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Cheer for cos like Apple, Rolex as government eases local procurement guidelines for single-brand retail

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November 11, 2015

Rasul Bailay & Shambhavi Anand, The Economic Times

New Delhi, 11 November 2015

In a major leg-up for global brands such as Apple and Rolex, India has relaxed a mandatory local procurement condition for high-tech companies and allowed mass brands including IKEA to comply with such sourcing norms from the day their first store opens rather than from when the first tranche of investment is made.

The government on Tuesday also allowed foreign single-brand entities to sell products through online channels provided they have permission to sell through brick-and-mortar stores.

The relaxation in foreign direct investment norms is set to cheer companies including Apple, which was earlier expected to source 30 per cent of its products locally. ET had reported earlier this month that Apple had sought relaxation of the sourcing norm to set up stores in India, while IKEA wanted more time to meet the requirement.

"It is seen that in certain high technology segments, it is not possible for retail entity to comply with the sourcing norms. To provide opportunity to such single brand entities, it has been decided that in case of ‘state-of-art’ and ‘cutting-edge technology,’ sourcing norms can be relaxed subject to government approval," according to an official notification on Tuesday.

"To start counting the time to comply with the 30 per cent local sourcing norm from store opening will support brands in building long-term sustainable supply chains that are good for India, good for the businesses and will enable better prices to the Indian customers," an IKEA India spokesperson said in an email. "Today’s decision will allow the Indian IKEA customers to interact with the brand IKEA in the same way as all IKEA’s global customers."

The policy changes will pave the way for single-brand retailers such as Swedish clothing company Hennes & Mauritz to tap India’s growing ecommerce business.

"FDI policy on the SBRT (single brand retail trading) provides that retail trading, in any form, by means of e-commerce, would not be permissible. It has been decided that an entity which has been granted permission to undertake SBRT will be permitted to undertake ecommerce activities," the latest policy paper said.

Proposals of companies including Tommy Hilfiger and Furla were stuck with the Department of Industrial Policy & Promotion for years because they had planned to set up their own stores and sell products through franchisees, which wasn’t allowed. Now, such companies can engage in both wholesale trading – which is needed for sales through franchisees – and retail trading as long as it follows the norms for both segments.

"Fantastic relaxation. Different companies have different business models. For south India, franchisee works and north India, may be you want to own your own stores and eastern side you wanted to do wholesaling because wholesalers were not good. Earlier, you could not do all that. Now the same entity can do all these activities and keep the business arms separate," said Baljit Singh Kalha, a partner with Titus, the law firm that assists IKEA, Furla and H&M.

Indian manufacturers with foreign investment that are controlled by Indians can now sell their products through online channels provided they make 70 per cent of the output and source the remainder from local companies.

This has been a long-standing demand of ethnic products retailer Fabindia, which has FDI and wanted to sell online. Earlier, such companies could sell online only if they manufactured 100 per cent of their products in-house.

"This is a great Diwali gift from the government to the retailers. What they have done is provided a major boost to ‘Make in India’ and also the ministry has recognised the fact that retail will operate across multiple channels. This will be a huge fillip to ‘Make in India’ as companies like ourselves manufacture 70 per cent of the products ourselves," said William Bissell, managing director of Fabindia.

"There are several changes for companies in the retail sector. For instance, the domestic sourcing requirement has to be reckoned from the opening of first store and not from the first day of operations. Technology-oriented products and high-end luxury brands may be able to skip the domestic sourcing norms completely, subject to case-to-case approvals. Another opening is for indigenous brands to receive foreign investments that can enable them to strengthen their operations," said Devangshu Dutta, chief executive officer of retail consultancy Third Eyesight.

(Published in The Economic Times.)

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Flipkart Internet posts four-fold increase in revenue

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November 9, 2015

Sagar Malviya, The Economic Times
Mumbai, 9 November 2015

Flipkart Internet, which runs the consumer-facing portal of India’s largest ecommerce business, posted a nearly four-time increase in revenue and a 12-fold jump in net worth in fiscal 2015, indicating the unabated growth at the firm and the country’s online retail sector. The company posted revenue of Rs 659 crore in the year ended March 31, compared with Rs 179 crore the previous year, according to a recent filing with the Registrar of Companies. It didn’t disclose the bottom line for fiscal 2014. Flipkart Internet is a part of a complex group of companies held by Singapore-based Flipkart.

It generates revenue from shipping fee, selling commission and advertisements. Online retailers regularly disclose the gross value of goods sold on the portals, which doesn’t offer an actual picture of their financial performance because, often, the sales are at a discount as they try to build market. Flipkart Internet charges a commission of 4% to 25% of the selling price, depending on the category of products, from vendors for using its platform. Its net-worth swelled to Rs 4,819 crore from Rs 415 crore a year earlier. Net worth, in simpler terms, is the value of assets after deducting liabilities and an increase generally indicates better financial health. The filing showed that the company raised nearly Rs 5,500 crore from its Singaporebased parent, Flipkart Marketplaces, during the year. When contacted, a Flipkart spokesperson declined to comment.

"Technically, this should be one of the important companies for Flipkart as it (Flipkart Internet) derives its business out of a marketplace model, which the law currently allows," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. He wants this Indian unit to have a bigger say in its operations. "The bigger challenge is to become an enabler and not just be a company which participates with less control of the business but to bear the complete onus of the transactions." Online marketplaces, such as the one run by Flipkart Internet, is the only segment of online multi-brand retail where India allows foreign investment. The complex structure of companies that Flipkart has created allows it to stay within the regulations while raising foreign funds.

While Flipkart Internet runs the portal, it has a wholesale arm that books actual sales of goods it gets from vendors. This business, Flipkart India, had posted sales of Rs 2,846 crore in fiscal 2014. There are a few other companies such as Flipkart Logistics, which runs the payment gateway for transactions done on Flipkart.com, and dormant companies Flipkart Digital and Flipkart Online. All these businesses are owned by Singapore-based Flipkart, which has three other subsidiaries registered in Singapore: Flipkart Payment, Flipkart Logistics and Flipkart Marketplaces. While all leading online marketplaces are rushing to add merchants, Flipkart is focused also on growing its new advertising unit, a highmargin, feebased business that it expects could shore up the bottom line.

ET in August reported Flipkart planned to phase out commissions and instead wants sellers to advertise on its platform for a fee, a move aimed at enlisting more vendors and at the same time earning higher advertising fee. Flipkart is also trying to cut dependence on its largest vendor, WS Retail, which accounts for a majority of the sales on the website.

According to a Bank of America Merrill Lynch report, customer acquisition cost is $6 and margin contribution per order is $1, thereby taking company six orders to break even. "We estimate close to 30% of Flipkart’s GMV coming from the marketplace and expect this to move to 80% in the next two years. Currently, we estimate, Snapdeal’s GMV on marketplace is the highest as it had a headstart over others in terms of the marketplace model," the report said.

(Published in The Economic Times.)

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Mint Money Festival Special

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November 9, 2015

Rashmi Aich, Kavya Balaji, Tania Kishore Jaleel, Vivina Vishwanathan & Lisa Pallavi Barbora, MINT

New Delhi, 9 November 2015

We are in the midst of the festival season and there has been a barrage of offers across various sectors. Numerous advertisements from both online and offline retailers could be seen as early as September. This time, the e-tailers have tried to one up the brick-and-mortar peers by offering app-only deals. While much of the festival season is left, it has been strong going so far. A recent Nomura Global Markets Research report—Holiday shopping season starts with a bang—said that quarterly expectations for India’s holiday sales are close to $4 billion. Read some of the other findings from the report with the stories. While most of the action seems to be online, offline retailers are trying to keep pace, if not in price then in service and customer experience. Mint Money takes a close look at different types of offers and how one can be a smart shopper. We take a look at popular segments of electronic gadgets, white goods, apparel, jewellery, furniture, and even real estate and gold, and bring to light some of the hidden details.

GADGETS

In today’s world, where technology upgrades at a fast pace, everyone wants to own the latest gadget as soon as it hits the market. The festival season adds fuel to the fire, with buyers spoilt for choice on both online and offline platforms.

This year, e-commerce participants managed to grab the first mover’s advantage and started their festival season sales as early as September-end. Earlier, the biggest sales used to happen closer to the main festivals.

You may have seen many advertisements by online portals in newspapers last month, and these are still continuing. In fact, according to a recent report by Nomura, in the sales by the three top ecommerce marketplaces—Flipkart, Snapdeal and Amazon India—mobile phones were the biggest selling category, followed by apparel.

Mobile phones are also high demand because manufacturers come up with new models almost every other month. Moreover, festival season sales woo customers by giving offers and “best-price” on their favourite gadgets. Among these, Apple’s iPhone has been a hot favourite with Indian customers. Mint compared prices of iPhone 6 16 GB across the mobile apps of the top three online retailers, and brick-and-mortar stores—Croma, Spice Hotspot and Vijay Sales—during the festive season sale on 15 and 16 October.

While physical stores were far behind in the price offering, online stores did offer good discounts. However, the maximum retail price (MRP) had high variations across e-tailers as well, which, in turn, meant big differences in the discounts offered. Even as Snapdeal and Amazon offered the phone at the same price of Rs.37,999, the former showed an MRP of Rs.56,000 and the latter of Rs.52,000, making a difference of around 5 percentage points in the discounts offered by the two.

“The difference in MRP is mostly due to the different prices offered by the sellers on the online retailer’s platform (marketplaces). Also, it is a common practice in retailing to mark up price by a big margin and then sell on a huge discount, keeping the sales margin intact,” said Devangshu Dutta, chief executive officer, Third Eyesight, a retail consulting firm.

Apart from prices, the delivery time and charges also varied across sellers on e-tailers.

While the variation in online prices was high, the selling price quoted by physical retailers had miniscule or no discount on the MRP. Moreover, their prices were much higher than what online stores were offering. For example, for the Apple iPhone mentioned earlier, the difference was at least 19.7%.

However, the benefit of paying the extra money is that you can get the product at once. Also, the process of exchange is simpler as you don’t have to wait for the replacement to be sent as in the case of etailers. This factor is especially relevant if you are buying a product whose online and offline price is the same.

—Rashmi Aich

APPARELS

In October, Vipin Venugopal, a junior executive at a private manpower solutions firm in Mumbai bought a shirt by Pepe Jeans from an e-commerce website for Rs.600. “The price of the same shirt at the showroom was Rs.1,699. It was a steal,” said Venugopal. And seeing such mouthwatering discounts, Venugopal bought more things online for his sister, Vidya. “I bought a total of seven items for my sister during the online discounts. We had scanned showrooms for some kurtas, but online we ended up getting at least 40% discounts,” said Venugopal.

Going online to buy clothes could work in your favour, too.

According to a survey released in October by industry body Assocham, the most popular e-commerce websites—Flipkart, Amazon, Snapdeal, Myntra and Jabong—have been doling out price cuts or discounts on purchase of popular brands of apparel, footwear and electronic goods, coinciding with the festival period. The growing trend is being attributed to the fact that all reputed Indian and international brands have tied up with these websites and their goods are being offered to consumers at much lower prices than in their retail stores.

“For the past couple of years, discounts on websites have been good. The discounts are now coming down but the reality is that consumers are checking out online platforms for apparel. When it comes to clothes, so far, pricing has been the key parameter rather than convenience,” said Saloni Nangia, president, Technopak Advisors Pvt. Ltd, a New Delhi-based retail consulting firm.

Mint did an online and offline survey of major apparel brands and found that select products available on e-commerce websites were cheaper by up to 20% as compared with the same products in a mall.

“Most of the discounts are given by the portals directly for customer acquisition and I don’t see this changing in the next 18-20 months at least,” said Nangia. According to an April report by UBS Securities India Pvt. Ltd, by the end of the calendar year, fashionwear, including apparel and footwear, is expected to be the largest retail category online, with sales of $3.9 billion, bigger than sales of electronics and consumer durables at $3.5 billion.

Retail analysts also believe that as Indians evolve in terms of fashion, buyers will slowly move towards curated merchandising than just looking at discounts.

“You can expect niche businesses to evolve where discounted pricing may not be available,” said Nangia.

What you get

E-commerce websites, too, are evolving. Some of them now provide trend and style guides along with discounts. Flipkart, for instance, has a feature called ‘Image Search’ where you can browse through an assortment of clothing. You can click on a picture and search for similar products on the portal’s mobile app.

Many of us might be doing this: you go to a mall, and if you like a product, immediately go online on your smartphone to check for any price differential. However, before clicking on the ‘Buy Now’ option, do factor in other costs such a delivery charges, if any. Apart from that, since most of the websites now act as a marketplace (products are provided by multiple parties; transactions go through the website), you may want to check the delivery duration when buying from different sellers.

—Vivina Vishwanathan

WHITE GOODS

Earlier, if someone wanted to buy an appliance, she would go to not one shop but many, look at the product, compare prices and only then buy. But today, shoppers are willing to skip the physical inspection and buy the product online if the price is right. In fact, prices for white goods such as televisions, washing machines and refrigerators are usually lesser online than in-store. For instance, the Samsung 32J6300 32 inch Full HD Smart Curved LED TV was available on Flipkart for Rs.42,290 while the price was Rs.49,900 at the Samsung store. The same was the case for an LG 6 Kg fully automatic top loading washing machine. The price was Rs.13,770 on Amazon.in during its festive sale, while offline store Croma was selling it at Rs.16,300. Another advantage of buying online is that you can read reviews of other buyers before you choose a product.

However, while buying online, it is important to compare prices across sites and also look at the delivery and installation details. It would be advisable to go through comments posted by other buyers on social media websites or the portal itself, as sometimes the installation and delivery is delayed or even improper. For instance, Mayank Agarwal from Delhi bought an Onida AC from Flipkart. “It promised free standard installation, but the installation team did not call or turn up even after 11 days. I was getting repeated calls from Onida dealers who were charging Rs.1,500 for standard installation, which was otherwise to be free.” Mint had sent an email to Flipkart seeking a comment regarding the complaint, but the e-tailer did not respond.

Another issue is warranty and customer service. Online buyers of large appliances often don’t receive proper warranty or customer service from the brand. Take the case of Vijay V. from Chennai, who bought an LG refrigerator from Amazon. “LG customer service denied replacement of parts when I encountered a manufacturing defect even though it was under warranty,” said Vijay. In an emailed response to Mint, an Amazon spokesperson said, “If the customer reaches out to us during the return window applicable for that product category, we would initiate returns or replacement of the product. Brands are obligated to honour the warranty for a genuine product irrespective of the sale channel.”

These just might be the reasons why it won’t hurt to spend some time and effort to check out in-store deals as well. Brick-and-mortar stores have some advantages that online portals don’t offer. For example, you can bargain for a better price or ask for better freebies. You can even ask the store if it can reduce the cost of the freebies from the product’s cost. Also, the installation and warranty might be much better as stores have in-house staff for installation and give the warranty upfront along with the bill.

As regards payment, the finance options are almost the same for both. Equated monthly instalment (EMI) options are available with most online and offline retailers. For in-store purchases, you can make a downpayment, take the product and pay the rest as EMI. Online purchases, however, require either full payment or full amount needs to be converted to EMI. Also, in-store finance offers include EMI at 0% interest; online retailers only offer EMI through credit cards where processing fees might be high.

—Kavya Balaji

JEWELLERY

It’s no surprise that you can now buy diamonds online; it is convenient and the choice is immense. At the same time, unlike buying a pressure cooker or even a mobile phone, you have to be very discerning about buying jewellery. It’s not a standardised product; every piece of jewellery is unique. When you deliberate jewellery shopping this festive season, consider your options—online and offline—after evaluating the merits.

According to Neha Kapadia, partner, Design Jewels, a Mumbai-based jewellery store, “Nine out of 10 times, jewellery is purchased from the ‘trusted family jeweller’. This person knows your taste, quality requirements and there is familiarity. Then there are those who buy from bigger shops though this usually turns out to be more expensive. But in buying online, the element of negotiation—be it in price, design or quality—is missing.”

With your family jeweller, there is comfort in showing old pieces, spending time talking about redesigning and creating a more contemporary piece and that hits home. Most people don’t really want to buy jewellery in a hurry.

Moreover, festive and wedding jewellery are large spends. So, one needs to be conscious about quality. While it is simpler to understand the purity levels in gold, with diamond jewellery, there are multiple factors to keep track of. Every stone has a cut, colour, clarity and carat, according to which it is priced. It’s hard enough trying to decipher these on your own through a website, let alone trying to figure out whether pricing matches the specifications. However, jewellery bought online also comes with a certificate, so the quality is assured.

Calvin John, vice-president, offline marketing, CaratLane.com, said, “In case of solitaires, we have certification from only internationally accredited laboratories; for other jewellery, there is Indian certification. As a first step, when a customer makes a purchase, she can view the certification online itself. And the certification is sent with the delivery.”

When it comes to design, though, Internet is your oyster—you can browse through not only traditional Indian designs but also global trends. “People often choose designs online and then come to a store to get it made.

But this isn’t new; earlier, too, designs were chosen from magazines and other places. Only the medium has changed,” said Saurabh Gadgil, chairman and managing director of Maharashtra-based PN Gadgil Jewellers.

The online experience is getting enhanced with mobile apps that help you see how a pair of earrings or a necklace would look on you (use the app to upload your photo and superimpose the chosen pieces on it)—sifting through hundreds of designs becomes a job on the go. But the look and feel can be different on a screen than on your person. For that, many retailers let you call the piece home and try it on before you buy.

John said, “The concept of looking for jewellery online was far fetched till a few years ago. Now people have started buying. The quality of user experience has evolved; we have a 3D virtual app to show how jewellery will look on you.”

While online purchases offer various advantages, convenience is the most important. It’s too tempting; say, you have seen a pair of gold and diamond earrings. They look nice and get delivered right to your doorstep, along with the relevant certificates. You avoid the traffic jams and the nasty look that the sales person at the jewellery store gives after you decide not to buy any of the 30 pairs that she has shown you. Moreover, as geographical mobility increases, people may no longer have access to their family jeweller.

There is also a price advantage while buying online; experts say prices could be cheaper by as much as 20-30% given that online retailers don’t have to keep an inventory of jewellery and have almost no real estate cost to bear.

But the choice between online and offline isn’t always simple. Kapadia said, “Despite certification, most people are not well versed with quality and price specifications. So, most online sales are restricted to smaller pieces, (usually) of lower quality and smaller budgets.”

You may not be ready to spend lakhs on buying diamond sets online, but it’s convenient to try out a pair of contemporary earrings, which will cost a few thousands, or, even buy standard gold coins that you have to gift during the festival season. Many websites offer a good return policy as well and have a try-at-home facility for some of the products. You can leave your details on the website and a counsellor will get in touch and bring you the desired pieces to be tried at home. If you like something, you can immediately make a payment. But if you don’t like any piece, you are not obligated to buy.

There are, however, some basic checks to do such as read the return policy, compare prices based on quality, delivery time, and others. Gadgil believes that the online jewellery platform caters to a new segment and a customer will rely on both channels for an overall experience. For heavy and high-value purchases, however, customer behaviour is likely to remain biased towards the family jeweller or a retail store.

—Lisa Pallavi Barbora

FURNITURE

New furniture also features in people’s festival buying list, and this time around, many online portals are trying to cash in on this. Just before the festive season began, e-tailers Flipkart and Amazon.in started offering furniture on their websites and apps. During its Big Billion Sale, Flipkart had dates dedicated to this category of products. Furniture portal, Pepperfry, has its ongoing Mega Diwali Sale with up to 51% off on products as well as extra 10% cashback for purchases above Rs.40,000.

Offline retailers, too, have hefty discounts. Durian Industries has up to 50% off on its products. Luxury furniture store, Furniturewalla, too, has a similar offer. Even your local shops and markets will have festival offers on.

Since the furniture market is largely unorganised, there isn’t a standard benchmark for prices. As an example, we looked at the prices of a king-size bed with matt finish and storage. At Durian, the post-discount price was Rs.53,000, on Pepperfry it was Rs.43,946, and at Urban Ladder it was Rs.41,799.

E-tailers are able to offer steeper discounts because of the margins they enjoy, said Arvind Singhal, founder and chairman of Delhi-based retail consultancy, Technopak Advisors. “Pricing in this segment is opaque. There is a lack of transparency as to how the pricing has been arrived at. The offline furniture companies usually operate at a 60% margin over the retail price. And online firms, it can be 10-15% above this,” he said.

So, yes, the online prices seem better, but here a few things to keep in mind before you start shopping. For instance, you cannot opt for cash on delivery for more expensive items. At Pepperfry, it is above Rs.3,000, and at Urban Ladder, above Rs.25,000 (no such limits at brick-and-mortar stores). But you can pay via Net banking, e-wallets and even in instalments.

Furniture online portals also offer much more choice, and because of the convenience of being able to browse through many products comfortably, many consumers are now making even big-ticket furniture purchases online, said Kashyap Vadapalli, chief marketing officer, Pepperfry.com.

However, not everyone is comfortable doing so. For example, Manish Ambwani, a human resources professional from Delhi, recently purchased a shelf for the living room from an online furniture portal. “Both, my wife and I work, so we did not have the time to go to different shops to make a decision. But for now, I would still buy bigger products from a store where I can see its quality,” said Ambwani.

The other aspects that make shopping online convenient are quick delivery and return policy. But this can be a cumbersome process with furniture. Delhi-based Reena Singh, founder of Khushi Pediatric Therapy Centre, wanted to buy a green coloured bookshelf to match the colour of her organisation’s sign. Since she usually does most of her shopping (be it clothes, home appliances and gadgets) online, she thought to give furniture a go. But not only did it take a month for the bookshelf to arrive, it was in a different colour (turquoise blue). Though she immediately returned the shelf, it took another month to get the refund.

“Read product details carefully when buying online—size, material, care instructions, warranty, shipping, payment and refund. This will ensure that there is no dissonance when the product actually arrives at the customer’s home,” said Prithvi Raj Tejavath, vice-president, category management, UrbanLadder.

Also, read through customer reviews about products and the service. Try to buy from only the bigger and better known sites, especially if you are buying expensive products. Also, do keep in mind that when buying online, you will not get the delivery immediately, unlike in a physical store, where the product usually gets delivered to your house that very day.

—Tania Kishore Jaleel

(Published in MINT.)

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Fashion giants race to dress India’s sari-shunning youth

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November 6, 2015

Emily Ford, South China Morning Post
New Delhi, 6 November 2015

Rifling through sweaters in India’s first Gap store in a glitzy New Delhi mall, 21-year-old Ridhi Goel says her grandmother doesn’t mind how she dresses, as long as it’s not too revealing.

“She’s fine with me wearing Western clothes like a shirt but not jeans and a crop top,” said the journalism student, her grey leggings contrasting sharply with her mother’s colourful kurta.

“All my family wears Indian clothes, but I find them too uncomfortable. I think maybe there is a generational divide.”

Most women in India still wear traditional dress such as saris or salwar kameez – but things are changing, and on city streets, dazzling silks mingle with T-shirts and jeans.

Young people’s appetite for Western clothes has led to a flurry of foreign brands opening up in India in the past few months, including US chain Gap and Sweden’s H&M.

Others are expanding fast, including popular Spanish retailer Zara and British high-street staple Marks & Spencer, which in October opened its 50th shop in India, its biggest market outside the UK.

Urbanisation, a growing middle class, rising disposable incomes and one of the youngest populations in the world make India hard to ignore.

“The time has come for Western wear to have exponential growth,” says J. Suresh, the managing director of textile group Arvind Lifestyle Brands, Gap’s partner in India,.

“If you look at any girl born after 1990 she will be wearing Western wear. That is the generation coming into college, their first job,” he says. “They will be completely in Western wear.”

While women are the biggest shoppers, in India men’s clothing dominates, taking 42 per cent of the US38 billion market in 2014, according to consultancy Technopak. The average customer targeted by Gap in its US stores is 35, but their Indian counterpart is five to 10 years their junior, Suresh says.

Gap had a head start in India thanks to Bollywood star Shah Rukh Khan, whose ubiquitous orange hoodie in 1990s hit Kuch Kuch Hota Hai (Something Happens) gave the brand a ready-made following.

But it is young Indian women, increasingly affluent and joining the workforce in expanding numbers, who are driving change, with data showing sales of womenswear growing faster than men’s. And while Western clothes currently make up only about a quarter of Indian womenswear, their sales are outpacing traditional dress.

A Marks & Spencer spokesperson cites its Indigo denim range and lingerie as two of its best-performing lines in the country, with more than 300,000 bras sold in 2014-15.

“As an increasing number of women move into white collar and blue-collar roles, they are also adopting Western attire,” says Devangshu Dutta, chief executive of Third Eyesight, a retail consultancy in Delhi.

More negatively, media stereotypes of overseas fashion as a proxy for “a modern thought process” and conversely, Indian clothing as “backward or repressive, certainly are an important influencer”, he says.

While Prime Minister Narendra Modi is famous for wearing a short-sleeved kurta, he is in the minority among India’s men. They already dress predominantly in Western clothes, as do children, whose parents see it as a practical choice for school.

For foreign brands, fast-growing India is a welcome change from sluggish markets like Britain, and a loosening of foreign direct investment laws has made it easier to open shops. Yet the retail landscape in India – geographically about as large and diverse as the European Union – is hard to navigate, leading some entrants, including British department store Debenhams, to pull out.

“Tackling the Indian market successfully requires a different mind-set,” Dutta says.

Foreign newcomers also face competition from Indian-owned, Western-style brands such as Allen Solly or Louis Philippe, which are more familiar with the nuances of the market. The successful ones adapt their ranges – Marks & Spencer “stretches” its seasons to cater for the long Indian summer and offers polo shirts in four times as many colours as in Britain. Others aggressively cut prices.

In a country where the average monthly wage is US$215, according to 2012 figures from the International Labour Organisation, brands that are mid-market in Europe or the United States become much higher end in India.

Dressed in a pink polo shirt and jeans in the capital’s new H&M store, airline officer Sunil Bassi, 49, says he is “not fussy” about his clothes and came to shop for his wife.

“Obviously Western fashion is very popular. How many people in here do you see wearing Indian clothes?” he says.

(Published in South China Morning Post.)

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Adidas gets single-brand retail nod, to open first store next year

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November 4, 2015

Ashish K Tiwari, DNA (Daily News & Analysis)

Mumbai, 4 November 2015

Dave Thomas, managing director, Adidas Group India, said the company has been given go-ahead to introduce own retail format stores in India.

“We strongly believe own retail will enable us to take our market leadership position to an even higher level. It will give us additional flexibility to bring in global concepts across all categories in larger stores, thereby enabling us to further enhance the premium experience for our consumers,” he said, adding that the management is working towards introducing the first own Adidas retail store sometime in second half of next year.

The large format destination stores typically occupy anywhere between 3,000 sq ft to 5,000 sq ft of retail space and are generally located in high footfall locations including high streets. Taking into consideration costs associated with running such stores, retail experts estimate Adidas to invest between Rs 1 crore to Rs 1.5 crore for each store. “Based on this calculation, Adidas could be investing Rs 50-100 crore for setting up 50 to 100 large format stores,” said a retail consultant, adding that the company could also take over strategically located stores already in the franchise network to rebrand and operate them as destination stores.

The footwear company has been primarily operating in the Indian market through a network of 760 franchise retail stores (across Adidas, Adidas Originals and Reebok). While continuing to expand the franchise distribution network, the company will simultaneously work on strengthening the presence with large format stores under the Adidas brand.

“We are confident that the own retail channel plus e-commerce channel complemented by our franchise network will drive growth for our brands and our business in India,” said Thomas, adding that the total count will be taken up to 1,000 retail stores by 2020.

Devangshu Dutta, chief executive, Third Eyesight, a retail consulting firm, said the brand (Adidas) has been in the Indian market for almost two decades now and has seen the ups and downs while continuing to grow and become a leading player. “The decision to bring in FDI is a clear indication of their seriousness and commitment to the Indian market. While their retail footprint is entirely based on the franchise model, with government clearing their 100% FDI proposal now they can have better control on the market/operations,” said Dutta, adding that the company will also work on offering customers a wider assortment of products including the premium and super premium footwear.

FDI in single brand retail trade has been a heavily discussed topic over the last couple of years especially the mandatory requirement of 30% local sourcing which did not go well with the international retailing fraternity. In fact, according to industry experts the 30% local sourcing criteria has been a major hurdle for international brands to look at the 100% foreign direct investment (FDI) option for single brand retail trade in India.

“The local sourcing mandatory requirement has proved to be a huge bottleneck and that’s one key reason for international brands shying away from investing in the Indian retail industry. However, in July 2015, the Indian Government clarified its stand that foreign retailers can undertake single brand retail trading in India through one or more wholly owned subsidiaries or joint ventures in India. This came as a huge relief to many international brands intending to expand,” said Shweta Dwivedi, senior associate, Khaitan & Co.

What is seen as an important development post government nod to Adidas is that so far the FDI policy was not clear whether foreign retailers can have retail entities and franchise arrangements in parallel in India. “Reports indicate that Adidas has received approval for 100% FDI to operate retail outlets in India, and may be allowed to operate through franchise as well as retail entity route in India. If this be the case, I think this development will also motivate a lot of other international players who have been sitting on the fence to take the plunge and bring in FDI for their respective operations in India,” said Dwivedi.

With approval for 100% FDI in retail already in hand, the Adidas management’s primary focus in India will be to grow profitably and consolidate leadership position with an increased focus on the premium segment of the market. “With Adidas Originals, we are moving into the fashion and lifestyle domain, while with Adidas we will continue to look at dominating running, training and football categories. Reebok will continue to focus on the growing base of ‘fit gen’ consumers,” said Thomas.

The company will also work on augmenting the omni-channel retail approach wherein it has equipped around 150 stores with tablets that can be used to buy our products online, which are then delivered to the consumers’ homes. “We will increase the number of stores covered under omni-channel retailing to 200 by the end of this year and to 400 by April 2016,” said Thomas.

(Published in DNA.)