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April 24, 2022
Written By Suvashree Ghosh, Bijou George, and Sankalp Phartiyal
It was a contentious plan to repay overseas bondholders in full that brought what would have been India’s biggest retail deal to a grinding halt.
Debt-laden Future Retail Ltd.’s offshore bondholders — a relatively smaller part of the creditor pool — were promised 100% payment in the rescue offer from billionaire Mukesh Ambani, according to people with knowledge of the matter. Indian lenders were asked to take a haircut of as much as 66%, the people added, asking not to be identified discussing confidential information.
The unequal treatment led to the move last week, when the local banks rebuffed the $3.2 billion offer from Ambani’s conglomerate. Reliance Industries Ltd. announced the purchase plan in August 2020 but struggled to complete the transaction in the face of legal challenges mounted by Amazon.com Inc., which argued it had the first right of refusal contractually.
Bank of India and State Bank of India, the main bankers to Future Retail, didn’t immediately respond to emails seeking comment on reasons for voting down the deal. Representatives for Future Group and Reliance also didn’t immediately comment.
State-run lenders risked probes from federal agencies if they accepted these discriminatory terms, they said, explaining their preference now for a court-mediated insolvency process where bids are called in and there’s no risk of them being accused of cutting a bad deal. Bank of India has already requested an Indian court to initiate the process.
Hard-Nosed Decision
The hard-nosed decision by Indian banks has pushed the teetering Future Retail, which ran one of the nation’s largest retail grocery chains before the pandemic struck, one step closer to bankruptcy. Future Retail is almost certain to default on its $500 million bond coupon payment due July 22, S&P Global Ratings said Tuesday, while downgrading the company’s ratings deeper into junk territory.
The lenders’ action has also taken the wind out of a tortuous two-year-old litigation between Reliance and Jeff Bezos-owned Amazon — the e-tailer had started arbitration proceedings in Singapore to block the deal — but left the door open for Ambani to snag these retail assets, possibly at an even cheaper price, under the bankruptcy process.
“Reliance and other parties could be eligible to bid for its assets by submitting their resolution plans” even if Future Retail ends up in bankruptcy, according to Satwinder Singh, New Delhi-based partner at law firm Vaish Associates Advocates. “This would also lead to moratorium on any or all ongoing arbitration proceedings against Future.”
While the local lenders were agreeable to the deal when it was first announced, a lot changed in the past year or so, the people said. While the Amazon lawsuit dragged on, the asset value eroded and the pandemic worsened the cash crunch at Future Retail that began defaulting on its debt repayments.
Secured Indian lenders were promised recoveries ranging between 34% to 88% of the total $4 billion in dues and even those payouts were staggered over seven years, the people said.
Bloodless Coup
Reliance dealt a body blow to the Kishore Biyani-led Future Group in February when it quietly began poaching employees and taking over rental leases of hundreds of stores earlier run by Future Retail and Future Lifestyle Fashions Ltd. Ambani’s bloodless coup prompted Amazon to suggest settlement talks on the bitter dispute and alarmed Future’s investors and lenders who worried about asset-stripping.
Reliance’s unexpected takeover of Future’s stores eroded bankers’ confidence in the deal as it stripped off value from the chain and potentially could erode Reliance’s offer terms.
The out-of-court truce talks between Amazon, Future and Reliance collapsed soon after the store-purchases were initiated, the companies informed India’s top court on March 15. Amazon will continue with its arbitration proceedings against Future Group in Singapore, according to a person familiar with the matter, who asked not to be identified as the deliberations are private.
“A major turning point was when Reliance physically took over Future’s stores, which turned it into a no-holds barred situation,” said Devangshu Dutta, head of New Delhi-based retail consultancy Third Eyesight. “Before this the battle was being fought in courts and across the negotiating table. But at this point it moved over to the real business.”
Source: bloomberg
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March 24, 2022
Written By Christina Moniz
D2C brands take the offline route to widen reach
Direct-to-consumer (D2C) brands are fluffing up the Indian mattress category with promises of lower prices, mattress-in-a-box convenience, 10-year warranty and 100-day trials. In a market that is predominantly unorganised, startups such as Wakefit, The Sleep Company, SleepyCat and Flo are aspiring to establish themselves as better alternatives to legacy brands such as Kurlon and Sleepwell, with most of them looking at the offline retail route too, to boost sales.
According to a Research and Markets report, while India’s overall mattress market has grown at a CAGR of over 11% in the last five years, the organised industry has grown at 17%. The mattress category in India is worth `12,000-13,000 crore; of this the organised segment commands 40% share.
New-age mattress brands are able to deliver products at lower price points by taking control of the entire consumer journey – from product discovery to post-sales support. Therefore, these D2C brands save big on distributor and retail margins, says Devangshu Dutta, CEO, Third Eyesight. These savings go towards compensating for higher customer acquisition costs and logistics, he observes. The elimination of the middlemen means that customers get their products at 30-35% less than what traditional players offer.
However, these digital-native companies are aware that they operate in a touch-and-feel category, which is why many offer a 100-day trial period. Priyanka Salot, co-founder, The Sleep Company, says that the product return rate is only 2-3%, and the returned mattresses are donated to charities but never resold. The Sleep Company, which entered the market a little over two years ago, is eyeing a turnover of `1,000 crore in the next five years, and has plans to launch its first offline store in a few months.
Online players also save on logistics, says Chaitanya Ramalingegowda, co-founder and director at Wakefit. “We implemented the roll-pack technology that allows the mattress to fit into a compact box. This lets us ship more products at a time,” he says. Wakefit has only two factories—one in north India and the other in south India—as opposed to older players with 10-12 factories across the country, he points out. The company hopes to close FY22 with a turnover of 630 crore, up from197 crore in FY20. It has one offline experience centre in Bengaluru, with plans to launch 10 more across five cities soon; these centres will not only be experiential, but also double up as booking/ retail sales outlets.
Offline boost
Rajat Wahi, partner, Deloitte India, points out that these new-age mattress brands must establish deeper offline distribution to expand reach. “After all, more than 90% of retail is offline in India,” he notes.
This is why D2C brands are not only taking the offline route, but also foraying into other segments like furniture and sleepwear. Kabir Siddiq, founder and CEO of SleepyCat, says the brand has plans to launch around four experience centres, and aims to become a one-stop shop for all sleep and comfort solutions, offering comforters, pillows and even bedding for pets.
Is the proliferation of D2C players giving legacy brands sleepless nights? Mohanraj J, CEO, Duroflex, says it has been akin to a “wake-up call”. He says the company has poured in investments into the D2C segment in the past few years, and now even has a completely online brand called Sleepyhead, catering to the millennial consumers. “Until recently, about 10% of our company’s growth was from online sales, but we expect that number to change to 30-35% this year,” he adds.
Despite the influx of new-age players, he maintains that Duroflex has doubled its growth in the past two years, with traditional retail registering 25-30% annual growth.
Source: financialexpress
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December 20, 2021
Written By Vaishnavi Gupta
The furniture brand’s retail roadmap includes city stores in Delhi, Mumbai and Bengaluru, followed by tier I and II towns
For the Ikea model to succeed, adequate demand-concentration is crucial, which is being currently provided by the bigger cities in India.
After launching two large-format stores in India in a span of three years — one each in Hyderabad and Navi Mumbai — Ikea opened its first small-format store in Worli, Mumbai, to become “more accessible and convenient”. About 90,000 sq ft in size, these ‘city’ stores are already present in markets such as New York, London, Paris, Moscow and Shanghai.
The furniture market in India stood at $17.77 billion in 2020, and is expected to reach $37.72 billion by 2026, growing at a CAGR of 13.37%, according to a Research and Markets report. Godrej Interio, UrbanLadder and Pepperfry are among the big players in this space, all with a significant online presence, too. Godrej Interio has 300 exclusive stores in India, while Pepperfry has more than 110 Studios.
Spread across three floors, Ikea’s first city store has 9,000 products in focus, of which 2,200 are available for takeaway and the rest for home delivery. “We have observed that it is not easy to find large retail locations in cities like Mumbai and Bengaluru. The small store offers convenience and accessibility for consumers to experience Ikea products,” says Per Hornell, area manager and country expansion manager, Ikea India. This launch is in line with the company’s aim to become accessible to 200 million homes in India by 2025, and 500 million homes by 2030.
More launches are being planned: another city store in Mumbai in the spring of 2022 and a large-format store as well as a city store in Bengaluru by the end of 2022. For its retail expansion in Maharashtra, the company plans to invest Rs 6,000 crore by 2030. “We are on track to exceed the investment commitment of Rs 10,500 crore made for India in December last year,” adds Hornell. Delhi, Mumbai and Bengaluru are the three cities on its radar at the moment, which will be followed by tier I and II towns.
Furthermore, Ingka Centres, part of Ingka Group that includes Ikea Retail, is coming up with its first shopping centre in Gurugram (followed by Noida), which will be integrated with an Ikea store.
In India, unlike its organised furniture market competitors, Ikea doesn’t have a pan-India online presence yet. It has been following a “cluster-based expansion strategy” for its online offering, but the company insists this is not a limitation. “At present, 30% of our overall India sales come from online channels,” Hornell informs. Through its e-commerce website and mobile shopping app, the company currently operates in Hyderabad, Mumbai, Pune, Bengaluru, Surat, Ahmedabad and Vadodara.
On the other hand, players like Godrej Interio and Pepperfry have big plans to tap new markets. The former aims to add 50 exclusive stores each year, while Pepperfry aims to achieve the 200 Studios mark by March 2022. In September this year, Pepperfry forayed into the customised furniture segment with the Pepperfry Modular offering, which focusses on modular kitchens, wardrobes and entertainment units.
Good start?
This is a good time for Ikea to establish its presence in the Indian market, says Alagu Balaraman, CEO, Augmented SCM. “Earlier, people used to rely on carpenters for furnishing their homes; now, they prefer to buy ready-made furniture. The market is moving towards acceptability, making plenty of headroom for growth for these companies,” he says.
Ikea’s cautious expansion approach in a market like India where several local dynamics are at play, is tactful, analysts say. Devangshu Dutta, founder, Third Eyesight, says, “In the past, Western businesses have made the mistake of simply copy-pasting formats and strategies in emerging markets from their more developed markets.” He believes there is “nothing wrong” in being incremental while growing footprint. “There’s no sense in carpet-bombing the market with stores, when many may end up being loss-making or sub-optimal,” he adds.
Getting the product mix and pricing right would be key in realising the full potential of this market. Balaraman says Ikea will have to balance its global portfolio with what it is doing locally, and make sure it is profitable.
For the Ikea model to succeed, adequate demand-concentration is crucial, which is being currently provided by the bigger cities in India. Given its global popularity, the furniture giant, analysts say, is poised to see traction in the metros and tier I cities.
Source: financialexpress
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November 28, 2021
By Rasul Bailay & Writankar Mukherjee, Economic Times
November 27, 2021
Reliance Retail aims to be one of the world’s top retailers, but for the last couple of years, it has been a buyer, not a seller. It has bought a string of retail brands — from online pharmacy Netmeds and online furniture retailer Urban Ladder to digital lingerie seller Zivame, online grocer MilkBasket and haute couture label Ritu Kumar. The latest acquisition was Sri Lankan lingerie brand Amante.
These acquisitions are crucial cogs in Reliance Retail’s further push into brick-and-mortar and ecommerce, and are part of Mukesh Ambani-led Reliance Industries Ltd (RIL) unit’s larger strategy: To break into the global top ten retailers. India’s largest retailer (by sales as well as by the number of stores) is currently ranked 53rd in the world, according to Deloitte’s Global Powers of Retailing 2021. Reliance Retail reported an annual revenue of $22 billion and a net profit of $750 million for the fiscal year ending March 2021.
At the same time, the company is looking beyond pure retailing. It’s pursuing a larger play to tap into the growing pie of the country’s overall consumption story — from contract manufacturing to distribution of everything from affordable fashion and consumer electronics to grocery products in India’s $850 billion annual retail market that is expected to swell to $1.3 trillion in the next few years. (Reliance did not respond to ET’s questionnaire.)
Analysts say Reliance’s overall plan is to engage India’s burgeoning consumers in its ecosystem one way or the other at any given point of time: shopping in its vast network of physical stores or on JioMart ecommerce platform, using Jio’s mobile or WiFi networks, watching movies on Jio Cinema, paying through Jio wallet so on and so forth that it is dubbed by the petroleum-to-telecommunications conglomerate as “retail plus” strategy.
“Their plan is to weave their products and services so deeply into your life that from morning to evening you are spending time and money on their networks either directly or indirectly,” says a top executive of an online grocery retailer. “Their idea is to constantly keep consumers engaged in a Jio bubble or in a Jio world.” The executive estimates India has a middle class of around 40 crore people. “Even if they succeed in capturing 10% of that wallet share, it is going to be huge,” he says.
That’s the reason Reliance Retail is betting big on business-to-business (B2B) ecommerce, with a digital wholesale marketplace along the lines of Alibaba for products such as smartphones, televisions, garments and grocery items, among other products, according to people aware of the plan. It’s looking to service a whole gamut of retailers in cities and villages.
Reliance has already started distributing its licencee products of Kelvinator- and BPL-branded consumer electronic items and its smartphone JioPhone Next, produced in collaboration with Google, to retailers outside of Reliance’s stable. The company also boasts a whole host of private brands and many of them are making inroads into general trade.
“The market for modern retail and ecommerce put together would be 15-20% in India. The rest 80% is still in the traditional market. If Reliance can make an entry into the traditional market and partner the smaller stores, the opportunity for growth and revenue is much more,” says an industry executive aware of the plans.
“Reliance’s approach is not to be a threat to small stores or merchants, but to be their enabler, provide them merchandise at best wholesale rates, upgrade their stores and even list them on their ecommerce platforms to help them reach newer consumers,” he adds.
Reliance is doing exactly that. Earlier this year, it started supplying Puric InstaSafe-branded FMCG products like soaps, home disinfectants and sanitisers to kiranas in Punjab and West Bengal. It is planning to roll these items nationwide. The company has put in place a marketing team for the first time to push these products. Similarly, B2B portal Ajio Business is selling T-shirts for Rs 79 onwards, a pair of jeans for Rs 220 and shirts for Rs 170 onwards to small businesses. Last quarter, Reliance Retail forayed into the wholesale business of medicines through Netmeds by roping in neighbourhood pharmacies under its B2B initiative.
These are some of the steps in the conglomerate’s bet not just on pure retail play but on end-to-end gameplay in the retail ecosystem, controlling manufacturing, wholesale, supply chain, ecommerce and payments.
To augment its digital wholesale plans, Reliance Retail has already converted its network of cash-and-carry outlets into fulfilment centres.
Analysts say Reliance’s ambitions are long-term and capital intensive and the company is ready for the long haul and to spend. “Reliance’s plan to rope in and aggregate many elements together — retailers, B2B buyers, suppliers, small players — and bring them on board takes time and is a capital-hungry business,” says Devangshu Dutta, chief executive of consulting firm Third Eyesight. “But controlling end-to-end is Reliance’s game plan in any business, including telecom, where it spans the entire value chain of not just providing the mobile network but also a digital interface with consumers.”
In a bid to feed its ambitious consumption plans, Reliance Retail is lapping up stores and warehouses nationwide to service both ecommerce and B2B sales through its “new commerce” omnichannel plans that will also involve legions of kiranas as last-mile delivery agents as well as buyers of Reliance’s products. Reliance Retail, which operates more than 13,000 stores of various formats, plans to open around 5,000 outlets of its Smart Point that would entail a convenience store, a pharmacy, agnostic centre, a telecom services and financial services products outlet all rolled into one across the country.
Reliance is planning to take this format to even tehsils, according to sources. Real estate agents and mall executives say Reliance is scouting for space for supermarkets, fashion outlets and jewellery and footwear stores.
They say Reliance is also planning to enter newer retail formats like a department store chain to compete with Shoppers Stop and Lifestyle. Also in the works is a Sephora-style beauty and cosmetics chain, they say.
“We will focus on expanding our store footprint multifold this year with co-located delivery hubs over the next few years. They will provide a strong network to reach and serve millions of merchants and customers,” Ambani said at the last AGM of shareholders.
Deloitte’s Global Powers of Retailing 2021 report ranked Reliance Retail as the world’s second fastest growing retailer, behind South Korea’s Coupang Corp.
Global financial and tech titans have taken notice of Reliance Retail’s play and pumped billions of dollars into it. Last year, the holding company Reliance Retail Ventures Ltd raised Rs 47,265 crore by selling about 10% stake to some of the biggest names in global private equity, including Silver Lake, KKR, General Atlantic, Abu Dhabi Investment Authority and TPG.
Reliance will continue with its acquisition spree, say analysts. However, Reliance Retail’s largest, the Rs 25,000 crore acquisition of Future Group, is bogged down by Amazon’s opposition to the proposed deal.
(Published in Economic Times)
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November 1, 2021
Written By Vaishnavi Gupta
D2C brands are taking the traditional retail route to scale up
Analysts say that the move to offline retail makes sense for digital-first brands in categories where experiencing the product is an important driver for purchase
While brands across categories made a beeline for e-commerce during the pandemic, physical retail earned prominence among direct-to-consumer (D2C) brands. Melorra, Plum, Pee Safe and Libas, among others, have been building their offline presence over the past year.
The total retail market in India is estimated to be worth Rs 63 lakh crore, of which 95% buying happens through offline formats, according to Devangshu Dutta, founder, Third Eyesight.
Having started as an online-only brand in 2013, Pee Safe launched its first exclusive store in India in February, 2021. The personal hygiene brand currently operates a store each in Gurugram, Bengaluru and Ahmedabad; and plans to launch 50 offline stores in the next 12 months. “There is a strong demand for personal hygiene and wellness products in the offline market. Hence, opening exclusive outlets is a crucial element of our growth strategy,” says Srijana Bagaria, co-founder and director, Pee Safe. These exclusive brand outlets (EBOs) will be launched through the franchise-owned and franchise-operated (FOFO) model.
Online ethnic wear brand Libas, meanwhile, unveiled two brick-and-mortar stores in New Delhi in September, 2021. The brand has an ambitious target of 200 more stores by 2025 in malls and high streets across metro and tier II cities. A click-and-collect facility will be operational soon, says Sidhant Keshwani, managing director, Libas. “We are aiming for our offline market share to be 25% in the coming two years,” he adds.
The brand offers a range of wedding and occasion wear, as well as ready-to-stitch fabrics exclusively in its offline stores. Soon, it also plans to foray into the kidswear and menswear categories, as well as home décor.
Beauty brand Plum, which has been retailing online since 2014, launched its first store in Mumbai in October, 2021. Plum’s founder and CEO, Shankar Prasad, says the goal is to take the store count to 50 by 2023, and for EBOs to contribute “10-20% of our total sales in two-three years”.
Jewellery brand Melorra extended its presence offline back in December, 2020. “We have been growing 200% year-on-year; we expect to post even stronger numbers this year with the addition of offline stores. We are looking to touch $1 billion in revenue in five years,” says the company’s founder and CEO, Saroja Yeramilli.
A good step?
Analysts say that the move to offline retail makes sense for digital-first brands in categories where experiencing the product is an important driver for purchase. “D2C players have so far done a great job of owning the consumer journey which is largely online. They now see that for the next wave of growth and penetration, they need good representation in a larger set of touchpoints,” says Rachit Mathur, partner and MD, BCG.
However, online is likely to remain the primary revenue stream for these digital-first brands. “Brands such as Lenskart, Nykaa and FirstCry have done a great job in driving strong retail presence and viable productivity, but continue to have a higher bias of online sales,” Mathur notes.
D2C brands could perhaps try a mix of formats for an offline foray, from EBOs to a presence in departmental stores, or even small SIS (shop-in-shop) counters in shopping centres. But brands would need to be cognisant of the fact that consumers behave differently depending on the shopping environment they are in. Hence, the interface, service offering, and even the product mix may have to be tweaked. “Simply bringing in technology into an offline environment just because you are an online-first brand may do nothing to enhance the consumer experience, and may even detract from it,” Dutta says.
Source: financialexpress
