AFP/The Hindustan Times
New Delhi, 22 June 2016

But on Monday New Delhi relaxed the rules, just weeks after Apple chief Tim Cook toured India on a breathless charm offensive where he was pictured using Prime Minister Narendra Modi’s gold iPhone to launch the premier’s own app.

Companies making state-of-the-art technology — understood to include Apple — now have up to eight years to meet the sourcing requirements under a waiver, part of a push by India’s pro-business government to attract foreign investment and create jobs.

For Apple, which saw iPhone sales dip for the first time ever in the second quarter due to slowing demand in China and the United States, India is a tantalising prospect.

While analysts say it currently accounts for only around one percent of global iPhone sales, its giant population and low number of smartphone owners relative to its size mean it is a huge potential market.

“Apple has not really seen India as an important enough market in the past, but somewhere, the penny has dropped,” Devangshu Dutta, chief executive of retail consultancy Third Eyesight, told AFP.

Apple’s vast, hands-on stores are designed to become destinations in their own right, analysts say, luring potential customers with the promise they can play without buying.

“The store is not just a place to do business — it acts as a live billboard for the brand,” Dutta said.

‘Cost-conscious market’

Browsing mobile accessories in FutureWorld, a technology retailer in New Delhi’s Connaught Place, Aryamaan Chauhan said he would “definitely” visit an Apple store if one opened in the city.

The 19-year-old IT student owns an Android smartphone, bought for about 20,000 rupees ($295), but is considering switching loyalties.

“Money is what’s stopping me. My budget is low, I can’t afford it,” Chauhan said.

“Now, I think most Indian people prefer Android but they are shifting. After graduation I will buy an iPhone.”

With a basic iPhone starting at almost $600 — more than in many countries, thanks to India’s high taxes — they are wildly unaffordable for most in a nation where average incomes are less than $1,600 a year.

Handsets costing under $100 dominate the market, many of them made by Chinese manufacturers such as Xiaomi or Huawei.

“It won’t become mass-market, (Apple) will always be a niche player. This is a very cost-conscious market,” Vishal Tripathi, research director at Gartner, a technology research firm, told AFP.

“But there is a growing number of consumers who like Apple.”

By pricing itself exclusively at the luxury end, Apple has distinguished its brand from arch-rival Samsung which has both low-cost and high-end phones.

“Indian consumers are always under the notion that more expensive means better and consider carrying an iPhone as more of a status symbol than anything,” said Bhasker Canagaradjou, the head of Ipsos Business Consulting in India.

“The brand enjoys a very strong aspiration value, especially among the young population.”

‘Make in India’

For now, Apple has given no indication when or if it plans to open its own stores. But if it does, it will eventually have to meet strict sourcing rules as the government exhorts companies to manufacture in India.

The company will require factories that can produce its exacting, cutting-edge products — something India largely lacks.

“To create a local supply chain, it takes time. They will be able to operate stores and benefit from stores in the meantime,” said Dutta.

Foxconn, the major Taiwanese Apple supplier which also assembles products for Sony and Dell, is spending billions of dollars setting up factories in India.

The iPhone is not yet on the production line, but Canagaradjou says he believes Apple could start manufacturing in India “in the next one or two years”.

However, while its stores may arrive in India soon, analysts don’t expect to see legions of Apple superfans camping out to buy new releases as they do in other countries any time soon.

“If someone is expecting a replication of how it is in other markets, people queueing up outside the stores from 3:00 am, I don’t think that’s going to happen,” said Tripathi of Gartner. “In India, people prefer to sleep until late.”

(Published in Hindustan Times)

Sapna Agarwal, Mint

Mumbai, 20 June 2016

Swedish fashion retailer Hennes and Mauritz (H&M) on Monday said it will double the number of its stores in the country from six to 12 by year-end. The Indian unit of Hennes & Mauritz AB, which entered India in October and currently operates stores in Delhi, Punjab and Bengaluru, will expand to Mumbai, Pune and Chennai.

Two new stores in Mumbai will come up at Phoenix Mills in Lower Parel and Phoenix Market City in Kurla. Chennai will have its first H&M Store of over 34,500 sq.ft at Express Avenue Mall. Additionally, two locations have been confirmed for stores in Pune at Phoenix Marketcity (33,000 sq.ft) and Westend Mall (23,000 sq.ft) and a third location for Mumbai at Inorbit Mall, Malad, a suburb in Mumbai.

“H&M is having a great first year in India, the fantastic response from our consumers, to adopt international trends in their wardrobes, and a stronger economy have encouraged us to explore new markets in metros and beyond. All our new locations will be full concept stores, offering the latest in women’s, men’s and children’s fashion,” said Janne Einola, country manager, H&M, while sharing that the company plans to maintain the strategy of opening new stores in the market.

Globally, H&M had 3,970 stores as of 29 February and plans to open 425 more by November, The Wall Street Journal reported on 6 April. The company is the world’s second biggest clothing retailer by sales after Zara’s parent Inditex SA from Spain.

Inditex SA, the world’s largest clothing retailer which owns Zara, has been in India since 2010 in a joint venture—Inditex Trent Retail India Pvt. Ltd—with the Tata group’s hypermarket and department stores retail company Trent Ltd and has opened 16 stores in five years, according to its annual report for fiscal 2015.

Zara is one of the fastest growing apparel and lifestyle brands in India to have crossed $100 million in revenue within five years of operations. However, H&M looks like it could cross the $100 million mark in a much shorter time period. Despite its late entry in the country, H&M is getting prime locations as mall developers are making space for it, taking away the advantage of location for Zara. For instance, at Select City Walk in New Delhi, H&M has come in place of Pantaloons. Likewise, in Mumbai at Phoenix Mills and Inorbit Mall, its new stores will replace stores of existing retailers.

“Sales per sq. ft of Zara and H&M in India are roughly comparable adjusted for location and size. If H&M builds scale faster in a shorter time, it will manage to cross $100 million in revenues even faster than Zara,” said Devangshu Dutta, chief executive officer, Third Eyesight, a retail consultancy firm.

India is the second-most attractive market for global retailers to expand after China, according to The 2016 Global Retail Development Index by consultancy AT Kearney. According to the firm, India has in the past couple of years improved the ease of doing business. Clarity on foreign direct investment (FDI) regulations too have helped.

To be sure, challenges remain. India continues to be a complex market for foreign retailers, where understanding dynamics at the state level is important as the country’s 29 states have the power to opt in or out of FDI reforms. Also, infrastructure bottlenecks, including archaic labour laws, complex regulations, high attrition rates, and limited high-quality retail space, remain important areas of concern for retailers, said the AT Kearney report, adding that still, the potential is vast as the country presents a $1 trillion retail market.

In the past year, several foreign retailers have entered India. In fashion, A�ropostale, The Gap, and The Children’s Place entered in partnership with Arvind Lifestyle Brands. Topshop and Topman entered via e-commerce through Jabong.com, while H&M became the first international fashion retailer to enter alone after the government approved 100% FDI in single-brand retail.

Other sectors that saw multiple entrants include sports (Sonae, under the Sport Zone banner), restaurants (Wendy’s, Jamie’s Italian, Jamie’s Pizzeria, Barcelos and Carl’s Jr.) and convenience stores (UAE-based Fmart). Among existing international retailers, Marks & Spencer, Burger King, Dunkin’ Donuts, Starbucks and Nando’s have initiated significant expansion programmes.

(Published in Mint)

Saritha Rai, Bloomberg
Bengaluru, 20 June 2016

Apple is pushing to increase its share of the world’s fastest-growing major smartphone market as device sales slow elsewhere. Chief Executive Officer Tim Cook visited the country for the first time in May and met with Prime Minister Narendra Modi to outline his ambitions for the burgeoning arena.

Under the new regime unveiled Monday, single-brand retailers have a three-year grace period in which they can operate stores, before they have to comply with the local sourcing requirement. Companies that can show they are selling state of the art or cutting edge technology can benefit from a relaxed local sourcing regime for “another five years.”

The government hasn’t ruled on whether Apple meets the cutting edge criteria. Apple didn’t respond to an e-mail seeking comment on the government’s decision.

Apple will now have to apply anew for permission to open its first stores in India, Commerce Minister Nirmala Sitharaman told reporters Monday. The Cupertino, California-based company has used flagship stores in New York, Tokyo and Shanghai to promote its products and boost sales, but in India it sells through partners such as Redington India Ltd. as well as the retail units of Indian conglomerates Tata Group and Reliance Industries Ltd.

“The relaxed rules give Apple a window to build up a credible brand and gives the company a chance to build up internal capability and familiarity with the supply base,” said Devangshu Dutta, chief executive officer of Third Eyesight. “For branding, a certain consistency is critical and this can be done by having retail control.”

India is a challenging market because of the iPhone’s premium pricing. It now has less than 2 percent of an Indian market in which four-fifths of phones cost less than $150. The iPhone maker had sought permission to become the first company allowed to import and sell cheaper refurbished phones into the country, but was said to have been rejected.

Still, Apple’s sales there jumped 56 percent in the March quarter, indicating that demand for the brand is growing. Cook called out the country’s “incredibly exciting” prospects during his last earnings conference and said his company will devote more energy to that market. Apple’s stores have always played a key-role in attempts a convey a unique image and feel for its products.

“It gives Apple more branding and positioning strength. Having a direct presence will help it gain more mindshare,” said Vishal Tripathi, an analyst at research firm Gartner. “It can help create a well-fashioned brand in the Indian market.”

(Published in Bloomberg)

Raghavendra Kamath, Business Standard

Mumbai, 17 June 2016

To drive footfalls and attract brand value, mall developers across the country are rolling out the red carpet for prominent chains.

Recently, H&M signed a lease agreement with a Hyderabad mall developer, wherein the latter gave the Swedish retailer six months rent-free, promised an investment of Rs 2.5 crore on fit-outs (a term used to describe the process of making interior spaces suitable for occupation) and a 30-year lease, according to a source. This was over and above the fit period of three to four months.

According to sector experts, department stores ask and get a rent-free period of three to four months during which they do fit-outs, and get a lease period of nine-odd years.

According to the same source, Mumbai-based Inorbit Malls has committed to spend Rs 12 crore on fit-outs and interiors on H&M’s upcoming stores in Mumbai, Hyderabad and Bengaluru. Inorbit’s public relations agency did not want to comment.

“They (H&M) say they follow a standard format in signing deals across 4,100 stores worldwide. If a mall developer is not comfortable on the terms, they are ready to search for others,” said the source. An H&M spokesperson said: “We never comment on rumours or future expansion plans.”

Yogeshwar Sharma, executive director at Select Citywalk, which houses both H&M and Zara, says they gave a rent-free period of six months as H&M was new to the country and it would help the brand to settle down. However, he denied the mall spent money on fit-outs and interiors.

Sharma said the mall had given a rent-free period of four and a half months to Zara when it opened in the mall. “Indian brands do not enforce longer rent-free periods,” he said. Adding that in the longer view of the mall, they sign 30-35 year leases with global brands.

A Zara spokesperson said: “We cannot comment on our commercial relations.” Sources said H&M had worked out a special revenue sharing deal with Phoenix Mills for two of its upcoming stores in Mumbai. Though there is a buzz that Phoenix Marketcity in the Kurla area had paid for fit-outs of Zara, Rajendra Kalkar, president-west at Phoenix denied this. 

Recently, Future Group’s Big Bazaar vacated its premises in High Street Phoenix and H&M is set to open its 30,000 sq ft space on the same place.

“We give the same treatment for all good brands and there is no preferential treatment for any,” Kalkar said, adding every deal was based on commercial negotiations and different from each other.

Added Mukesh Kumar, senior vice-president at Infinity Malls: “International brands ask for capex on fit-outs and interiors. Some agree to it and some do not.”

Devangshu Dutta, chief executive at consultancy firm Third Eyesight, said international marquee brands are seen as crucial anchors that can drive high footfall to malls.

According to estimates, footfall at malls are down 20-25 per cent in the past couple of years, due to economic downturn and onslaught of e-commerce. Correspondingly, occupancy costs have also come down by about 15 per cent.

“Zara and H&M have already demonstrated the excitement they are able to generate, not only at launch but the traffic they are able to sustain over time,” Dutta said.

As far as recovering the income lost during rent-free periods or co-investment in initial store fit-out, developers would be working that into their commercial mix, and looking to recover that from other tenants or to amortise it over a period of time, he added.

Susil Dungarwal, chief mall mechanic at  Beyond Squarefeet Advisory, a Mumbai-based mall management company, said despite the terms and conditions, global brands were choosy about where to go. “They go to a mall only where the latter adds value to the brand,” he said

Mall owners, he went on, believe they’d be able to recover the investment on fit-outs and interiors in a few years, as the new brand will add value to its tenant mix and offer customers a new brand, impacting in better rental realisation from other tenants, too.

Many malls had shut down in Mumbai, Bengaluru and other cities in the past couple of years, due to low footfall and business. Beside Nirmal Lifestyle in Mulund, Neptune Magnet Mall in Bhandup and Centre One in Vashi, malls that have closed in Mumbai include City Mall and Mega Mall in Andheri, and Dreams Mall in Bhandup. Kohinoor Mall in Kurla is yet to become functional.

Eva Mall on Brigade Road and Sigma Mall on Cunningham Road in Bengaluru have shut shop. Navi Mumbai has seen Gold Souk Mall, Wedding Mall and Palm Beach Galleria converted into office complexes or showrooms for automobile companies.

(Published in The Economic Times)

These moves are part of an effort by Alibaba to build what founder Jack Ma calls the “iron triangle” of businesses in ecommerce, payments and logistics, and position it to challenge dominant incumbents Flipkart and Amazon.

Paytm and Xpressbees, which is based in Pune, declined to comment. Sahil Barua, the CEO of Gurgaon-based Delhivery, did not reply to an email seeking comment.

Times Internet, a part of the Times Group which publishes this newspaper, is an investor in Delhivery along with Tiger Global Management and Nexus Venture Partners. In response to questions from ET, Alibaba said in a statement that it sees “tremendous opportunities” in India. “We are absolutely committed to developing in this market for the long term,” it said.

Alibaba is likely to buy a majority or a significant minority stake in a logistics company, which will give it a major say in operations, said one of the sources cited above. The investment will be decided in 4-6 months, once Alibaba is ready to launch its horizontal marketplace platform in India.

Both Delhivery and XpressBees already work with Paytm’s marketplace as third-party logistics and eKYC partners. 

Securing control over logistics is important because infrastructure comprising roads, storage and vehicular assets, as well as skills, regulations and systems are relatively under-developed in India, said Devangshu Dutta, CEO of retail consultancy Third Eyesight.

“Major players such as Amazon, Alibaba, Flipkart have to take direct or indirect control to ensure that their logistics capabilities evolve ahead of their own business growth curve,” he said. 

Top executives from Delhivery and XpressBees have met the team which Alibaba has set up for the India entry. This group is led by Alibaba’s Global Managing Director K Guru Gowrappan and Bharati Balakrishnan, the first top executive hired by Alibaba to build a consumer-facing business in India. Alibaba executives currently work out of Paytm’s headquarters.

Delhivery was estimated to be valued at Rs 2,000 crore during its last funding round. SAIF Partners and IDG Ventures are among the investors in Xpressbees, whose valuation is not known.

“They are putting their strategy in place. Fundamentally, they will buy and start with Paytm’s online retail business, because a deal with Flipkart is not happening right now as they feel it is very expensive. They will get a logistics partner to build a network like Amazon, which is very critical,” said a source briefed about Alibaba’s plan.

Besides owning a stake in Paytm, Alibaba owns around 5% of Delhi-based online marketplace Snapdeal. It held investment talks with Flipkart, but the two companies were not able to reach an agreement on valuation and terms. Alibaba and Paytm are working out the contours of the corporate structure of the marketplace entity, where 100% foreign direct investment is allowed as per regulations announced by the government in March.

“All payments will be moved to the payments bank and ecommerce will be a separate entity which Alibaba will invest in again. We will see some announcements over the next three to six months,” said a person briefed about the plan. As India becomes a crucial battleground for the world’s two largest online retailers, they are deploying contrasting strategies in an ecommerce market that Internet and Mobile Association of India estimates will be worth Rs 2.1 lakh crore by December 2016. While Alibaba has made strategic investments, Amazon India is growing organically.

Amazon ended 2016 with net sales of $107 billion. Alibaba closed its financial year in March 2016 with revenue of $15.7 billion.

Winning in India has become critical for Amazon, after it lost out in China to Alibaba. Last week, Amazon founder Jeff Bezos announced that his company will invest another $3 billion in India, taking the total commitment to around $5 billion, putting the spotlight on Alibaba’s India plans.

Alibaba is also entering India at a time when funding options for local players have dried up, and sales growth is flattening as online retailers pull back on discounts. This gives it an opportunity to cherry-pick assets in the country. India is also important for Alibaba’s push to globalise its customer base, as it looks to get half of its revenue from overseas by 2020 as compared 20%. In April, Alibaba acquired a majority stake in Southeast Asian online retailer Lazada for $1 billion when it was reportedly running out of money.

(Published in The Economic Times)