By DEVANGSHU DUTTA, chief executive, Third Eyesight

Since the most recent “mall boom” that began in 1999, with the launch of Ansal’s Plaza in Delhi and Crossroads in Mumbai, much has been written and said about organised retail, the growth of the middle class, and virtually every alternate person you meet professes to be an expert in retail.

What is not acknowledged is the fact that fashion retail began to get modernized many decades ago, with the authorized dealerships of textile companies such as DCM, Bombay Dyeing and Raymond. Among footwear companies, Bata also organized its network of Bata and BSC outlets. Food companies such as Spencer have operated as chains even before RPG changed the name to Foodworld, and now back again to Spencer. So, the new revolution is only a stage in the 50-year evolution of the retail business in India.

So, why the sudden interest? Third Eyesight believes there are multiple reasons creating a “tipping point”.

INDIA AT A TIPPING POINT

One of the key factors in creating a self-fulfilling growth cycle is the development in the economy that has seen sustained high rates of growth for the last one-and-a-half decades. This has created a virtuous loop of increasing salaries and increase in disposable income deeper into the population, and this is spreading beyond just the big cities.

Secondly, billions of dollars and thousands of crore of investment are being poured into real estate, removing the bottleneck of good sites for new retail stores, and creating a platform for brands to roll out their chains.

Thirdly, companies that began growing the larger formats of retail, such as department stores, in the early 1990s, have begun to reach critical mass. Retailers such as Shoppers’ Stop and Pantaloon today provide multiple points of launch for new brands.

Fourthly, and possibly the most important among these factors, is the growth of the young consumers. They were born after the advent of colour television in 1982, have known more choice than the earlier generation, and are just entering the workforce amidst soaring salaries, with a freer attitude towards spending than their parents.

These factors are providing an unprecedented platform for retail growth in general – very much like the United States andEurope in the 1950s – and for the fashion retail market, it  is a tremendous opportunity to rejuvenate.
 
THE MARKET OPPORTUNITY

People from within the industry, as well as analysts, provide estimates of the total apparel market that vary widely, between Rs 90,000 crore and Rs 120,000 crore (US $20-27 billion). Annual growth rates also vary, estimated overall at 13-15 per cent, but depending on the product category, from 5 per cent in mature categories to 30-50 per cent in categories that are just emerging.

Given the overall economic growth rate and development of the consumer base, if a retailer has a strong brand and distinctive product offer, individual companies are able to gain annual growth rates that outstrip the overall market many times over.

The opportunity has attracted the attention of both Indian and international companies, and, increasingly, also of the export community in India.

Among Indian companies, Liberty is credited with the launch of the first ready-to-wear shirt brand in the 1950s, and Raymond with the first ready-to-wear trouser brand in the 1960s. Exporters such as Intercraft (with brands like FU’s), also tried their hand, as did corporates such as Indian Organic Chemicals through the launch of “Little Kingdom” stores. Thereafter, several other brands launched, most of which have faded into the lost pages of history.

Among the survivors have been Raymond (through their chain of around 300 stores and a clutch of brands), as well as relatively new entrants like Madura Garments (originally a part of the UK-based Coats Viyella, now wholly owned by the Aditya Birla Group) and Arvind (formerly a licensee and now a jointand venture partner for the US-based VF Corporation).

For all the talk of organization, the apparel market remains highly fragmented. For an idea of just how fragmented the market is, look at the top two players: Madura Garments and Arvind Brands. If we assume a market size of Rs 90,000 crore (US $20 billion), the largest player, Madura Garments, only has 0.7 per cent of the market, while the second largest, Arvind Brands, holds a 0.5-per-cent share.

In the context, differentiating between “branded” and “unbranded” players is no more than an academic exercise.

The market is wide open – more open than it has ever been – and the opportunity is ripe for new companies to enter.

A quick look at a table of some of the largest companies among fashion retailers and brand distributors includes companies like Raymond, which has invested cash from divestment of unrelated businesses into launching or acquiring new brands, as well as upstarts such as ITC, who launched their first Wills store just about five years ago. Among the companies that are of a respectable size, most have spent between 10 and 15 years nurturing the brand – these include Mohan Clothing (Blackberrys) and ColorPlus among brand owners, and Shoppers’ Stop and Pantaloon, who have moulded themselves into constantly evolving retail models.

INTERNATIONAL BRANDS

Indians have known international brands in apparel and footwear for as long as those brands have existed, courtesy the historical British linkages, the erstwhile Indian royalty who were among the biggest customers for brands such as Louis Vuitton, as well as the mass brands that made an early entry (such as Bata).

During the late-1980s and through the ’90s, several international companies entered the Indian market, initially through licensees or franchisees (with exceptions such as Littlewoods, who set up their own — and only — Indian store in Bangalore). Some of these companies are beginning to show greater interest in India – and also a desire to exert more control over the growth of the brand in this strategic market. Companies such as VF (owners of Lee, Wrangler, Vanity Fair and Healthtex) have converted their interests from licenses to joint ventures, while Benetton has gone from a license relationship in the first five years (until 1993), to a 50:50 joint-venture, and then to a 100-per-cent subsidiary in 2005.

In the last couple of years, especially with India being in the press, interest among international brands has grown to a new peak, and this is now manifested in the growing list of brands available in the market.


In early 2006, the government allowed foreign investment again in the Indian retail sector. Depending on who you speak to, this is a complete non-event, or at the other extreme, it is a vital step. The details are the subject of another article, but one could say that while this is not an earth-shattering change of policy, it is an important step in the further evolution of the market, and we will see the evidence within the next 12 months.

WHO DARES, WINS!

It is clear that the Indian market is going through a phase that is unprecedented in its recent history, and the opportunity exists for existing producers of garments (including exporters), Indian companies from other sectors, international brands, as well as individual entrepreneurs, to create a brand presence from scratch or grow their existing business.

The qualifying factors for entry into the contest are the desire to create new brands, and deep pockets to sustain investment in branding and market-building.

However, the success factors to win in the contest are higher drive and enthusiasm to take the hits that will invariably come, an ability to tap the consumer’s sense of adventure and differentiation, the talent to develop a product-service offer that is distinctive, and a pool of common sense to minimize the losses during the initial period of investment, which may be months or years.

With all the challenges that retail offers, to those who have the courage to venture in, let’s say, “happy retailing!”
 

TIMES NEWS NETWORK, PANAJI, 8 September 2006

Goa, once a haven for holidaymakers looking for a break, is now set to zoom up top retailers’ charts. The union territory
will soon see an influx of major brands, with real estate giants. Not surprisingly, land prices are ready to shoot through the roof.

Goa is going through a ‘revamp’ with companies buying large spaces in its cities with ‘vast potential to grow’ to set up malls and shopping arcades. Builders like Gera developers, Parasvanath and DLF (all first time entrants to Goa) plan to develop offices-cum-shopping malls.

In addition, many branded retailers are mulling exclusive showrooms here. As a result, land value has shot up with average prices of Rs 2,500 to Rs 3, 000 per sq ft having doubled. In places like the capital Panjim, prices have increased five-fold. Land prices are expected to rise further in the next ten years.

“The Goa market is expanding very fast, much beyond our expectations,” says Sudipta Sen Gupta, senior general manager (marketing), Cafe Coffee Day (CCD), which now plans to shift its regional head office for Karnataka and Goa from Mangalore to Goa.

The company, which had initially planned to stay open only for the nine tourist months (late September to May) has received ‘tremendous response from locals’ with sales increasing to 175% of national sales. CCD plans to open more outlets, apart from setting up bases en route to Goa at places like Karwar and Hubli.

Subway too has decided to add six more outlets to its existing one at Baga beach — a stark contrast to a few years back when coffee giant Barista shut shop soon after opening in Goa. The hosting of International Film Festival (IFFI) since December ’04 has created a ‘brand image’ for Goa, say market analysts, adding Goans are brand conscious. So, no time is wasted in ‘educating people about various products’.

IFFI, which brought the state’s only two multiplexes, has created a movie-going culture. Says Manoj Bhatia, CEO, Inox Leisure, “Flexible pricing and attractive schemes has helped sales move from 600 to 800 patrons to over 5,000 on weekends.”

Goa has the highest per capita income in India along with English speaking cosmopolitan set-up that allows people to experiment, thereby making it attractive to businessmen. In addition, the state government’s initiative to start SEZs is expected to move a large chunk of high-spending Indians from large cities to Goa.

Amar Yadav FMCG head of Vishal Mega Mart that recently opened the state’s only retail mall is overwhelmed by the response. “The spending capacity is very high here, we plan to open one more mall in south Goa,” he adds. Market analysts feel that influx of domestic tourists to Goa is driving the state’s growth story (18 lakh Indians visited Goa last year).

Indians’ familiarity with brands, coupled with lower land rates than big cities is attracting investors. But Devangshu Dutta, chief executive, Third Eyesight, feels investments into smaller places is a natural trend since expansion in larger cities has reached near saturation.

MUMBAI: The Rs 39,000-crore Aditya Birla Group has appointed global consulting firm, McKinsey & Co to chalk out the company’s retail rollout plans. Sources suggest that McKinsey has been given the responsibility to strategise on the entry strategy for the group. McKinsey is to study the opportunities in the sector and advise on plans to launch a chain of fashion-led outlets and hypermarkets.

The Aditya Birla Group recently became the third major business house to announce its foray into organised retail. Mukesh Ambani’s RIL and Sunil Mittal’s Bharti Enterprises have also joined the bandwagon to enter this lucrative and fast-growing sector.

Analysts suggest that new and existing Indian companies are planning to scale up at a fast pace before the imminent entry of foreign players is allowed in the sector.

McKinsey has already built a strong retail practice and is also working with Future Group (formerly Pantaloon Group), while KSA Technopak is working closely with Reliance. Other consultants like, AT Kearney, Ernst & Young, PwC and Third Eyesight are also said to be working with new and incumbent players.

Aditya Birla Group has also formed a senior management team that is exploring these opportunities. Sources suggest that the group plans to invest more than $1bn in the sector and Group CFO, Sumant Sinha has been given the responsibility to raise funds for this foray.

The company is also actively hiring people from sectors like retail and FMCG. Apart from recruiting some key people from ITC and Godrej, the company is said to have roped in Shoppers Stop’s head of HR, Vijay Kashyap and head of operations, Sanjay Badhe. The company spokesperson however declined to comment on anything related to its retail plans.

Sources said that the group’s retail plans will be led through the company’s apparels and textile subsidiary, Madura Garments. The Rs 620-crore Madura Garments owns and markets Louis Philippe, Van Heusen, Allen Solly and Peter England through company franchisees and third-party outlets.

It also runs an exclusive chain of stores selling products of German fashion major Esprit. It is expected that these operations will be further scaled up in the first phase. Madura Garments also supplies to international brands like Marks & Spencer’s, Tommy Hilfiger, Polo and Ralph Lauren.

It has recently passed a shareholder resolution to transfer this export contract business out of the company.

“The group is already present in telecom, IT and IteS and the entry into organised retail is part of the group’s strategy to further expand into sunrise sectors. Historically, the group business portfolio has been loaded in favour of the commodities businesses,” said an industry analyst.

By Shuchi Vyas, The Economic Times – August 29, 2006

By VISHAL KRISHNA

Businessworld

Issue Dated 30 June-06 July 2009

If you were hoping to see a Wal-Mart store in your locality soon, you may be disappointed. The government has made it clear that it is against the idea of 100 per cent Foreign Direct Investment (FDI) in front-end multi-brand retailing. “The Congress government has come to power by supporting the farmer, the middleman in mandis and the kirana store. Now aiding modern retail will be the last thing on their mind,” says a Mumbai-based retail analyst, who did not want to be named.

Even if front-end retail stays domestic, most companies are struggling to become profitable. And it is not just about the money. For the moment, the retail industry continues its search for cash and hopes to keep expansion plans going despite heavy losses. Kishore Biyani’s Pantaloon Retail hopes to add 2 million sq. ft by the end of this year. Similarly, Aditya Birla Retail has just announced plans to add another 150 stores.

“The quandary lies in getting FDI, which is needed to service a large presence through an efficient supply chain strategy,” says Ajay D’Souza, head of Crisil Research in Mumbai.

For suppliers such as fast moving consumer goods (FMCG) companies, only 5 per cent of their sales is through organised retail, the rest is through kirana stores.

“The distribution system in India is largely built by FMCG companies to support the kirana network, where wholesalers remain strong,” says Devangshu Dutta, CEO of Third Eyesight, a retail consultancy firm in New Delhi.

Modern retailers also burnt their fingers trying to source fresh food directly from farmers. “People can go to (their neighbourhood) kiranas and get their vegetables at the same price as that offered in a retail store, so food did not become a driver in retail stores,” says Pinakiranjan Mishra, partner and national leader for retail at Ernst & Young in Mumbai.

Building a supply chain has not been a strength among organised retail players, and so it is back to sourcing from the vegetable mandi.

And that is perhaps what FDI in retail can do: bring in outside expertise on building and integrating supply chains with the attendant quality and pricing that will persuade consumers to go into supermarkets.

But politics intervenes. The inability to source directly from farmers is constrained by land ownership laws that stand in the way of farm aggregation. “Firms cannot aggregate land from farmers to create a farm-to-fork connect,” says a finance ministry official who did not wish to be named. “The government fears that if companies own large tracts of farm land, then they would be able to command food prices and production.” And let us not forget the voter base that mandis and kirana stores represent.

For the moment, the FDI hopes of organised retailers seem to be quashed.

BHANU PANDE
The Economic Times, DELHI, 22 June 2006

For a man from Dehradun who ran a family-owned bookstore called English Book Depot, it’s been quite a journey to the point where his Book Café chain now has tie-ups with retailers like Café Coffee Day, Nirula’s, Barista and Subway. Sandeep Dutt, who’s effectively used co-branding and co-location strategic tie-ups to set up a 20-store book retail chain, says, “We are in the business of brewing knowledge.”

He’s observed that there are many consumers – aged anywhere from 15 to 40 – whose need for leisure and a great place to browse through books, isn’t being met adequately in the existing book retail scenario. “They find it difficult to get good books, and look for a place to spend their leisure hours if they do find them,” he explains.

That’s the need gap Book Café wants to fill. Dutt is certain that by concentrating on this single segment in various locations, his chain will be able to deliver a significantly superior experience. “Selling within espresso bars and other such co-locations that have a footfall of over 100-plus customers in a day will help achieve growth in book sales,” adds Dutt.

As a first move, he set out to sell a tempting retail model of sharing common premises with a co-retailer, while building nationwide franchise operations. What began as an experiment in Dehradun with Barista is now being replicated in Ludhiana, Chandigarh, Jaipur, Delhi, Lucknow, Kanpur, Agra and other cities in North India.

At every meeting, Dutt highlights the fact that sharing common retail space (with clearly demarcated sales areas) reduces expenses considerably in terms of cost of search, negotiation and property development. “It offers tremendous leeway to pick up strategically-placed properties, which single retailers would otherwise find prohibitively expensive,” says Dutt.

And it helps that co-retailers tap a common audience. For instance, a tie-up with Café Coffee Day helps Book Café dip into the pockets of those who walk in for coffee. In return, a bookshop adds value to the customer’s plain vanilla coffee experience. “Café reports sale growth of 50-100% by adding a book shop,” beams Dutt. Besides, existing book shops with a café added have reported sales zooming up by 200%.

It seems to be an attractive proposition: “We are opening at six more locations in four months,” declares Dutt. But some warn that this strategy might lead to the dilution of the Book Café brand. According to Devangshu Dutta, CEO, Third Eyesight, a Delhi-based retail consultancy, placing the book store at the back of the food store may not be a smart move. “There’s no Book Café branding upfront,” he adds.

“The brand may be subsuming itself with that of its co-retailer and that may not be a good idea in the long run.”

To counter that secondary status, EBD is simultaneously rolling out standalone Book Cafés, through franchisees. “The co-locational strategy has not only given us a quick and cost effective entry, but also the confidence of going it alone,” says Dutt.

Dutt has also chalked out plans to satisfy partners who want exclusivity or brand sync – while willing to share location. For instance, two coffee chains (let’s say, Barista and Café Coffee Day) may want to share premises with a bookstore, but not necessarily the same brand. The company is working on a portfolio of book retailing brands – such as Kitab Café, along with the current Book Café.

So far, even though many stores are yet to break-even, the chain has logged a turnover of Rs 2.5 crore for the year 2004-05. Dutt says that the average break-even time frame is about 18 months. Each outlet is doing about Rs 1.5 lakh per month, with a few even touching Rs 4 lakh. Book Café wants to hit some 330 small format stores (300-500 sq ft) in five years and 20 large format (1,000-1,500 sq ft) stores in four years.