admin
July 19, 2012
REUTERS / Businessworld
New Delhi, 19 July 2012
The
government appears set to relax heavily criticised sourcing rules
for retailers, anxious not to scare off IKEA – one of the few
big name firms that has said it will invest in the country – or
any others willing to follow.
India kicked open the door to foreign retailers in January when it removed an investment cap for single brand chains to set up shop but then shot itself in the foot by imposing a requirement that companies had to source 30 per cent from small local firms.
IKEA and others have balked, and the government’s response is being seen as a test case of how well it can revive flagging investor confidence at a time when economic growth has slowed to its weakest in nine years.
Signs point to backtracking on the part of the government, with a top official closely involved in framing retail policy telling Reuters that key clauses may be relaxed although the government was still discussing the pros and cons as well as the extent of any relaxation.
"We are in the process of finalising our views about all this," said the official, asking firms to "be a little patient".
Analysts are confident there will be an easing of the rule.
"The government is in damage control mode. It realises it has sent out a wrong signal by putting the thirty per cent sourcing requirement for foreign retailers," said Saloni Nangia, senior vice-president for retail at Technopak consultants.
Prime Minister Manmohan Singh this month also held up the Swedish furniture giant’s planned $1.8 billion (Rs 9,954 cr) investment as an example of investor confidence, while the trade minister said its already substantial amount of sourcing from India would be taken into account.
New Delhi is also pushing to resuscitate a reform to allow foreign retailers that sell many brands – supermarkets like Wal-Mart Stores – to invest in the country with a 51 per cent cap on ownership. At the moment, they are only allowed to operate in a wholesale capacity.
The government’s plans were scotched last year by a political backlash but India could launch the policy within weeks if the political climate is right, the official involved in retail policy said.
"We are pushing, to the extent we can," he said. "Multibrand retail is only a pause. There are no major issues there."
PENALISING SUCCESS
The sourcing rule for single brand retailers currently stipulates that local suppliers must not have more than $1 million (Rs 5.53 cr) invested in plant and machinery.
The rule was designed to ensure that India’s manufacturing sector, which pales next to China’s, benefits from foreign money rather than being muscled aside by imports. But it represents a headache for retailers looking for scale and reliable, high quality suppliers.
IKEA has asked for a 10-year window to comply with the rule – a time frame for the government has said is too long.
"It will take us time to fully live up to the requirements," said Josefin Thorell, a spokeswoman for IKEA. The company has declined to comment on how it would respond if it did not get 10 years.
UK-based footwear retailer Pavers, the only other retailer besides IKEA to apply for wholly owned operations since the rule change, is asking that sourcing not be measured based on the value of goods sold.
"Our request along with the industry is that 30 per cent of that should be on the cost price instead," said Utsav Seth, chief executive of Pavers’ Indian operations, although he added that Pavers would comply with the current rule if its request was denied.
In addition to ironing out these policy matters, the government is also rethinking what to do if a supplier grows beyond its original size. According to a policy document in November, an Indian company would be disqualified from supplying a foreign firm if it grew beyond its original $1 million (Rs 5.53 cr) investment.
"I would call it penalising success," said Devangshu Dutta of Third Eyesight, a retail consultancy.
"If you are successful in actually helping small companies grow, they would be penalised because they would not be able to supply you any more. And you would be penalised for helping them grow."
Another rule, one that says an investor must own the brand it is proposing to bring to India, may also be relaxed, said the official involved in retail policy.
This has tripped up Spain’s Inditex S.A. which applied for permission to bring a second clothing brand, Massimo Dutti, to India in addition to its flagship clothing brand Zara.
The government has put that proposal on hold after the application was not submitted by brand owner Inditex but by its wholly owned unit Zara Holdings BV.
admin
July 13, 2012
Raghavendra
Kamath, Business Standard
Mumbai,
13 July 2012
Just
one sentence in the IKEA website sums it all up: “We design
the price tag first and then develop the product to suit that
price”. The $30 billion (over Rs 165,000 crore) furniture
powerhouse with 330 stores worldwide obviously doesn’t like
to mince words: it’s an out and out price warrior in all
the 41 countries (India will be the 42nd) it operates in.
That obviously would be a cause for concern for the four to five organised players, which account for 6 per cent of the total furniture market in India, while the rest is in the unorganised segment.
“Product developers and designers work directly with suppliers to ensure that creating the low prices starts on the factory floor,” says IKEA Group spokesperson Josefin Thorell. Others agree. “People flock to IKEA stores because of price”, says Debashish Mukherjee, partner and vice president at AT Kearney, a global management consulting firm. Consider this: in China, the retailer has cut prices by 60 per cent since 1998 when it entered the market.
The low pricing has its roots in sourcing. Globally, a third of IKEA’s sourcing comes from China, and two-thirds from European countries like Poland. While IKEA develops the entire range of furnitures in Älmhult, Sweden, product developers and designers work directly with suppliers. IKEA has about 31 distribution centres in 16 countries, supplying goods to its stores. Since it owns product rights of almost every product, it can switch suppliers whenever it feels.
At the heart of the strategy is the concept of do-it-yourself (DIY) furniture which means buyers have to assemble different pieces of the product themselves. The ‘flat packs’ design helps the retailer to sell them at lower prices, consultants say. A customer has to take the delivery of the product and assemble it himself.
Devangshu Dutta, chief executive of Third Eyesight, a retail consultancy explains: “When they sell flat packs, there are no assembling costs, lower shipment costs and mostly products are sold on catalogues, which helps them reduce operational costs and lower prices. Those flat packs work well with young consumers whose budgets are normally tight,” says Dutta.
The IKEA catalogue, many say, is the company’s greatest weapon. A 300-page missionary text, it goes out to over 180 million people in 27 different languages. The catalogues also help the retailer to save on advertising costs, says Sanjay Badhe, a Mumbai-based independent retail consultant.
DESIGNS
Original styles and designs make it different from others, say
consultants. The other key element is flexibility. For example,
the beginnings of IKEA in America were inauspicious, with European
compact efficiency conflicting with America’s “bigger
is better” creed. IKEA’s designers changed their mindset
on how they approached American design after the head of US operations
made a stunt of it: He handed out T-shirts to Swedish designers
that declared “size matters.” They apparently got the
message.
There will also be a certain recall value even before IKEA makes an entry into India. For example, its products are already popular among urban shoppers.
WHAT IT MEANS FOR INDIA
IKEA’s Thorell says the Swedish retailer’s presence
in India will, in a major way, help improve availability of high
quality, low-price products, increase sourcing of goods from India
and increase the competitiveness of Indian enterprise through
access to global designs, technologies, skill development and
global best practices. IKEA sourced goods worth $ 450 million
(Rs 2,475 crore) from India in 2011 and says it plans to exceed
over $ 1 billion (Rs 5500 crore) over the next few years.
India’s total furniture market is estimated to be around Rs 100,000 crore and organized market constitutes six per cent of that at Rs 6,000 crore. Home Town run by Future Group, Home Centre owned by Dubai’s Landmark Group and Homestop of Shoppers Stop are the main organised players in the market.
“Their entry will bring a sea change in the Indian furniture market,” says Mahesh Shah, who heads Home Centre, the home products retailer at Landmark group. Shah says IKEA could pose a challenge for value retailers such as Furniture Bazaar.
CHALLENGES
Some consultants such as AT Kearney’s Mukherjee says that
IKEA will have to figure out the last mile supply chain issues
in India. The reason: most western countries have large houses
and cars and even large parking lots where IKEA’s furnitures,
which are folded and sold, can be stored. But In India, both cars
and houses are smaller, making it difficult for consumers to stock
them.
“In India, the cost of real estate is high, retail space availability is an issue and overall store efficiency is a big challenge. They can’t cut and paste their global model here. They have to develop India-specific strategy,” says Dutta of Third Eyesight.
“Globally, do-it-yourself concept is quite popular, But in India, people are more comfortable with readymade furniture or getting it made from carpenters. It needs to be seen as to how IKEA develops here,” says the chief executive of a retail chain who did not want to be quoted.
(This article appeared in Business Standard on 13 July 2012.)
admin
July 13, 2012
Anjana Pasricha, Voice of America
New Delhi, 13 July 2012
Foreign investment in India has slowed down in recent months, but a recent United Nations survey says Asia’s third largest economy continues to be an attractive investment destination for global companies.
Official data show that in April and May, foreign direct investment in India slumped by nearly 40 percent, falling from more than $5 billion during the same period last year to $3.2 billion.
Economists say a weakening global and domestic economy is only partly to blame.
N.R. Bhanumurthy with New Delhi’s National Institute for Public Finance and Policy, says the slow pace of reforms and policy reversals in recent months have frustrated many foreign investors. He points out that the government has many times promised to push ahead with liberalizing sectors like retail, aviation and insurance, but failed to deliver.
"You do have the intention, but you are not able to do and you are taking one step forward and you are coming two step backwards," noted Bhanumurthy . "There is so much confusion which is affecting the overall foreign investment."
Foreign investors have also been deterred by controversial tax proposals that have left them facing the prospect of paying billions of dollars in taxes they had not anticipated.
However, a recent report by the United Nations Conference on Trade and Development has brought some cheer to Indian policymakers. It says India is the third most attractive destination for global corporations after China and the United States.
Proof that India remains firmly on investors radar came recently when two big foreign companies announced major investments in the country.
Furniture maker IKEA said last month it will invest nearly $2 billion in India to open 25 outlets. Coca Cola, which is already present in India, plans to invest another $3 billion over the coming years.
Devangshu Dutta is head of the consulting firm, Third Eyesight, in New Delhi. Dutta says despite the recent slowdown, India remains attractive because it is a huge market.
"India is, continues to remain, in fact, one of the few large economies which is growing, and that is not something to sneeze at in the current economic scenario around the world," noted Dutta. "Sometimes that fact tends to get swept under the carpet amidst all the gloom and doom. The most important factor which is in India’s favor is that it has a young population. That means they are generating income when they become earning members of society and that money has got to get spent somewhere."
The recent U.N. report estimates that foreign direct investment in India can rise by about 20 to 25 percent during the next two years.
Observers say that could happen if India addresses some of the concerns of foreign investors, who are looking for stable policies and more reforms.
(This article appeared on the Voice of America website.)
admin
July 9, 2012
Suneera
Tandon, MINT (A Wall Street Journal Partner)
New
Delhi , 9 July 2012
For Penguin Books India Pvt. Ltd publisher Chiki Sarkar, nothing is quite as beautiful as paper. Her current favourite is Pineider, the 200-year-old Italian fine stationery brand that she picked from Rome.
Sarkar is in good company in the world of letters. Pineider’s website informs visitors that it was the stationer of choice for writers from Lord Byron and Percy B. Shelley to Giacomo Leopardi and Charles Dickens, and that Napoleon Bonaparte was among the travellers who entered the Pineider shop.
The Mediterranean blue and baby pink boxes of Pineider “have the most beautiful envelopes with different inlay paper”, Sarkar says. She uses the paper for writing small notes by hand—“Thank yous and condolences.”
“I can’t do complex writing by hand,” Sarkar explains. “I have a terrible handwriting and I fool myself that it looks better when I use a fountain pen.”
Sarkar is among a growing tribe of connoisseurs of luxury stationery — which they are buying on trips abroad as well as from an increasing number of retailers stocking such products in India — for their personal use.
Although luxury paper and fine writing instruments are still
a minuscule part of the Rs. 10,000-12,000 crore Indian stationery
market, they are part of a segment that’s growing at a yearly
pace of 20-25%, say industry experts.
Aakriti Mandhwani, a 26-year-old M. Phil student at Delhi University, treasures her Moleskine diaries, which the company’s website says were used by artists and authors including Vincent Van Gogh, Pablo Picasso, Ernest Hemingway and Bruce Chatwin to write their memoirs and stories and draw their sketches. “If I were to record my life, I would write it down in a Moleskine diary,” Mandhwani said.
Moleskine products, which enjoy a cult following, include notebooks, which typically come with an elastic band to hold them closed, as well as diaries, planners, bags and writing instruments. They are based on notebooks that were first produced and marketed by French bookbinders in the 19th and 20th centuries and which were used by Van Gogh, Picasso, even Chatwin; Moleskine itself was launched in the late 1990s by an eponymous Italian company that read a description of the notebooks in a book by Chatwin.
Mandhwani’s first Moleskine in red paper was a gift from a friend in London. “There is an aura around Moleskine. Only those with an aesthetic sense can appreciate it for what it is,” says Mandhwani. In India, Moleskine products are distributed by William Penn, the retail chain that stocks luxury pens.
Delhi-based retail consultant Devangshu Dutta, chief executive at Third Eyesight, attributes the growing popularity of luxury stationery among well-heeled Indians to changing aspirations.
“People want to appear more professional,” Dutta said. “As they move up the socio-economic ladder, the consumption of stationery, which is a utility product, is becoming more expensive. It’s more about the brand and being conscious about what you are seen with.”
Shailesh Karwa, co-chief executive officer of Staples Future Office Products Pvt. Ltd, says there has been an influx of brands in the luxury category and the premium is growing faster than the mid-to-low-priced brands.
“Pens have been seeing a growing demand in the market”, he adds.
No surprise then that the high-end retail chain William Penn, which sells writing instruments such as Sheaffer, Pelikan and Caran d’Ache, has been growing at 20-25% over the last five years.
Started in 2002 by Nikhil Ranjan, who quit his tech job at International Business Machines Corp., the company has seen the market evolve.
“The personal gifting and consumption of pens has gone up dramatically, driven by growth in spending power” says Ranjan, who uses a Sailor 1911 fountain pen to sign his cheques. Currently, the company has 15 stores in six cities and five shop-in-shops and stocks products that range in price from Rs. 750 to Rs. 1 crore and more. The La Modernista from Caran d’Ache is what costs a cool Rs. 1 crore. The Shri Ganesh from Sailor is more affordable; it costs Rs. 4.5 lakh.
Over the years, the chain has seen both its sales by volume and average ticket size go up. Sales volumes are driven by writing instruments priced between Rs. 3,000 and Rs. 5,000. Gifts account for almost 50% of sales.
Every now and then Ranjan gets requests for customized products. Recently, he was asked to inscribe a family name on the nib of a Caran d’Ache, a Swiss brand, as well as on the box to be passed on to future generations. Such services are provided at a 100% to 500% premium, says Ranjan.
He plans to expand the product line, enthused by the growing market for premium stationery. He has introduced Rubinato quill pens from Italy and a range of stationery and accessories from Dalvey. The growing league of individuals who relish the idea of well-crafted stationery is pulling more cult brands into the market.
Retail experts say that the pen market, estimated at Rs. 3,000 crore a year, is seeing a lot of traction.
“As the country moves towards higher levels of literacy, we are seeing demand for stationery products go up. Also as the economy matures, per capita expenditure on such categories will continue to go up,” says Sushil Patra, associate director of retail at consultancy Technopak Advisors Pvt. Ltd.
The desire to use expensive stationery is on the upswing despite the advent of tablets and hand-held devices changing the way people communicate. For instance, Suresh Mohankar, national planning head at Dentsu Communications Pvt. Ltd in Bangalore, is a self-professed stationery addict who prefers putting to paper his work-related ideas instead of typing them out on his laptop. “I’ve always been used to writing, so I still use diaries or journals to make points for my ppts (PowerPoint presentations) and proposals.”
Mohankar’s personal collection comprises 50 fountain pens with Montblanc, Conway Stewart and Sheaffer among them. “I never use office stationery, I get my own. It’s the feel-good factor of writing on good paper with a good pen,” says Mohankar, who picks up stationery from outlets at airports and from retail chains.
Like Chiki Sarkar and Mohankar, Jaya Bhattacharji Rose, an international publishing consultant, also finds good stationery sensually appealing. “It’s addictive,” she says. Her personal collection consists of Moleskine journals, Paperblanks (diaries) collected from her trips to Europe and diaries produced by Roli Books Pvt. Ltd and Penguin Books India.
There are others who swear by Rubberband launched five years ago by Mumbai-based design consultant Ajay Shah. Rubberband imports pulp from Indonesia and Russia to make its notebooks, which sell at 50 outlets in India. Available in bright colours, the notebooks and writing pads cost between Rs. 160 and Rs. 1,500.
Buyers are typically professionals such as architects, graphic and interior designers, photographers and storyboard artistes, Shah says. He also sees growing interest for his brand among lawyers, doctors, executives and those working in the hospitality sector.
(This article was published in Mint on 9 July 2012.)
admin
July 8, 2012
Pia
Heikkila, The National
8 July
2012
The
Swedish company Ikea’s furniture is well known across the world
for being inexpensive and flat-packed, and featuring functional
Scandinavian design.
People either love it or hate it – Ikea’s DIY furniture that looks oh-so-simple in the picture but often needs several hours of careful assembling.
Now the Nordic giant wants to bring its collapsible furniture to India and plans to conquer the country with a massive plan that includes a nearly US$1.8 billion investment drive.
"Ikea has a long-term vision for India. The investment plans as outlined in the application are estimations based on previous experience in other markets and our belief that India has a huge investment potential," says Malin Pettersson Beckeman, a spokeswoman for Ikea.
"India is a very interesting and important market for us and we are eager to set up our first store in the country."
Ikea is hoping Indians will fall for its Billy bookcase or Klippan sofa because on paper the Indian furniture market offers a massive opportunity. The market for household goods – including furniture and decor – is worth $18.5bn and is growing at a rate of 10 to 12 per cent annually, according to figures from the management consultancy Technopak.
Initially, Ikea’s fans would be young and urban.
"India has a young population which would likely be more open to buying DIY furniture than an older population," says Seema Desai, an analyst at Eurasia Group researchers.
Today Indians have more money to spend on furniture than ever before.
"The rapidly growing middle class in India, higher discretionary spending power, migration and urbanisation as well as changing family structures and consumer tastes including growing enthusiasm for western brands are all major growth drivers," she says.
India’s $450bn retail market is dominated by small family-owned stores, and only about 10 per cent of the total retail market revenue originates from chain stores. Indians are used to buying their tomatoes, electronics and of course their furniture from small, independent retailers, not from huge malls.
This could work to Ikea’s advantage.
"The home decor retail market in India is quite fragmented, and there are very few stores that offer everything under one roof," says Devangshu Dutta, the chief executive at the consultancy Third Eyesight. "An all-in-one retail concept such as Ikea offers consumers convenience through the width of products categories."
It all looks promising. But it’s not been plain sailing for the Swedes’ Indian odyssey so far. The company has been planning to come to India for several years.
The issue was that Ikea never wanted an Indian partner, which made it impossible for the company to operate in the country because Indian foreign direct investment (FDI) rules stipulated that a single-brand foreign retailer could enter only in partnership with a local entity.
Things changed in January this year, however, when the government allowed 100 per cent ownership of operations in India by foreign companies.
Ikea was first in line to say it was heading for India.
However, Ikea shifted its position yet again swiftly when it read the fine print – the government said that 30 per cent of supplies must come from India’s small businesses.
Eventually, Ikea came around to India’s way of thinking but still isn’t terribly happy.
"In the longer term, the mandatory sourcing of 30 per cent of the value of goods sold in India from domestic small industries remains a challenge … It is therefore important that the definition of small industries in the future is reviewed and provides flexibility," says Ms Pettersson Beckeman.
India last week rebuffed a request by Ikea to relax rules on local sourcing, Reuters reported, citing a government source. That raises the prospect of a delay in Ikea’s entering the market. The company said that a short delay would not affect its decision to open stores and that it hoped to start operations soon.
Ikea is already important to India, as last year the company sourced $450 million worth of goods from the country. Ikea has more than 70 suppliers and thousands of sub-suppliers in India from which it buys carpets, textiles and other materials.
It is not just sourcing that could be a headache for the Swedes.
"The challenges are many – including getting local approvals, labour issues and acquiring land in urban areas for stores," says Ms Desai.
The company’s concept was born in Sweden in the 1960s, but industry experts say the model has not been foolproof in developing economies.
"Ikea evolved its business model in high-cost, high-income economies in the West. This was about high sales volumes in large stores, proprietary products with offshore sourcing, and having customers taking assembly and delivery costs on themselves. When it entered China’s low-income economy with a similar strategy, it struggled," says Mr Dutta. In India, the most significant challenge for Ikea would be to create a business model that is right for a low-income economy
"Operating costs are higher here than in China," says Mr Dutta. "This includes getting affordable and high-traffic store locations of the size appropriate for Ikea’s business model, and pricing its products correctly."
Changing consumer demographics, potential sector growth and a massive increase in housing development means more international companies are looking to invest in India. Which means Ikea is not the only foreign furniture retailer eyeing the Indian market.
There are a few foreign furniture retailers already operating there.
Take Natuzzi – an Italian company that has been in India for less than two years but is already on an aggressive growth path, planning to add 20 stores this year.
"The overall furniture market currently is largely unorganised and very few players are operating in the premium segment," says Nitin Bahl, the Natuzzi Group country manager in India. "Our opportunity lies in these growing number of discerning Indian consumers with evolving lifestyles, those who are well travelled, aware of the global trends and make a statement with their personal living space."
Competition is getting tougher, the retailers admit.
"The market seems to be in a spending mode, and many brands are seeing top lines grow, because of which more players are entering India," says Mr Bahl. "With the easing of FDI norms in single-brand retail, we might see expansion in retail furniture space."
Increased competition also has benefits, industry experts say, as more entrants mean the market is likely to mature faster.
"With the entry of global brands in the sector, the market will get more educated on global designs, trends and innovation," says Mr Bahl. "With more players, the Indian furniture industry would gradually transform into a more organised and competitive sector."
(This article appeared in The National on 8 July 2012.)
