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June 29, 2023
Dia Rekhi & Faizan Haidar, Economic Times
New Delhi, June 29, 2023
Fast Retailing, the parent company of Uniqlo, is looking to set up a significant manufacturing presence in India through about 20 ‘production partners’, multiple people aware of the development told ET.
One of the world’s most valuable clothing retailers, Uniqlo already has a cluster of production partners in India and is looking to expand this network through a significantly large investment, they said without sharing any estimated amount.
“The investment amount will be significant because Uniqlo is serious about India and views it as an important market,” one of the persons said. “Unlike the existing facilities in India, which cater more towards exports, the production partners that Uniqlo will bring to India will be specifically meant for the domestic market.”
One of the company’s production partners that ET spoke to confirmed that their current mandate is to produce only for exports.
Uniqlo, which is Asia’s biggest clothing brand, had said India is one of the top priority markets for them where consumers are increasingly shifting from ‘fast-fashion’ to long-lasting essentials and functional wear.
The company’s ambitions for India are considerable with its CEO Tadashi Yanai indicating that he wants Uniqlo to become the “best-selling retailer in India”.
The Japanese brand opened its first door in September 2019, but stringent lockdown measures announced to contain the outbreak of the pandemic in March 2020 delayed the expansion plan.
The brand is now planning to enter Mumbai and Bangalore. It has already opened stores in Lucknow and Chandigarh after Delhi.
Uniqlo does not own any factories. Instead, it outsources production of almost all its products to factories outside Japan.
As per a report titled ‘The Uniqlo case: fast retailing recipe for attaining market leadership position in casual clothing’, this model allows Uniqlo to keep its breakeven point low and improve return on investment.
“As we expand our global sales, we continue to grow our partner factory network in countries like Vietnam, Bangladesh, Indonesia, and India,” the company has stated on its website.
As per its list of garment factories, as on March 1, 2023, Uniqlo has 227 factories in China, 54 in Vietnam, 33 in Bangladesh, 13 in Indonesia, and 16 factories in India and Japan among several other locations.
As the world’s second most-populated country, India is an attractive market for apparel brands, especially with youngsters increasingly embracing western-style clothing.
Over the past decade, global brands Zara and H&M became market leaders in the fast fashion segment in India.
“For global brands, India should be one of the most logical sourcing hubs given its large vertically integrated manufacturing sector on the one hand and the large, growing domestic market driving demand on the other hand,” Devangshu Dutta, founder of retail consulting firm Third Eyesight, told ET. “However, its weight in the sourcing baskets has historically been low due to several reasons, in spite of China being visible for decades to the management teams of brands and retailers as a concentrated sourcing risk,” he said.
Uniqlo’s existing production partners in the country include Shahi Exports, Brandix Lanka, Tangerine Design, Maral Overseas, Shingora Textiles, Silver Spark Apparel, SM Lulla Industries Worldwide and Penguin Apparels.
As per Fast Retailing’s first-half results, the company said its revenue was 1.4672 trillion yen, or around $10.2 billion, and that its operating profit had risen to 220.2 billion yen ($1.53 billion), bolstered by strong performances from operations in several regions, including India where it said it generated significant increases in both revenue and profit.
With regard to Uniqlo International, in particular, it said revenue stood at 755.2 billion yen ($5.25 billion), while operating profit was 122.6 billion yen ($852.93 million).
The company said regions like India “reported significant revenue and profit gains as they enter a full-fledged growth phase”.
(Published in Economic Times)
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June 29, 2023
Raghavendra Kamath, Financial Express
June 29, 2023
Zara, touted as “Fast Fashion Queen”, has achieved a unique feat in India. The Spanish brand has been growing its revenues without opening any new stores.
The fashion brand, run by a joint venture between Tata-owned Trent and Spain’s retail group Inditex, posted a 40.7% growth in its revenues to Rs 2553.8 crore in FY23. The catch is that while many retailers/brands garner sales from opening new stores, Zara did not open any store but closed one during FY23.
In FY21 and FY22, its store count remained constant at 21 but its revenue grew 61.2% in FY22. Zara’s revenues grew at a 15.5 % CAGR in the last five years.
“Zara did not foray into any new city and closed one store. That said, it saw an exceptional performance on store productivity (83% higher than FY19). The increase in revenues lead to highest ever Ebitda margins at 16.3%,” said Nuvama Institutional Equities in a recent report.
The contribution in productivity includes contribution from online and also increase in store sizes, the brokerage said.
A mail sent to Inditex did not elicit any response. Trent executives could not be contacted.
Experts attribute Zara’s success to increase in customer spends and improved offerings by the brand.
“The customer base they are targeting has grown and their merchandise mix has become sharper,” said Devangshu Dutta, chief executive officer at Third Eyesight, a retail consultant.
Dutta said when a retailer opens stores, it would immediately boost sales, but to maintain sales momentum, one has to have “right merchandise at right price and have stores at right locations”.
Zara is known to churn its designs and styles very fast, and target young customers. In its Indian venture also, its parent Inditex controls merchandise mix and so on.
“The said entities (Zara and Massimo Dutti) are obliged to source merchandise only from the Inditex Group. Also, the choice of product & related specifications are at the latter’s discretion. Further, the entities are dependent on Inditex for permissions to use the said brands in India subject to its terms & specifications,” Trent said in its FY23 annual report.
Zara is also focusing on opening in select locations, a reason it could not open more stores in the country, experts said.
“The incremental store openings for Zara continue to be calibrated with focus on presence only in very high-quality retail spaces,” Trent said.
Susil Dungarwal, founder at Beyond Squarefeet, a mall management firm, said that propensity to spend has gone up among Indian shoppers after the pandemic and Zara being a renowned global brand with its stylish merchandise seems to be have been the beneficiary of the trend.
“They understand customers very well and brought products which are liked by Indian shoppers in terms of looks, styles and so on,” Dungarwal said.
Zara is a case study for Indian brands as to how to run a retail business successfully, he said.
(Published in Financial Express)
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June 16, 2023
Sharleen D’Souza & Shivani Shinde, Business Standard
June 8, 2023
Why are companies finding it difficult to sustain the supply-chain business?
Experts point out that gross margins in supplying fast-moving consumer goods (FMCGs) are very low.
While it does look attractive because it is the largest part of the consumption market, the last-mile supply chain and retailer are not making money.
“FMCG brands have ensured high margins for their businesses by streamlining and smoothing their supply chains over decades and making them cost-efficient,” said Anshuman Singh, founder and managing director, Stellar Value Chain Solutions.
Singh said in rural markets, the costs of supply chains were proportionately high due to lower volumes.
He added: “The low margins in the last leg of the FMCG rural supply chain make it difficult for new-age rural distribution players to offset the high costs.”
Devangshu Dutta, chief executive officer, Third Eyesight, a consultancy firm, said modern B2B (business-to-business) players had tried to step in to replace the traditional links in supply chains with price incentives and a large selection of products.
“Traditional distributors and wholesalers don’t just add costs but also add value, including aggregating demand for brands, disaggregating supplies for small retailers, providing market intelligence to both ends of the chain, and giving credit to retailers and a sort of financial guarantee for manufacturers,” Dutta said.
He said for their business models to work — online or offline — B2B businesses needed a significant concentration of demand, which had been tough to get in many locations.
On July 6, 2022, the Competition Commission of India (CCI), in the dispute between biscuit manufacturer Parle and B2B player Udaan, upheld the plea of the former, saying it did not violate competition laws. Parle had refused to sell its products directly to Udaan.
Udaan was the first B2B start-up to have a run-in with a well established brand, which was not interested in moving away from the traditional distribution model.
What has that meant for Udaan? It has meant tweaks to its business.
It further diversified its product portfolio so that its access to the market was not impacted.
It forayed into the mobile accessories segment as local brands tapped into its network of over 3 million retailers.
Earlier, this year it expanded its reach in the miller segment, which supplies staples like pulses, grains, wheat, rice, and oil.
Udaan aims to take on board about 100 miller partners per quarter.
It works with over 500 miller partners, supplying over 10,000 SKUs (stock-keeping units) to retailers and kirana owners, according to the company in an interaction with Business Standard.
The other company that recently had to tweak its business or go back to its focus on rural India is Pune-based ElasticRun.
B2B start-up ElasticRun has decided to focus on the core business and wind up its new expansion plans.
Backed by SoftBank and Prosus Venture, ElasticRun, which typically runs distribution for FMCGs in rural areas, decided to expand and also cater to retailers within city limits, i.e. tier 1 and tier 2 markets that had a strong distribution owing to companies having direct distribution in those areas.
“We initiated a pilot for urban markets. But through the year, as the macro changed, we decided not to pursue the urban pilot and focus on our core of rural business … we have to part ways with almost 2 per cent of our employees,” said Sandeep Deshmukh, co-founder and chief executive officer, ElasticRun, in an earlier interaction with Business Standard.
ElasticRun extends the reach of the brands’ direct distribution networks to deep rural markets. It enables access to a set of net new stores and customers, who were not accessible through traditional distribution networks.
The need to spend in order to get market share has caused well-entrenched players like Amazon to pull out of some of its distribution business.
Amazon India has decided to shut down Amazon Distribution, according to sources. This follows its recent decision to close down its food delivery and edtech offers. The moves are part of the annual operating planning review process amid global macroeconomic uncertainties. The e-commerce giant is looking to focus on its core businesses, sources said.
Amazon Distribution operates a platform where sellers sell FMCGs and apparel products from companies and distribute them among kiranas and small neighbourhood stores.
However, this unit operated in only three cities of Karnataka — Bengaluru, Mysuru, and Hubbali.
(Published in Business Standard)
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June 9, 2023
By Pavan Lall, Fortune India
Jun 9, 2023
For fashion designer Tarun Tahiliani, getting funding from a corporate house was incidental. It happened through a high-profile customer, none other than Aditya Birla Group chairman Kumar Mangalam Birla. Birla had been a customer of Tahiliani’s Ensemble some three decades ago when he was getting engaged. They stayed in touch over the years and at one stage discussed the need for an Indian fashion brand focused on scale and accessibility. “It came out of a conversation and was a two-year ambling route. I had asked if they were expanding their designer brand footprint, and he (Birla) told me to meet the Aditya Birla Fashion and Retail (ABFRL) CEO for a deeper chat,” recalls Tahiliani.
The result was Tasva, a sub-brand that Tahiliani has a minority stake in. The focus was to zero in on the ethnic space, not lose out on the homegrown touch, yet keep user-friendly clothes in traditional silhouettes at accessible price points that were not haute couture. Launched in December 2021, Tasva primarily caters to the premium occasion-wear segment, and has been growing at a fast pace.
Raising Cash
Tahiliani, who got ₹67 crore funding for a third of his company with an option to further offload up to 20%, isn’t the only one to see corporate finance push capital into his designs and stores. Sabyasachi Mukherjee of Kolkata, who opened a large multi-level store in a heritage-style building early this year in Mumbai, sold a little over half his company to Birla, reportedly for around ₹398 crore. ABFRL has also bought a 51% stake in House of Masaba Lifestyle, the entity that houses apparel, personal care, and accessories businesses under brand ‘Masaba’ owned by designer Masaba Gupta. Besides the Aditya Birla Group, Mukesh Ambani-led Reliance Brands has bought a 52% stake in Ritu Kumar, 51% in Abu Jani Sandeep Khosla, and 40% in Manish Malhotra. Earlier, in 2008, Kishore Biyani’s Future Group took a 23% stake in Anita Dongre, which was later sold to private equity player General Atlantic for ₹150 crore.
“While we are reaching a sense of critical mass in terms of consumer base, luxury is not new to India. Designers have been flogging their wares for decades,” says Devangshu Dutta, founder of Third Eyesight, a consultancy firm focused on consumer goods and modern retail. “What has changed is the size of the target audience.”
According to a recent Knight Frank wealth report, India is set to see a projected 58.4% increase in ultra-high-net-worth individuals, those with a net worth over $30 million, from 12,069 in 2022 to 19,119 in 2027. The domestic apparel market, too, was pegged at $60 billion last year, not far behind the developed world, a McKinsey’s FashionScope report has said.
“Earlier, India was a country that just produced for the world. Today India is also becoming the largest consumer market. International brands are keen to invest in business relationships with India. India will change the game for luxury. Where else will you get a billion people who are of a young age, and will be the future luxury buyers of brands?” says Sabyasachi.
“The economy has expanded beyond bigger cities, which has raised the consumption size” adds Dutta of Third Eyesight.
Corporate Handholding
“Corporate involvement helps scale faster than organically, and a lot of designers are tying up with companies with technical expertise and go-to-market for smaller towns and cities,” says Anita Dongre. “For a designer, having a corporate brings in processes, technical expertise and management know-how, and helps her focus on designing,” she adds. In Sabyasachi’s case, too, a new CEO — Sumati Mattu, as well as a new HR head and COO, were brought on board to prepare for the brand’s expansion.
For Sabyasachi though, it has helped in creating a safety net, especially for his employees, more than anything else. “Right now we have two investors — me and Birla together, so it makes me feel protected. Nothing else has changed. The only thing that has changed is that we have a great HR policy with the Birlas; they will be able to look after my people better, as I have created a beautiful safety net for all my employees.”
Dutta, on the other hand, says that “for large companies in the fashion space such as Aditya Birla, it is a natural step to buy into an established brand with scale since brand recognition combined with capital and organisational structure make for a win-win. The platform of fashion is currently at the right juncture to replicate networks and create scale,” he adds.
Other designers, including Manish Malhotra, who has also received funding from Reliance, say, “corporatisation of fashion houses in India has brought about a safety net for luxury brands, making us push for larger creative forces and expansion in terms of scale, branding and customers.”
Growing Into India
Tahiliani says we have opened 55 Tasva stores and will reach 90 in this financial year. Tasva crossed around ₹60 crore in annual revenue in 2022, and is set to hit ₹200 crore this year, he adds.
Similarly, Dongre, widely regarded as the largest designer and fashion house by revenue, has around 150 stores across brands, and Global Desi, a substantial increase from the 10-15 stores she ran before receiving her first funding. “The added benefit is that such funding helps push into international markets.” While Dongre launched her stores in Dubai and New York a few years ago, Sabyasachi launched a New York-located store in West Village last year.
So, what’s the road ahead?
“Corporate India has successfully built large-scale fashion businesses and acquired international brands, but has not been able to create a homegrown luxury brand of cultural or social significance. That will change now,” says Sabyasachi. Jewellery is set to be his focus, along with sunglasses, beauty, shoes, and other categories. “Jewellery is a very important category in the country, a great revenue earner,” he says.
“The film industry was corporatised because its potential was discovered, now it is fashion’s time,” adds Manish Malhotra. “Corporatisation lets designers look beyond bridal-wear, occasion-wear, and focus on newer creative strategies as there’s more space and potential for experimentation.”
Tahiliani agrees that compared to overseas, the trend is an expected one. “Most of the brands abroad have seen stellar growth because they have been aligned with corporate houses.” He points to the famous Alexander McQueen, who started in 1992, and was discovered by Isabella “Issie” Blow. The tie-up allowed him to expand his label, open boutiques around the world, and push into the categories of perfume, eyewear, accessories trainer and clothes for men.
Globally, France-based Kering group owns designer labels Gucci, Alexander McQueen, and Balenciaga, among others. LVMH Moët Hennessy Louis Vuitton, commonly known as LVMH, owns Loro Piana, Fendi, Christian Dior, Kenzo and Marc Jacobs.
The question then is, with all the global exposure and corporatisation, will there be a shift in Indian design sensibilities?
“Now you see people wearing bold gowns or black ties for one or two events, but Indians have kept a unique spirit of celebration and culture unlike anywhere else in the world. Bollywood has played a huge part in amplifying this because of the song and dance and colours and events such as Holi and Sangeet,” feels Tahiliani.
The bottomline: Luxury fashion is now more inclusive, and regional customers are the next big target area for brands.
(With inputs from Priya Kumari Rana)
(Published in Fortune India)
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June 5, 2023
Viveat Susan Pinto, Financial Express
June 5, 2023
A lot has happened at the Cafe Coffee Day (CCD) since its founder VG Siddhartha tragically passed away on July 29, 2019. Once India’s largest cafe chain, with a peak store count of 1,752 outlets in FY19, the company, part of Coffee Day Enterprises (CDEL), has now slashed its footprint by over two-thirds to 469 outlets in FY23, its latest results show.
The need to manage group debt and ensure that the business is profitable, say experts, has led to CCD shuttering stores over the last few years. The company was not immediately available for comment.
This has come even as the Rs 5,000-crore domestic coffee retail market is booming, with chains such as Starbucks and Tim Hortons announcing plans to ramp up store count over the next few years.
Consider this: Tata Starbucks, part of Tata Consumer Products, said in its Q4 investor presentation recently that it would introduce learnings from a pilot it ran in 2022, where the focus would be on introducing familiar and more beverage options, a new ‘Picco’ size (which is a smaller size) in beverages, a revamped food menu and more inviting store interiors. All of this was expected to aid sales growth and also help it get into newer markets, the company said of its future growth plans.
Tarun Jain, chief executive officer of Time Hortons India, meanwhile, said that the company was targeting 120 stores in the next three years and on its radar were metros as well as mini metros and satellite cities.
“The out-of-home market is booming after Covid-19 restrictions were lifted last year. And we are seeing this uptick in our stores,” Jain said of the response to Tim Hortons’ cafes in India, which were first launched in August last year. There are over 15 Tim Hortons cafes in the country across Delhi-NCR, parts of Punjab such as Chandigarh and Ludhiana and Mumbai. Starbucks has 333 cafes in 41 cities so far. “While the coffee retail market is growing, in CCD’s case the need to downsize has to do with internal issues. Sometimes a smaller footprint just helps to manage operations better especially when you are dealing with larger problems such as a debt overhang,” says Devangshu Dutta, chief executive officer of retail consultancy Third Eyesight.
Revenue from CDEL’s coffee retail business, which includes the CCD chain, wasRs 1,653 crore in FY19, which was down to Rs 869 crore in FY23. When compared to FY22, however, the revenue from this business has jumped by 75% in FY23, contributing as much as 94% to group turnover for the year. In FY22, the contribution of the coffee retail business to group turnover was 85%, its results showed. Losses in FY23 have narrowed to Rs 68 crore from Rs 112 crore in FY22. In FY19, the company had a net profit of Rs 10 crore.
Apart from cafes, CCD also has kiosks and vending machines installed in corporate offices, institutions and business hubs. While the number of kiosks has fallen over the last few years and is estimated at 250 now from a peak of 537 in FY19, the number of vending machines are growing after briefly slowing down over the last few years. From a peak of 58,697 crore in FY20, it is now close to 50,000 in number, the company’s latest results show. Group debt too, which stood at Rs 7,214 crore in FY19, is down by over two-thirds to Rs 1,711 crore as on March 31, 2023.
CDEL has over the last few years cut debt by selling assets, experts tracking the market said. Asset sales have included offloading a tech park in Bengaluru to private equity firm Blackstone for Rs 2,700 crore as well as selling off CDEL’s stake in tech firm Mindtree (which has now merged with L&T Infotech) for Rs 1,800 crore. CDEL still has around Rs 1,028 crore of dues to be recovered from Mysore Amalgamated Coffee Estates, a promoter entity, which owed around Rs 2,700 crore to the company five years ago.
(Published in Financial Express)
