admin
June 7, 2014
Meghna
Maiti, Financial Chronicle
Mumbai,
7 June 2012
Even
at a time when the economy has put in its worst performance in
nine years, Mukesh Ambani, chairman of Reliance Industries, continues
to be overtly optimistic about the conglomerate’s retail business.
Ambani expects Reliance Retail to increase its revenues by around five-six times to Rs 40,000-50,000 crore in the next three-four years. At present, unlisted Reliance Retail has a turnover of approximately Rs 7,600 crore.
“We are investing aggressively in this business (Reliance Retail) to consolidate and strengthen our leadership position in this sector. With scale, supply chain integration and continuous learning, we expect this business to be profitable within three to four years and achieve a satisfactory return on capital,” Ambani told Reliance Industries’ shareholders at its annual general meeting (AGM) in Mumbai.
“Reliance Retail will be one of our important growth engines in the next few years and will have amongst the highest growth rates and earnings potential,” added Ambani.
To achieve this feat, the company aims to treble its customer base from about 30 lakh people visiting its retail stores every week now to over one crore in the next three-four years. This over three-fold expansion in customer base would thus power the growth in sales.
Devangshu Dutta, chief executive of Third Eyesight, a specialist consulting firm for the retail sector, said the plans of India’s richest individual reiterates the promises and prospects of India’s retail story. “A long-term growth story is unfolding in India, which would support the growth strategies of any retail company,” said Dutta. “The total size of India’s consumption market is around $550 billion. Whereas GDP growth has shrunk to 5.3 per cent, retail spending has only increased. Considering the situation, Reliance Retail’s promises do not look daunting,” said Arvind K Singhal, chairman at Technopak Advisors.
“Our consumer businesses are going to provide a second dimension to our growth strategy. We will build on our position as the leading retailer in India. The execution of this business plan will benefit the India’s kisans and consumers and create new value for our stakeholders,” said Ambani.
RIL claims the retail business, which is still losing money, has grown strongly in the past five years and now spans across 1,300 stores and has a leadership position in three verticals. Reliance Retail has provided new employment for 50,000 people, including 25,000 people directly by Reliance. “We have built a sustainable growth model for our retail business,” said Ambani.
Reliance has used an expat management team and has partnered with experts around the globe to cement its position in India’s nascent organised retail market. "We have strengthened our portfolio of global brands through partnerships…We will continue to invest in partnerships with consumers, brands and producers. Consumer businesses will form a significant part our business in less than a decade," said Ambani.
Reliance Retail, through its newest format Reliance Markets, is partnering with kirana stores and small retailers to supply them products at low prices. "We aim to be a supplier of choice for kiranas and small retailers. We will grow in retail in partnerships with small retailers," he added. It claims to have tripled the number of its digital stores and expanded product offerings.
“We engage with 70 lakh farmers and procure fresh produce and milk from them. In apparel retailing we have established the largest chain of stores in the country,” said Ambani in his AGM speech.
admin
June 2, 2014
Ankita
Rai, Business Standard
New
Delhi, June 2, 2014
Gurgaon-based online home furnishing and furniture retailer FabFurnish,
which operates both online and offline stores, has found its niche
in smart expandable and collapsible furniture. Translated, this
means it creates flat-pack products that are assembled at the
customer’s home. Why is this insistence on flat-pack and in-home
assembly? Simple: Cost reduction. DIY (do it yourself) products
reduce logistics cost, damages and storage costs, ensuring phenomenal
efficiencies at the backend.
But hold the applause. The whole idea is borrowed: the e-retailer has been inspired by global furniture behemoth IKEA. "Flat-pack furniture can help reduce the total cost by 20 per cent for smaller products like wall shelves and in the case of heavy furniture like of sofas or wardrobes, the total cost can go down by 50 per cent. DIY is also more scalable," says Vikram Chopra, co-founder and CEO, FabFurnish.com. "Our focus is affordable yet inspirational products. This is precisely what IKEA does."
FabFurnish isn’t alone. Many organised furniture e-retailers in India have followed the success story of IKEA keenly, borrowing and tweaking some of its strategies and applying them in their own ventures to drive scale.
Says Devangshu Dutta, chief executive, Third Eyesight, "The IKEA model presents significant learnings for India’s online home and furnishing e-tailers in terms of product standardisation. Standardisation can bring credibility into the online business given the lack of the touch-and-feel factor."
Globally, IKEA derives its competitive advantage from low cost and smart ‘concept-led’ design, in turn leading to low prices – a lethal combination that makes IKEA a formidable brand. So what are those inspirational moves of the Swedish furniture maker, and is it possible to replicate them in India? More importantly, will the Indian players following in IKEA’s footsteps be able to deliver equally enviable results?
Before we proceed, let us look at the home decor and furnishing market in India. The market is pegged at $20 billion (Rs 1.2 lakh crore), half of which is furniture. About 90 per cent of the market is unorganised. Modern home furnishing and furniture retailers working offline have not been able to scale up fast because the footprint and inventory requirement is quite large. Such stores typically need at least 15,000-plus square feet of space. And if you are hoping to set up shop on the high street then the costs can really go through the roof.
This makes online an interesting medium to go to. "Compared to a physical retailer who has to spend about a third of his revenues only on premises and manpower, prices for online furniture can be 15 to 20 per cent less," says Paritosh Bindra, chief operating officer, Home Needs Online. "The segment is still untapped unlike categories such as fashion, consumer electronics, books etc. There is scope for niche and label businesses to organise this market using web/mobile technology."
That said the biggest challenge in the online furniture market is the high logistics cost. Says Bindra, "While margins in the business are in the range of 40 to 50 per cent, logistics cost make up 10 per cent of the overall cost." What can also make or break is raw material, which is the single biggest investment for a furniture manufacturer. Major e-retailers are working on making their supply chain cost-efficient with one common focus: make it lean like IKEA.
Building a frugal supply chain
Broadly, two kinds of raw materials go into two different kinds of furniture in India. While the hardwood required for furniture is sourced locally, particleboards or medium-density fibreboard (MDF) are sourced from China, Malaysia, Taiwan etc. The price difference between an MDF-made product and a hardwood product can be as much as 25-40 per cent after covering the cost of imports. Unlike hardwood furniture, MDF furniture is assembled from knocked down parts. This makes handling, logistics and transportation easier. "However, this involves working closely with vendors to enable them to change their traditional manufacturing processes," says Chopra of FabFurnish, which sources its products from Malaysia, Brazil and Indonesia, apart from certain pockets within the country.
Another major organised player, Style Spa Furniture, part of Saroj Poddar’s Adventz Group, also makes knock-down furniture. The company, which recently introduced an e-commerce platform to complement its brick and mortar retail stores, offers consumers the services of dedicated Style Spa furniture assemblers free of cost. It uses MDF boards, mostly imported from Europe. "It is not so much about MDFs being cheaper than solid woods. It is about design and manufacturing quality. Raw materials would be 60 per cent of the total cost of a product. So design is the key consideration," says DK Jairath, deputy managing director, Style Spa Furniture.
Mumbai-based online marketplace, Pepperfry is also looking at flat-pack design for the fast selling SKUs of its private label brand Mudra, which is 60 per cent of its total merchandise; the rest is branded, knock-down furniture. Says Ashish Shah, co-founder & COO, Pepperfry.com, "There is a lot to be learnt from IKEA: How to design a product that can be shipped at minimum cost."
Bangalore-based curated marketplace Urban Ladder is also inspired by IKEA’s frugal approach to business. "Product design at IKEA is such that the consumer wants to buy every single piece. The second is the scale at which it operates. The idea is to squeeze out inefficiencies and ensure that the product reaches the consumer at the right price," says Rajiv Srivatsa, co-founder and COO of Urban Ladder.
Delhi-based Snapdeal’s line-up comprises 60 per cent home decor and 40 per cent furniture. It sells both solid wood and MDF furniture. "Because of the ease of movement and scalability, many in the industry are moving towards easy-to-modify, acrylic-based furniture. This is a trend big retailers abroad have capitalised on already," says Amit Maheshwari, vice-president, fashion merchandising, Snapdeal.com.
Serving the last mile
More than one-fourth of furniture sold in India constitutes bulky products, such as bed, wardrobes, tables etc, which makes the task of delivery and installation cumbersome. Says Jairath of Style Spa, "I do not see DIY picking up in India. India will always have the services component attached to the offering," he adds, saying, "How efficiently one can manage the last mile can prove to be a game-changer."
FabFurnish is closest to IKEA when it comes to managing distribution. While the company manages the last mile itself, it charges a nominal fee of Rs 300 for assembling services. Even product shipping is not free.
Style Spa undertakes last mile delivery by itself. For its e-commerce platform, Style Spa plans to use its existing brick and mortar stores in 65 cities as fulfilment centres. Its physical infrastructure includes 28 warehouse and 115 physical stores. All online orders are transferred to the store closest to the customer location for execution.
In the same way, FabFurnish’s hybrid model allows consumers to touch and feel its products first-hand. It has four brick and mortar franchised stores – one each in Faridabad and Gurgaon (near Delhi) and two in Bangalore. Says Chopra, "FabFurnish is built on three pillars: Price and design differentiation, access and trust. To build trust and credibility, having partner stores is a must." The average delivery time is five days.
Chopra thinks that India is not ready for a marketplace in furniture. Vendors are small and fragmented. So managing inventory in a cost-effective manner is crucial. "Our inventory levels are never more than eight weeks," he adds.
By September this year, the portal expects to notch up annual sales of Rs 200 crore and hopes to close 2014 with a revenue of Rs 180-220 crore.
If Chopra is sceptical about the potential of the marketplace model, Snapdeal is a believer. It markets semi-knocked-down products. While the transportation is handled by a third party, the firm keeps a hawk eye on packaging, lead time, quality and installation. Currently, it is the only player in the category that dropships even bulky furniture.
Taking inspiration from IKEA’s way of conceptualising design, most of the products at Urban Ladder are designed in-house and outsourced to manufacturers handpicked from places such as Rajasthan, Bangalore, Mumbai and Delhi. It doesn’t customise but allows free shipping, free installation and cash on delivery (COD). "We have to make it easy for a customer to purchase high-ticket items. We have made discovery simple with our clutter-free website and the purchase process easy by offering COD on even expensive items," says Srivatsa of Urban Ladder.
Urban Ladder is present in six cities – Pune, Chennai, Hyderabad, Bangalore, Delhi and Mumbai – and has warehouses in each of these cities, besides one in Jodhpur. It only sells products made of solid wood. It uses external logistics partners for inter-city shipment. Last mile and assembling services are provided by the company.
On its part, marketplace Pepperfry has brought down shipping costs to nearly a third. It has reduced the shipping timeline to three-eight days (from a fortnight earlier) by building its own last mile delivery programme. It has hubs in cities like Delhi, Jodhpur, Bangalore, Mumbai, Kolkata, Pune and Chennai, which also serve as sourcing and distribution centres.
Another key learning from IKEA has been that in a category like furniture it is not such a great idea to just sell a product. The accent should be on selling a concept. So that the customer can visualise how the furniture will look in a particular corner in her house. Lately, IKEA’s online catalogue has attempted to simplify the shopping experience with its augmented reality app. Customers can virtually place items from its 2014 catalogue anywhere in their homes and see if they are of the right size, fit, colour and style, before committing to purchase.
So whether one talks of inexpensive design, the use of technology, a frugal supply chain or rich customer experience, IKEA seems to be the first port of call for Indian e-retailers in the space. The Swedish retailer’s value proposition is based on simplicity which in turn makes it clear to consumers how IKEA is like no other furniture retailer. Sounds easy but replicating its model of simplicity is more difficult than it seems. E-retailers in India have the inspiration. Now they have to get the execution right.
IKEA makes low prices the high point of its strategy: Denise
Lee Yohn
Denise Lee Yohn
Enlightened businesses usually avoid low price strategies because they tend to commoditise their offerings and squeeze margins. But home furnishings retailer IKEA uses low prices to fulfil its brand mission, cultivate loyal customers, and sustain profitable growth. The company is designed and operated "to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them."
Following are the key pillars of IKEA’s business model:
IKEA uses its brand as a management tool that fuels, aligns, and guides everything the company does. This is why IKEA has thrived, while so many other big box retailers have failed.
This is what great brands do.
Denise Lee Yohn
Brand-building expert & author of What Great Brands Do
(Sourced from Business Standard.)
admin
May 31, 2014
Raghavendra
Kamath, Business Standard
Mumbai,
May 31, 2014
Almost
eight years after its launch, Mukesh Ambani’s Reliance Retail
is ready to launch a multi-channel retail operation, which would
integrate its physical stores with an e-commerce portal.
The Reliance Retail team is working on the model and the company is looking to launch it this year, said sources in the know.
While Reliance has e-commerce portals in some of its international fashion brands and a website for its consumer electronics, it is for the first time that the company is exploring e-commerce in value business, digital and fashion, which accounted for nearly 90 per cent of its revenues in FY 2014.
"Since they have a large network of stores, they will enable shoppers to place orders anywhere and get it delivered anywhere they like," the sources said.
Reliance Retail is the largest retailer by revenues and runs 1,691 stores spread across a 11.7 million sq ft space in 146 cities. In FY 2014, the retailer made revenues of Rs 14,496 crore and profit-after-tax of Rs 180 crore.
Reliance’s e-commerce plans come at a time when e-commerce portal Flipkart has hit the $1 billion (Rs 6,000 crore) mark in gross merchandise value and Snapdeal is looking to achieve the target this year. Moreover, the world’s largest online retailer Amazon has already become the largest in India too, in terms of the number of products on the site.
Reliance Industries’ annual report for FY14 clearly indicated the plan. "The business is poised to launch multi-channel shopping in the coming year. The potential of e-commerce, combined with the network of physical store locations will offer tremendous choice and convenience at a great value to the consumer," the company said in the annual report.
Devangshu Dutta, chief executive of retail consultancy ‘Third Eyesight’ believes that offline retailers such as Reliance have an edge in e-commerce given that they have already established a customer connect.
However, he added that e-commerce will not help boost Reliance Retail’s revenues significantly in the short term as it is still in its nascent stages in India.
In 2012, Mukesh Ambani had said the company was expecting Reliance Retail to clock Rs 40,000-50,000 crore in the three-four years.
"Customer acquisition and repeat customers is a big issue for e-commerce ventures. But physical retailers have an edge as they already have a connect with customers," Dutta added.
Dutta says retailers going online should have different strategies in marketing communication, supply chain and merchandising for both the formats as customer mindsets are different in both.
While Kishore Biyani’s Future group has an e-commerce venture called Futurebazaar.com, the group is focusing on its new venture Bigbazaar Direct, where franchisees armed with tablets provided by the company take orders and sell the best deals of Big Bazaar.
Asked why Reliance took so long to launch an e-commerce-led strategy, the sources said: "It is a question of what they will do and when they will do. They cannot do it for the sake of doing it or because others are doing it."
In the report, Reliance had said the expansion of Digital express Mini and its cash-and-carry format Reliance Market would be key priorities for the company.
(Sourced from Business Standard.)
admin
May 23, 2014
Dhruv Changoiwala, Daily News & Analysis (DNA)
Mumbai, May 23, 2014
Flipkart,
India’s largest e-retailer, has acquired online fashion retailer
Myntra in a move that is likely to help the two domestic e-retailers
face international competition better.
The deal, announced on Thursday, is the biggest e-commerce transaction
so far in the country.
While the deal amount was not disclosed, industry officials said
the speculated deal size is about $300 million.
Sachin Bansal, CEO, Flipkart, said, "It’s a historic moment for e-commerce business. This first-of-its-kind deal would help us dominate the online fashion segment."
The current $50 million online fashion market is expected to double in next 1-2 years.
"As of today, the combined share of the two companies in the fashion segment stands at around 50%. We want to become the biggest retailer in the next six months," said Mukesh Bansal, Myntra CEO.
The e-commerce industry is expected to see increasing competition from international players like Amazon and Alibaba. Some analysts feel that the bigger domestic players may not face a major threat due to the growing potential of the Indian market.
"These investments showcase the investor confidence within this industry. In books, even Amazon is loss-making. The loss can be attributed to the process of expansion of the logistics and back-end operations. Hence, these long-term investments and the prospects of the industry continue to remain positive," Arvind Singhal, chairman and MD, Technopak, a consulting firm.
The current e-commerce business is estimated at $3 billion, and will grow to $50 billion by 2020, while fashion will contribute about 40% to total sales, according to market estimates. Binny Bansal, COO Flipkart, said, "We want to capture this market, and for this we plan to invest $100 million in Flipkart in the next 12-18 months."
Company officials said the two companies will continue to act as separate entities, managed and handled by different set of teams.
"The main focus will be integration of logistics, with Myntra using Flipkart’s customer reach to expand its operations in the country," said Mukesh Bansal.
According to the company, the talks between the two multi-brand retailers were initiated by Flipkart.
The companies declined to comment on the share-holding pattern but said an IPO is on cards in the longer period.
According to analysts tracking the industry, most players in the online retail space are currently in red. Flipkart reportedly lost Rs 281.7 crore in the year ended March 2013, while Myntra reported loss after tax of Rs 134.7 crore for fiscal 2013.
"Fundamentally, nothing has changed in the market. E-commerce platforms still need to figure out how to make money, because the scale they have achieved so far has been driven mainly by discounts and promotions in a race to the bottom that no one is winning," said Devangshu Dutta, chief executive, Third Eyesight, a retail consultancy.
"Most e-tailers have a low base of repeat customers, so they are constantly having to spend money on getting customers to their websites," he said.
(Sourced from DNA.)
admin
May 20, 2014
Purivita
Chatterjee, The Hindu
Mumbai,
May 20, 2014
Indian
retailers are hopeful that the new BJP-led Government will do
a volte face on its decision to oppose foreign direct investment
(FDI) in multi-brand retail.
Once the new Government is formed, it might re-think its strategy as bringing down inflation is going to be of prime concern. FDI is expected to help improve supply chain efficiencies for retailers, thereby bringing down the cost of goods.
Last year, UK-based retailer Tesco became the first foreign player to apply for entering India’s multi-brand retail sector through a proposed equal JV with Trent Hypermarket, a Tata Group company. Considering that Tesco already has a back-end tie-up with the Indian retailer, it was natural to propose a front-end FDI-based deal to open multi-brand retail stores. But getting final approval is in the hands of the new Government.
Tesco’s deal is going to be a test case for other retailers who are waiting in the wings for similar ventures.
“As of now, there is not enough clarity but Tesco is going to be a test case for the retail industry. We could consider an international tie-up for our big box format under HyperCity. FDI in multi-brand is still in theory. We have to wait and see how the new Government views it,” said Govind Shrikhande, Managing Director, Shopper’s Stop.
But such FDI-led JVs may not immediately take off. “While Tesco’s FDI proposal was quickly approved, in this scenario it is doubtful that Tesco would be bringing in the money. The FDI retail policy is still flawed, and is not going to be a priority for the new Government,” said Devangshu Dutta, CEO of Third Eyesight.
In 2011, the UPA Government had taken a Cabinet decision to allow foreign retailers to own 51 per cent in the multi-brand retail. At that point of time, Kishore Biyani, Chairman of the Future Group, had said: “It’s a win-win-win situation for us. There will be better infrastructure, especially at the farm side of the business, create new job opportunities and bring in capital. More retailers will create more choices for consumers. There will be $8-10 billion of fresh investments coming into the country over the next 5 to 10 years.”
But since then, there has been a flip-flop on the FDI policy with many States opposing the policy.
While there may be no short-term benefits for the retail industry, in the long run, the new Government may change its outlook and end the uncertainly surrounding the FDI policy.
“The new Government will weigh the pros and cons of its decision to oppose FDI in retail as it would like to have a progressive face in terms of inviting more international companies to come in. It would look into consumer behavior, spending and investments required in supply chain and realise the benefits of having clear policy measure in retail,” said Saloni Nangia, President, Technopak.
(Sourced from The Hindu Businessline.)
