locations, rather than being spread out in retail stores all across the market including in those stores where it may not be needed.

However, we forget that consumers don’t really care to have their choices and shopping behaviour dictated by the business plans of ecommerce companies or their investors. The fact is that physical retail environments do have distinct advantages, as etailers are now discovering.

omnichannel-2

Firstly, shopping is as much an experiential occasion as it is a transaction comprising of products and money. In fact, the word “theatre” has been used often in the retail business. For products that have a touch-feel element, the physical retail environment continues to be preferred by the customer. Of course, there are products that could be picked off a website with little consideration to the retail environment. For standard products such as diapers or a pair of basic headphones, online convenience may win over the need for a physical experience. However, non-standard products such as apparel or jewellery lend themselves to experiential buying, where a physical retail store definitely has an edge.

Shopping in a physical retail environment is also a social and participative activity. We take our friends or family along, we ask for their opinion and get it real-time. The physical retail environment lends itself to the consumer being immersed in multiple sensory experiences at the same time. These aspects are not replicable even remotely to the same degree by online social sharing of browsed products, wish-lists and purchases, nor by virtual smell and touch (at least not yet!).

In a market that is dominated by advertising noise, a physical store also helps to create a more direct and stronger connect for the consumer with the brand than any website or app can. An offline presence creates credibility for a brand, especially in an environment where online sales are dominated by discounts and deals, and many brands have risen and fallen online in the customer’s eyes during the last 3-4 years.

As a matter of fact, every store acts as a powerful walk-in billboard for the brand. If used well, the store conveys brand messages more powerfully than pure advertisements in any form. This reality has been embraced by retailers for decades, as they have created concept stores and flagship stores in locations with rents and operating costs that are otherwise unviable, except when you see it as a marketing investment.

Showrooming vs. Webrooming

As ecommerce has grown and brands have become available across channels, offline and online, the retail sector has been faced with a new challenge: customers browsing through products in the store, but placing orders with ecommerce sites that offered them the best deal. This obviously meant that retailers were, in a sense, running expensive showrooms (without compensation) on behalf of the ecommerce companies! The industry adopted the term “showrooming” to describe the phenomenon.

However, ecommerce businesses are now getting a taste of their own medicine as retailers are benefitting from a reverse traffic.

Consumers have now started using websites to conveniently do comparative shopping without leaving the comfort of their homes, and collect information on product features and prices but, once the product choice has been narrowed down, the final decision and the actual purchase takes place in a physical store.

This is described with a slightly unwieldy term, “webrooming”. This is one among the reasons that lead to consumers abandoning browsing sessions and carts when they’re online.

Bricks AND Clicks

The wide split between offline and online channels is mainly because traditional offline retailers have been slow to adopt online and mobile shopping environments.

Most physical retailers around the world have approached ecommerce as an after-thought, with a “we also do this” kind of an approach. Ecommerce has typically been a small part of their business, and not typically a focus area for top management. So, in most cases the consumer’s attitude has also reflected these retailers’ own indifference to their ecommerce presence. However, due to the accelerating penetration of mobiles, tablets and other digital devices, a serious online transactional presence is now vital for any retailer that wants to remain top of the consumer’s list.

On the other hand, ecommerce companies, as mentioned earlier, have so far mainly stuck to “pure-play” online presence due to their own reasons. However, with passage of time there is bound to be a convergence and eventually a fusion between channels.

The Journey to Omnichannel

Omnichannel today, in my opinion, is still more a buzzword today than a reality. Being truly omnichannel requires the brand or retailer to offer a seamless experience to the customer where the customer never feels disconnected from the brand, regardless of the channel being used during the information seeking, purchase and delivery process. For instance, a customer might seek initial comparative information online, step into a department store to try a product, pay for it online, have the product delivered at home, and be provided after-sales support by a service franchisee of the brand.

Very few companies can claim to offer a true omnichannel experience, due to internal informational and management barriers. However, having an effective multi-channel presence is the first step to creating this, since operating across different channels needs a completely different management mind-set from the original single-channel business. Having a presence across different channel means that a retailer will need to juggle the diverse needs. Capabilities, processes and systems that are fine-tuned for one channel, may not be fully optimal for another channel. This requires the retailer to restructure its organisation, systems and processes to handle the different service requirements of the various channels.

For instance, brick-and-mortar retailers moving online need to rethink in terms of the service (“always open”), speed (“right now”), and scale (“everywhere”). A traditional retail organisation is seldom agile enough to work well with the new technology-enabled channels as well.

An etailer opening physical stores, on the other hand, needs to embrace product ranging and merchandising skills to allocate appropriate inventory to various locations, as well as the ability to create and maintain a credible, distinctive store environment – in essence, inculcating old-world skills and overheads that they thought they would never need.

The retail business is not divided black-or-white between old-world physical retailers and the upstart online kids – at least the consumer doesn’t think so.

Retailers need to and will see themselves logically serving customers across multiple channels that are appropriate for their product mix. They need to mould their business models until they achieve balance, proficiency and excellence across channels, and eventually become truly omnichannel businesses. It doesn’t matter from which side of the digital divide they began.

Ecommerce, tech companies are the biggest lessors of office space

Ravi Teja Sharma & Rasul Bailay, The Economic Times
New Delhi , 29 July 2015

Riding on the back of humongous investments and rising valuations, ecommerce companies and technology startups outpaced IT/ITeS firms for the first time as the biggest office space taker in the country in the first half of the year.
Companies in this segment leased more than 6 million square feet of office space, or over 35% of the total, according to property research firm Knight Frank. Flipkart leased 3 million sq. ft. in Bengaluru with Embassy Office Parks, Amazon took 1.3 million sq. ft. in Bengaluru, Snapdeal 5 lakh sq. ft. in Gurgaon, Housing.com 1.5 lakh sq. ft. in Mumbai and Zomato recently leased 1.2 lakh sq. ft. in Gurgaon.
"The difference between startups of 1999-2000 dotcom boom and now is that this time these startups have raised large sums and business is actually happening. This is propping up the commercial office space market in India at the moment," said Viral Desai, national director – office agency at Knight Frank India.

The ecommerce industry has attracted large amounts of funding over the past few years. Funding in the sector increased to $4.3 billion in 2014 from $800 million in 2013. In the January-June 2015 period, investors have already put in $1.8 billion in ecommerce companies.

Flipkart has so far raised $3.4 billion in the eight years since it was formed, with the latest $700 million infusion valuing it at $15 billion. Amazon is readying a $5 billion war chest for its Indian operations.

Desai said Bengaluru and Gurgaon are where the most action is from these ecommerce and tech startups.

The money raised by ecommerce companies has been deployed essentially in two places, marketing and backend infrastructure, which includes people, said Devangshu Dutta, chief executive officer of retail consultancy Third Eyesight.

"A lot of them have widened their product portfolio and deepened the markets access and their businesses have grown tremendously. So while we may say it is a technology-based business, the execution of the business is dependent on people to a large extent, in terms of product sourcing and in terms of vendor management, supply chain, customer support, etc. With that growth in the team, it is very natural, and it is also an indication of what they expect in terms of future growth," he said.

(Published in The Economic Times.)

Flipkart launches 20 stores across India

Sharan Poovanna, Mint
Bengaluru, 29 July 2015

India’s largest e-commerce firm, Flipkart, has launched 20 stores in 10 cities to let its customers collect the items they ordered online at their convenience, mimicking similar moves from Amazon.com Inc.

The initiative aims to address issues such as unavailability of customers during delivery and restricted entry of delivery boys into IT parks, gated communities and educational institutions.

The stores will also be a centrepiece of Flipkart’s rural expansion strategy and will provide a reliable alternative to door delivery in small towns.

“We also plan to offer several value-added services at these experience zones to enhance customer engagement. Services like instant returns, spot trials, open box deliveries and exclusive product demos will also be rolled out in the near future,” said Neeraj Aggarwal, senior director of delivery operations. Flipkart plans to open 100 such stores by March 2016, he said.

The launch, made in partnership with Flipkart’s logistics partner Ekart, comes after the firm saw more than 80% of shipments picked up through the stores during a six-month pilot programme.

The “click and collect” model is not new. Amazon, which has no physical stores, has installed lockers in places ranging from grocery stores to gas stations in several US locations to hold items ordered online. The move improved customer service as it avoided the need for them to have to wait around for ordered items due to a missed delivery.

The first 20 Flipkart “experience” stores will be opened across 20 cities—Bengaluru, Mysore, Ahmedabad, Delhi, Kolkata, Pune, Vellore, Gurgaon, Vadodora and Surat. They will service only Flipkart customers and not those of its Myntra unit. They will be about 500-1,000 sq. ft in size, 70% of which will be used to store goods.

A host of other online chains have also been keen to have some sort of physical presence. FabFurnish, PepperFry, Caratlane and LensKart, among others, already offer offline touchpoints as part of customer engagement efforts.

The trend is here to stay, said Devangshu Dutta, chief executive of retail consultancy Third Eyesight. He expects firms to continue trying to find the right mix of online and physical presence as they look to provide a seamless customer experience.

“Some products are better handled in the physical environment,” said Dutta.

(Published in Mint.)

Whoever said anti-ageing creams and iPhones are urban fads

Soumonty Kanungo, Daily News & Analysis (DNA)

Mumbai, 20 July 2015

Buying an anti-ageing or anti-wrinkle cream online is no longer an urban phenomenon. A growing number of women from smaller towns are busy placing orders for such products these days, thanks to the increasing rural penetration of e-commerce companies.

If e-retailers are to be believed, customers from tier-3 and tier-4 towns and beyond are growing aspirational and on their shopping lists are products like microwave ovens, dishwashers and high-tech smart phones.

Sridhar Gundaiah, founder and CEO, StoreKing, a Bangalore-based assisted e-commerce company having a large rural and semi-rural target base, told dna, "Around 70% of the country’s $600 billion retail market is in rural belt. People in small towns and villages too are aspirational and have spending power, though the consumption pattern could be different."

The company, which came up with a hybrid model to reach out to rural areas with poor internet connectivity, sells about 100 of anti-ageing creams per day and 100 of microwave ovens per week. Gundaiah said another fast selling product is smartphones, which includes iphones as well.

Expensive smart phones in areas with low net connectivity? Gundaiah says they are mainly purchased for the sake of a good camera. "They want a phone with a good image and video recording option," he said.

Another best selling items are garments. Harish Bijoor, brand-expert & CEO, Harish Bijoor Consults Inc., said, "Rural folk are very excited about two things today – garments of every kind and the mobile phone. Expect this to deepen to adjacent categories very fast."

Thanks to its population and economic development, the small towns and rural India offer a huge growth opportunity which marketers cannot afford to overlook.

Devangshu Dutta, chief executive, Third Eyesight, said, "Rural markets are enormous in terms of population, but there is a supply-side gap in terms of retail stores, brand mix and product range available. E-tailers can expand outreach and create demand among customers who are otherwise under-served."

Ankur Bisen, senior vice-president, retail & consumer products division of Technopak, said, "Nearly 50% of the country’s retail of $589 billion comes from rural India. Right now, the penetration of e-commerce in rural India is zero. So the market opportunity is nearly $300 billion."

In reality, the relevance and fit of the e-commerce model of business, is best attuned for rural markets, feels Bijoor. "Rural people have the money and desire, but are distanced from markets physically. E-commerce can bridge this gap and deliver. The model needs to be tweaked a bit though," he said.

To tap this potential, most players in the e-commerce space are trying to enter the rural market. However, logistics being a challenge, most of these companies have been able to reach out only till tier III and IV towns, which are different from the actual rural markets.

Bisen of Technopak pointed out that rural is defined as clusters where more than 50% of the households depend on agriculture as the primary source of income. Bijoor also said, "Rural is deeper still, tier 3-6, and then R1 to R6. E-commerce can go up to R1 and R2. Beyond that, it is unviable to reach."

The logistic challenge is the main reason why the vast rural market is still under-served by e-commerce companies. Gundaiah of StoreKing said the last mile reach is a challenge and thus cracking it through assisted e-commerce route, where a customer goes to a kiosk, place order and then collects it, is the best way. StoreKing has developed its own logistic network as a third-party courier will never reach a rural market.

Assisted e-commerce, according to Bisen, is a thought in the right direction because it takes care of user experience, customer literacy and helps the customer to overcome many barriers retailed to technology, device, and language, etc. "Such out of the box thinking can only enable initiation of e-commerce in rural India. A cookie cutter urban approach for rural markets will not cut ice," he said.

To bridge the gap, leading online marketplace player Snapdeal is also actively assessing partnerships opportunities in logistics space. The company is betting big on the rural opportunities as well.

According to Dutta of Third Eyesight, to service the demand created by webstore, a cost-effective fulfillment infrastructure is required. "The government-run India Post, with its countrywide delivery capability, has been pitched at various times as a potential delivery partner, but has its own challenges and restrictions," he said.

(Published in DNA.)

The O2O Retail Model: Will the reverse strategy work?

Mehak Sharma, Indiaretailing.com

New Delhi, 17 July 2015

"Shopping is as much an experiential occasion, as it is a transaction comprising products and money. It is a social, participative activity, which is not replicable to the same degree by online social sharing of browsed products, wishlists and purchases," says Devangshu Dutta, CEO of retail and market analyst firm Third Eyesight.

Dutta’s analysis appears to be echoed in today’s retail environment, where several e-tailers are increasingly looking at establishing offline presence.

In the past few years, a slew of pure-play e-tailing companies, including Lenskart, Healthkart, Fabfurnish and Caratlane, among others, have already or are in the process of opening physical stores.

So why are these online retailers embracing offline stores? Also, will this Online to Offline (O2O) model be an important game-changer for the future of retailing in India?

Why are the reverse traffic?

In the current retail scenario, where developing an omnichannel identity is a must-do for most brick-and-mortar retailers, the rationale for the reverse strategy can be to either augment their online sales or to deliver a more real, ‘five-senses’ experience for customers.

"For products that have a touch-feel element, the physical retail environment continues to be attractive for the customer. Also, an offline store can help to create more credibility and a more direct customer connect, especially in an environment where online sales are dominated by discounts and deals," explains Dutta.

For instance, for the five-year-old kids’ products’ portal, FirstCry, the offline store serves the purpose of providing a ‘touch-and-feel’ experience. "About 85 per cent market is going to remain offline even after five years, however hard we try to push e-commerce. Online shopping is convenient but it does not give that touch and feel experience, which customers in my segment would want," Supam Maheshwari, CEO and Co-Founder, FirstCry, was quoted as saying recently.

FirstCry started its online portal in 2010 and soon went on to launch its first brick-and-mortar store in 2011. The company currently operates through 100 offline franchise stores and has recently raised Series C funding of Rs $ 10 million to fuel its plan to set up 400 offline stores by December 2017.

Given the more engaging experiences that an offline store provides, experts too are convinced about the superior draw of physical stores.

"There are more offline consumers today than online ones," asserts Harminder Sahni of Wazir Advisors.

"While retailers can choose to be exclusively online or offline, the consumers aren’t going to get classified like that. Consumers will shop across offline as well as online. Thus retailers will have to have a mix of both and find their own profitable balance," Sahni adds.

Where FirstCry has opened stores to induce brand trials in a touch-and-feel environment, others have used marketing kiosks in high footfall strategic locations in malls and office spaces. There are other players who have incorporated “try at home” for consumers, prior to making a purchase decision.

E-retailers like Caratlane (jewellery) and Lenskart (eyewear) have opened offline stores to provide hassle-free online purchase options. Through Lenskart’s offline stores, consumers can get their vision checked and enjoy the freedom to buy products from either channel. The modus operandi at Caratlane is similar.

Both Lenskart and Caratlane also provide ‘try at home’ facilities to customers; a customer can choose products online, try some options at home and then place the order online.

O2O Retailers
Name
Year of Inception
Offline Launch
Offline Presence
FabFurnish
2012
2012
Operates 4 offline stores
Healthkart
2011
2012
Operates 4 offline stores
FirstCry
2010
2011
Operates more than100 physical store through the franchise model
Lenskart
2008
2012
Runs 100+ stores through franchise model
Caratlane
2008
2012
Operates 10 experiential lounges. Offers "Try-At-Home" option to consumer before buying

Best of both worlds

While some e-retailers are trying their hand at offline retail, experts feel that merely opening offline stores will not deliver substantial benefits; e-tailers must sync online convenience with offline experiences in a useful way.

"Online retailers need to ensure two things before opening offline stores. First, it is imperative for an online retailer to define whether the offline channel’s primary objective is to complement and/promote the online channel or it being a sales driver in itself a primary objective. The offline experience will then need to be built-up accordingly. The other important factor for players will be to figure out the ways in which the offline and online channels can leverage each other and can operate as an integrated multi- channel business," explains retail analyst firm Technopak in India Retail Report 2015.

While time will tell how the O2O model may evolve, experts feel that the future lies where offline and online shopping aren’t two separate business models."The split between offline and online channels is visible currently because traditional offline retailers have been slow to adopt online and mobile shopping environments," Dutta points out.

"As more and more brands and retailers move online, there is bound to be a convergence between channels. Retailers need to — and will — see themselves logically serving customers across multiple channels that are appropriate for their product mix as omnichannel evolves from being a buzzword, to being a reality."

(Published in Indiaretailing.com.)

Zara becomes the fastest apparel brand in India to cross $100-million sales mark

Sagar Malviya, The Economic Times

Mumbai, 10 July 2015

Spanish fashion brand Zara has become the fastest apparel brand in India to cross the $100-million sales mark, five years after it opened its first shop here.

Inditex Trent, the joint venture between Zara brand owner Inditex and Tata Group’s retail arm Trent, posted 24% annual growth in sales for the year ended March 2015 at Rs 721 crore ($114 million), Trent said in its annual report released on Thursday. In FY13-14, it had sales of Rs 580 crore. However, sales growth has nearly halved from a year ago period when, it was 43%.

Plans are on to open a few more Zara stores in India over the next three to four years in the major cities, the report said. The primary challenge to faster expansion is the availability of high quality retail spaces, which can be expected to generate reasonable sales throughput, it added.

With 16 stores now, average sales per store of Zara is about Rs 45 crore a year, far more than top apparel brands such as Louis Philippe, Levi’s and Marks & Spencer, and even slightly higher than department store chains Shoppers Stop and Lifestyle. Its closest rivals in India — Benetton (wholesale) and Levi’s — had posted around Rs 599 crore each in sales a year ago and haven’t declared their FY14-15 numbers yet. Analysts don’t expect them to overtake Zara though.

"Zara has set a benchmark in terms of both growth and profitability. What has helped it is the brand’s desirability and connect with consumers," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. Industry executives said Zara’s per-square-feet sales must have dropped as the novelty factor fades off in bigger markets, especially in Delhi and Mumbai.

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. Inditex Trent has replicated in India a model that has worked for Zara globally — creating affordable, copycat versions of the latest fashions or designer wear and making them available to shoppers in double-quick time. Inditex controls almost every bit of its operations, from design to distribution.

If a new style is not a hit within a week, it goes off the shelves of over 2,000 Zara stores worldwide. The brand will face intense competition from similarly-priced, fast fashion rivals such as Gap, which entered a month ago and H&M, which will launch stores soon. As the world’s second most populated country, India is an attractive market for international brands, especially since youngsters in the country are increasingly embracing western-style clothing.

(Published in The Economic Times.)

An uphill climb

Ankita Rai, Business World

New Delhi, 13 July 2015

To take advantage of the growing demand in the entry-level premium car segment, Maruti Suzuki India (MSIL) has just unveiled a new chain of dealership under the Nexa brand to showcase its premium offerings. MSIL’s desire to serve the premium end of the market is not new – over the years it has launched two products, the Grand Vitara SUV and premium sedan Kizashi, to woo this market segment. Unfortunately, these brands have not been able to make the kind of impact the country’s largest carmaker had hoped for. In a renewed push, MSIL has launched a new brand, S-Cross, and is now overhauling its distribution network.

MSIL is not the first one to try this. Globally, carmakers Nissan, Toyota and Honda have similar distribution models, wherein they sell their luxury cars under Infiniti, Lexus and Acura brands respectively.

And why single out automotive companies? Closer home, players like VIP Industries and Cafe Coffee Day (CCD) have treaded a similar path – matching the premium quotient of a product with the manner in which it is presented to the customer. VIP Industries has a separate chain for its premium brand Carlton, while CCD currently has three different formats for three different customer segments. Says Samit Sinha, managing partner, Alchemist Brand Consulting, "A big part of the experience is, who else is in the showroom. We don’t want to rub shoulders with people whom we don’t think are like us."

Distribution, therefore, becomes crucial for a volume brand trying to climb the ladder to premiumness. So how can a brand gear its distribution to successfully climb the value chain?

Not everyone’s cup of tea: Devangshu Dutta

For mass-segment businesses desiring to move up the price curve, it is important to create new channels that can stand apart from the previous offerings and, if feasible, to create entirely different brands as well.

From the consumer’s point of view, the expected purchase experience and service levels at the higher price point need to be better. So merely allocating a segment of the existing distribution network will not be enough. The store for the new premium product needs to feel complete in itself. Separate channels are also vital to achieve a service-cost balance and to have consistency within any specific outlet.

However, the biggest challenge to a premiumisation attempt by a mass brand is outside its control – whether consumers will accept that new offering as truly premium even though it is from the stable of a mass brand.

Having a critical mass is another significant challenge, as the investments in creating and maintaining a premium offering would be significant. The third challenge is creating a culture and processes, at least for a premium-dedicated team that will be alien to the rest of the organisation. This requires willingness to invest, patience and sponsorship at the highest levels of the organisation’s leadership.

Devangshu Dutta
Chief executive, Third Eyesight

Premium is what premium does

"Maruti has been in the business of selling cars for almost 31 years. The market has evolved and consumer expectations are changing," says RS Kalsi, executive director, marketing and sales, MSIL. "Many of them are third-generation buyers – young achievers who are looking to upgrade to bigger cars."

To woo this customer, the country’s largest car maker will drop the ‘Maruti’ name from the bootlids of its premium products. So the Ciaz and the S-Cross and the forthcoming YBA compact SUV will only see the ‘Suzuki’ part of the badge. The ‘Maruti’ badge doesn’t command enough brand value in the premium (Rs 10 lakh-plus) segment, say experts, and that is where the "Suzuki" or "S" tag will bring in some "pulling" power.

The company also understands that having a handful of new brands will not serve the purpose. The way they are showcased and the manner in which consumer queries are handled will be make or break. It is looking two sort this issue with a two-pronged approach. First, as we have mentioned, the new products will be retailed through a chain distinct from its earlier one. Second, the company will train a new set of people to cater to the needs of the premium consumer.

To begin with, MSIL has hired people from service sectors like hospitality, aviation and financial services and has roped in Dale Carnegie to coach relationship managers on soft skills. These managers are being given product and experiential training, which includes travel by air and luxury hotel stays, so as to acclimatise them with the way the new consumer thinks and acts. So far, MSIL has trained 700 people and plans to train 2,000 more. This financial year, MSIL will roll out 100 showrooms. "Around 70 to 75 per cent of the sales come from top 30 cities and we are targeting them with our new offerings," says Kalsi.

The Nexa showrooms boast of separate lounge areas for customers, a personal relationship manager for the entire lifecycle of the product, paperless interaction and so on. "We want to make the customer feel pampered," says Kalsi.

A sound strategy, going by auto experts. "The maximum growth is at the entry level premium segment, which MSIL has targeted. In this segment, one must note that the ‘brand’ makes more difference than the ‘product’," says Abdul Majeed, partner, PriceWaterhouseCoopers. In a way, MSIL will take the route VIP Industries has taken earlier with its Carlton range, targeted at the premium segment of business travelers. Indeed, VIP doesn’t offer all its products across all channels. It has five luggage brands in its portfolio: Caprese, Carlton, Skybags, Alfa, Aristocrat and Footloose. The premium brand Carlton is available at only at 350 touchpoints, while VIP brands are available at 4,500 touch points. The reason is the same: premium brands demand a premium atmosphere. "We offer Carlton only at our VIP premium lounges. Even at these lounges, there is a separate section for Carlton. We are also opening exclusive stores for Carlton," says Sudip Ghose, vice-president, marketing, VIP Industries. Currently, there is one exclusive Carlton store at the Mumbai Airport and the company will launch another one at the Delhi Airport soon. Carlton contributes 5 to 6 per cent of VIP’s sales and is growing at 40 per cent annually.

VIP also realises that training the sales staff at showrooms is important. "You have to have SEC A, serving SEC A," says Ghose. "The sales managers at premium stores need to be groomed for retail so that he/she asks the right questions when interacting with consumers." For instance, when selling a premium brand, you don’t ask the customer her budget.

Ghose admits it is difficult to ‘turn’ a volume brand into a premium one. "It is better to start afresh without any baggage," adds Ghose, no pun intended.

Coffee chain Cafe Coffee Day (CCD), which has developed multiple formats to differentiate customer segments (such as CCD targeting the value-conscious youth, The Lounge targeting affluent customers and The Square catering to coffee connoisseurs), believes focusing on the uniqueness of the offering and experience are the pillars on which one ought to position a premium brand. "The most important consideration before a brand gets into a premium slot is to evaluate the brand stretch-ability," says Bidisha Nagaraj, group president, marketing, CCD.

CCD’s The Square sets itself apart on service and ambience. The outlet design is minimalist and the furniture contemporary. There are seven Square outlets currently.

Two sides to the coin

Given the high stakes, some experts warn brands from being dazzled by the lure of premiumness. "Most Indian brands fail to recognise that you don’t necessarily have to serve the whole spectrum of the market because it looks attractive," says Saurabh Uboweja, brand strategist and CEO, Brands of Desire.

"If you are true to your definition and keep upgrading brand experiences around your core, you will succeed in the long-term."

In any case, changing consumer perception about a brand is a tough call. "In case of MSIL, the biggest challenge would be how successfully it is able to change the perception of being a budget, family car manufacturer," says Amit Kaushik, principal analyst, IHS Automotive.

Yes, there is a way to do it like VIP has done – by having a different brand altogether. Samsonite, on its part, acquired luxury US brand Hartmann after it failed to create its own luxury brand Black Label. "If Tata Motors created a luxury buying experience in a new dealer format and put the Jaguars to sell underneath, you can imagine the kind of brand dilution it would cause to Jaguar," muses Uboweja. "The secret to long-term sustainable equity creation is "let your brands be, make them strong, make them relevant but don’t change them."

That perhaps is the reason for calling the S-Cross just that and reserving the Maruti-Suzuki tag for the range spanning Alto 800 to the Swift DZire.

(Published in Business Standard.)

Three Aditya Birla apparel brands zoom past Rs1,000 crore in revenue

Sapna Agarwal, MINT

Mumbai, 13 July 2015

Three brands from Madura Fashion and Lifestyle, a unit of Aditya Birla Group company Aditya Birla Nuvo Ltd, crossed the Rs.1,000 crore revenue mark in terms of consumer price in fiscal 2015. Fiscal 2016 will see two brands from Arvind Ltd’s retail unit Arvind Lifestyle Brands Ltd cross the same milestone.

Consumer price is the price at which the product is sold to the consumer. It could be lower than the maximum retail price (MRP) as it takes discounts into account.

“More and more brands are now crossing the Rs.1,000 crore mark. In the next two-three years, we will have at least 10 brands of this size,” said Devangshu Dutta, chief executive officer, Third Eyesight, a retail consultancy firm, pointing to brands such as Levi’s, Benetton and Zara.

It took brands such as Louis Philippe, Van Heusen and Peter England, from Madura Fashion and Lifestyle, 10-15 years to get to Rs.500 crore. However, their journey towards revenues of Rs.1,000 crore happened in less than five years, said Ashish Dixit, president, Madura Fashion and Lifestyle, who now expects it to take even less time for them to get to Rs.1,500 crore. Louis Philippe will reach Rs.1,500 crore in revenues next year, said Dixit, adding that in the next two to three years, the company will have three Rs.1,500 crore brands in its portfolio.

From Arvind Lifestyle’s portfolio, US Polo and Arrow have revenues of close to Rs.850 crore and will reach Rs.1,000 crore this fiscal year, said chief executive J. Suresh.

Brands are reaching the Rs.500 crore mark in a shorter time now and scaling to Rs.1,000 crore from there even faster, said experts.

Los Angeles-based Forever 21, launched in India two years ago, will reach Rs.500 crore in fiscal 2016, said Dipak Agarwal, chief executive of DLF Brands Ltd, the joint venture partner for the brand in India. From there, it will be another three years for the brand to hit Rs.1,000 crore revenue, said Agarwal.

Currently, there are nine Forever 21 stores in India and the retailer plans to add five to six every year. On average, each Forever 21 store does business of Rs.35 crore per year, said Agarwal.

Last year, Arvind Lifestyle also announced partnerships with US retailer Gap Inc. and speciality retailer The Children’s Place.

“Weare targeting revenues of Rs.1,000 crore for Gap and Rs.500 crore for The Children’s Place in the next four to five years,” said Suresh in an earlier interview to Mint.

Inditex Trent Retail India Pvt. Ltd, the joint venture between Inditex SA and Tata Group company Trent Ltd for retail chain Zara in India, posted 24% annual growth in sales for the year ended March 2015 at Rs.721 crore ($114 million), The Economic Times said on Friday, citing Trent’s annual report released on Thursday.

Zara, which has been in the country for five years, could be one of the first international brands to hit the Rs.1,000 crore mark, said Dutta.

To be sure, some brands, such as Benetton, have franchises in India and hence report their sales at wholesale value, which is lower than the sales of brands that report at MRP or consumer price, such as Zara.

(Published in MINT.)

Retail Chains Lobby Minister Against 100 Per Cent FDI In E-Commerce

Gurbir Singh and Vishal Krishna, Businessworld

New Delhi/Bengaluru, 9 July 2015

As many as 12 big retailers, including Future Group, Landmark, Shoppers Stop and Globus, met Commerce Minister Nirmala Sitharaman in New Delhi on Wednesday and pitched strongly against the Union government’s proposal to grant 100 per cent foreign direct investment (FDI) status to e-commerce and e-tailing companies.

Led by Future Group CEO Kishore Biyani and Shoppers Stop vice chairman B.S. Nagesh, organised retailers demanded a level playing field between the brick-and-mortar retail industry and e-commerce.

They also presented a memorandum highlighting the violations and what they call "malpractices" of e-tailing giants like Flipkart and Amazon, who they claim have made a mockery of the current 49 per cent cap on FDI in organised retail.

"It was a good meeting. The minister gave us a long and patient hearing. We asked her: On what grounds was the government discriminating between physical retail and technology-based ecommerce?" Kishore Biyani told BW Businessworld.

The Commerce Ministry has lined up a series of consultations with other stakeholders too. Sitharaman will meet e-tailing chains, including Flipkart, eBay and Snapdeal, on 10 July and the chief ministers of various states on 15 July before the issue is decided by the Union Cabinet.

E-tailers have raised Rs 24,000 or more and the digital purchase of consumer goods has been galloping over the last 2-3 years. Impressed by the growth figures, the government is sympathetically looking at a proposal to grant this sector "100 percent FDI" status.

"Investments will help e-tailers scale up to many more cities. Smartphone usage has been high and there is a clear trend that people will also shop from homes," says Vipul Parekh, co-founder of Big Basket.

Retailers’ Concerns However, the details of the Commerce Ministry’s intent are not yet out in the open. Retailers fear that if e-tailers are allowed better access to foreign capital, the level playing field between two types of consumer services will be disturbed and e-tailers will steal a march over access to supply chain logistics. The foreign monies raised by the e-tailers will enable them to create a strong warehouse-to-home connect, and they can even dominate in segments such as delivering fresh fruits and vegetables.

Perhaps the only thing keeping e-tailers from making a clean sweep would be the fact that 70 per cent of Indians live in rural areas where access to smart phones and computers is limited. Management consultant Gartner predicts that there will be more than 240 million smart phones bought per year by the Indian public. The total broadband penetration can double to 200 million by the same period. But consultants have mixed reactions.

"Policy in India cannot look at retailing in a western homogenous growth model. It surely cannot open up FDI without looking at the impact on socio-economic and cultural conditions," said Devangshu Dutta, CEO of Third Eyesight, a retail consultancy. He adds that the government needs to open up FDI in a phased manner.

This is true because over the last three years there has been a policy paralysis that has stalled the retail industry. The e-tailers Flipkart, Snapdeal and Amazon follow a market place model and yet end up losing more than Rs 9,700 crore on discounting and reverse logistics alone.

Hundred per cent FDI is allowed in market places. "The e-commerce industry needs a fillip and the government has already shown interest in making India an investor-friendly country," says Rajiv Khaitan, founder of Khaitan and Company, a law firm.

"Rentals have always eroded the business profits of brick and mortar retailers," says Sanchit Vir Gogia, CEO of Greyhound Research. He adds that with FDI only in e-tailing they, the brick and mortar retailers, can use their stores more effectively in delivering goods through their own e-tail channels across cities and towns. "It saves so much real estate cost that can directly go in to shareholders income in the long run," says Gogia.

Biyani, on the other hand, says the government’s definition of e-commerce as technology-based trading as basically flawed. "Don’t retailers like us use electronic technology to sell goods as well? Or, don’t e-tailing chains have a huge brick-and-mortar backend? So on what basis is the government favouring e-commerce as a special category?" Biyani asks.

The case of the retailers is that if the government wants to open 100 per cent FDI, it must do so for all retail trade, irrespective whether is sold through physical stores or through digital channels. This is something the Union government can do only if it willing to take on the wrath of several lakhs of mom and pop kirana stores in the country.

(Published in Businessworld.)

The delicious truth: India is one of the fastest growing chocolate markets in the world

Madhura Karnik, Quartz India
New Delhi, 9 July 2015

India is working up a voracious appetite for chocolates.
A delectable combination of rising disposable incomes, changing lifestyles and a young population’s growing penchant for indulgence has transformed India into one of the world’s fastest growing chocolate markets.
A July report from French investment bank Societe Generale predicts that in the next five years, global confectioners will see the highest growth in four markets: India, Mexico, China and Brazil.

But it’s not just affluent Indians who are craving for chocolates, although they still comprise nearly 80% of country’s chocolate sales, according to Technopak, a retail consultancy. Lured by smaller, more affordable offerings, the rural hinterland and and tier 2 and 3 cities—still dominated by traditional Indian sweets—are developing quite a sweet tooth.

Overall, India’s per-capita spending on confectionery is tiny—and that means there’s plenty of room for growth.

Product play

In as early as 1998, India’s largest chocolate maker, Mondelez—earlier called Cadbury—introduced chocolate packets that cost as low as Rs5. This was mainly to persuade non-users to try the products and to penetrate into rural areas.

At the other end of the market, Mondelez is also expanding its range of premium chocolates for an urban clientele with a more international palette.

According to Prashant Peres, director, marketing (chocolates) at Mondelez India, to keep up with the growing demand in the premium segment, the company has introduced new products in recent months.

“With product and packaging innovations like our various home treat packs, we are also focusing on creating new consumption occasions in the mainstream segment,” Peres told Quartz in an email.

Alongside, the traditional notion that chocolates are meant only for children is also changing.

“Previously chocolates were predominantly seen as a confectionary product for children, which also limited their consumption. However, market leader Cadbury’s (Mondelez) has focussed on growing chocolate consumption by adults, for gifting as well as a celebratory consumption instead of traditional sweets,” said Devangshu Dutta, chief executive of Third Eyesight, a retail consultancy.

This has made it possible for other companies to bring niche products to the Indian market including premium chocolates (such as those by Ferrero Rocher) and imported products, Dutta told Quartz in an email.

Italy’s Ferrero Spa—makers of the popular Kinder Joy chocolates, Nutella chocolate spread, Ferrero Rocher chocolates and Tic Tac mints—has seen its revenue shoot up in India. In 2014, the company’s sales in India rose 76% to Rs1,014 crore ($160 million) and it posted its first-ever profit of Rs12 lakh ($18,931).

Such numbers have enticed others to join India’s chocolate craze. In March this year, Mars International India, a subsidiary of the American Mars Inc, announced that it will invest Rs1,005 crore ($159 million) in a new factory in Pune in Maharashtra. The plant will make brands like Snickers and Galaxy.

Factors such as rising cocoa prices and lack of supply-chain infrastructure in India have not exactly dampened the enthusiasm of chocolate makers.

“The chocolate industry in India is growing at nearly 20% every year,” MV Natarajan, general manager, Mars International India, said in a statement, “and we see this as a huge opportunity to expand our chocolate portfolio in the country in the coming years.”

For India’s chocolate makers and lovers alike, the fun has just begun.

(Published in Quartz India.)