Nivedita Mookerji, Business Standard

New Delhi, 27 July 2016

More than two years after Flipkart founders Sachin Bansal and Binny Bansal had announced acquisition of fashion portal Myntra at a high-street restaurant in Bengaluru, the action shifted to New Delhi’s Connaught Place for a similar deal on Monday night. While the Bansals had bought Myntra for $300 million in May 2014 to go strong in fashion, they have acquired German investor Rocket Internet-backed Jabong for $70 million to stamp out competition in the high-margin fashion space.

It’s a wise deal, according to analysts, as fashion is increasingly turning out to be the route to money-making, profitability and success for online players. Not a surprise then that well past dinner time, at around 11 pm, the large conference room of Khaitan & Co, legal advisors to Flipkart, turned into a party place where congratulatory messages came thick and fast. The deal that promises to make Flipkart a leading force in fashion segment — estimated at about Rs 3 lakh crore — came after hectic weekend parleys. About 12 persons representing legal teams, merchant bankers and advisors agreed on the deal while the Bansals called in to say “well done”.

If in 2014, Flipkart had scripted the Myntra deal with an eye on competition from Amazon, this time too it is believed to have kept the same rival in mind. Vinay Joy, associate partner at legal firm Khaitan & Co, said the deal was all about synergy at a time when Amazon is trying to grow strong in fashion vertical and entering new categories. Recently, Amazon announced fresh investment of $3 billion and the global giant has often said that it has an open cheque book for India. Consolidation in the space makes a lot of sense as “Flipkart will become the go-to site for fashion,” Joy added.

Flipkart CEO Binny Bansal stated that the company has created the biggest fashion shopping destination through acquisition of Jabong, a portal that has been on the block for long. “Myntra and Jabong are all set to define the next generation of online shopping offering the best of brands to Indian consumers,” according to Bansal.

Devangshu Dutta, chief executive at consultancy firm Third Eyesight, reasoned that the internal DNA of Jabong and Myntra were more merchandise-oriented than trading-oriented, a differentiation that is of significance to go big in fashion. The fact that fashion is a high-margin sector would mean that any player doing well in this space would make money that much quicker, he said. The margins in fashion could go up to as much as 50 to 60 per cent in case of own labels and at least in low two digits in other formats of fashion, Dutta pointed out. In contrast, margins in electronics are at low single digit.

Kunal Bahl, CEO of Snapdeal, which was seen as a frontrunner in the race to acquire Jabong, however, told Business Standard in a recent interview: “I look at net margin; fashion in India is also sold with plenty of discounting. Selling shoes on a deep discount is like selling mobile phones.” Snapdeal already has a fashion portal Exclusively.in under its banner.

It may take a while for Flipkart plus Myntra plus Jabong to beat physical retailers which are strong in fashion space, but as Arvind Singhal, founder, Technopak, summed up, with the latest deal, Flipkart has prevented Jabong from turning a threat if it was to be acquired by a powerful player. “It’s a very intelligent deal,” said Singhal.

(Published in Business Standard)

Mayu Saini, WWD

New Delhi, 26 July 2016

Changing India’s playing field for fashion online, Myntra, a subsidiary of the country’s biggest ecommerce player, Flipkart, on Tuesday acquired rival fashion e-tailer Jabong for an estimated $70 million.

“Fashion and lifestyle is one of the biggest drivers of e-commerce growth in India,” said Binny Bansal, chief executive officer and cofounder of Flipkart, adding that the acquisition would help the group continue to transform commerce in India. “We will now be able to offer to millions of customers a wide variety of styles, products and a broad assortment of global as well as Indian brands.”

Jabong has been expanding across various segments, from private label to global brand partnerships, with more than 150,000 styles from more than a thousand vendors. It has exclusive tie-ups with international brands including Topshop, G-Star Raw, Bugatti Shoes and Dorothy Perkins.

Myntra has been paring back the number of brands it carries from the more than 2,000 at the peak to focus on those that generate the most revenues. In addition to private label and local labels, Myntra sells more than 25 international brands including Nike, Adidas, Puma, Lee, Levi’s, Arrow, Mango, Diesel, CAT, Harley-Davidson, Ferrari, U.S. Polo Association, Forever 21 and Marks & Spencer.

Myntra expects to become profitable in 2017, projecting sales of $1 billion. Industry estimates pegged the deal with Flipkart at $70 million in cash, with additional amounts for inventory and other things.

“The acquisition of Jabong is a natural step in our journey to be India’s largest fashion platform,” said Ananth Narayanan, ceo of Myntra. “Jabong has built a strong brand that is synonymous with fashion, a loyal customer base and a unique selection with exclusive global brands. We see significant synergies between the two companies especially on brand relationships and consumer experience.”

E-commerce in India has been growing rapidly and is expected to increase by more than fourfold in the next four years, from $30 billion this year to $120 billion in 2020. The estimated 51 percent growth will be the highest in the world, according to a recent research paper by industry body the Associated Chambers of Commerce of India (Assocham). India has an estimated Internet user base of 400 million. (In comparison, Brazil has 210 million Internet users and Russia has 130 million.) The report noted that Internet penetration in India is expected to increase from 32 percent in 2015 to 59 percent in 2020, translating to a near-doubling of the Internet user base. Per capita incomes are likely to double by 2025 as well, driving growth in sales and consumption.

Fashion is the second-largest segment in the Indian e-commerce market after electronics, and is estimated to have the highest margins.

Flipkart had already made a significant foray into fashion e-tailing with the purchase of Myntra in May 2014 for $320 million. Since then it has invested heavily to grow Myntra, including in advertising and marketing and price promotions, pushing far ahead of its competitors, including Jabong, which has seen a major decline in valuation over the last year.

In September 2014, Jabong was bought by the U.K.-based Global Fashion Group, which owns five other online fashion retailers in Latin America, Russia, the Middle East, Southeast Asia and Australia, with the overall group valued at 3.1 billion euros, or $3.4 billion, this month. Other other sites that are part of GFG are Dafiti in South America, Namshi in the Middle East, The Iconic in Australia and New Zealand, Zalora in Southeast Asia and LaModa in Russia.

In the past six months, Jabong founder and ceo Arun Chandra Mohan and cofounder Praveen Sinha have left the company and
former Benetton India ceo Sanjeev Mohanty was named ceo.

Jabong had net revenues of 126 million euros, or $131.8 million, in the financial year ending March 31.

“Through this deal, Jabong potentially gets a lease of life, as it was struggling to raise funding from its existing investors, and saw a significant churn recently in its top management. As an upside, it has reduced its emphasis on discounting last year, and if it continues its focus on strengthening its product direction and merchandising capabilities, it may not only do itself a favor, but also its acquirer Myntra/Flipkart. Whether and how much it will retain its operational independence remains to be seen,” said Devangshu Dutta, ceo and founder of Third Eyesight, a consulting firm focused on the retail and consumer products.

The acquisition is expected to heat up the fashion e-tail market in India, with Amazon making a big push for growth over the last 12 months, especially in apparel. Amazon plans to invest $5 billion in India over time, while brick-and-mortar retailers have expanded their own web sites, including Reliance Industries, which launched its own fashion e-commerce site Ajio in April; Tata Cliq from the Tata Group, and Abof from the Aditya Birla Group.

But there have been concerns the e-commerce bubble might burst, even as the number of consumers shopping online continues to grow rapidly. Dutta observed the growth is likely to continue, both in terms of customer numbers and market share, driven not just by pure-play companies, but also by mainstream retailers expanding their web sites.

“Among all categories, fashion and lifestyle goods can offer a buffer against commodification and margin erosion,” he said.

(Published in WWD)

Viveat Susan Pinto, Business Standard

Mumbai, 17 July 2016

A week from now, the fans in this city of Pok�mon GO, the augmented reality (AR) mobile game, propose to converge at Churchgate, at the southern end, for a ‘Pokewalk’.

The idea, according to die-hard fans, including children and college-going youth, is to “together” hunt down Pok�mons, basically virtual creatures hiding in public places. These creatures then help the users continue with the game.

As the craze for Pok�mon GO grows worldwide — it is already the largest mobile game in the US within 12 days of launch — it has opened a plethora of branding options. The biggest, explains Anjali Hegde, chief executive officer, Ansible Mobile, the mobile marketing arm of IPG Mediabrands, is for retailers.

“Bars, pubs and pizza joints in the US that fall within the digital map of the game are giving special offers and discounts for Pok�mon GO fans to drive footfalls. Many of them are seeing sales improve, as a result,” she says.

Indian retailers, especially the global quick-service restaurants and cafe chains, are watching the space closely. Ravi Jaipuria, chairman of Gurgaon-headquartered RJ Corp — whose group company, Devyani International, is a franchisee of international brands such as Pizza Hut, KFC and Costa Coffee — says interest among Indian retailers is high. “The game hasn’t been officially launched in India, so many are in wait-and- watch mode. But, if it can help drive footfalls, retailers will come on board,” he says.

Riyaaz Amlani, restaurateur and managing director of Mumbai-based Impresario Entertainment & Hospitality, says he’d be keen to know if his joints — Smoke House Deli, Mocha, Salt  Water Caf�, etc — fall within the digital map of the game. “I think most retailers and restaurateurs, especially in the big Indian cities where the game has already become a rage without even officially launching, will be ascertaining how they can tap into this phenomenon in some way.  I am already doing it,” he says.

Jasper Reid, director at Sierra Nevada Restaurants, which brought the US burger chain Wendy’s and celebrity chef Jamie Oliver’s restaurant brand, Jamie’s Pizzeria, to this country, says the company only last week ran ads on Facebook, inviting Pok�mon GO fans to sample its offering at a new outlet it was opening in Mumbai.

“I expect more of these marketing and promotion activities by retailers,” Reid says over telephone from Delhi. “The fact that people are stepping out to find Pok�mons opens branding options not only for those retailers who fall within the digital map of the game but also for those in the vicinity. So, if a certain spot like, say, a school, temple or park is a PokeStop, a place where you can find Pok�mons, food & beverge joints in the vicinity are likely to benefit if they are able to market themselves well to this audience. We tried doing that last week,” he says.

Experts, however, caution of the health risks attached due to excessive usage, including the danger of road accidents and fans becoming addicted to the game.

“At this stage, the engagement level is high,” says Devangshu Dutta, chief executive, Third Eyesight, adding, “This is typical of games that become an overnight sensation. Over time though, this will plateau, giving stakeholders a chance to objectively evaluate their prospects.”

What most don’t deny, though, is that Pok�mon GO has driven significant interest among Indian advertisers for AR, a technology that has been used in a limited way in the country so far.

“I find clients now more open to the idea of augmented reality and what it can do,” says Ashish Bhasin, ‎chairman & chief executive officer, South Asia, Dentsu Aegis Network.

He further added, “While it remains an expensive exercise, AR and robotics will get cheaper with the evolution of technology, challenging conventional forms of communication. Markets such as Japan, the US and UK are already seeing usage of AR in out-of-home media, with good results.”

(Published in Business Standard)

Sagar Malviya, The Economic Times

Mumbai, 13 July 2016

Spanish fashion brand Zara posted its slowest sales growth in India during the year ended March, indicating that its novelty factor may be waning as consumers shift to global rivals such as H&M and Gap, which entered the country last year.

Inditex Trent, the joint venture between Zara brand owner Inditex and Tata Group’s retail arm Trent, clocked a 17% sales growth to Rs 842.5 crore during FY16, Trent said in its annual report on Tuesday.

A year ago, its revenue increased 24% to Rs 721 crore. Zara’s sales growth has been tapering off after stellar performances following its entry into India in 2010. It posted a profit in the first year of operations and doubled sales every two years.

The joint venture plans to open more Zara stores in India over the next three to four years in the major cities, after two additions last year took its total outlet count to 18, 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,” Trent said.

Zara’s average sales per store was about Rs 47 crore last year, exceeding those of top apparel brands such as Louis Philippe, Levi’s and Marks & Spencer and even slightly higher than department store chains Shoppers Stop and Lifestyle.

“When Zara entered, the novelty factor was humongous but now there is a certain familiarity with the brand. Also, it has moved beyond marquee locations. In addition, aggression by ecommerce companies intensified, too,” said Devangshu Dutta, chief executive officer at Third Eyesight, a retail and consumer goods consulting company.

As the world’s second most-populated country, India is an attractive market for US and European brands, especially with youngsters increasingly embracing westernstyle clothing.

Zara, owned by Inditex, the world’s largest clothing retailer, is facing competition from similarly priced, fashion rivals including Gap, H&M and Aeropostale, which entered India last year.

US clothing brand Gap sold apparel and accessories worth Rs 23 lakh daily on average in June in its first month of operations in India, surpassing all other retailers in the country in terms of sales per square foot. Swedish company H&M clocked more than Rs 1.75 crore in sales on the opening day of its first store in India, almost double what its largest rival Zara sold on its inaugural day five years ago at the same location, Select CityWalk mall.

While sales growth of both these rivals may ease after the initial launch-related surge, experts said the market has room to expand. “Given the response we have had for global brands launched last year, it indicates preference for wellknown international brands,” said J Suresh, managing director of Arvind Retail, which holds the licence to sell brands like Gap and US Polo.

Most of Zara’s back-end logistics and merchandise sourcing are handled by Inditex, while the Tata expertise is mainly for identifying real estate and locations.

(Published in The Economic Times)

Anshul Dhamija, Forbes India

Bengaluru, 12 July 2016

Dinesh KS loves the wilderness. And, as an avid mountaineer (he is a certified instructor in climbing and mountaineering), he always found it easy to be close to it. But, in 1990, he suffered an ankle injury which hindered his treks. Dinesh was forced to find another way to stay in touch with his passion. By 1993, he had figured out how: The then 32-year-old Bengaluru resident started to design tents and backpacks, which were manufactured in the city’s industrial hub of Peenya. “I would shop for buckles, zippers and other accessories, fill up my bags with the raw materials, and then ride to Peenya [on my motorbike]. I would spend the whole day there, teaching tailors how to stitch [these products],” recalls Dinesh.

This was at a time when access to such products in the country was limited and, therefore, expensive. In fact, the better quality ones were available across the border in Thamel, the commercial neighbourhood in Kathmandu, the capital of Nepal.
 
Dinesh started small—it would take at least five years before this little venture would become Wildcraft India Pvt Ltd—in 1993 and produced only five to 10 products a day. He would sell them from a friend’s garage in Bengaluru’s southern residential suburb of Jayanagar. Dinesh estimates that he sold between 2,000 to 3,000 units per annum. And he made next to nothing, he says. “It [the money] was like change, so let’s not go there. But I did get a kick out of doing it,” says the 55-year-old. He then adds, laughing, “Kicks were coming from other places also. My parents were always ready with those because all my classmates were in the US and doing well.”

Things were to change, though, especially after 2003, when the company would get its focus right, and move to products from services (more on that later). “Till then, we didn’t even think of it as a business. It was a hobby,” says Gaurav Dublish, co-founder of the reinvented Wildcraft, who joined full-time with his college friend Siddharth Sood, both 40, in 2007.

It certainly isn’t a hobby anymore. The outdoor products brand reported retail sales of Rs 300 crore in FY16, having clocked a CAGR of over 60 percent since 2007. (The company did not disclose profitability numbers.) It sold over 2 million products in the year including backpacks, rucksacks, sleeping bags and tents, cheaters and jackets, and footwear. From the garage it started selling from in 1993, Wildcraft products are today available in 120-plus exclusive stores and over 2,500 multi-brand stores across 400-plus Indian cities.

What has helped in achieving scale is an investment of about Rs 70 crore for an undisclosed minority stake by Silicon Valley-based venture capital fund Sequoia Capital in 2013. There has been no follow-up equity investment since. “The company has grown 3x plus since the investment and has strongly positioned itself as a full-blown outdoor brand across gear and apparel with footwear being added as well,” says GV Ravishankar, managing director, Sequoia Capital India Advisors.

It has been quite the journey, then, for Dinesh. Born and brought up in a middle-class family in Ranchi, he had moved to Bengaluru in 1978 for his Pre-University Course (PUC). After that, he obtained a degree in electronics engineering from RV College in the city. The wilderness was never supposed to have been part of the plans, but here he is, fuelling others’ wild dreams.

Friends In Deed

“When Gaurav and I joined, the revenue of Wildcraft was lesser than the salaries that the two of us earned,” recalls Sood, who had quit his job at GE in Singapore in 2007, and Dublish his at Standard Chartered in Dubai. However, their association with Dinesh and Wildcraft began earlier, in 2000. Back then, besides making outdoor gear, Wildcraft India had a robust services business. This included organising river rafting expeditions at Dandeli, located in the Western Ghats in Karnataka, and conducting outdoor learning programmes for children and corporates, as well as some consultancy services. This constituted 75 percent of the company’s overall revenues at the time.

Sood and Dublish had taken a trip to Dandeli in 2000 and, having enjoyed it, started helping Wildcraft run its services business in their spare time. Between 2000 and 2003, both Sood and Dublish moved from the periphery to getting invested—financially and operationally—in the company’s product business. “We didn’t have any office. All the fights and arguments used to happen at one of our places,” remembers Dublish, now seated in the third floor of the three-storey Wildcraft India headquarters in Bengaluru’s southern suburb of JP Nagar.

In 2003, even as Dublish and Sood were both embarking on international assignments in their respective jobs, they convinced Dinesh to give up his job at the National Outdoor Leadership School (NOLS) in Wyoming, US, and devote all his time to Wildcraft. (For at least six months in a year, Dinesh worked as a climbing instructor at NOLS. In his absence, an accountant-cum-inventory manager oversaw operations.)

Around this time, it was also decided that Wildcraft would let go of its services business and focus on products. “The three of us were convinced that we need to take the product route. So the guys who were associated [and invested in Wildcraft earlier] moved out and took the services business with them,” says Sood. The company took up a 700-odd square feet office space opposite its earlier garage setup, and hired tailors. It opened four retail stores across the city in the key suburbs of Jayanagar, Cambridge Layout, Malleswaram and Rajajinagar.

“We had tied up with vendors who would tap into Korean and Taiwanese suppliers. In 2006, we started sourcing directly,” says Dublish. The business required significant working capital. For a turnover of Rs 50 to Rs 60 lakh, Dublish says, “we used to pour in Rs 30-40 lakh of capital to sustain it because the demand was not outstripping [supply]. And that capital was coming from the three of us.” Annual sales for Wildcraft averaged around 10,000 units then.

Those were also the years of “armchair entrepreneurship” for Dublish and Sood. And even though Dinesh ran the show, for about three to four weeks in a year he would take off to the mountains. This setup needed to change.

The Confidence Game

In 2007, Dublish and Sood decided to come back to India and spearhead operations. It was around the time that Dinesh, who oversees design and product development, was looking for more personal time to explore mountain ranges in India and abroad. Also, “there were question marks on the survival of a design product-led company. At that time, entrepreneurship was still not as fashionable as it is today,” recollects Dublish. But nothing deterred their entrepreneurial spirit or their belief in Wildcraft.

The trio put forth a clear vision for the company: To build the largest outdoor brand in India. While Dublish and Sood settled into their roles of leading marketing and sales, and finance, respectively, Wildcraft began hiring its first set of designers. “Consumption of backpacks as a category wasn’t there. But we believed that the category had a future in this country, and we clearly saw an opportunity,” says Sood. And they were right: The backpack has come to be the company’s largest selling product, considered to have a multi-utility appeal in urban landscapes such as workplaces and schools. An internal assessment by Wildcraft shows that 80 percent of consumers use the backpack for daily commute, while 20 percent carry it for the outdoors.

Also, the overall Indian outdoor gear market is estimated to be over $2 billion in size, and their confidence in being able to tap into that has held the company in good stead. As Ravishankar of Sequoia Capital India Advisors says, “In the beginning, we were not convinced on whether the Indian market had evolved enough to accept the outdoor positioning the company was building on. But every time we met them, we got more and more convinced that this was a special team, who, with their unique insights about the Indian/Asian consumer, had a strong, long-term focus on building a leading outdoor brand out of India.”

Arvind Singhal, chairman of Technopak, a leading retail, textile and apparel consulting firm, has a different perspective. He puts Wildcraft in the category of “being a niche player which has become successful, another example being Fabindia”. Adds Singhal, “Over the years, Wildcraft has built up very strong capabilities in product development, manufacturing and sourcing. That has been their strength.” But he is not convinced that such niche players have the ability to grow and become ten times the size and scale they currently are at.

Ravishankar, though, is confident that Wildcraft’s business can be scaled to Rs 1,000 crore “over the next few years”. “We aspire for Wildcraft to be a truly global brand out of India. And they have taken baby steps in that direction,” he says. In fact, the company has begun to distribute its products to international markets such as the UAE, Saudi Arabia, Oman, Qatar, Singapore, Malaysia, Indonesia and Taiwan.

Climb Every Mountain

Competition for Wildcraft comes from all quarters: Sportswear brands, international sporting goods retailers such as Decathlon, traditional luggage makers such as Samsonite and American Tourister which now offer backpacks, lifestyle brands such as Fastrack from Titan, as well as other outdoor players like Woodland and Timberland.

“Their biggest external challenge comes from brands with deeper pockets that can push ahead with market penetration more aggressively, including the sportswear giants, as well as retailers identifying the category as one where they can undercut brand margins through private labels,” says Devangshu Dutta, founder and chief executive of Third Eyesight, a retail consultancy firm.

But Dinesh isn’t fretting over potential rivalries. The best outcome he had hoped for was “doing business which would give me time and money to pursue activities.” And that is exactly how his story is playing out.

On the one hand, he has the bandwidth to follow his passion: In 2008 and then again in 2011 he climbed some of the Himalayan mountains in Ladakh that stood at 6,600 metres. Mount Everest, which is at 8,848 metres, has never excited Dinesh. “For some people, height matters, but not for me. The challenge is in the kind of routes that you climb,” he says. His next target is to explore the mountain ranges on the eastern side of the Karakoram.

When he is not in the mountains, he helps the 20-odd member Wildcraft design team in product development. This is of no lesser joy to Dinesh. As he points out, “When we started, the garage was our manufacturing unit, head office and retail outlet. And now we’re looking to be counted among the best in the business globally. I’m confident that our best years are ahead of us, and outdoor-lovers are at the heart of this confidence.”

Either way, Dinesh seems to have it all—wild dreams are made of this.

(Published in Forbes India)