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The Brave New (Old) World

Over the past few years, the Internet has been revolutionising the way we interact with each other, as individuals, as companies or corporate entities, providing a mass of information keeps growing with no end in sight. With cheap and direct access, we can quite simply move around with a few clicks, most of the time locate what we want, make an informed (and even comparison-based) decision, and exit. Surely, as many pundits forecast, the Internet should bring an end to intermediation of any sort. Well, yes. And no.

Yes, the Internet makes information more easily accessible to everyone. Every week there are literally thousands of websites, hundreds of portals and at least a few dozen exchanges that spring up. These get hit upon either directly, or via the many search engines that, in turn, are also constantly updating and fine-tuning their search algorithms, pushing to create sensible shortlists that are useful for the researcher. One is even named after the butler created by P. G. Wodehouse, with the implicit claim that it will anticipate your needs even before you know of them! However, these are only attempts at generating intelligence (at best), more often just information, quite a lot of which is unintelligible, and very far from the “knowledge” that we human beings seem to create in our minds quite automatically as we go about doing our tasks. Just a few days ago, I was searching for hotels in the US – what I downloaded was a morass of information, and I spent a whole day sorting through it. In this case I could have just as well requested a trusted travel agent to come up with a few appropriate options for me, from which I could have booked my choice.

Our minds are, yet, the best-known computer to man, in terms of versatility. Our minds can store enormous amounts of data – a surprising amount remains in long-term memory (despite the fact that often we can’t seem to remember the name of the person that we just met in the lift!). More importantly, we can connect and inter-relate seemingly unrelated items of information, for example, creating travel itineraries covering flights, hotels and various other details into a plan that is most effective and efficient keeping in mind the time constraints, costs and our objectives for travelling. We are still not fully-there from robot programmes which will automatically find you the best prices, and the most convenient locations or times, let alone do that for hotels AND flights AND trains and any other items that your itinerary contains. Travel is actually probably one of the simpler examples – you could still create parameters which, provided the base information about price, time or location is provided by the service providers, can be used in programmes that can analyse patterns of new and past data, and revert with some shortlisted options.

Let us think of a more complex example – the textile and apparel supply chain . It is one of the most fragmented industries, and possibly one of the most global in terms of trade flows. There are multiple layers of raw materials and intermediate products, most of which pass through some sort of intermediaries (such as commission agents, stockists, importers etc.). In such a form the industry is a prime candidate for opening out to the Internet, where suppliers can create their websites, or store their information through other platforms (such as “exchanges”) which can be accessed by buyers from around the world – easy to set up, independent of time zones and very very low cost. Get rid of the multiple layers that mostly add costs, book orders directly, get rid of stocks… sounds like a heaven-sent opportunity!

Well, that is how it is being seen by the 70-80 exchanges that have come up around the world, or are in various stages of being set up. Some of these have been set up by existing industry players, some by technology companies, and yet others by people who have set up exchanges in other sectors who believe that similar business principles can be applied to the textile and apparel supply chain as they have applied in the other sectors. This should dramatically raise the direct access between suppliers and customers – be the end of agents and other intermediaries – and basically make millions for the companies promoting the exchanges!

Yet, around the world, retailers and brands that buy finished products and raw material do not seem to be rushing to stake any significant proportion of their purchases to web-based sourcing. And there are multiple reasons for that.

Firstly, such a proliferation of exchanges seems to be only a reflection of the fragmentation, and there does not seem the likelihood that any clearly dominant player will emerge in the next few months. There is little or no differentiation between most of these exchanges – most of them offering a sophisticated yellow pages capability, while others offer possibly a few add-ons such as functionality that allows buyers to bid for stocks, or suppliers to quote for products.

Secondly, in certain areas, buyers or suppliers themselves have got involved in setting up exchanges. Some of these are private web-based initiatives (such as Wal-Mart or Littlewoods on the retail end, or LiFung.com or TheThread.com on the supply side), while others apparently are more public and collaborative, such as World-Wide Retail Exchange.

Closed web-based systems are excellent for the company that is initiating it, because it enables the company to streamline operational processes. However, it does create another platform for people to adapt to, though web-based systems are less painful certainly than EDI or other proprietary systems, which require specific investments. Also, occasionally it brings up the question of conflict of interest. For example, how comfortable would one supplier feel in sharing internal information with another supplier who has taken on an additional role?

Other initiatives, such as the WWRE, have got off to a good start, but here internal stumbling blocks are inevitable due to the composition of the groups. Consider the WWRE: 27 retailers currently, in four separate areas of operation (as diverse as food and clothing), with different geographical bases, which make the business imperatives very different for the various participants. Add to that the fact that people are loath to share knowledge that is considered proprietary by them, whether process knowledge or supplier contacts. It is a long-drawn process of consensus management in such a large initiative.

Thirdly, what kind of a service offer is the best? As of now, there is are options available from various B2B service providers, offering varying areas of benefit, from listing services to “software solutions” for various applications, to loose working relationships. Not only do the service offerings actually vary, there are varying degrees of claims and counterclaims that muddy the waters further.

The scenario is actually as confusing as it seems to be – players, whether exchanges, portals or any other kind of company, are dynamically evolving their business models, with changes seemingly almost every week, and new players emerging all the time. In such a scenario, buyers (who are early-adopters) will get into as many exchanges as possible to get the maximum choice, and to hedge their bets. On the other hand, the majority – which comprises of buyers who adopt new technologies later – will hold back to see which exchanges come up as the most widely accepted or most appropriate for them.

Finally, whether we like it or not, textile and apparel products are inherently emotional products. They are, of course, driven by specifications, and those specs can be defined fairly precisely. But what the specifications cannot ever completely convey is how a buyer feels instinctively about including a product in a range. Or, indeed, what the impact would be of making some minor adjustments that can be visualised, discussed and decided in an interactive session between a buyer and a supplier. Or, for that matter, what is the best way to reconfigure a supply chain, under pressure of a new order, or an unforeseen delay in the process. Intermediation is something that has become ingrained in the textile and apparel supply chain.

In such a scenario, it is unlikely that intermediaries will disappear immediately. What is certainly happening, however, that while previously buyers were willing (or forced) to pay for having access to information, pure information itself is being made a commodity. In this frame of reference, companies are seeking out “genuine value-for-money” before they will shell out a buying or selling commission. Process or domain knowledge is an absolute must – only this can enable web-based companies to create unique and genuine value-adding web-solutions. Simply putting up a ‘telephone directory on the web’ will fetch very little in return. Even though a telephone directory has hundreds thousands of entries, how much do you pay for it? Relationship-management and process-management capability will remain in demand, and many of the existing intermediaries certainly show a lot of that.

Vertical integration
One of the most important developments that will certainly be an accelerated outcome of the internet, will be the vertical integration of the textile and apparel supply chain. While, in the past, the very diverse nature of the stages of the supply chain has created and maintained multiple layers, web-based technologies are now enabling companies to structure and manage the apparel supply chain from as early a stage as they wish to, be that fabric, yarn or even fibre.

Breaking down size barriers
Another significant outcome is that the web breaks down “size” barriers. Large retailers typically bought from large suppliers, while small retailers typically did business with small suppliers. Any “criss-crossing” (i.e. small companies dealing with larger companies) needed middlemen – individuals or companies that broke bulk or consolidated orders, for small or large retailers, respectively. This had more to do with operating systems, management capabilities and the scale needed for relationship management than it did with actual barriers. Now, however, web-based systems can allow some parity between organisations of different size, because at a low cost the same level of functionality is available to companies of all sizes, This is significantly changing the balance of power, and the overall structure of the industry. Scale was never the only surrogate measure of capability in this industry, but the correlation between actual scale and perceived or actual capability is getting even more vague over the Internet.

The impact of the web on the textile and apparel industry is not going to be immediate – it will take a while to permeate the hundreds of thousands of companies that make up the supply chain – so there is some breathing space.

But surely, in the next five years, the textile and apparel supply chain that we shall be seeing, will be structured quite differently from the existing supply chain. There will certainly be some casualties. What is important is that you – whether you are a supplier or a retailer – should start taking cognisance of the changes to come, and begin changing your own business to avoid being one of the casualties.

Indian fashion stores look for expansion, US counterparts shut many 

Raghavendra Kamath, Business Standard
Mumbai, 16 February 2017

Indian fashion chains are betting big on the consumption story here as American chains shut stores, amid competition from online retailers.

Macy’s, the largest department store chain in the US, said it was closing 68 stores. Sears will also close 42 stores. Kmart is closing 108 stores and and discount chain Kohl’s has closed 18 stores, according to reports.

Indian chains are scripting a different story, despite a strong online retail presence. Future Group-owned Central plans to add 15 new Central HD stores. Central HD has upgraded their décor and has minimalistic fixtures with an aspirational fashion boutique feel.

“The store is designed to offer an enhanced and more customised service to shoppers,” said Vishnu Prasad, chief executive officer, Central. “We have received great response with the new Central HD. We are expecting 15-20 per cent like-to-like growth.”

Shoppers Stop, the country’s largest department store chain, is planning to open four new stores this year and is working on a 35,000 sq ft format for smaller cities, against the average size of 45,000 sq ft. “The new stores have designated shop-in-shops for private brands to provide a luxe experience,” said Govind Shrikhande, managing director, Shoppers Stop. “We are targeting seven-eight per cent like-to-like growth in the department store segment.”

Max, Landmark Group’s value fashion chain plans to open 40-45 stores at an investment of Rs 5 crore each. These stores have the latest retail identity as in their home market of Dubai with omnichannel capabilities in terms of digital displays and a WiFi environment.

Vasanth Kumar, executive director of Max, said, “Unlike the US, India’s per capita retail space creation is very low and so is the share of organised retail. Also, 60 per cent of our population is below 30 years,”. “As a country, we have a long way to go before being saturated,” Kumar pointed out.

Rajat Wahi, partner and head (consumer markets) at KPMG, said with rents declining and e-commerce facing a slowdown, modern trade would resume expanding its footprint, especially in large formats (over 50,000 sq ft) and medium formats (10,000-30,000 sq ft).

“While e-commerce will continue to grow and some categories will be bought predominantly online, most Indian consumers will continue to shop for high-value products in brick and mortar stores,” Wahi said.

Devangshu Dutta, chief executive officer at Third Eyesight, said in a market as fragmented as India’s department stores “have a role to play as authoritative ‘experience environments’ for the consumer and as platforms to showcase diverse brands.”

Marquee labels including Gap, Zara to come with smaller price tags  

Rasul Bailay & Shambhavi Anand, The Economic Times
New Delhi, 14 February 2017

Global marquee fashion and lifestyle brands such as Gap, Zara and The Body Shop are resorting to price cuts to stay competitive and increase their market share in the price-sensitive Indian market.

UK’s cosmetic brand The Body Shop slashed prices across categories in India by 20-30% on Friday while US fashion brand Gap is looking to bring down prices of certain products by 10-15% by allowing its India franchisee Arvind Lifestyle Brands to manufacture them locally.

Arvind will produce 30-40% Gap merchandise in India to be sold here, said J Suresh, chief executive at Arvind Lifestyle Brands. “The process has started and we will introduce them in springsummer 2018,” he said.

Spanish brand Zara, the market leader in fast fashion, too is looking at slashing its prices to bring them closer to Swedish rival H&M, said two people familiar with the matter.

Experts say price cut is one of the most effective ways to increase sales and market share in a price-sensitive market like India, particularly in highly competitive and fast-growing segments such as branded apparels and beauty products.

“Most brands strategically lower prices for the value conscious Indian consumer,” said Devangshu Dutta, chief executive at retail consultancy firm Third Eyesight. “In most cases prices are reduced to drive the demand further,” he said.

Gap currently imports all its merchandise into India and its products are about 40-50% more expensive than those of rivals Zara and H&M. Local production will help it bring down prices and compete better with the two faster-growing rivals.

Suresh of Arvind Lifestyle Brands said his company had an agreement with Gap to produce in India since May 2015 when they entered India, but was waiting for attaining a “minimum quantity” to produce here.

Gap has been struggling to keep pace with Zara and H&M in the Indian market. According to business head of a prominent mall in Delhi that has all the three brands, Gap’s sales are at times less than half of sales of Zara and H&M.

A Gap spokesperson in San Francisco said, “We tailor sourcing strategies as appropriate for the markets and channels we operate in to enable competitive positioning.” A Zara spokesperson declined to comment on a specific query about any price cuts in the near future.

The Inditex-owned fashion brand had reduced prices by up 15% when H&M entered the Indian market in October 2015 with its global strategy of aggressive pricing. The move helped record a 17% sales growth during FY16, though that was its slowest sales growth since opening its first store in the country in 2010. Zara posted sales of Rs 842.5 crore during FY16.

Shriti Malhotra, chief operating officer at The Body Shop India, said the price cut will make its products more accessible to consumers. “Lower prices of our best sellers will bring affordable cruelty free beauty closer to diverse consumers across age groups and geographies, recruiting new fans along the way and strongly reinforcing our philosophy of beauty beyond boundaries,” she said.

Price correction is a tried and tested strategy to revive sales in India.

In September 2015, when Arvind Lifestyle Brands took over the business of beauty and wellness retailer Sephora from former franchisee DLF Brands, the first thing it did was a price correction. “We looked at pricing in Dubai and Singapore and we kept it in the band of 5-10% lower than that,” said Vivek Bali, chief executive of Sephora in India.

The company still does small tweaking of prices here and there on slow moving products.

(Published in The Economic Times)

Taj Brings All Its Hotels Under Single Brand 

Sharleen Dsouza, Bloomberg Quint 

Mumbai, 10 February 2017

Less than seven years after launching the Vivanta brand and four years after inaugurating its first Gateway property, Indian Hotels Co Ltd. has decided to re-brand the two verticals and bring them back under the Taj Group brand.

All existing properties run by the Taj Group will now be classified under four categories — Taj Hotels, Taj Palaces, Taj Resorts and Taj Safari. Only its budget chain, Ginger Hotels, will continue to be operated under the existing brand.

Analysts and brand consultants maintain that this entire exercise will have no impact on the company’s performance in the near term. They peg the benefit of reclassification seeping in only after five years, if at all.

Consultants also argue that the rebranding exercise by the hotel major won’t do much to change the perception in the mind of the consumer, which has been dented due to a drop in service quality.

Devangshu Dutta, chief executive officer at Third Eyesight, a retail and brand consultancy firm, is not so critical of the new strategy stating that the new branding will help Taj classify its properties better and build market share over a period of time.

Brokerage house IIFL Ltd. says Indian Hotels’ long-term strategy is to chase profitability over a period of time. “The earlier positioning didn’t do much for the consumer. There was a sense of ambiguity in the minds of the consumer with the earlier classification of hotels. It is very clear that the company is now looking to improve its bottom line,” according to Amar Ambani, Head Of Research At IIFL Ltd.

The rebranding will be complete by the end of 2017, the company said.

Chinami Sharma, chief revenue officer of Taj Hotels, Palaces, Resorts, and Safaris, said the company will spend not more than three to four percent of its revenue on the rebranding exercise.

Indian Hotels’ consolidated revenue in the quarter ended December stood at Rs 1,129.29 crore, down 2.8 percent year-on-year compared to Rs 1,162.19 crore. Its net profit rose to Rs 93 crore compared to Rs 13 crore in the year-ago period.

The reclassification of hotels will not have an impact on the pricing strategy of the Taj Hotels properties, the company said.

(Published in BloombergQuint)

Amazon takes up record level of office property in 2016 

Raghavendra Kamath, Business Standard
Mumbai, 25 January 2017

To expand its storage capacity in India, Amazon had opened its largest Fulfilment Centre in Sonipat, Haryana.US-based e-commerce giant Amazon took about a million square feet of office spaces on lease last year, making it equal to what it took between 2008 and 2015 in the country.

Founder and chief executive Jeff Bezos said last year that it would invest another $3 billion in India, amid intense competition in the e-commerce space.

Much of the leased space could be used for seller and development services, besides a 30,000-sq ft building in Bandra Kurla Complex for its India headquarters.

According to Propstack, a data analytics firm for commercial property transactions, various Amazon entities have leased about 1.3 million sq ft since 2008.

Amazon launched its online marketplace in India in 2013 but had been present in the country for eight years for research and development services.

An Amazon India spokesperson said: “As a policy, we do not comment on what we may or may not do in the future.”

Properly consultant Colliers International elaborated on the latest activity by Amazon as the year closed — 100,000 sq ft in the Mohan Co-operative area in Delhi, 150,000 sq ft in Ambience Corporate Tower 2 in Gurgaon and 300,000 sq ft in World Trade Tower Noida.

Before that, through 2016, it leased 90,000 sq ft at Ambience Corporate Tower II NH8 in Gurgaon and 350,000 sq ft at Mindspace, Madhapur, in Hyderabad.

Rival Flipkart, which operates through Flipkart India, Flipkart Internet and Flipkart Payment Gateway, recently took 600,000-sq ft office space in an Embassy group project in Bengaluru.

“Amazon has been investing systematically in expanding its product portfolio, bringing Indian merchants on to their Indian and global platform, and expanding its delivery infrastructure,” said Devangshu Dutta, chief executive officer at retail consultancy Third Eyesight.

Dutta said with its plans to grow private labels and the current e-commerce foreign direct investment regulations which require companies to increase the share of unrelated merchants, the Bezos-led company requires significant organisational capacity and hence is growing office spaces.

Added Raja Seetharaman, director at PropStack, “Amazon is going ‘all out’ in the battle for e-commerce market share in India. They realise that India would be their next biggest market outside the US. With a median age of 27 and growth rate of 6.5-7 per cent, Amazon is willing to invest ‘whatever it takes’ to win.”

The company’s long-term investments, along with futuristic technology like drone deliveries, which it is already piloting in the US, indicate that Amazon is well positioned to be a leader in the e-commerce sector, Seetharaman said.

LEASE DEALS IN 2016

  • Leases 100,000 sq ft in Mohan Co-operative Area in Delhi
  • Takes 150,000 sq ft in Ambience Corporate Tower 2 in Gurgaon
  • Takes 300,000 sq ft in World Trade Tower in Noida
  • Takes 90,000 sq ft at Ambience Corporate Tower II NH8 in Gurgaon
  • Takes 30,000 sq ft in BKC in Mumbai
  • Takes 350,000 sq ft at Mindspace, Madhapur in Hyderabad

Source: Colliers International

(Published in Business Standard)

Amazon takes up record level of office property in 2016

Raghavendra Kamath, Business Standard 
Mumbai, 25 January 2017

To expand its storage capacity in India, Amazon had opened its largest Fulfilment Centre in Sonipat, Haryana.

US-based e-commerce giant Amazon took about a million square feet of office spaces on lease last year, making it equal to what it took between 2008 and 2015 in the country.

Founder and chief executive Jeff Bezos said last year that it would invest another $3 billion in India, amid intense competition in the e-commerce space.

Much of the leased space could be used for seller and development services, besides a 30,000-sq ft building in Bandra Kurla Complex for its India headquarters.

According to Propstack, a data analytics firm for commercial property transactions, various Amazon entities have leased about 1.3 million sq ft since 2008.

Amazon launched its online marketplace in India in 2013 but had been present in the country for eight years for research and development services.

An Amazon India spokesperson said: “As a policy, we do not comment on what we may or may not do in the future.”

Properly consultant Colliers International elaborated on the latest activity by Amazon as the year closed — 100,000 sq ft in the Mohan Co-operative area in Delhi, 150,000 sq ft in Ambience Corporate Tower 2 in Gurgaon and 300,000 sq ft in World Trade Tower Noida.

Before that, through 2016, it leased 90,000 sq ft at Ambience Corporate Tower II NH8 in Gurgaon and 350,000 sq ft at Mindspace, Madhapur, in Hyderabad.

Rival Flipkart, which operates through Flipkart India, Flipkart Internet and Flipkart Payment Gateway, recently took 600,000-sq ft office space in an Embassy group project in Bengaluru.

“Amazon has been investing systematically in expanding its product portfolio, bringing Indian merchants on to their Indian and global platform, and expanding its delivery infrastructure,” said Devangshu Dutta, chief executive officer at retail consultancy Third Eyesight.

Dutta said with its plans to grow private labels and the current e-commerce foreign direct investment regulations which require companies to increase the share of unrelated merchants, the Bezos-led company requires significant organisational capacity and hence is growing office spaces.

Added Raja Seetharaman, director at PropStack, “Amazon is going ‘all out’ in the battle for e-commerce market share in India. They realise that India would be their next biggest market outside the US. With a median age of 27 and growth rate of 6.5-7 per cent, Amazon is willing to invest ‘whatever it takes’ to win.”

The company’s long-term investments, along with futuristic technology like drone deliveries, which it is already piloting in the US, indicate that Amazon is well positioned to be a leader in the e-commerce sector, Seetharaman said.

LEASE DEALS IN 2016

  • Leases 100,000 sq ft in Mohan Co-operative Area in Delhi

  • Takes 150,000 sq ft in Ambience Corporate Tower 2 in Gurgaon

  • Takes 300,000 sq ft in World Trade Tower in Noida 

  • Takes 90,000 sq ft at Ambience Corporate Tower II NH8 in Gurgaon 

  • Takes 30,000 sq ft in BKC in Mumbai 

  • Takes 350,000 sq ft at Mindspace, Madhapur in Hyderabad 

Source: Colliers International


(Published in Business Standard)

Are India’s Startups At Risk Of Meddling From Their VC Investors? 

Suparna Goswami, Forbes
Bengaluru, 17 January 2017

The past week saw India’s Flipkart appointing a non-founder CEO who is also part of Tiger Global Management, the online marketplace’s largest investor firm.

A few days later, Snapdeal, another large Indian online marketplace, brought in real estate firm Housing.com’s CEO Jason Kothari as its chief strategy and investment officer. This news comes on the heels of a recent merger between Housing.com and real estate brokerage firm Prop Tiger, which has raised funds from SoftBank – a major investor in Snapdeal.

Are we seeing a pattern of investor overreach into startups in India?

With this latest SoftBank connection, many are starting to lament how young businesses in India are facing excessive interference from venture capitalists. Some experts tracking the ecosystem have written about the number of years left before “impatient investors take control of the startups” – but how well founded are these suspicions? I spoke with a few local venture capitalists for their side of the story, and perhaps unsurprisingly, many were upset with the media for “sensationalizing” a trend that’s not quite the harbinger it appears to be.

Dev Khare from Lightspeed India Partners Advisors, a VC firm, says things shouldn’t be viewed as black and white. “Just because Flipkart announced a professional CEO who happens to have an association with its investor firm Tiger Global Management doesn’t mean [its] founders no longer will have a say in the company,” says Khare.

“In the end it all boils down to making money. If a company isn’t doing well, the equity that VCs and founders jointly hold will have no value. I don’t see this as a battle between VCs and founders,” he says.

For other VCs, it’s all about the individual needs of a company, and labelling the investor’s role as “interference” is the wrong way to approach the issue.

Tarun Davda, managing partner with VC firm Matrix Partners believes that all investors look out for the wellbeing of their investment, no matter how that presents itself.

“We’re helpful when asked for advice but never fool ourselves into believing that we know more about the business than the founders,” says Davda.

He believes there are often cases where founders feel they can better serve their company by bringing on a more experienced CEO, particularly where founders may lack the experience or skills to take a company ahead through all stages of evolution. Davda provides the example of Google, probably the biggest startup success story of our generation, which had to bring in Eric Schmidt as its CEO early in their journey.

Devangshu Dutta, managing partner of venture accelerator PVC Partners, chalks up the media reaction to local culture. Dutta says Indians have a habit of looking down on founders for handing control over to an outsider.

“There is no harm in accepting that sometimes a company needs a new person at the helm to turn around things,” says Dutta. “In India, we tend to take these things as failures; but [they] could be the outcome of well thought out strategic decisions.”

And in reality, for many startups the Flipkart and Snapdeal episodes are a non-issue; founders are aware of their capabilities and strengths, and their limitations.

Ganesh Shankar, founder of FluxGen Technologies, an IoT startup, is fine to pass on the reins of the company to a person who doesn’t alter the company culture too much. “I guess I [would] be glad if I can find a person willing to take on the top leadership role provided he or she has the experience to scale the business,” he says.

Others view it as a matter of practicality, that these seemingly hard decisions are part of the fiduciary responsibility of the VCs towards their LPs.

Pallav Pandey, CEO of startup BroEx, doesn’t believe that VCs interfere in a company’s affairs unless they’re forced to. “Both founders and investors are stakeholders and after having given enough time to founders [to succeed], if it is inevitable that a new CEO needs to be brought in to steer the company forward, then it should be done,” he says.

However, not all agree with this view. One startup founder I spoke with, who asked not to be named because of the potential harm to his business’ relationships, says the reality of a boardroom meeting is darker than what’s usually projected.

“Founders and VCs are fair-weather friends. One can’t expect things to be always amicable. The main flip side of raising huge funds is that somewhere down the line a founder’s opinion gets diluted. That’s a hard reality,” the founder says.

(Published in Forbes)

Are India’s Startups At Risk Of Meddling From Their VC Investors? 

Suparna Goswami, Forbes  

Bengaluru, 17 January 2017

The past week saw India’s Flipkart appointing a non-founder CEO who is also part of Tiger Global Management, the online marketplace’s largest investor firm.

A few days later, Snapdeal, another large Indian online marketplace, brought in real estate firm Housing.com’s CEO Jason Kothari as its chief strategy and investment officer. This news comes on the heels of a recent merger between Housing.com and real estate brokerage firm Prop Tiger, which has raised funds from SoftBank – a major investor in Snapdeal.

Are we seeing a pattern of investor overreach into startups in India?

With this latest SoftBank connection, many are starting to lament how young businesses in India are facing excessive interference from venture capitalists. Some experts tracking the ecosystem have written about the number of years left before “impatient investors take control of the startups” – but how well founded are these suspicions? I spoke with a few local venture capitalists for their side of the story, and perhaps unsurprisingly, many were upset with the media for “sensationalizing” a trend that’s not quite the harbinger it appears to be.

Dev Khare from Lightspeed India Partners Advisors, a VC firm, says things shouldn’t be viewed as black and white. “Just because Flipkart announced a professional CEO who happens to have an association with its investor firm Tiger Global Management doesn’t mean [its] founders no longer will have a say in the company,” says Khare.

“In the end it all boils down to making money. If a company isn’t doing well, the equity that VCs and founders jointly hold will have no value. I don’t see this as a battle between VCs and founders,” he says.

For other VCs, it’s all about the individual needs of a company, and labelling the investor’s role as “interference” is the wrong way to approach the issue.

Tarun Davda, managing partner with VC firm Matrix Partners believes that all investors look out for the wellbeing of their investment, no matter how that presents itself.

“We’re helpful when asked for advice but never fool ourselves into believing that we know more about the business than the founders,” says Davda.

He believes there are often cases where founders feel they can better serve their company by bringing on a more experienced CEO, particularly where founders may lack the experience or skills to take a company ahead through all stages of evolution. Davda provides the example of Google, probably the biggest startup success story of our generation, which had to bring in Eric Schmidt as its CEO early in their journey.

Devangshu Dutta, managing partner of venture accelerator PVC Partners, chalks up the media reaction to local culture. Dutta says Indians have a habit of looking down on founders for handing control over to an outsider.

“There is no harm in accepting that sometimes a company needs a new person at the helm to turn around things,” says Dutta. “In India, we tend to take these things as failures; but [they] could be the outcome of well thought out strategic decisions.”

And in reality, for many startups the Flipkart and Snapdeal episodes are a non-issue; founders are aware of their capabilities and strengths, and their limitations.

Ganesh Shankar, founder of FluxGen Technologies, an IoT startup, is fine to pass on the reins of the company to a person who doesn’t alter the company culture too much. “I guess I [would] be glad if I can find a person willing to take on the top leadership role provided he or she has the experience to scale the business,” he says.

Others view it as a matter of practicality, that these seemingly hard decisions are part of the fiduciary responsibility of the VCs towards their LPs.

Pallav Pandey, CEO of startup BroEx, doesn’t believe that VCs interfere in a company’s affairs unless they’re forced to. “Both founders and investors are stakeholders and after having given enough time to founders [to succeed], if it is inevitable that a new CEO needs to be brought in to steer the company forward, then it should be done,” he says.

However, not all agree with this view. One startup founder I spoke with, who asked not to be named because of the potential harm to his business’ relationships, says the reality of a boardroom meeting is darker than what’s usually projected.

“Founders and VCs are fair-weather friends. One can’t expect things to be always amicable. The main flip side of raising huge funds is that somewhere down the line a founder’s opinion gets diluted. That’s a hard reality,” the founder says.  

(Published in Forbes)

Will Lever Ayush Makeover Help HUL Make Inroads In Southern Ayurvedic Market?

Sharleen Dsouza, Bloomberg Quint
Mumbai, 9 January 2017

As demand for ayurvedic products grows, especially driven by Yoga guru Baba Ramdev’s Patanjali Ayurved Ltd., FMCG major Hindustan Unilever Ltd. has relaunched its Lever Ayush brand in southern India, the biggest and most competitive market in the space.

The Rs 32,000-crore HUL will offer 20 Lever Ayush products for as low as Rs 30 in the hair, skin and oral care categories across Tamil Nadu, Kerala, Andhra Pradesh, Telangana and Karnataka — the five states are home to several local ayurvedic brands

Patanjali, which largely operates in the north, offers products for as low as Rs 25.

Why South India…

“Traditionally, the southern market consumer is a strong user of ayurvedic products, which could have made HUL consider launching the product initially in the south,” said Devangshu Dutta, chief executive officer at Third Eyesight, a retail and consumer products consulting firm.

“Our current focus is to ensure a successful launch of the new range in these markets to build a scalable and profitable model. We will consider the expansion to other markets at a suitable time going forward,” HUL said in an emailed response to BloombergQuint

There are several well-established brands in the south, the largest market for ayurvedic products, and HUL will find it difficult to make inroads, says Sageraj Bariya, vice-president and analyst at East India Securities.

“(HUL) has been present in the ayurvedic segment with Lever Ayush for a long time, but this has not been their core competency area. In terms of price points, Hindustan Unilever will be competing closely with Patanajli, which has products in a similar price range. It looks difficult for Lever Ayush to really give a stiff competition to Patanjali and other players in the south,” Bariya says.

There are more than 15 ayurvedic brands in southern states, the prominent being Dhathri Ayurveda, Sakunthala, Pankajakasthuri, Heena and Siso.

Patanjali, which has done well in north India, has also managed to make a mark in the south despite local ayurvedic brands having a strong presence, says brand consultant Hairsh Bijoor, founder of Harish Bijoor Consults Inc.

Pricing Pressure

In terms of pricing, HUL is competing with Patanjali head-on. The largest consumer goods company in the country has priced its products in the Rs 30-130 range, close to that of Patanjali’s Rs 25-110.

South-based Ayurvedic brands have priced their skin-care products 30 percent lower and toothpastes 20 percent lower compared to other major brands in the space.

In December 2015, HUL had acquired Kerala-based Moson Group’s Indulekha for Rs 330 crore, just when competition in the ayurvedic segment had started to witness some momentum.

HUL decided to relaunch Lever Ayush to compete even more fiercely in the ayurvedic space by offering lower prices as Indulekha products are more premium in terms of pricing.

“Despite having Indulekha in their portfolio, the company has re-launched Lever Ayush as HUL wants a larger market share in the ayurvedic space, and I expect the company to launch more ayurvedic products going ahead,” said Prashant Agarwal, joint managing director at business consulting firm Wazir Advisors.

Arvind Singhal, chairman of management consulting firm Technopak Advisors, believes HUL’s strong distribution channel will help the company.

Patanjali Factor

Lever Ayush, launched in 2001, failed to perform because the ayurvedic market was relatively small, though growing at a steady pace, experts say.

“With the entrance of Patanjali, the Yoga guru awakened the latent demand for ayurvedic products, which is now an eye-opener for other FMCG companies to get aggressive in the ayurvedic space, as every consumer player wants a share in the expanding ayurvedic market,” said Agarwal.

Patanjali’s turnover grew over two-fold to Rs 5,000 crore in the financial year 2015-16. The company sees it rising to Rs 40,000 crore by 2018-19, according to an Axis Capital report released on December 12, 2016.

(Published in BloombergQuint)

Women’s ethnic wear tailors growth 

Neha Tyagi & Sagar Malviya, The Economic Times 

Mumbai, 3 January 2017

Leading Indian womenswear brands bucked the slowdown trend on the back of mostly younger consumers shifting from tailor-made to ready-to-wear stylish designs at affordable rates and discounts. Makers of ethnic brands in the country — TCNS Clothing (maker of W and Aurelia brands), BIBA, House of Anita Dongre (AND and Global Desi brands), and Ritu Kumar — all posted 14 per cent-64 per cent year-on-year jump in their revenues last fiscal, even as the overall Indian apparel market slipped to single-digit growth at 8 per cent.

Sales of these four companies put together equals that of the apparel sections retail chains Shoppers StopBSE -0.51 % and Lifestyle International that sell around a hundred brands, and are more than Tata’s Westside. In fact, with combined sales of Rs 1,600 crore in the year to March 2016 as per their annual filings, these companies have nearly doubled their business in the past two years.

“Consumers no longer are stuck to the idea of compartmentalising ethnic wear and western wear as strictly as we think it is. There is a growing market for contemporary Indian wear, which cuts across all product segments,” said Anant Daga, CEO at TCNS Clothing.

The maker of W and Aurelia brands, which posted a 65 per cent growth in sales for FY16 at Rs 591 crore, is expecting a threefold jump in revenues in five years.

Experts say there’s good growth opportunity as branded women’s apparel is an extremely under-penetrated category and that is changing gradually.

“The number of women taking up ready to wear earlier was smaller, which is now picking up. Also, younger women are preferring to go out wearing something which addresses both traditional aesthetic and the work environment,” said Devangshu Dutta, chief executive at retail consultancy Third Eyesight.

This growth potential has helped TCNS Clothing, BIBA, House of Anita Dongre and Ritu Kumar — which are nearly two decades old or more — attract private equity investments in the past three years. While Everstone Capital picked a minority stake in Ritu Kumar for Rs 100 crore ($16.6 million), Warburg Pincus and Faering Capital invested about Rs 300 crore to buy a stake in BIBA Apparels. General Atlantic has picked up a significant minority stake in AND Designs for around Rs 150 crore. More recently, US-based private equity firm TA Associates invested about Rs 937 crore in TCNS Clothing.

Experts said companies can now easily support changing trends with investment in product innovation and reach. Indian wear, initially largely restricted to the older age segment, now finds acceptance among younger consumers.

That’s because most companies now sell fusion clothing — a mix of modern and traditional wear — instead of just ethnic, which are reserved for special occasions.

Another growth trigger is growing popularity of online shopping that has helped these brands reach out to customers in smaller cities. Online retailing now accounts for 10-15 per cent of their sales.

While online added to overall sales, companies aren’t necessarily enthused because of discounts. “We have been able to curtail ecommerce growth to a large extent as we believe in selling full price merchandise rather than going into the discount,” said Bijit Nair, president – retail at House of Anita Dongre. “But the new found availability due to geographical presence is helping too,” he said.

Siddharth Bindra, MD at BIBA, said, “We have got bigger stores and more locations. Our product ranges have evolved. We also brought larger heavier collections and collaborations with designers which did very well.” BIBA posted sales growth of 15 per cent at Rs 441crore in FY16.  

(Published in The Economic Times)