admin
April 18, 2011
Raghavendra
Kamath, Business Standard
Mumbai,
April 18, 2011
While middle-aged women are checking out products at the newly-opened gourmet section on the first floor, twenty somethings are waiting to try the designer pret by Lajjo C, whose collection is exclusively displayed at the revamped store of Tata-run Westside in the Kala Ghoda area in south Mumbai.
"It’s chic and happening", says Parakh Tale, checking out the cereal bar, that allows customers to make their own breakfast cereal mix. For Tale, a regular at the Westside’s store, the store is different in many ways than in the past.
The chain’s flagship store recently got a make-over with better layout and lightings apart from having a gourmet and chocolate section, which marked its entry in premium food retail. The chain is planning to extend the experiment to several other stores.
Winds of change are clearly blowing across Westside, which used to have 95 per cent of its merchandise coming from its own brands. Now its larger stores stock international brands such as womenswear brand GIVe, kidswear brand Chicco, womens footwear brand Aerology apart from designer prêt.
It’s not only Westside where make-overs are taking place, almost all established department store chains are reinventing themselves in a bid to win customers who are spoilt for choice.
Take Raheja-owned Shoppers Stop. The 20-year old department store chain, considered a slow mover among Indian retailers in the past – it took 20 years to open its 30 stores – is bringing in many innovations in its stores, apart from adding 24 stores in the next four years.
Recently, it hired about 150 fashion consultants to help customers make a right purchase and help them up their fashion quotient.
The chain has introduced day and night lighting options in its stores where shoppers can check how a garment looks in day light and night. Women at its stores can also tryout the complete make-up with professional help.
But Shoppers Stop is not new to innovations. After rebranding its logo in 2008, the chain went in for a change in its positioning from premium to ‘bridge to luxury’ in 2009 and brought in a lot of international brands.
And such changes have yielded results. While Shoppers Stop stores are seeing a like-to-like (LTL) growth of 16 to 17 per cent, womenswear category is seeing a growth of 40 per cent, says Govind Shrikhande, managing director of Shoppers Stop. LTL growth refers to sales coming from the store that are in the business for more than one year.
Kishore Biyani’s 15-year department store chain Pantaloons is also not lagging behind. Late last year, Pantaloons launched its 50th store in Delhi with a ‘new avatar’ where interior walls were made up with dark wood and tiles. Since then it has opened five such ‘new age’ stores, where display of merchandise has been spaced out, uniformly giving its customers more room to walk.
The LTL growth in the Lifestyle category of Kishore Biyani’s Pantaloon Retail is at 22 per cent, one of the highest since FY 2007.
Naimish Dave, director at OC&C Strategy Consultants, a global consulting firm, says: "If you look at department stores, most of them offer same brands, same merchandise to buyers. Unless they offer something different to customers, they cannot win more customers."
Westside has roped in Fitch to redesign its existing stores and design new stores, Pantaloons has hired Blocher & Blocher, Shoppers Stop has hired the services of JHP and Portland to design its stores.
The new breed of value department chains such as Reliance Trends and Landmark Group’s Max are also competing aggressively with the established ones. For instance, Reliance Trends has come out with eye-popping freebies and merchandise to woo buyers. When a person shops for over Rs 2,000 at Reliance Trends, the customer is entitled to a gift coupon worth Rs 1,000. If the amount is Rs 3,000, the voucher amount goes up to Rs 2,000.
CEO Arun Sirdeshmukh says the CPH (complaints per hundred) Index in its own brands is lower than some of the national brands.
Landmark group’s Max has launched high throughput range with help from the Max Dubai design studio. The chain is opening 30 more stores where store sizes are 14,000 sq ft as against 12,000 sq ft earlier.
Consultants like Devangshu Dutta, chief executive of Third Eyesight, say department stores have a bright future. "In the US, department stores are a declining trend. Since India is a nascent retail market, we have enough opportunities," he says.
admin
April 9, 2011
Businessworld,
April 9, 2011
Vishal
Krishna
When Noaman and Irfan Razack began developing commercial properties in the early 1980s in Bangalore, they realised that most land owners did not have the skills to run the malls once they were built. Often, a developer only knew the basics — collecting common area maintenance charges and administering the security — without paying any attention to consumer and tenant-retention skills. “We decided to build this skill into our business. Now, every large developer offers this service,” says Noaman Razack, director of the Rs 1,000-crore Prestige Group in Bangalore. Four malls and a decade later, mall management is becoming a profit centre for the real estate company.
Large malls such as Mumbai’s Phoenix Mills and Inorbit and Bangalore’s Mantri Square (500,000-1.5 million sq. ft in size and with average annual revenue of Rs 1,000 crore) are creating the blue print for mall operations in India. The Mantri Group, for example, has set up a subsidiary, PropCare, for precisely this purpose.
In 2011, when the Royal Meenakshi Mall was built in Bangalore, PropCare took over as its sole manager. “The mall was built by someone else, but we won the mandate to run it for the developer,” says Jonathan Yach, CEO of PropCare and Mantri Square. This new business has branched off into branding the mall and building customer relationships, too. Mall managers not only undertake maintenance and security, but also run promotions within the mall to drive traffic into the stores — a boon for retailers.
Though only a few companies see mall management as a separate entity at present, it is only a matter of time before the business booms. The total number of malls across India has gone up to 240 in 2010 from just 20 in 2003, translating into 120 million sq. ft of retail space. Though only 30 of these malls are run by mall management companies, the number is expected to shoot up as organised retail matures.
According to real estate consultancy Jones Lang LaSalle (JLL), it is a Rs 24,000-crore business opportunity, which will double in the next 10 years. Small wonder then that JLL along with other consultant companies such as Knight Frank and CB Richard Ellis are pitching for this business.
Among the bigger players to have recognised the opportunity are Prestige Group, PropCare, Phoenix and Central (see ‘Sharp Aim’). In fact, Future Group’s Central was among the first to explore the concept of keeping the owner of the property and the developer in the background and letting the retailers run the mall. “Our business model works as a shop-in-shop for brands. Central is a seamless retail space,” says Sandeep Mukim, the chief of operations at Central and Brand Factory. Central, which currently manages 16 malls, monitors the operations and tracks conversions for its tenants; security and maintenance are outsourced. “Central as a brand is all about property management,” says Mukim. The Future Group plans to open 24 Central malls in the next two years.
“The scope of mall management services has now been elevated to shopping centre management. But very few companies have upgraded their capabilities,” says Ashutosh Beri, managing director of property and asset management at JLL. He says clients now expect complete shopping centre management — a drastic shift from the past. According to JLL, the Indian psyche is skewed towards self-sufficiency and most mall owners saw mall management as a simple function of managing facilities. But with increase in competition, more developers have started outsourcing the overall management of their malls to professional agencies. And this trend is likely to catch on as the battle for footfalls gets tougher.
An Evolving Field
The business model for a mall management company depends on which
state the mall is in. “Scientific models are available by
which common area maintenance (CAM) charges can be predicted with
a fair degree of accuracy prior to the launch of a mall,”
says Beri of JLL. CAM is dependent on energy costs (both state-supplied
and captive energy sources) and also on minimum wages, which again
vary from one state to the other. Another factor is the architecture
of plants and equipment, which should be in consonance with the
usage pattern of the mall.
A mall management company makes money on the collections on behalf of the developer. So, say, the mall management company collects 98 per cent of the total cost (including water, electricity, rent and other CAM costs such as security and cleaning), it will be paid 3 per cent on the collections as fee. This may seem high but the job is tough. Mall managers not only spend a considerable amount of time chasing payments from retailers and choosing the right anchor tenants to increase footfalls in the mall, but they also have to spend a lot on promotions.
“Every property that you manage is different because of the catchment and the kind of promotions that you run with it,” says Rajendra Kalkar, the centre director for Phoenix Mills, which plans to open malls in four more cities by the end of the next financial year. A mall manager has to run the business based on what retailers and customers want. Take, for example, luxury malls. The challenge for a mall management company is to provide synergy to competing compatible brands targeting affluent buyers. It must provide a unique gateway to the luxury marketplace. “Achieving this is a fine art, combining the most evolved concepts of human psychology, aesthetics and marketing strategy,” says Shubhranshu Pani, managing director of retail services at JLL.
At present, however, most mall developers in India continue to run the mall themselves because they feel there aren’t sufficient mall management companies. “It is great for developers to hive off this business in the future. At present, there are not many skilled people who can brand and run malls at the same time,” says Kishore Bhatija, CEO of Inorbit Mall in Mumbai. He adds that since people no longer want to travel long distances to shop, for developers it is a business where one has to understand catchment marketing and then build the mall management business.
“In India, developers control the zoning, leasing, finance and marketing in the mall. In developed markets, even these functions are managed by specialist companies and not developers,” says Nirzar Jain, CEO of Oberoi Mall in Mumbai.
Where Is It Heading
With most mall developers spending approximately Rs 200 crore
on 500,000 sq. ft of retail space, advice on running the mall
successfully can make all the difference. Some Indian malls are
turning to malls abroad and taking regular inputs from them. For
example, the Mantri Mall in Bangalore works with a South African
mall, Cresta Shopping Centre in Johannesburg, on operations and
collections. “There is a need for mall management to pick
up as developers will need advice on how organised retailing works,”
says Pinakiranjan Mishra, national leader for consumer practice
at Ernst & Young.
As part of their responsibilities, mall managers are required to determine the correct mix of entertainment, shopping and accommodation that will help diversify the tenant mix and de-risk the developer’s investment. It also allows the developers to better utilise the floor-space index and location.
“Service standards are judged the moment people enter a
mall. It is more like hospitality business,” says Yach of
PropCare. High service standards help in adding value to retailers
and also allows people to shop better, he feels.
The ultimate aim of all such exercises is to generate income for
the retailers as well as the developers. Many developers are now
giving sharing revenue options to retailers. Several malls that
became operational during the slowdown opted for a combination
of minimum guarantee and revenue sharing, which ensured floor
earnings for the developer. Mall management companies use such
data to predict the success of the retailer and collect revenues.
With better mall management practices being adopted, steps that
will increase transparency in revenue recognition are expected
to find more takers. Industry experts add that this will also
give developers more confidence to introduce innovative rental
sharing arrangements with retailers.
“There are still relatively few developers who are comfortable with the idea of not just developing the building, but also operating and nurturing the mall as a retail environment,” says Devangshu Dutta, CEO of Third Eyesight, a retail consultancy in Delhi. He adds that those developers who see this as a 25-30 year business income rather than a capital gains income opportunity will survive.
Developers view their role as limited to looking after things like maintenance, utilities, housekeeping and security, whereas successful shopping centre management companies take full charge of managing the tenant mix and the customer footfall. According to Third Eyesight, of the projects being discussed in early-2005, less than 10 per cent would truly succeed as malls — about a third would get converted into offices or alternative uses, and the balance would never take off.
The proof is in the pudding. Indian real estate developers who have built up retail experience will start pitching for malls that are built by developers who have no experience in retailing. The success of this business will entirely depend on whether the customer returns to a mall regularly, or not.
(This article originally appeared in the Businessworld issue dated 18 April 2011.)
admin
March 28, 2011
Images Food , March 28, 2011
The Indian presence of the Dutch supply chain cluster, Food Tech Holland, was formally launched by Ashok Sinha, Secretary, Ministry of Food Processing Industries, at the recently held Food Forum India 2011 in Mumbai.
The Food Tech Holland is a consortium of highly innovative Dutch companies operating in the food sector, providing hi-tech solutions along the supply chain. The technologies provided by the cluster provide its customers a strong competitive edge, resulting in better quality, productivity and efficiency. These technologies can be tailored to the specific needs in the Indian food market. The cluster’s intention is to increase the commercial involvement of Dutch companies in food processing and agro-logistics sector in India.
Sinha welcomed the initiative and encouraged the Food Tech Holland cluster companies to actively participate in the Indian supply chain, including the mega food parks that the government is promoting to create competitive and large-scale food production and processing in the country.
The cluster’s strength lies in its integral approach to the chain, including food processing, cooling techniques, logistics, distribution and food safety. Accordingly, the four areas include Vegetables & Storage (Rijk Zwaan, Tolsma, Kiremko, East-West), Bakery (Capway, Rademaker, Market Food Group), Meat & Processing (Hypor, MPS) and Cooling & Services (IBK Groep, Metaflex, RBK, Partner Logistics).
Some of these companies are already active in the Indian market. These include Metaflex, which is the first European manufacturer of special-purpose doors to set up a manufacturing plant in India, the seed companies East-West and Rijkzwaan (East West already employs around 200 people in its Indian facilities), vegetable storage technology company Tolsma and potato processing equipment company Kiremko.
The cluster is supported by governmental institutions as well as other public stakeholders such as the Dutch Ministry of Economic Affairs, Agriculture and Innovation (LNV), NL Agency, Netherlands Business Support Office (NBSO) and Wageningen University (WUR) and private organisations such as Larive.
The cluster’s launch in India was assisted by specialist consulting firm Third Eyesight, which works with leading consumer brands, retailers and companies in the retail supply chain.
admin
March 20, 2011
Business
Standard, Mumbai March 20, 2011
BS Reporter
Group buying websites, mostly launched in the last one year, plan aggressive expansion as they see record traffic for their offerings.
Group buying websites put up deals offered by merchants on various services and products for a limited period, say for 24-72 hours and offer discounts of 30-80 per cent.\
However, there have to be a minimum number of people, between 5-20, before a deal can go live, when deals are made available. Offers are normally made on gyms, spas, restaurants, travel and so on in services and on various products. Websites get certain commission for the goods sold.
Delhi-based Snapdeal.com plans to to start its operations in 100 cities, up from the current 45, by the year-end, according to its Chief Executive Kunal Bahl. Bahl says the one year-old online venture is growing 150 per cent month-on-month and claims to have a 70 per cent market share among group buying websites. “Currently we have 350 employees and are adding 50 people every month,” Bahl says.
“These kind of websites make sense for India where consumers are value conscious. While consumers gain from these offers, it helps merchants to utilise their excess capacity and promote their services and samples,” says Guneet Singh, former director & co-founder, dealsandyou.com.
John Kuruvilla, Chief Executive and founder, Bangalore-based Taggle Internet Ventures, which runs eight month-old group buying site taggle.com, says, “The business has been exceptionally good. Traffic quadrupled in the last two months. We expect similar growth in the coming months.” Kuruvilla now wants to launch the service in 20 Indian cities in the next two years.
On March 15, 2011, Taggle launched the service in eight cities such as Ahmedabad, Pune, Delhi, Kolkata and others with products offering. The company wants to offer services in these cities shortly, Kuruvilla says. Currently, it operates in 10 cities. Other sites such as koovs.com, dealsandyou.com and groupon.in are also expanding their operations across the country.
Analysts say the group buying website space in India is expected to see a lot of action, with the entry of Chicago-based Groupon which bought Kolkata-based SoSasta.com early this year and launched its operations.
Groupon, one of the world’s largest group buying sites, was in the news last week for seeking a valuation of as much as $ 25 billion ahead of its initial public issue this year. The two-year old Groupon, which provides daily discounts online, now has 70 million users and reaches more than 500 markets in US, Europe and others.
However, the segment has its share of challenges too. “Since it is a relatively new model, the firms have to spend a lot on getting traffic on a consistent basis. Not everybody can get the returns on the capital employed,” says Devangshu Dutta, chief executive of Third Eyesight, a retail consultant.
Guneet Singh says hyper competition and wafer thin margins may pose additional challenges for the existing players. “Gross margins are between 10-15 per cent and firms have to factor in IT costs, people costs and so on. Most end up making negative net margins,” Singh says. “Most of group buying sites are clones of Groupon. Somebody needs to come out with a clear differentiator,” says Singh.
admin
March 18, 2011
Business
Standard, Mumbai March 18, 2011
Raghavendra
Kamath & Viveat Susan Pinto
Cost pressure and conflict over margins see products of companies like Reckitt Benckiser taken off shelves.
The racks meant for toilet cleaners at Future Group’s Big Bazaar outlet in Lower Parel, Mumbai, are filled with Hindustan Unilever’s (HUL’s) Domex, Future’s own Clean Mate and other brands. The one missing in the segment is Reckitt Benckiser’s popular product Harpic.
The case is the same in the section meant for handwash liquids. Here, HUL’s Lifebuoy gets most of the space, then come Future’s Caremate, Colgate-Palmolive and others. Here also, Reckitt’s Dettol is missing.
“There are some issues between us and Reckitt. We are not stocking their products,” says a salesperson at Big Bazaar.
The margin “issue” between retailers and manufacturers has resurfaced big time — whether between Reckitt and Future or consumer durables giants and Tata group’s Croma.
After Reckitt wrote to retail chains saying it would cut their margins two per cent to offset the increase in input costs, Future Group held back purchases from the FMCG company, while others expressed their intent to follow suit.
A senior Future executive tries to play down the issue: “We believe we will be able to find a middle ground.”
Chander Mohan Sethi, chairman & managing director, Reckitt Benckiser, remained unavailable for comment.
Such fights are not new for Future Group. In early 2007, it had boycotted Pepsi’s Frito-Lay products over commercial terms, including margins. About two years ago, it had pulled Kellogg’s off its shelves at Big Bazaar outlets after the breakfast cereal maker refused to increase margins.
Though retailers as well as manufactuers agree that costs have gone up in the last one-and-a-half years, putting pressure on their margins, both the parties say the other side should work better on efficiencies.
“Manufactuers tend to pass on their inefficiencies in the supply chain by squeezing retailers’ margins. Many consumer durables and FMCG companies can do much better on this front,” says Vineet Kapila, chief executive officer, Spencer’s Retail.
Thomas Varghese, chief executive of Aditya Birla Retail, adds: “We are actually subsidising costs. If the cost of keeping goods is 24 per cent, many companies are giving only 16-18 per cent margins. Only those who give 27 to 28 per cent margins help us make some profits.”
But manufactuers have a different take on this. “Modern retailers should manage their costs better. While they are well within their rights in demanding higher margins, the point is whether it is acceptable. I think they need to manage efficiencies better,” says Ravinder Zutshi, deputy managing director, Samsung India.
Manish Sharma, director (marketing), Panasonic India, agrees: “Modern trade retailers typically have high overheads, since they are into providing a better consumer experience. Steep rentals, better ambience, hiring costs, training and development — all push up overheads. This puts pressure on margins.”
Devangshu Dutta, chief executive of retail consultancy firm Third Eyesight says the conflict between the two parties is “inevitable”, given the increasing cost burden.
Modern vs traditional trade
Manufacturers and retailers also differ over the contribution of modern trade to manufacturers’ volumes.
The percentage of consumer goods sales coming out of modern trade in India is about 8-9 per cent for a manufacturer, while traditional trade contributes the lion’s share, at 87 per cent. The remaining 4-5 per cent comes from company-owned outlets.
Compare this with China, Thailand or the US and Europe. It varies significantly. In China, the contribution to sales from modern trade is close to 30 per cent. In Thailand it is a whopping 50 per cent, while in the developed economies of the West, including the US and Europe, it is close to 70 per cent of total sales to a company.
“Naturally, modern retailers there have better bargaining power,” says K S Raman, director of Videocon-promoted Next Retail, a durable and IT chain. “Typically, the margins commanded by modern trade retailers and traditonal retailers vary in these countries. You have different yardsticks for the two and different teams that manage the two distribution channels,” he adds.
While Indian companies are also beginning to understand the importance of having separate teams to service the two distribution channels, when it comes to margins, the relationship remains frosty between manufacturers and modern trade retailers.
Ajit Joshi, chief executive officer & managing director, Infiniti Retail, which runs the Croma chain of stores, says: “The issue of margins is a serious one. We all wish to make profits. And, if a retailer is helping the manufacturer achieve volumes, besides helping him save costs, why can’t some of those savings be passed on to us.”
Ashish Nanda, partner, Ernst & Young, says: “The moot point here for manufacturers is to view their channel partners as business partners. The trouble begins when the relationship becomes transaction-based, not collaborative.”
Next Retail’s Raman says: “With the bulk coming from traditional trade, modern trade retailers tend to get side-stepped.”
Though both modern and traditional retailers enjoy margins of 8-18 per cent in consumer durables, the increase in costs of the former has led to a squeeze in their margins, bringing them down to about 4-5 per cent.
“As you keep increasing market share, you will ask for more margins. The balance in power will shift from manufacturers to retailers,” says Varghese of Birla Retail. “For instance, in CDIT (consumer durables and information technology), the modern trade contributes 15-20 per cent,” he adds.
Spencer’s Kapila argues, since modern trade saves the manufacturer the need to pay for the wholesaler’s margins, promotion expenses, warehousing costs and so on — which adds up to 20-25 per cent of product costs — retail chains would be more than happy if manufacturers pass those savings on to retailers as margins.
“Discussions on margins is an ongoing process, which is going to continue for the rest of our lives. Today, throughput required for break-even is very high. That’s why margins have become critical,” says Raghu Pillai, chief executive and executive board member, Future Group, who looks after the consumer durables format. “It is not correct to say that modern retailers do not give enough throughput to manufacturers. In urban centres, retail chains are giving large volumes. If they are able to convince manufacturers, there is room for passing on some margins to retailers,” Pillai adds.
But not all manufacturers are on a collision path with retailers.
GCPL Chairman Adi Godrej said: “We have no plans to cut retailer margins. Though organised trade comprises 8 per cent of our total offtake, it is still small.”
Though Nitin Paranjpe, managing director, Hindustan Unilever, declines to get into specifics, he says: “We have excellent relationships with all our modern trade customers. There are challenges, but we work together to create value. This creates win-win opportunities for both us and them.
