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Year-end discounts start early

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January 4, 2012

Sharleen D’Souza & Raghavendra Kamath, Business Standard
Mumbai, January 4, 2012

Hit by a sharp slowdown in sales, apparel brands and retailers are either extending their end-of-the-season sales or sometimes advancing it by weeks to clear their inventory and free up cash.

While 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.

If Celio and French Connection have extended their sale, German brand Esprit not only advanced its end-of-the-season sale by a over a fortnight to December 31 this year (it was January 16 last year), it is even offering a 40 per cent discount on the purchase of three items. Similarly, Italian premium brand Diesel is already on sale for the one last week. Its sale normally starts in end-January.

Central, the mall concept of Kishore Biyani’s Future group, which is to go on a year-end sale next week, did an unusual thing. It went for a three-day shopping event between December 30 and January 1, and offered 25 per cent discount on 500 brands.

“The slowdown has caused many retailers to advance their sales and extend their sales,” notes Pranab Barua, CEO, Madura Fashion and Lifestyle, which has a distribution agreement with Esprit.

Even many international brands such as Mango, Vero Moda, Forever New are doling out discounts — up to 40 per cent. “The season has been below expectations,” says Devangshu Dutta, chief executive officer of retail consultancy Third Eyesight. “There is significant amount of inventory that has to be cleared out. The retailers have to get fresh inventory by February-March; before that they need to clear old merchandise. Otherwise, cash would be stuck in that.”

According to analysts, the inventory levels of Pantaloon Retail, the country’s largest retailer by market value, have touched Rs 35-40 of sales per square feet, which is one of the highest in the last many quarters.

A recent newspaper advertisement by FBB (earlier Fashion at Big Bazaar), a fashion format run by Pantaloon, said it was offering a 40 per cent off on all items till January 15 at the standalone stores and those within Big Bazaar stores also.

“They have high inventory levels,” notes an analyst. “It is most likely that they will advance the end of the season sales for their apparel stores by a couple of weeks like most other retailers.”

Pantaloon Retail executives could not be contacted for comment. The company, though, had in a recent presentation said, “lower consumer spend due to increase in prices, especially in fashion category, also resulted in most competitors extending their end of season sales by a week or two”.

Apparel retailer Provogue, which used to buy 1,800 pieces from vendors every season, now buys only 1,500 pieces due to the current slowdown in sales. The chain is also giving a Rs 1,000 gift voucher on purchase of material worth Rs 4,000 to “motivate our customers”, according to managing director Nikhil Chaturvedi. “In a bullish market, we do not mind inventory. But in a slowdown, we do not want a pile-up on our inventory,” Chaturvedi had told this newspaper recently.

Kiran Kothekar, one of the promoters of Vector Consulting Group, says the extending or advancing sales will impact profitability of retailers, but Third Eyesight’s Dutta says taking a hit of margins is better than cash getting stuck in inventory.

Apparel sales have been hit as prices have gone up 30 to 40 per cent in 12-18 months due to rise in raw material prices, increase in excise duty on branded apparel and so on, which has discouraged buyers. A slowing economy, falling markets and rising equated monthly instalments have left lesser disposable money in the hands of people, say analysts and companies.

“There is a stagnancy in growth,” says Arvind Singhal, chairman at retail consultancy Technopak Advisors. “Retailers should offer more affordable products and cut out on the premium products.”

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Andhra Pradesh government seeks tie-up with Tesco, Bharti-Walmart

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January 2, 2012

CR Sukumar, ET Bureau, The Economic Times
Hyderabad, January 2, 2012

The stores will begin by stocking everyday staples such as rice, pulses and commodities before adding a broad range of consumer goods. The outlets will be operated by the government at wafer-thin profit margins so that prices are kept low.

In November, the Congress-led United Progressive Alliance government at the Centre gave permission to foreign companies to invest up to 51% in India’s $450-billion multi-brand retail sector but backtracked in the face of protests by traders and many political parties.

Other states such as Tamil Nadu, Kerala and Maharashtra have opened retail stores to sell food products, but with little expertise in the area, these businesses ran into severe losses. Maharashtra had to sell its ailing Sahakari Bhandar outlets in Mumbai to Reliance Retail.

Andhra Pradesh, the minister said, wants to learn from the mistakes of other states. That is why it wants to partner with the likes of Metro and Bharti-Walmart that have expertise the government lacks in areas such as procurement and logistics.

India allows 100% FDI in wholesale trade, where Metro and Bharti-Walmart operate. AP has started talks with the two for tie-ups, Babu said.

A ‘Revolutionary’ Idea Faces Challenges

Metro declined comment while Bharti Walmart said it is not in talks at present with the Andhra Pradesh government. "However, we will be happy to partner with the government on such an initiative, if invited," the cash and carry JV between Bharti Enterprises and Walmart said in a statement. The Andhra Pradesh government led by Kiran Kumar Reddy has been under pressure dealing with a separatist agitation in the Telangana region and a rebellion by the son of the late former chief minister YS Rajasekhara Reddy.

To win back public support the government recently said it will provide rice to the poor at Rs a kg, a populist move it said was necessary to ease the burden of rising food prices. Kumar Rajagopalan, the chief executive of the Retailers’ Association of India, described Andhra Pradesh’s supermarket store idea as ‘revolutionary’ but was sceptical about its chances of success.

While governments have expertise running the public distribution system, their abilities in areas such as procurement, logistics and retailing are limited, posing a big challenge to Andhra Pradesh’s plan, he said. But Babu was confident the hybrid model, which will also incorporate lessons from the failures of other states, would work well. The government has some inherent advantages that it can make use of to keep costs low, he said.

Among them is the ready availability of prime real estate and support from the state’s co-operative marketing federation Markfed for inputs such as fertilisers, pesticides, seeds and warehouses. Moreover, the Rythu Bazaars, vegetable markets run directly by farmers across the state, will be encouraged to sell their produce at reasonable prices at the government’s new retail stores.

Instead of hiring employees on the government’s rolls, staffing agencies will be asked to provide trained manpower for the stores. "In all, our proposed model should emerge as win-win for farmers, consumers and the educated unemployed youth," Babu said. EAS Sarma, a former economic affairs secretary, called the government’s move "a step in the right direction" that will address the concerns of both consumers and farmers.

"However, to make it a success, the government should adopt a model similar to dairy co-operatives in Gujarat and sugar co-operatives in Maharashtra which include suppliers in decision-making and profit-sharing," he added.

Devangshu Dutta, chief executive of retail and consumer goods consultancy Third Eyesight, said the model will work if the private players’ objectives are aligned with that of the government and their roles are clearly defined. "By managing the back-end of government-run stores, the private player will gain scale required for its own stores. The government in turn would have an efficiently-run business with upto-date systems and processes."

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After festive cheer, grim reality

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December 28, 2011

Shailaja Sharma & Ashish K Tiwari, Daily News and Analysis
Mumbai, December 28, 2011

2012 will be the year of moderation in consumer spending across durable, consumer goods and apparel, as industry experts foresee an unfavourable sentiment gripping consumers, which could make companies cautious in their growth talk.

“2012 will be a tough year,” says Dr Y V Verma, president, Consumer Electronics and Appliances Manufacturers’ Association (CEAMA), and chief operating officer, LG Electronics India. “It will be challenging on account of several factors — economy, slowing industry growth, currency fluctuation, inflation that has gone up again. And it would be difficult to say when things will revive.”

Almost half of the durable and electronics sales happen during the festive season around Diwali. December, Dr Verma says, was anyway a dull period for sale of white goods. And next year looks dim as consumers will not likely be in the best of their spirits, given the current gloom-and-doom talk.

Devangshu Dutta, chief executive officer of retail consulting firm Third Eyesight, says there already has been moderation in the way money is spent by consumers, both on apparel and out-of-home consumption.

For the apparel industry, demand has slowed since August and the festive season was way below expectations as high cotton prices and levy of excise on branded apparel forced brands to hike prices, says Anurag Rajpal, vice president- apparel, Spencer’s Retail. Consumers are, however, buying now during the clearance period that will last till early-February.

Paresh Parekh, tax partner – retail and consumer products, Ernst & Young, says that while consumers continue to spend, there will be a degree of correction in the rate at which they have been spending until now. “The trend in spending patterns will be more evident in metros while the middle- and upper-class in the tier two and tier three markets will not be much impacted.”

An analyst with an international brokerage firm says that after two quarters of slowdown seen in sales of automobiles and white goods, there is an impending slowdown in consumer goods as well. For spenders are set to go into ‘savings’ mode. “Given the fiscal deficit pressure at the hands of government, doling out funds under the National Rural Employment Guarantee Act (NREGA) proportionate to previous years may be a challenge. This can leave less disposable income in the hands of rural consumers. Similarly, as salary hikes will be restrictive, demand in cities will be dampened.”

Some analysts have already started cautioning on ‘downtrading’ (consumer tendency to move to cheaper brands) in detergents, tea and personal care items. This means that the net addition of new consumers in several categories will be lower than expected. While food and staples is not seeing any weakening in demand, discretionary categories like home and personal care are starting to get affected.

Emkay Global Financial Services analysts Pritesh Chheda and Jay Shroff conducted a consumer goods channel-check at modern retail stores in Mumbai recently, to gauge inventory of popular stock-keeping units (SKUs). In their report, Chheda and Shroff state: “Our conviction for moderation in growth momentum in consumer goods is getting vindicated.”

Their survey showed average inventory of products in modern retail outlets was dated back to two-and-a-half months with relatively old inventory seen in categories like hair oils, shampoo and toothpaste, and relatively newer inventory in foods.
A report last week by Latin Manharlal Securities said volume growth for FMCG companies will be lower in 2012 as consumers remain wary of spending too much.

Consumer goods companies are already battling inflation, high input prices and slowdown in the global economy. Most FMCG companies feel further price hikes will be eminent. From double-digit volume growth, the sector growth has come down to 8-9% in the last quarter. It could slip further if consumers chose to make do with less.

“The added pressure comes from the rupee front (currency depreciation), which is compelling companies to take up prices at a time when pricing power is limited. All these negative sentiments continue to pinch the FMCG sector so much that most FMCG players are expecting volumes to be impacted,” states the Latin Manharlal report.

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Four brands nearing Rs. 500 cr annual revenue

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December 18, 2011

Sapna Agarwal, MINT (A Wall Street Journal partner)
Mumbai, December 18, 2011

Four apparel brands are expected to exceed Rs. 500 crore in revenue in the year to March as they acquire scale rapidly and expand into new territories and categories, signifying the maturing of the organized retail business in India, according to analysts. All this in a slowdown year.

The four are kidswear apparel brand Lilliput, United Colors of Benetton, Nalli and FabIndia.

“This will be the single largest addition in a year,” said Raghav Gupta, principal, Booz and Co., a consulting firm.

Most of the existing Rs. 500 crore brands, such as Louis Philippe, Van Heusen, Peter England, Koutons, Levi’s and Raymond, took 12-15 years or more to achieve this scale. Younger brands will need lesser time.

“The Rs. 500-crore mark is a psychological threshold, and signifies a critical mass that is now available in the market in terms of consumer incomes and willingness to spend for premium brands,” said Devangshu Dutta, chief executive, Third Eyesight, a Delhi-based retail consultancy.

Most of these companies have a positive outlook despite the gloomy overall economic scenario, with growth set to slow in the current fiscal year. The optimism is based on the fact that organized apparel retail was just 17% of the overall $36 billion apparel market as of 2010 and is estimated to grow to 25% of the overall market by 2015, according to Booz and Co.

The growth of organized retail is based on increasing penetration in smaller towns and growing consumer demand.

For instance, Madura Fashion and Lifestyle, the lifestyle garments business of Aditya Birla Nuvo Ltd, which has the largest portfolio of Rs. 500 crore brands—Van Heusen, Louis Philippe and Peter England— achieved breadth as operations were expanded and they diversified to become lifestyle brands.

As such, Van Heusen, a men’s formals brand, now has a casualwear range VDot and a women’s wear range. Van Heusen and Louis Philippe have tripled their footprint from 40-50 stores to 120-150 each in the past three years. Peter England has scaled up from 200 stores three years ago to 500 now.

Over the past year, Lilliput has more than doubled the space under operations from 470,000 sq. ft to 1 million sq. ft. The retailer has got on board private equity investors TPG and Bain, and is looking at raising another Rs. 500 crore to fund its plans, said Sanjeev Narula, chairman, Lilliput.

Besides expansion, “the average bill value has also risen by 20-30% over a period of two-three years as a result of consumers buying more quantity and also buying higher-value products,” said Ashish Dixit, president, Madura Fashion and Lifestyle.

As a result, the business has grown at a compounded annual growth rate of more than 30% in the last two-three years, compared with 15-20% in the 1990s, Dixit said.

US Polo, an American brand, expects to touch Rs. 500 crore revenue within five years. The brand, launched in India in 2009, expects to close fiscal 2012 with a revenue of Rs. 160 crore.

“This is the fastest growing brand in India,” said Alok Dubey, chief operations officer, Arvind Lifestyle Brands, a unit of Arvind Ltd, the licensee for the brand in India.

Brands such as Lilliput are aiming to achieve Rs. 1,000 crore in another two-three years. “It took us eight years to reach Rs. 500 crore, but the next milestone of Rs. 1,000 crore will be achieved in a year’s time,” said Narula of Lilliput.

Madura Fashion has similar ambitions. “The journey from Rs. 500 crore to Rs. 1,000 crore for two of the three brands will happen in the next two years,” said Dixit.

“Brands with weak foundations and a focus only on revenue growth have been weaned out over the last one-two years,” said Gupta, referring to retailers such as Koutons Retail India Ltd, which got stuck with large inventories and debt in the midst of the financial crisis of 2008-09. “Only companies with quality management and strong pedigree of brands portfolio have come through.”

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Football and India — a friendly match

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December 18, 2011

Pia Heikkila, The National

December 18, 2011

Cricket-mad India has found a new passion – football. Local games and international tournaments alike are attracting a huge following, and young wannabe David Beckhams can be seen kicking balls in parks and streets across the country.

This popularity of"the beautiful game" has not gone unnoticed by those overseas, with major English football clubs lining up to cash in by launching merchandise outlets in the country.

Manchester United is leading the charge. The club has tied up with the Bangalore company Indus-League Clothing, which is part of the Future Group, to set up two United stores in Mumbai and one in Kolkata. A United-themed cafe is already open in Mumbai.

Rachna Aggarwal, the chief executive of Indus-League says football’s growing popularity in India is the reason for the deal with United.

"Football in India is seeing a lot of action," Ms Aggarwal says. "There was a Fifa friendly match held recently between Argentina and Venezuela in Calcutta [Kolkata]. Liverpool and Barcelona are set to open schools for training kids, and Manchester United has already started. In addition, there are a lot of schools who give professional training for football."

Other clubs are getting in on the action. Blackburn Rovers, which is owned by the Indian poultry chain Venky’s, plans to begin selling its club merchandise soon in India. Liverpool has signed a deal with Carnoustie Group to launch shops and cafes.

It’s easy to see why the clubs are jumping on the bandwagon: there is huge scope for growth. India’s sportswear segment was estimated at about US$900 million (Dh3.3 billion) last year and is expected to grow to $2.4bn by 2015, according to Ernst & Young India.

The market is still at a nascent stage, says Pinakiranjan Mishra, a partner at Ernst & Young India.

"Cricket is by far the most popular sport in India, and football still doesn’t occupy a lot of mind space. So this will be a very limited and niche market in India," Mr Mishra says. "However, with increasing popularity of football and investment in advertising and promotion, this sector could see a healthy growth in the future."

It has been a slow start for the sportswear and merchandise sector, but cricket merchandise has paved the way.

"India opened up to the sports merchandise market long ago when T-shirts of the Indian cricket team were available in stores," Raghu B Viswanath, the managing director at the Vertebrand consultancy. Although cricket has dominated this scene since some time, there is a huge scope for other types of sports merchandise and overseas brands to come in due to growth in India’s exposure to other sports and sporting events."

The club merchandisers have been waiting in the wings to watch the big global brands kick things off.

"A lot of brands like Nike, Reebok, Puma have done well in India. The value of the market is still low, but is expected to grow tremendously in the near future," says Saloni Nangia, a senior vice president at the consultancy Technopak. "With rising consciousness among people about being fit and being into sports … the opportunity certainly exists."

Analysts say brands such as Manchester United can gain popularity in India if they build a lifestyle profile rather than a strictly sports image.

"Reebok, adidas, Nike, Puma are some of the popular brands in the sportswear segment in India that entered India early on," says Tarang Gautam Saxena, a consultant at the retail advisory agency Third Eyesight. "While their initial positioning was based around being leaders of functional products driven by technology, they, too, have increasingly moved towards being sports-inspired lifestyle brands."

Indus-League Clothing wants fans to live and breathe Manchester United with the help of the club’s merchandise.

"The Indian fans see this brand as a premium lifestyle sports brand and wear it with pride. The brand will be a complete lifestyle offering of apparels, accessories, home linen and sports accessories in India," Ms Aggarwal says.

The Indian sportswear market differs from the more mature western markets because the Indian consumer is primarily a sports spectator rather than a sports participant. "The Indian sportswear market is more of a non-active casual-sportswear market. Acceptance of active and technical sportswear in India is rather low. In the casual-sportswear category, we foresee a robust market growth," Ms Nangia says.

Football’s popularity in India is rising, audience figures suggest. TAM Media Researchsays 20 million television viewers watched last year’s Fifa World Cup on the first two days of the competition in South Africa, a 35 per cent increase from the 2006 World Cup. A total of nearly 300 million television viewers in India saw the Fifa World Cup last year, TAM Media says.

Shushmul Maheshwari, the chief executive of RNCOS, a market research company, says events such as the World Cup can be great marketing tools and that the rise of internet and satellite television has helped to create brand awareness in the football merchandise sector.

"Things were very different 20 years ago when our exposure was limited to domestic brands or the odd cricket T-shirt," Mr Maheshwari says. "Today kids get internet on their phones and can access the latest information on their favourite clubs [and] can see the latest team-wear in an instant."

As a result, marketers today have created opportunities for fans to show their loyalty.

"There are now new avenues for these enthusiasts to socialise and show their support for the favourite teams, such as social networking sites and upcoming sports bars, lounges and clubs," says Mr Viswanath from Vertebrand.

But despite the enthusiasm showed by the clubs to interact with their fans, most genuine brands are still out of the reach of those in the lower middle class.

"They are too expensive for the masses. It will take a little time for the market to mature. In the meantime, people still want to show their devotion so the masses will buy rip-off products because they love the brand but can not afford to buy the real thing," says Mr Maheshwari.

The deal-making and partnerships are essential because of the country’s strict limits on foreign retailers operating in the country. The Indian government has decided to suspend the recently announced easing of restriction on foreign direct investment (FDI) in the retail sector.

"The restrictive FDI regulations may have been an impediment for brands that are looking to have a greater degree of control and management in their own hands," Ms Saxena, the Third Eyesight consultant.

"The enhanced limit of FDI in retail, whenever it happens, will encourage many such brands to enter the Indian market."

(This article appeared in The National.)