admin
October 24, 2011
Writankar
Mukherjee, Atmadip Ray & Pramugdha Mamgain
Kolkata/New
Delhi, 24 October 2011
Retailers are countering the economic slowdown by offering interest-free equated monthly instalment (EMI) schemes, which they say are not only helping them pull customers into stores but also encouraging shoppers to buy higher value products.
Such EMI-based sales promotions have staged a big comeback at a time near double-digit inflation has put a heavy strain on household budgets, making people defer non-urgent and big-ticket purchases even on credit because of hardening interest rates.
But transactions carrying zero percent financing have grown more than 50% over the past year, say retailers and bankers.
From apparel sellers such as Arvind Brand’s MegaMart and Fabindia to multi-product retailers such as Future Group, Lifestyle and Godrej, firms reckon that zero-interest EMI options are the most effective discounts they can offer.
While retailers end up bearing the interest for the duration of the credit extended, they see it as an acceptable cost of keeping the sales register ticking during the downturn.
"EMI schemes are removing inhibitions and inducing consumers to splurge on big-ticket items," says Himanshu Chakrawarti, chief executive of Essar Group’s Mobile Store, the country’s largest mobile phone retailer. He says consumers going for six-month EMIs are buying handsets priced twice than they had initially planned and those going for nine-month to 12-month schemes are tripling their size of transaction.
Almost a third of the high-end mobile phones, such as the iPhone and the latest models of Blackberry and Android-based phones, sold at the Mobile Store are paid for through instalments. The company, which rolled out EMI schemes at its 1,200 stores across the country over the past couple of months, recently became India’s largest seller of BlackBerry smartphones.
Instant approval of loans and minimal documentation help speed up EMI-based transactions, says Parag Rao, senior executive VP, HDFC Bank. He says the bank has seen a more than 100% spurt in this loan category over the past year with an average transaction of 30,000. "Since the amounts are much smaller compared to home or car loan, the EMIs don’t pinch much," he says.
Consumer durables and jewellery sellers were the first to offer such sales schemes, but now retailers across product categories are betting on interest-free instalment schemes. For consumers, this spells the return of consumer financing schemes, which had dried up during the global meltdown in 2008 and 2009 when banks turned away from most unsecured lending schemes.
But the return of such schemes is becoming a major motivator at a time when studies are showing consumers are searching for the best deals and discounts like never before. A latest study by NM Incite, a Nielsen-McKinsey Company, shows that conversations about deals and discounts account for 50% of all conversations in social media forums this Diwali.
"Deals are becoming the primary motivators to consider purchases. This more than anything will decide which brands will win a greater share of wallet this season," says Adrian Terron, Head, NM Incite India.
From apparel and mobile phone sellers to furniture and computer stores, retailers across the board are reporting a jump of 10% in sales on average driven by deals like EMI schemes. They say the average bill size has also grown simultaneously by 10% to 15%.
EMI-based sales have doubled for consumer electronics during this festive season, retailers say. In the case of products such as LCD and LED televisions, nearly 15%-17% of all purchases are being made through such schemes, says Devang Mody, business head (sales finance) at Bajaj Finserv Lending.
The lender has tied up with manufacturers such as LG, Samsung, Sony and Panasonic and durable retailers including Croma, Vijay Sales and Reliance. It expects the festive season to generate EMI-based sales worth 750 crore.
For jewellery retailers, hit by the double whammy of inflation and appreciating gold prices, interest-free instalment schemes have become a veritable lifeline.
Furniture retailers, staring at halving of growth to 10%, are finding a much-needed growth driver in zero-interest EMI schemes. "With inflation kicking in and discretionary spending capability of households going down, EMI schemes will become more relevant as these facilitate consumer instant gratification while paying in easy instalments later," says Lifestyle International managing director Kabir Lumba.
Future Group’s Home Town is similarly offering products on interest-free EMIs, as is Style Spa, which joined the bandwagon a fortnight ago. Fabindia launched an EMI scheme this month on purchases of 50,000 and above, which covers apparel and other products. "We intend to tap the burgeoning professional class through this scheme," the company spokeswoman said.
Analysts say retailers stand to gain even as they absorb the interest component when they offer zero-percent EMI schemes. "While such schemes may impact their margins, the interest gets accounted as a cost they need to bear to generate sales," says Devangshu Dutta, CEO of retail consultancy Third Eyesight.
admin
October 22, 2011
Srikanth
Srinivas with Suneera Tandon
22 October
2011
Sanjeev Narula could say his fight with private equity (PE) investors Bain Capital and TPG is a Lilliput versus Gulliver saga. The managing director of Lilliput Kidswear, an apparel retailer that until recently was a success story, got into a fight with his principal investors over the veracity of the company’s audited accounts that were presented at a board meeting on 28 September.
Details are scant, but what appears to be a whistleblower call
about fudged accounting, just as the company was readying to file
a draft red herring prospectus (DRHP) ahead of a planned initial
public offering (IPO), has driven a wedge between the two parties.
Narula has 55 per cent of the stake, and the PE firms, 45.
A re-audit was suggested, but Narula did not agree to it. Instead,
he appears to have taken umbrage at the suggestion, refused to
agree to a re-audit and moved the courts.
The fight prompted many resignations from the company’s board: by the representatives of Bain Capital and TPG, four independent directors, and just days later, by the auditors S.R. Batliboi and Ernst & Young (Lilliput’s advisors).
In an appeal filed by Lilliput in the Delhi High Court on 3 October 2011 against Bain Capital India, the company has “restrained the respondents from selling, alienating, transferring or creating third party rights in any manner dealing with their shares of petitioner (Lilliput) and hence, the respondents are restrained, directly or indirectly, from acting contrary to the minutes of the Board Meeting dated 28.09.2011 and they are further restrained from giving adverse publicity to Lilliput. The petition also restrains the respondents, its associates, affiliates, servants, and employees directly or indirectly, from interfering with and obstructing the operations of the petitioner”.
After the company filed an injunction in the high court restraining its investors and related parties from exiting the company or taking matters further, no one — Narula, the PE firms, or the auditors — is willing to go public on anything. BW’s attempts to talk to them were unsuccessful; they claim the matter is sub judice.
The PE investors’ concerns stem from what is standard operating procedure. “In US firms, any suggestion of wrongdoing in an investee company is always reported by the managing partner to his fund,” says a PE expert. “That prompts a set on questions, checks and inquiries that ultimately are taken back to the investee company’s management.”
The opportunities for litigation against the PE firm’s general partnership make a firm very cautious. Occasionally, the general counsel gets involved. “All too often that ignores the realities on the ground in India, like very sensitive promoters,” the expert adds. “That could have driven Lilliput’s promoters over the edge.”
We talked to more than a dozen analysts, experts and retail consultants to try and piece together some answers. None of them, however, was willing to go on record.
The Beginnings Of A Clash
“Both Bain and TPG competed fiercely to get a piece of Lilliput
in 2009,” says a leading investment banker. At that time,
35 per cent of the company was held by PE investor Indivision
Fund (now Everstone Capital), with Narula holding about 65 per
cent.
Other investment bankers say Narula was unwilling to give up control, so Everstone, which had invested in the company in late-2006, sold its stake, and Narula sold a small part of his. After the deal was completed, the company was valued at about Rs 775 crore.
S.R. Batliboi and E&Y have worked with the company for over three years, and helped conduct the due diligence necessary for the PE investors. That was followed up by another due diligence exercise by KPMG, another global consultancy, before Bain and TPG paid about $86 million to buy in, closing the deal in January 2010. Lilliput’s revenues, say market observers, was then more than Rs 300 crore.
The company then embarked on a rapid expansion spree. It added four manufacturing plants to its existing six. In 2010, the company had about 225,000 sq. ft retail space; by September 2011, that had gone up to 700,000 sq. ft, with another 200,000 being fitted out. It also took on a lot of debt. “All of this cannot be done without at least the strategic approval of Bain and TPG,” says another investment banker. “July to September have been hard on retail, and such rapid growth implies huge inventory. That may have scared Bain and TPG.” Perhaps, but where does the alleged fudging come in?
Invent(ory) Accounting
The Lilliput story highlights a critical issue that investors
in organised retail have been facing for some time: inventory
management and accounting. “Stores do not do any annual stocktaking,”
says one analyst. “In most cases, there is no policy for
markdowns, or writing off for losses.”
That, he says, leaves the door open for accounting gaps. Other analysts say that sometimes stock from existing stores is moved to new stores without accounting for them properly. But they add that a lot of it could be because of inadequate management information systems (MIS) — at the end of the year, these transactions and markdowns are ‘rounded off’. “This could have prompted the whistle-blowing,” says a retail consultant.
Rapid expansion could exacerbate the effects of slack inventory accounting. Analysts say there is usually a benchmark of unaccounted inventory-to-sales ratios. “It is something that auditors are aware of, or should be,” says an analyst with a brokerage firm.
“There is constant pressure on the company to show sustained growth, top-line progress and a sizeable foot-print,” adds Devangshu Dutta, CEO of Third Eyesight, a retail consultancy. Other instances have illustrated the consequences of very rapid growth before.
“With investor interest one can create turnover in ways you would not use otherwise,” says Dutta. “This is partly driven by stockmarket movements, by the exit window of PE investors who want sizeable returns, and by human aspiration.”
No End In Sight?
Reports say that Narula has agreed with his creditor commercial
banks to allow a re-audit; he wants them to pick the auditors
(something he had disagreed to earlier). This may suggest that
he is confident that there is no substance to the allegations
of fudged financials.
By taking the matter to court, however, Narula may have tied the hands of his PE investors. “Once things move into the legal arena, there usually is no going back to the negotiating table,” says an investment banker. So chances of a settlement or understanding between the two parties have weakened.
The clash has also dented reputations: Narula’s, the PE firms’, the auditors’, and the advisors’. When the smoke clears after the re-audit, which people estimate should be in about six months, it might well turn out that the spat was ill-advised. “If nothing else, the value that the promoter and investors would have realised (through an IPO) is unlikely now,” says an investment banker. As one put it, what a tragedy of errors.
(This story was published in the Businessworld
Issue
Dated 31-Oct-2011.)
admin
October 17, 2011
Raghavendra
Kamath , Business Standard
17 October
2011, Mumbai
Global fashion brand Tommy Hilfiger says its newly refurbished 5,000 square feet store in Hyderabad is inspired by the brand’s first global flagship store on Fifth Avenue in New York City and the Champs-Elysées store in Paris, and reflects the décor and visual merchandising of those stores.
Tommy Hilfiger, owned by clothing conglomerate PVH Corp, says it is also working on such makeover plans for its other stores in the country. Currently, it has 80 stores.
Just two weeks before its flagship store in Hyderabad was reopened, Tommy Hilfiger announced that it is buying Murjani Group’s stake in its Indian sub-licensee — Arvind Murjani Brands (AMB) to “accelerate India expansion”. Mohan Murjani who partnered with Hilfiger to launch the brand and the company in 1985 and brought it to India in 2004, has exited the brand.
Though Tommy Hilfiger says such acquisitions were part of its global strategy— it took direct control of its operations in China and Turkey— it clearly knows India is too big a market for it to ignore given the slowdown in western markets.
“The market sentiment and talk about a second wave of slowdown have not affected the Indian consumer sentiment so far. As with all markets, we will monitor the situation closely but believe that emerging markets like India have many positive factors that should bypass a slowdown in consumer demand,” says Fred Gehring, chief executive officer of Tommy Hilfiger Group.
To put it in perspective, while the US and Europe, two of Tommy Hilfiger’s key markets, are expected to grow at two to three per cent and 0.6 per cent to 0.8 per cent respectively, India’s economic growth is pegged at 7.5 per cent, making it a lucrative market to invest in.
Another pull factor is that organised retail sales account for nearly 24 per cent of overall apparel sales in the country and are set to grow exponentially.
Gehring says Tommy Hilfiger has been posting a growth of 50 per cent in its Indian business in the last couple of years and its latest move to acquire stake in AMB is aimed at accelerating that.
According to sources, Tommy Hilfiger is doing business of Rs 200 crore in India.
With direct control over the brand, Tommy Hilfiger now plans to integrate India into its global sourcing and design programmes besides opening 30 stores in the next six months and launch new categories such as kidswear which the brand believes will grow 30-40 per cent over the next couple of years.
But the foray into kidswear hasn’t impressed everybody. Ramesh Tainwala, CEO of Planet Retail, which markets brands such as Guess, Nautica, Accessorise and runs Debenhams stores here, says Tommy Hilfiger has done well so far, but will face huge competition from here on. Kidswear is a relatively new segment and it has not been so successful globally. “I think they should play their core story first and then enter new segments. Kidswear is growing, but growing less than the adult segment”.
Tommy Hilfiger is not alone which has ended its previous partnerships.
Italy’s GAS recently ended the JV with textile and apparel major Raymond last year and entered India on its own through cash and carry route. GAS is aiming at three fold jump in its revenues by 2013-14 with the help of a dozen exclusive outlets in the country.
Three years ago, UK’s Marks & Spencer ended its franchise agreement with Planet Retail, promoted by Indonesia-based VP Sharma and others, and did a joint venture with Reliance Industries for faster roll-out of its stores.
“If there are differing perspectives between Indian and overseas partners about the pace of growth, investments and branding and so on, the international brands can choose to go on their own,” says Devangshu Dutta, CEO of retail consultancy Third Eyesight.
Dutta says while Levis, Adidas and Reebok have come in on their own, others such as Mothercare entered with a franchise agreement with Shoppers Stop but later also entered into a joint venture with DLF Brands.
admin
October 1, 2011
Vishal Krishna, Businessworld
1 October 2011
An ineffable air of desolation and despair hangs over the Star City mall, situated on one corner of east Delhi’s Mayur Vihar Phase 1. Over three quarters of the retail space inside is empty glass-fronted shells, waiting forlornly for tenants. And by the looks of it, the wait has been on for a long, long time now. Few customers ever walk into the mall proper — and those who do, do not stay for long. A couple of liquor shops and a Café Coffee Day outlet draw much of the miniscule clientele that the mall can boast of. But these are transient visitors who do not linger.
For there is really nothing that the mall offers in terms of shopping or entertainment options that will make a customer walk in and spend any time — no anchor departmental stores, no big brands, no multiplex theatres, no specialty shops, no electronic shopping zones, no playing areas for children, and not even a proper food court. There are a few eating joints and restaurants scattered on the ground floor. But these do not look as if they have ever been stretched by having to serve too many customers.
A short walk away from Star City is the DLF Galleria — another shell of a mall, sporting the same air of pathos as its neighbour. Almost 90 per cent of its retail space is unoccupied.
And yet, when Star City was being built, most analysts would have bet on it being a success. Its location is excellent — Mayur Vihar is a middle-income colony full of successful professionals who are ideal customers of many malls in Delhi and Noida. More importantly, by virtue of being right on the Delhi-Noida link road, and with a metro rail station adjacent to it, the mall was ideally positioned to attract traffic from both east Delhi colonies adjoining Mayur Vihar and the suburb of Noida. The Star City mall also opened with Reliance Retail as its anchor tenant three-and-a-half years ago, and that should have helped it attract other tenants. And yet, within months of its official opening, the footfalls had started falling and the decline had started. After almost three years as a tenant, even Reliance Retail abandoned it. And that accelerated the decline.
What went wrong with Star City? The builders of Star City were unavailable for comment, but Reliance Retail officials say that there were many inherent problems. One of the biggest issues was that the mall was not — and is still not — actively managed. After building it, the builders had sold off shop spaces to individual investors.
Many of these investors were not interested in improving the mall; they were simply looking to rent out the spaces they had bought. There was no mall management company or in-house operation that would get the tenant mix right and figure out ways to improve footfalls. And that was why it was just a disparate collection of shops with no specific zones for entertainment or food or clothes or electronics. It also did not have any multiplex tie-up or tenant who could pull in people to see movies, and then stay back to do shopping. Even though Reliance Retail was the anchor tenant, a shopper had nothing much to do within the mall once he had finished with that store.
The Star City mall is not an exception in India’s booming mall landscape. Analysts at Crisil, Third Eyesight, Jones Lang LaSalle (JLL) India and Ernst & Young say that 80 per cent of India’s 255 malls are ailing, half of them very seriously. Look at Mumbai, Delhi or any other big city and you will find plenty of malls which are half empty. In Mumbai alone, the list is long — the Centre One mall in Vashi, which is 30 per cent vacant, the Kohinoor Mall in Kurla is 70 per cent vacant, and the Dreams Mall in Bhandup is 75 per cent vacant — to name only the more prominent examples.
This is not to say that the mall culture itself is failing — there are many successful malls in Delhi, Mumbai and the other metros. But the issue is that the greater majority of the malls built are either pulling in indifferent business or worse, just fading away to oblivion. In some cases, malls are desperately turning empty shop spaces into banquet halls in order to survive.
The issue, says Devangshu Dutta, CEO of Third Eyesight, a retail consultancy, is that few malls in India are “real” malls, planned and executed in the manner a mall should be.
“Unless the builders view retail as a long term business, the quality of malls will not improve. Only 5 to 6 per cent of the malls in India are real malls,” says Dutta. The rest, he says, will either disappear or turn into mixed-use properties with offices to support their survival.
Kabir Lumba, managing director of Lifestyle India, which is the anchor tenant in many of the successful malls around the country concurs with Dutta. Lumba says many malls neglected even simple research and common sense steps that would drive footfalls — and as a result, they are now in trouble.
(Article continued below…)
admin
September 29, 2011
Shailaja Sharma, Daily News & Analysis
MUMBAI, 29 September 2011
High prices and economic uncertainty appear to be turning consumers stingy, if not altogether unwilling to spend.
Going by sector analysts and retail companies, spending on discretionary items is definitely shrinking and even items of daily consumption aren’t quite flying off the shelves as they used to. In fact, consumers are increasingly hunting for more value for the price they pay at retail stores.
All this gives reason to believe consumer spending is set to decline in the second half of this calendar year.
“Commodity-led categories like soaps, detergents and tea will see downtrading to cheaper brands. In some other categories, the frequency of purchase will come down or consumers will move towards smaller packs,” said Gautam Duggad, an analyst at Prabhudas Lilladher.
Saugata Gupta, chief executive officer, consumer products, Marico Ltd concurred. “Lack of feel-good factor will result in a cut in discretionary spending. In the past couple of months, inflation pressure has led to a certain softening of discretionary spending.”
Automotive and consumer durable sales have already taken a beating this year, while many organised retail formats are not performing well.
“The moderation in footfalls at retail stores is not as pronounced as during the slowdown of 2008-09, but the kind of upswing in sales that retailers had expected will not be met with as consumers are very careful about how they spend their money,” said Devangshu Dutta, CEO of retail consulting firm Third Eyesight.
Going by sector analysts, though most FMCG categories are still showing healthy volumes, a possible slowdown in consumption cannot be ruled out.
An official at a leading hypermarket chain, who did not wish to be named, said the sale of discretionary and expensive items across foods and personal care has remained sluggish over the last few months.
At the same time, he said, the level of deals and discounting by consumer companies in modern trade outlets is increasing so consumers prefer to buy items in bulk.
“While the middle-class, urban consumers are willing to buy more premium products, they are also restricting their purchases of late and this worried sentiment is capable of affecting consumption. But the trend of discounting and deals is going to continue to grow as modern trade grows.”
Though the trend is not as prominent in food and grocery at hypermarkets, it might just be the beginning, said the official.
Marico’s Gupta feels it will be six months before consumer spending will improve. “Consumer companies have been careful in taking price increases, and there will be less willingness to pass on prices further,” he said.
Consumer goods giant Hindustan Unilever Ltd recently cut prices of its detergent Surf Excel Blue on certain large stock-keeping units by 21%, indicating competitive action to gain market share and to increase off-take at retail shelves. Detergents is a highly penetrated category and analysts said this kind of pricing action is not accruing from lower raw material costs, but purely to avert consumers from downtrading to cheaper brands. Similarly, in categories that have low-penetration in consumer households that are primarily sold in modern trade stores like processed foods, for example, some companies are offering a ‘buy one get one free’ on their products.
Interestingly, the flourishing discount-led e-commerce business in the country has seen a growth of over 100% in the last one year, where most of these online retailers are themselves a year or two old in the business. This means that a huge number of purchases have been converted from offline to online medium.
In such a scenario, consumers are most likely to compare prices across general trade and modern retail outlets to evaluate where they get more (value) for less (money). They are also likely to compare prices on online retailing portals before making a purchase in discretionary categories, said analysts.
At a recent industry event last week, retailers and marketers were seen expressing concern over Indian consumers’ aspirations and expectations changing dramatically. According to them, while Indian consumers were willing to trade-up to expensive and luxurious products, they remain too value-conscious.
“The Indian consumers want value in anything they buy or experience, and they are not ashamed in repeatedly attempting to get discounts,” Rajiv Mehta, managing director, Puma Sports India said at the event.
Rama Bijapurkar, a leading market strategist and expert in consumer behaviour, couldn’t agree more. “Over the years, the Indian consumer has actually seen quality improving and prices coming down, of everything from air-conditioners to air-travel. As a result of that, you have an entire generation of monster-consumers who are shaped by what time and place they grew up in.”
The ABCD of Indian consumers has changed, said Rahul Singh, founder and managing director of indoor golf lounge Golfworx. Today, it’s “astrology, Bollywood, cricket and discount,” he said.
“The same consumer I’m trying to trade up will try to trade me down (by seeking discounts).”
When the global consumer confidence hit a six-quarter low in the second quarter of this calendar, a Nielsen online consumer confidence survey found that Indian consumers had suddenly turned jittery about spending on items of daily consumption and big-ticket purchases alike. Indian consumer confidence, as per the survey, slipped 5 points at 126 on the index despite Indians being most optimistic in their confidence about job prospects and financial stability.
The trend is seen persisting as long as inflation, fuel price hikes and an uncertain global economy remain a cause for concern.
The Nielsen consumer confidence estimates for the current quarter, to be released in October, will ascertain if the consumer sentiment has improved or slipped further. Results of consumer companies for this quarter, particularly in the FMCG space, will also be watched.
