Sulekha Nair, Firstpost
Mumbai, 11 August 2016 

The festivals are round the corner. And it is that time of the year when online discount offers start raining. If you had thought this year it is going to be different due to the change in FDI rules of the government, you should be happy that it is not so.

This year too there are online discount offers – marking the Independence Day. Some like Snapdeal’s Wish for India sale is offering up to 70 percent off to coincide with the 70th I-Day celebrations. With Ganesh Chaturthi and later Raksha Bandhan too around the corner, there are indeed reasons for the consumers to be happy.

But the question that begs an answer is are the e-commerce marketplaces flouting the rules while offering these discounts. When the government allowed for 100 percent FDI in the e-commerce sector, it stated that, “E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods and services and shall maintain level playing field.”

The rule is clear that marketplaces should not indulge in online discount sales. So how are these companies doing this? Are they stocking up on inventory and selling goods?

Unless one knows that is the truth, there is no way one can say for sure that they are flouting the rules. Anil Talreja, Partner, Deloitte Haskins & Sells, says that the “regulators have made the law clear and no one will flout the law.”

The offline players have been in the discounting game much longer and earlier than the online players. “When malls were set up, there were many who offered goods in exchange for old clothes, newspapers, etc. They can’t complain with what the online players are doing as they did the same,” points out Prof. Pradeep Pendse, Dean, E-Business, Welingkar Institute of Management.

The physical space has been having a lot of heartburn of sorts. Any business has to be viable not just in the short term but in the middle and long term as well. But the quantum of discounts given online is unsettling the offline players.

There is no way of knowing, said an analyst, whether the discount is being offered by the online marketplace or the suppliers. “The advertisements say that the online marketplace is offering the discounts. No one says that x or y supplier on the marketplce is offering the discount and so one never knows,” points out Kumar Rajagopalan, CEO, Retailers Association of India (RAI), a not-for-profit organisation.

The government has come out with regulations at different points of time which have placed barriers in FDI in retail.

“Most of the internet companies have raised funds from venture funds and private equity which are funds sourced from overseas. Domestic players say the marketplace has created a clever structure and the latter is sidestepping or bending the law. The government has been looking at the situation for the last two years and have been looking at attracting FDI. When the government comes out with more conditions, it means more restrictions and then there are more interpretations. However, the fact is what is needed is a level playing field,” says Devangshu Dutta, Third Eyesight – a consulting firm that focuses on the retail and consumer products ecosystem.

Online players are rapidly gaining ground and offline players are jittery about the former’s growth. What is calculated to ascertain the former’s growth is GMV or gross merchandise volume to indicate a total sales value for merchandise sold through a particular marketplace over a time frame. Yet, GMV per se is not the exact right metric though it is a popular one.

Going by GMV figures, India’s retail market is around $500 billion while the online share was at $10 billion in 2015 and is expected to be in the reach of $18-20 billion in 2016.

China had a retail market of around $650 billion in 2015 and is expected to be worth $10.3 trillion by 2018, compared with the $5 trillion in sales projected for North America, according to a PwC report. The overall market of retail in China is about $2 trillion.

A discount being offered online is a tricky affair. For example, if someone who has a brand store on Amazon and decides to launch a discount and Amazon publicises it, then it is not a discount being offered by the marketplace. So within the current rules, what Amazon is doing is permissible.

On Flipkart, some brands have brand stores and if they themselves discount it, it is fine as per existing rules. Historically, the issue is how much is the brand discounting and what is the online marketplace offering on top of it, if it is.

Will the issue ever get solved? Every time an online player announces a discount, will the offline player see red? Many see it as an issue of governance.

Terming it a ‘political’ issue, Pendse of Welingkar Institute says that with the government focusing on jobs and aiming to make jobs available, the aggregated marketplace will lead to many people losing their jobs.

So will there be a middle path that both can traverse? “Depends on the government and which constituency it wants to protect,” he remarks.

Dutta says that it is a governance issue if there is a monopoly or oligopoly, as it is not restricted to one kind of business. What is needed is to strengthen governance.

As of now, the government seems to be finding it difficult to make up its mind on the issues regarding the retail sector.

(Published in Firstpost)

The cold chain sector is expanding quickly due to increased investments from Indian and international organisations going towards both modernisation of the existing facilities and establishment of new ventures. Over the last few years cold-chain has gained a buzz, finding its way not only into industry presentations but also into budget speeches in Parliament. It is widely reported that India needs to build more cold chain capacity, especially to reduce the enormous amount of waste of food products in the chain from farm to consumer.

India is one of the largest producers of agro-products i.e. fresh fruits and vegetables, milk and related products, fishery products and meat. However, due to lack of the required facilities, spoilage of products is comparatively high.

In recent years, significantly incentivised both by business logic and by tax breaks, there has been a fair amount on investment in cold storages. However, the sector is still highly fragmented; there is inequitable distribution of cold storages, interlinkages between storages is also very poor and many facilities are also operating below capacity.

The National Centre for Cold Chain Development (NCCD) reported that as of December 2014, 70% capacity was utilised, where the total number of cold storages available in India was around 5300 and approximately 6000+ vehicles, providing about 30 Million Metric Tonnes capacity of storage. Most of these facilities are located in the states of Uttar Pradesh, Uttaranchal, Punjab, Maharashtra and West Bengal.

Storage and transportation capacity is only the very first step in strengthening cold chain capabilities but, unfortunately, that is where many entrepreneurs and investors in cold-chain are stopping their thought process. Many players in the industry have been using obsolete machinery, and storages are majorly for a single commodity. The result, predictably, is underutilisation of capacity or mishandling of food products leading to operational problems, cost escalations, spoilage and other losses. Just to mention a simple example that many seem to forget: even domestic refrigerators have at least 3-4 temperature-humidity zones: the freezer, the chill tray, the large cool area, and a vegetable tray. In comparison, many cold stores are built without adequate thought to the various influencing factors. It’s important to recognise that in developing a cold chain capability, the products to be handled, the environment in which the cold chain will operate, not only storage but intake, handling and transportation, all have a role to play.

With a fragmented operating environment, both in terms of production as well as distribution, often a single investor or company may not be able to create the business logic to set up a cold chain facility. Collaboration between multiple individuals and agencies may be a way out.

An example of successful use of integrated cold chain is the Tamil Nadu Bananas Growers Federation. Banana growers in the Tamil Nadu belt were diminishing due to lack of appropriate storage facilities, and farmers were forced to sell produce at throw away prices. With introduction of integrated cold chain solutions, the federation of farmers from Tamil Nadu has now managed to gain a hold of the banana market again. They have managed to increase their income manifold by growing better qualities and storing bananas for longer period of time in the integrated cold chains.

Cold chain logistics in the true sense begin with harvesting and post-harvest handling, going on to controlled atmosphere vehicles, cold storages, sorting and grading facilities, modern pack houses and controlled atmosphere retail stores. Most importantly, even operational know-how is something that is not made part of the investment plan, leading to unviable, unprofitable cold chain facilities.

The focus should be to integrate the cold chain, and also build capacities in all areas. As per NCCD (December 2014), India has approximately 6,000 reefer vehicles against a requirement of 60,000. Similarly the number of pack houses available is 250 and the projected requirement is for 70,000. Hence, the need for a more balanced investment in terms of modern pack-houses, refrigerated transport units and ripening chambers is evident and will bring far better results, both operationally and financially.

In addition, there has to be a significant improvement in developing the know-how and skills sets available to the sector. While the country is faced with large-scale unemployment annually, a well-thought out development of the cold chain sector including due investment in knowledge-based initiatives can create significant numbers of better paying jobs around the country, especially in rural areas from where the produce is sourced.

With development of the consumer and retail sector supporting its growth, integrated cold chain development should be at the top of the agenda for government as well as for private business.

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)