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Junglee: Amazon makes quiet entry into Indian retail market via comparison shopping site

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February 3, 2012

The Economic Times
Bangalore, February 3, 2012

Amit Agarwal, vice-president of Amazon, would only say Junglee would "help customers discover products from online and offline retailers in India and from Amazon.com". He declined to say more about the company’s plans.

Conspicuously missing from the list of vendors on the Junglee site is Flipkart.com, India’s biggest online retailer founded by two former Amazon executives. Flipkart expects to post sales of Rs 500 crore by March 2012. Amazon ended 2011 with revenues of $48 billion (about Rs 2.5 lakh crore).

"Its recent moves to set up a fulfillment centre (in Mumbai) and now the Junglee launch certainly look like precursors to a retail launch whenever the government allows FDI in multi-brand retail," said Devangshu Dutta, CEO of retail consultancy Third Eyesight. A legal expert at one of the country’s largest law firms said Amazon was making a ‘clever entry’.

Agarwal said Junglee will display over 1.2 crore products and 14,000 brands for Indian consumers. The company has also launched Amazon seller services in India where vendors can hook up to Amazon’s portal to acquire customers.

(Read our perspective on this launch on our blog.)

 

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Retailers try to outdo each other to sell more for less

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February 1, 2012

Raghavendra Kamath & Sharleen D’Souza, Business Standard
Mumbai, February 1, 2012

Spending on the High Street has never been cheaper for such a long period of time. If you walk through Mumbai’s Linking Road that houses the showrooms of some of the world’s biggest brands, it’s almost a surreal experience: be it Mango or Vera Moda, or Jack & Jones, or even shoe brand Aldo – all these premium retailers are literally shouting from the rooftops that they are offering up to 70% discounts. Some like designer wear Mogra has gone one up and is offering up to 80% ‘sale’.

“At this rate, I won’t be surprised if they go up to 100% discount one day,” quips Vinita Chandran ,a regular shopper.

Welcome to the Great Indian Discount Bazaar— something no retailer likes but nobody can do without, as a dull Diwali and poor offtake in the following months have forced brands to dole out more for less.

The value retailers, as the low-cost brands like to refer themselves to, are also feeling the pinch as the raison d’etre of their business is now being hijacked by the bigger players.

Vasant Kumar, executive director of Landmark group’s value retail chain Max, was worried during the end of the season sale as many brands offered up to 80% discounts and shoppers flocked to stores to buy goods on discount.

“We could not offer such discounts because of our margin structures,” Kumar said. To woo customers, Max lowered its sale prices from Rs 399 to Rs 299 and played its value card to compete with big brands. “There was no meaning of 20 to 30% discount when big ones were giving flat 50 to 60% discounts. So we lowered our sale prices and said our prices are still lower when others gave steep discounts,” he said.

Kumar is bang on. While French menswear brand Daniel Hechter offered flat 60% discount to shoppers for two days, apparel chain Bombay High was offering ‘buy two get two free’. Apparel retailer Provogue went for a flat 50% off over the Republic Day weekend and is now offering a flat 40% off.

Experts say the ‘sale’ tsunami was bound to happen. “There was a double impact—the like to like sales growth was below par and new stores could not be opened as planned…So they have more inventories to get rid of,” said Devangshu Dutta, chief executive of retail consultancy Third Eyesight. Like to like sales refers to sales coming from stores which are in the business for more than one year.

Besides steep discounts, brands are also keeping higher amount of inventory in the discount basket, say industry experts.

“If brands were keeping 30 to 35% of their merchandise on sale, now we are seeing 60 to 70% of their goods on discount. We are also seeing brands going for flat 50% discounts rather than upto 50%,” said Kumar of Max.

If that was not enough, many malls such as Raheja-owned Inorbit, Oberoi Mall run by Oberoi Realty and Kishore Biyani’s Central came out with shopping events wherein 50-100 brands offered a flat 50% discount.

It’s no surprse that many in the industry are not happy with the steep discounts brands are offering.

“I think retailers are overdoing discounts. By giving 70% discounts every other season, they are killing the full price purchases. They are sensitizing the customers to wait for the next season and do not buy full priced product,” said Jaydeep Shetty, founder and chief executive of apparel brand Mineral.

“When sales end in February, March will be empty month for brands as customers exhaust money to shop,” Shetty adds.

Govind Shrikhande, managing director of Shoppers Stop, which offers customers upto 51% discount, said: “We do not believe in this (steep discounts). It is tough and it is race to the bottom.”

But will brands be able to sustain such discounts? “I think brands believe that it is better to liquidate stock at higher discounts than cash getting stuck in merchandise,” said Dutta.

The inventory issue came to the fore when many brands advanced their end of the season by a few weeks to clear their inventory before the next season kicks in.

Though brands normally start their end of the season sale after January 15, this time around, they came out with the sale from third week of December.

For instance, Mango started its sale from December 22, while Aldo started beginning this month. German brand also Esprit also advanced its end-of-the-season sale by a over a fortnight to December 31 this year (it was January 16 last year). Spanish brand Zara also started its sale from early January.

“Some retailers started their sales from Xmas weekend and advanced sales by two to three weeks. It is obvious that they wanted to have more topline,” said Nirzar Jain, vice president, Oberoi Mall, Mumbai.

Kumar added that: “There was drop in demand in September and October. Hence brands decided to go early and get rid of inventory.”

Some brands have also extended their sale to shore up the topline. French menswear retailer Celio, which has a joint venture with Future group, is on a sale for almost one-and-a-half months till February 14, UK-based brand French Connection is having its year-end sale till March. Normally, these brands have their end-of-the-season for a month.

Steve Madden, an international shoe brand, which started sale from beginning this month has extended their sales by another week.

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Folks are dining on ice cream!

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February 1, 2012

Priyanka Golikeri , Daily News & Analysis (DNA)

Bangalore, February 1, 2012

Reader guidance: the following story will likely make a mouth-watering read, potentially making you salivate and yearn for a calorie-rich sweet food that some pregnant women allegedly crave in the middle of the night.

Okay, with the disclaimer-cum-warning out of the way, let’s dive, head first, into the changing world of ice cream in India. Walk in to any 21st-centuryish ice cream parlour in Bangalore, and in all likelihood you will see hot golden-brown caramel sauce jostling for space with chilled milky-white whipped cream to drip gradually over a wide glass-bowl of sizzling walnut brownie which is sprinkled with crunchy malted milk-balls, multi-coloured marshmallows and crispy choco-chip cookies. All of them are arranged in perfect tandem with four scoops of melt-in-the-mouth ice cream in vanilla, chocolate, butterscotch and coffee flavours. Completing the picture are a few pieces of wobbly strawberry jelly that decorate a platter of juicy fruits and dry fruits spread over a layer of thick orange jam which conceals dollops of silky soft cheesecake ice cream or a fruity sorbet.

As you can discern by now, the mundane solo- and double-scoop cherry-topped treats in paper cups or wafer cones are passe. Sinful pleasures are now made of parfaits, sundaes and super-sundaes in myriad flavours, all prepared with fruits, dry fruits, malt balls and crushed cookies drenched in sauces, jams and honey.

From a post-meal dessert, ice cream is evolving into a mini-meal that pleases the likes of Deepak Gowda, a Bangalore-based marketing executive. After working non-stop for six hours last Friday, he decided to unwind at an ice cream parlour. Bewitched by the wide array of colours and flavours on display, Gowda selected a new offering containing three scoops of raspberry ice cream sandwiched between layers of strawberry jam, caramel sauce and orange jelly, and topped with thick pieces of bananas, strawberries and apricots. The sheer scale of the “dessert” left no space for a formal lunch, says Gowda.

Ice cream’s evolution has been gradual. The entry of international brands like Haagen Dazs, Movenpick, Swensen’s (and, before them, Baskin Robbins), first led to industry estimates of 12-15% annual growth, so as to touch $900 million by 2014-15. As competition intensified, innovations in the form of novel servings followed.

“With much more on offer, for many consumers, single scoops and the common flavours are no longer enough,” says Devangshu Dutta, chief executive, Third Eyesight, a consulting firm focused on retail and consumer products. Consumers, he says, are encouraged to graduate from having an ice cream as a treat to infrequent indulgences like a hot chocolate fudge or a multi-scoop banana split.

Experts say per capita consumption of ice cream in India is still low at 300 ml per year compared to the world average of 2.3 litres. Mini-meal ice cream, however, is increasingly seen replacing traditional desserts.

It would be incorrect, however, to credit international brands alone for the trend. As far back as the mid-’70s, Mangalore, the south-western Indian city connecting Kerala and Karnataka, launched ‘Gadbad’ (Hindi for amiss), consisting of a scoop of kesar- or saffron-flavoured ice cream submerged under a layer of jelly, dry fruits, fruits, and strawberry and vanilla ice cream.

Today, Gadbad is a generic term in south India for a bowl of 3-7 scoops of ice cream dotted with tutti-frutti, nuts, raisins, fruits and honey. Priced Rs38-65, ice-cold Gadbad bowls sell like hot cakes! Mukund Kamath, proprietor of Ideal Ice Cream which makes Gadbad, says consumers prefer gigantic variants to plain scoops as there is tremendous value addition for moderate pricing.

So much so that Ideal now has six parlours in Mangalore alone with a total capacity of 1,000 seats. Gadbad and the parfait outsell single scoops by a mile, says Kamath. “Compared to Rs30 for a single scoop, Gadbad is available for something like Rs50, which works out to be economical.”

Price is not always the decisive factor though. For instance, parfaits and sundaes of international brands cost upwards of Rs150. Some premium brands retail for Rs600. “It’s often the delight factor and the experience itself which draw consumers to the sundaes,” says Shirish Shah, partner at Richie Rich Ice Cream in Bangalore (where almost 90% sales at its two parlours come from sundaes).

For most players, the objective is to increase the average transaction value. Some might consider it as a method of differentiating themselves to claim a premium positioning, says Dutta.

That the ice cream market is changing stripes is a given. But the evolution, though dramatic, is by no means transformative. The demand for single and multiple scoops is almost equal in some places, says Anurag Trehan, business head at Swensen’s which operates six parlours in India. Agrees Rashmi Upadhya, managing consultant, PwC India. “Single scoop ice creams constitute nearly 40-50% of the overall market and will continue to dominate. At the same time, the sundaes and premium ice creams will grow in popularity amongst the affluent.”

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 World’s second-largest apparel retailer Hennes & Mauritz wary of entering in India

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January 30, 2012

Sarah Jacob, The Economic Times

Bangalore, January 30, 2012

The world’s second-largest apparel retailer Hennes & Mauritz (H&M), which usually enters large markets on its own, is not so sure about opening shop in India despite finding the market "interesting".

Earlier this month, India relaxed laws allowing foreign retailers to wholly own their businesses with the rider that they source 30% of their products from SMEs with revenues not exceeding Rs 5 crore. Until then, foreign investment was limited to 51% or retailers were forced to franchise.

But the Swedish retailer is not entirely convinced by the norms which make it mandatory for the foreign retailer to source from small and medium industries in India, a retail executive in India said.

"India is one of the many interesting markets for H&M, but we have yet to decide if, and in that case when, we would open stores there," Hacan Andersson, H&M’s press officer said. He, however, did not comment on the new sourcing norms.

The Stockholm-headquartered chain operates around 2, 500 stores across 43 countries posting revenues of 128.8 billion kronor (around $19 billion). Another Swedish giant Ikea, which too was keen on entering the Indian market with 100% control of operations, has been non-committal. It is still studying the guidelines — the SME sourcing being a contentious issue.

"If a supplier can meet the sort of volumes required by a global retailer the size of H&M, it will not be defined an SME," Amit Bagaria, chairman of retail planning consultancy Asipac Projects, says.

"The opening up of the market has not really moved the needle for foreign retailer interest so far," Raghav Gupta, principal at management consulting firm Booz & Co, says.

The government, on its part, introduced the local sourcing norm to expand domestic manufacturing.

"It’s a deal breaker. Clearly, the government didn’t think through this policy," said another retail consultant on condition of anonymity, who is negotiating with a couple of overseas brands to facilitate their India entry.

Experts say it is not a tall order for multi-billion dollar global retailers to source as much as 30% of their India sales from domestic manufacturers. H&M, for instance, already sources finished goods from the around Rs 2,200-crore Bombay Rayon and Rs 1,100-crore Gokaldas Exports.

But it’s the size of manufacturers they are now expected to work with that has caught foreign retailers in a bind. SMEs are defined as those whose initial investment in plant and machinery is between Rs 25 lakh and Rs 5 crore.

H&M is known to have sourced nearly a crore shirts from a single Indian exporter last year, the sort of volumes an SME would be unable to handle. As soon as a supplier invests more than Rs 5 crore to meet higher volumes, it ceases to be an SME.

On the other hand, working with numerous small and micro industries is unlikely to be favoured either because the retailer will not be able to ensure uniform quality standards, analysts say.

But some believe that H&M could still accommodate India without altering its global sourcing strategy. "It could source high-fashion products or those that require hand embroidery from SMEs in small volumes and sell it at a premium in its international flagship stores," Promodh Sharma, chairman of Fifth Avenue, said. Fifth Avenue is a $100-million sourcing management company headquartered in Chennai.

"Global brands are also now looking at sourcing in India for the Indian market as it would make economic sense in the long run," Sharma adds.

By entering India, Ikea would immediately gain as it meets a need gap in the home accessories and furniture market as no Indian player has the breadth of their merchandise. H&M, on the other hand, would have to compete with international fashion brands in India such as Tommy Hilfiger, Esprit and Spanish brands Zara, and Mango.

H&M began exploratory talks only once when its biggest rival Inditex’s Zara and American competitor Forever 21 opened shop in India, experts say.

All three are fast-fashion brands or those known to turn around catwalk trends at affordable prices by refreshing styles routinely. While Inditex entered a JV with Tata Group’s retail division Trent, Forever 21 is being franchised by Hello Retail India.

India’s growing economy, when compared to Europe and North America, is the biggest draw for foreign retailers. Nearly 20 foreign fashion brands have being launched annually since 2005, according to management consultancy Third Eyesight.

Economic uncertainty in a number of markets has had a negative effect on consumption resulting in fiercer competition for consumer spending, H&M said in its latest full-year report. However, foreign retailers will not look at India just as a short-term fix.

H&M plans to add 275 new stores this year primarily in China, the US and the UK. Bulgaria, Latvia, Malaysia and Thailand will open their first H&M stores this year too.

While some say H&M would do well to not postpone Indian plans, others such as Booz’s Gupta say sportswear makers and denim giants have reaped handsome returns from India, but western womenswear market is still not as big, ad H&M is largely a womenswear retailer.

"I will not be surprised if some foreign fashion brands wait another 3-5 years before entering the market," Gupta adds.

In fact, unlike Chinese women, Indian women are still in the process of switching from ethnic to western womenswear. "Which Indian city can take 9 Zara stores?" asks Bagaria, "Not even Mumbai or New Delhi." But Zara has 9 stores in Beijing.

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Retailers likely to curb sale periods after prolonged discounts in 2012

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January 28, 2012

Mihir Dalal & Suneera Tandon, Mint (A Wall Street Journal Partner)

Bangalore/New Delhi, January 28, 2013

After weak demand and piled-up inventory forced clothing retailers to give discounts for longer than usual in 2012, companies such as Arvind Lifestyle Brands Ltd, DLF Brands Ltd and Lifestyle International Pvt. Ltd say they will not extend their sale period this year.

Last year, some retailers started offering discounts early and extended them till the end of March as they dealt with the overhang of a post-recession boom in retail: massive inventory.

The end-of-season sale lasted as long as seven-eight weeks, against the norm of four-five weeks, industry executives said.

In the first half of 2012, too, discounts were extended for unusually long as slowing economic growth and high inflation hurt demand.

However, growth picked up later in the year as a combination of improved consumer confidence and a flurry of festivals prompted shoppers to hit the stores.

“In the first two weeks of the sale period, we’re 10% above last year on a like-to-like basis. This year, by 15 February, the main part of the sale will be over. There will probably be a couple of weeks of silent sale after that, at most,” said J. Suresh, chief executive officer (CEO) of Arvind Lifestyle, which runs the Megamart chain and sells brands such as Flying Machine and Tommy Hilfiger.

Madura Fashion and Lifestyle’s Louis Philippe will not extend its discounts for longer than four weeks this year as sales growth in the months following the Diwali festival season had been “strong” at over 25%, brand head Jacob John said.

“Sales have been good for us since August. It’s been a combination of the FDI (foreign direct investment) announcement by the government, which helped consumer sentiment, strong and early winterwear sales, plus the numerous marriage season dates post-Diwali,” said Rachna Aggarwal, CEO of Indus-League Clothing Ltd, which owns brands such as Indigo Nation and Scullers.

Indus League’s sales growth had averaged 15-20% from August to December, she added.

Retailers and experts also said that due to the insipid demand last year, companies haven’t kept a large amount of inventory.

“The sentiment is more positive than before, so we will see timely sales in 2013. Stock and inventory is being maintained keeping that in mind, we won’t see a desperate situation like last year,” said Dipak Agarwal, CEO of DLF Brands.

“Last year inventory had been stocked up, but reality fell short of expectations and so (inventory) had to be liquidated. This year retailers have been more careful,” said Devangshu Dutta, CEO of retail consultancy Third Eyesight. “A number of brands have also started giving huge discounts earlier in the (end-of-season-sale) rather than towards the end, so sales may not be stretched out as last year.”

Indus League has already started shipping in fresh merchandise when a majority of clothes in its stores are last year’s leftovers and still bear the on-sale sign.

Department store chain Lifestyle, too, will introduce a new spring-summer merchandise in the first week of February, a company official said.

However, Rajive Ranjan, managing director at German retailer S. Oliver Fashion India Pvt. Ltd, expects early sales will continue in India for sometime as retailers’ dependence on discounts is high.

“But as retail will mature, this trend of multiple and preponed sales will mature too. In the coming years, more retailers will move down stock within the season and dependability on sales will go down,” he said.

Third Eyesight’s Dutta warned that though revenues are likely to show strong growth in the second half of 2012, retailers’ profits will take a hit as many companies offered promotions continually. “Many companies were offering promotions throughout the festival season starting from October. So my sense is that the second-half topline (revenue) will be good, but margins will take a hit,” he said.

Median Ebitda margins for the retail sector are likely to decline by 50-75 basis points in 2013, India Ratings said in a report last week.

Ebitda, or earnings before interest, taxes, depreciation and amortization, is a measure of profitability. A basis point is 0.01%.

“Sales in 2012 were driven by discount offers,” India Ratings said, “and the trend is likely to continue in 2013, providing volume growth at the cost of margin.”