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June 28, 2011
Pradeep Pandey & Pramugdha Mamgain, The Economic Times
Mumbai/New Delhi, June 28, 2011
Apparel sales in the country have slumped about 20% since March, forcing many brands to start end-of-season discount sales two weeks earlier than usual.
Companies blamed high apparel prices-increased due to the mandatory 10% excise duty on branded garments introduced in the Union budget and soaring cotton prices-for the fall in demand.
"The present trend indicates that the industry will hardly be able to sustain a growth of 10-15% as margins are under tremendous pressure," said Rahul Mehta, president of Clothing Manufacturers Association of India ( CMAI).
Most manufacturers and retailers have reported a 10-20% increase in their inventory levels, the association said in a report submitted to the textile ministry last week, and sought removal of the tax to cut prices and boost demand.
Or, the excise duty be cut to 1%, said the association, which represents 200 garment makers and 60 retailers including Arvind Brands, Aditya Birla, Madura Garments and Pantaloon Retail.
The organised apparel industry, which booked sales of around 40,000 crore last year, is hit by shrinking profit margins because the rise in cost of production-raw material, labour and borrowing costs-have outweighed increase in prices.
The rise in raw material prices was passed on to consumers in tranches earlier, but now it has become difficult to carry forward, Mehta said.Any more increase in prices will impact demand. Already, many consumers, hit by rising food and fuel prices, have already started buying lower-priced brands than their usual favourites.
Reliance Trends Chief Executive Arun Sirdeshmukh said consumers are downtrading to more comfortable price points within national brands. "As a result, volumes of private brands have grown even though prices have increased for that segment too," he said.
"But the real impact on sales will be known in the festive season as cotton price increase will start reflecting then," Sirdeshmukh added.
Retailers are wary about business growth in the coming months. Some have cut their winter garments bookings. "We may see sluggish demand for high-priced garments in the coming months," Pantaloon Retail CEO Kailash Bhatia said.
Although cotton prices have corrected, the component of raw material cost will be high in the stock that will be sold during autumn and winter. So prices will be up for those products, Bhatia said.
Meanwhile, rising inventory costs have forced many brands to advance summer season-ending clearance discount sales two weeks ahead of the normal July first week schedule.
Brands that have already started season discount sales include Reebok, Adidas and Mango.
Organised retail sector’s inventory cost in the last three months stood at around 2,500 crore, while total sales were around 10,000 crore, industry insiders estimated. Arvind Brands-which manages the country’s largest denim manufacturer Arvind Mills’ brands such as Arrow, Lee and Flying Machine-has reported sluggish sales in June. "We need to wait and watch whether this continues in July and August," said J Suresh, MD and CEO of Arvind Lifestyle Brands and Arvind Retail.
He said the company’s sales have grown in the first quarter ended June.
Devangshu Dutta, chief executive of retail and consumer products consultancy firm Third Eyesight, said demand from lower-income group will fall the most because this section will spend most of its income on food, which is getting costlier with continuing inflation. "It is still positive for the middle class and above salaried consumers as increments have grown along with inflation and confidence remain high," he said.
admin
June 11, 2011
Priyanka
Pani, Businessworld
June
11, 2011
Anyone remember Ranger Farms? In 2007, Reliance Industries’ subsidiary Reliance Retail launched its cash-and-carry retail format by that name. A year later, RIL ‘merged’ Ranger Farms into Reliance Fresh, its food and grocery business. Readers may also recall that in 2009, RIL put together a team of top officials it had hired from several wholesale players, including Gwyn Sundhagul, the chief marketing officer and director at Tesco Lotus, Thailand, to spearhead its cash-and-carry plans. But it appears that after a year and a half, that team has been disbanded.
On 3 June, at the 37th annual general meeting of RIL, chairman Mukesh Ambani announced that Reliance Retail would launch its cash-and-carry stores this year. RIL’s past experience in the retail business has not quite had the same success that its other businesses – oil exploration, refining and petrochemicals – have had (see ‘Downturn’).
Reliance’s re-entry into the business assumes significance even as global retailers such as Walmart, Tesco, Metro and Carrefour are expanding their presence in India, and amid anticipation that the government is likely to ease foreign direct investment (FDI) norms in retail. Currently, FDI is allowed only in the cash-and-carry business.
But others think the rationale is different. "Cash-and-carry is, as yet, at a nascent stage in India," says Devangshu Dutta, chief executive at Third Eyesight, a retail consulting firm. "It’s a modernisation and organisation of the wholesale business, and an intermediate step needed in modernising the fragmented retail business." Something that Ambani has said he always believed in, which he called ‘farm-to-fork’.
Most cash and carry operations are targeted at hotels, restaurants and cafeterias – the so-called Horeca market, which accounts for close to 60 per cent of sales. "Package sizes of goods are larger (meaning more per sq. ft sales and greater volume growth); margins are also better," says Anand Ramnathan, manager at KPMG, the global consultancy. Compared to industry standards, Reliance Retail’s per sq. ft revenues have been lower, say industry analysts.
Reliance Retail officials say that the Horeca segment will not be the primary focus of their cash-and-carry business. Rather, their target audience – apart from their own chain of Reliance Fresh stores – will be other retailers, or the kirana stores.
"The cash-and-carry business is an integral part of a retail supply chain in a country like India, where distribution and logistics are major problems," says a Reliance Retail spokesman. "Reliance’s entry into the segment will help improve its other retail formats. Typically, retailers attempt to own the supply chain to give them control and better prices that benefits the end consumer."
The majority of Reliance Retail’s more than 1,000 retail outlets are located in Tier 2 cities, and the company is working to spruce up logistics and transport to better serve those cities. But the officials gave no details on the scale of investment.
At the AGM, Ambani set up an ambitious target of Rs 10,000 crore in revenues from the retail business in three years (of which cash-and-carry is part), or the end of FY14. On current revenues, that translates into a compound annual growth rate of just over 25 per cent. Making that kind of cash will carry Reliance Retail a long way.
(This story was published in the Businessworld Issue dated 20 June 2011.)
admin
June 7, 2011
Pallavi Srivastava
New Delhi, June 2011
The jeanswear brand, Levi’s had been losing its premium image
with the launch of Signature, which was launched in 2006. Making
ammendments, Signature has morphed into Denizen. Is it a mere
name change or are there any cosmetic changes as well? And more
so, will the new branding pull the brand back into the premium
league?
While Denizen carries the price tag of Signature (between Rs.
799 and Rs. 1,499), Denizen is being positioned as a youth brand
targeting the 18-28 male and female. Signature, meanwhile, was
positioned as a mass brand.
Also, Denizen claims to be giving a more customised offering to the Asian consumers. Sanjay Purohit, Managing Director, Levi Strauss India, says, "Denizen is the next evolution of Signature, be it in terms of product, retail or marketing. It aims to deliver to growing consumer aspirations, which are increasingly reflecting global trends and also strengthen the position of Levi’s."
Can the phase out be smooth? Devangshu Dutta, Chief Executive,
Third Eyesight is optimistic. "The phasing out of Signature
may cause short-term pain operationally, but Levi’s has phased
out other brands earlier – even Dockers, which was a much more
iconic brand."
The challenge for Denizen, however, will come from the growing
number of international brands making headway into the mid-segment
in India. K J Singh, CEO & Co-founder, Evolve Brands, says,
"The challenges for Denizen are huge especially when all
the foremost – large and local brands are vying for the same target
audience and it’s very difficult to identify any specific differentiation
– branding, awareness and information on the customisation."
However, Tarang Gautam Saxena, Senior Consultant, Third Eyesight expects Denizen "to strengthen Levi’s position in the affordable segment."
In the global scheme, Denizen is a brand focused at emerging
markets like India, China and Brazil. In fact, it’s first time
in the history of Levi’s that a brand has not been launched in
the US.
Ajay Naqvi, EVP and Head of Mudra North & East, stresses
that Denizen would need a sharper positioning than just the youth
or the designs. "Ultimately, the success or otherwise of
Denizen will depend not only on cuts, style and the pricing; but
what the brand stands for in the consumers’ mind," he says.
Purnendu Kumar, Vice President- Retail & Consumer Goods,
Technopak Advisors agrees. "The key for Denizen to be a success
will depend on the brand’s ability to keep the product fresh and
happening as this set of consumers is much more trendier and fashion
forward," he says. Otherwise, Denizen may start on the same
path as Signature.
And to strengthen its association with the youth, Denizen has roped in actor Imran Khan, as its brand ambassador. The company will be relying heavily on television advertising to get a fair share of consumers’ mind.
Apart from that in-store advertising, digital and outdoor too
are key elements of Denizen’s marketing plans.
(This article appeared in the June 2011 edition of Pitch
magazine.)
admin
June 4, 2011
Raghavendra
Kamath & Nivedita Mookerji, Business Standard
Mumbai,
June 4, 2011
Three years after its experimentation with cash-and-carry retail fizzled out, Reliance Industries Ltd (RIL) plans a strong comeback. At its annual general meeting today, Chairman Mukesh Ambani said Reliance Retail would soon relaunch this format, so far dominated by companies such as US major Walmart in joint venture with Bharti Enterprises, German giant Metro and French heavyweight Carrefour.
With its re-entry into the cash-and-carry segment, Reliance Retail aims to bargain harder with producers and vendors and, in turn, improve margins of its chains, pointed out a company executive.
According to RIL’s annual report for the financial year 2010-11, the retail units of the company such as Reliance Fresh, Reliance Hypermart, Reliance Digital Retail, among others, posted losses in excess of Rs 350 crore. RIL did not invest new funds in the retail arms during the last financial year.
“It is a volume play. When a cash-and-carry venture buys 5,000 pieces from a manufacturer, 1,000 can go to the Reliance Fresh, which was earlier ordering the same from the same manufacturer at higher costs. Now it can leverage on higher volumes and get better margins,” the RIL executive said. He added that “having B2C (business to consumer) and B2B (business to business) makes sense”. “The more we expand the more we will gain from cash and carry. We can also develop and sell brands in those stores,” he said.
International majors which operate cash-and-carry outlets in India, did not comment on the development. Walmart was not available for comment, as its senior officials are travelling for a shareholders’ meeting in the US.
When contacted, a Metro Cash & Carry spokesperson said “We do not comment on the activities/strategies of other companies.”
Carrefour did not comment either.
As far as competition goes, Bharti Walmart, which had opened the first cash-and-carry store in India in 2009, operates six outlets and plans to open 20 more in two years. Metro Cash & Carry, which opened its first outlet in 2003, has six stores and is looking at a total of 50 in another five years. Carrefour began its cash-and-carry operation in India late-2010, and has not unraveled its expansion plans yet.
Gwyn Sundhagul, former chief marketing officer and director of Tesco Lotus, is CEO of value formats such as Reliance Super and Reliance Hyper. Sundhagul is from Thailand.
An analyst said RIL’s re-entry into the cash-and-carry format was a positive for the industry.
“Organised retail is the need of the hour, and organised players are required in the supply chain side,” he pointed out.
He, however, argued that cash-and-carry business was extremely cutting edge in terms of margins. In terms of timing, he said RIL was perhaps ready to start cash-and-carry right now as it is operating limited formats, as against too many earlier.
Naimish Dave, director at Strategy Consultants, a global consulting firm, said, “My feeling is that it is one more cash-and-carry player in the market. Cash-and-carry is a level playing field. Being an Indian player does not bring any major advantage.” If RIL has deep pockets, most others have that too, he said.
Devangshu Dutta, chief executive of Third Eyesight, a retail consultancy, said, “All the cash-and-carry players such as Walmart and Metro have decided to expand in a particular way. RIL’s (re-)entry into this segment will not change the cash-and-carry space.”
Aditya Birla Retail CEO Thomas Varghese said, “Cash-and-carry is not a profitable business. It’s a low margin and high sales business.”
(This article appeared in Business Standard on 4 June 2011.)
admin
May 26, 2011
Sapna
Agarwal, MINT (A Wall Street Journal Joint Venture )
Mumbai,
May 26, 2011
Major Brands (India) Pvt. Ltd, the local franchisee for fashion apparel and accessories brands such as Mango, Aldo, Charles & Keith and Nine West, will form a joint venture with French womenswear retailer Promod.
This changes the existing franchise agreement between the two. Both firms will raise their investment in the brand locally, said Kamal Kotak, country head, Major Brands. Promod will hold a 51% stake in the venture and Major Brands the rest.
India has nine Promod stores, and contributes less than 3% of the brand’s global revenue. The venture will set up 40 stores in the five years, with contributions from the region expected to account for 15-20% of Promod’s global revenue, Kotak said.
The venture will also explore opportunities to raise sourcing from India for Promod’s global operations of more than 900 stores. It may also consider price cuts in India.
In the past, brands such as Marks & Spencer and Ermenegildo Zegna have changed from franchisee operations to joint venture partnerships. Both the brands have tied up with Reliance Retail Ltd. Marks and Spencer, which entered India in 2001, also cut prices by around 30% and started sourcing from the country when it formed its venture with Reliance Retail in 2008.
In the past three-four years, the business model has changed for such businesses, said Devangshu Dutta, chief executive officer, Third Eyesight, a consulting firm focused on the retail and consumer products sector.
“Earlier in the 1990s, the preferred route to enter India was (being a) licensee as import duties were high,” he said. “Then, in the last decade, it changed to franchise, and in the last three-four years, it’s a joint venture as India becomes a strategic market for global marketers.”
Major Brands has 80 stores and a portfolio of 10 brands across women’s fashion, footwear, accessories and kids apparel, Kotak said.
“By 2015, the company plans to have 500 stores and revenue of Rs.1,000 crore,” he said. For fiscal 2011, the firm’s revenue grew 40% to Rs.200 crore. Kotak declined to give details on profit made by the privately held firm.
“Over the next 12 to 18 months, we will add four-five new brands to our portfolio,” said Kotak, who is in talks with some 10 European and US brands that are looking at an India presence. He didn’t name any of them.
Major Brands launched its apparel brand Queue Up late last year. It will launch kidswear brand JFK later this year. On average, the investment for a 1,500 sq.ft store is Rs.80 lakh to Rs.1 crore.
“In next 12 months, we will invest Rs.50 crore for expansion,” said Kotak. The capex will come from promoters’ equity and bank debt.
Earlier in the year, Spanish brand Mango appointed DLF Ltd as another franchisee as it sees opportunity for growth. Mango, which contributes close to 25% of Major Brands’ revenue in India, has tripled the number of stores and turnover in the past five years. “We believe that India will be within our top 10 countries in terms of turnover in 2015,” Daniel Lopez, managing partner and deputy general manager of Mango, said in an email. Globally, Mango has 1,400 stores and a revenue of €1.27 billion.
