I recently had the opportunity of window shopping with some friends visiting India and it was interesting to note how visitors to India from different continents react to the retail prices of the products of the international brands available in the Indian market. 

Friends from Europe (specifically from the UK, which is a relatively expensive country to live in) were pleasantly surprised to find the prices of some of the products of international brands such as L’Oreal, Tommy Hilfiger, Marks & Spencer and Levi Strauss cheaper and they extended their list of things to buy from India at the cost of paying for the extra baggage on their way home. (Well, it also happened to be the discount season during their visit.)

On the other hand, friends from Canada who had arrived a few weeks earlier (before the discount sales started)  found the products of international brands too expensive by “Indian standards” and decided that they should do their shopping back in their home country during the markdown sales for Halloween or Christmas!! After all, shouldn’t India be cheaper?!

Yet again, a case in point, when I visited a “just opened” retail outlet of an international brand at a well known mall in the NCR region, I noticed the Rupee price mentioned on the tag was higher than the converted value of the unit price printed in Euros on the same tag. As a consumer I rationalized that probably the brand was launched in a hurry and one forgot to remove the Euro price stickers, though it may also have been a possibility that since the products were imported, the high import duty structure may have resulted in a higher Indian price!

Is it possible for the international brands to follow a common pricing globally?  Could the international brands integrate the global tariff barriers/ duties, and currency conversions in their cost structure and have their products priced the same across all international borders?

Well, maybe not just yet…although some brands have tried. For now, consumers can only hope for more parity.

Come to think of it…..if you went shopping in the UK after the US you may just find that for some products the prices (read digits) appear to be the same ……only the “$” would have been replaced by “£”.

The title of this post is from a Winston Churchill quote that I came across a few days ago. I thought this is a must-have on the desk of every entrepreneur in the current times to look at every day, maybe several times each day.

But why only entrepreneurs? Any one and everyone who has been touched or fears being touched by the economic downturn needs to keep this thought in mind.

A few days ago I heard an impassioned monologue from an entrepreneur, founder of a mid-sized listed brand manufacturer & retailer in India, when the first two of the big investment banks in the USA collapsed. He repeated one theme of despair several times – “How can there be wealth / money available at the closing of the business day, and then suddenly in the morning such a well-established institution is no more – all the wealth seemingly lost overnight? Is nothing certain?”

Sometimes an important part of building a great business may just be having the ability to live through a downturn.

Here’s another quote from a Forbes article titled – “The Greatest Risks They Ever Took”: …Kit DesLauriers, the first person to ski from all seven summits. Of her descent from the top of Mount Everest, she says: “There were no safety nets, no fixed lines established, freezing winds. We had to spend an unplanned night at 26,000 feet, with very little food and water. The next day, we skied the Lhotse Face, 5,000 feet of blue ice on a 50-degree slope…At one point, we ran out of oxygen. I kept telling myself: “Don’t sit down and die. Just keep going.’ It’s really easy to let your mind get a hold of you, but the journey taught me we are much more than our minds.” (The whole article is available here.)

Times like these are mainly about mind-games that we play against ourselves – the daily newspaper, the stock ticker on TV, the conversations in the hallway all contribute to the feeling of helplessness. But the biggest freefall is within us. So, remember Churchill’s thought: “If you feel you’re going through hell…just keep going.”

The Textile and apparel industry is of particular importance to India. It not only provides employment to a broad base of semi-skilled and unskilled labour but also helps to extend the economic bounty to urban and semi urban areas. Though India has a history of thousands of years in global trading of textile, it contributes only 3% to the global exports of textile and clothing.

While the urge to grow exists, there is a huge difference between the current exports of about Rs. 864 billion (US$ 20 billion) and the target of Rs. 2,500 billion (US$ 55 billion) by 2012. To achieve this vision, exports must grow at around 25-35 per cent a year for the next 4 years, depending on how weak or stable the current year is. This growth rate seems difficult considering the fact India has actually grown its exports of textiles and apparel at an annualized growth of a little over 14 per cent from 2003-04 to 2007-08.

Even if the industry looks at increasing the volume of exports to achieve the vision, the ports do not have the handling capacity considering that they currently operate at 91 to 92 % of available capacity.

Hence, incremental thinking will not help to achieve the vision.

Our key concern is the value “lost” by the industry. Being the low cost supplier does not necessarily translate into greater market share. The Indian Industry must look at enhancing the value delivered rather than competing on the cost platform. Indeed, India compares poorly to other countries on the value captured per employee.  (For instance, if the export value captured per employee in India was as much as Turkey, India’s exports would be close to China’s exports of US$ 161 billion.)

One major concern that needs to be addressed is that India’s exports are still weighted in favour of raw materials and intermediate products, rather than finished products. Apparel exports account for only 41% of India’s textile exports in 2007-08. India’s product mix also needs to be aligned to global market needs, rather than only focussing on “traditional strengths” – this includes enhancing the share of non-cotton products in the basket.

Another area that is neglected is the inherent competitive capability of developing new products. The industry needs to develop and nurture these skill sets to create a sustained competitive advantage in the global scenario. India already provides buyers with value in terms of product development and design, which needs focus and further strengthening.

Further, India’s domestic industry, and its skill at understanding market needs, creating and merchandising product, can also play a valuable role in the industry’s growth.

The competitive advantage offered by being able to influence the development of a product is immense. And given that sourcing lead times are shorter in unpredictable times, a supply base that has been involved with the buyer right from the development stage of the product is most likely to get the final order. Third Eyesight proposes a four dimensional model: Define, Design, Develop and Deliver so as to achieve the industry-wide development, of projecting India as a valuable supplier, and sustaining its value needs.

By creating an ecosystem focused on design and product development, India can create and capture the billions of dollars worth of value that is being lost to other countries.

This is an extract from Third Eyesight’s report presented at the FICCI 3rd Annual Textile And Garment conference in Mumbai. The report was released by the Minister of Textiles, Government of India. To download the full report prepared by Third Eyesight, please click here.

To discuss how we can help you with your specific business needs, please get in touch with us via email (please send it to services [at] thirdeyesight [dot] in) or via this form: CONNECT.

You can probably tell that I’ve held the view for some time now that the retail sector needs to pause for breath, and evaluate its growth strategies on some very fundamental parameters. (“Disclaimer”: Having invested 2 decades in the retail sector, I have an inbuilt bias towards the entrepreneurial and organic nature of retail, which is probably evident!)

As I was recently writing an article with the theme of “realism” echoing strongly, I came across this statement by Kishore Biyani of Future Group on 27 August: “I was an eternal optimist; now I have become a realist.” (Bringing Back Retail Realism, from MINT).

Now, with the India Retail Forum coming up next week, it’s interesting to read a mailer from the Retailers Association of India, with this wonderful quote from B. S. Nagesh, of Shopper’s Stop: “We have opened store after store and are in the process of opening many more – 100 … 500 … 1,000 … 5,000 and may be many more. Let us pause for a while for a reality check … Are our customers happy? Are our employees happy? Are our vendors happy? Are our stakeholders happy? Are we happy? …. The answer for all these questions ought to be ‘YES’ but in reality it is ‘NO’ for some. Where we have gone wrong? What do we have to do?… It’s time to share, reveal, reconcile and find ways to amend … And to open up, debate, consolidate and collaborate thoughts before we take the next step.”

I think we may finally get things back on track, with two of the most prominent leaders of the business asking the sector to reconsider and review.

When I wrote an article titled “The Myth and Reality of the Retail Revolution” 2-years ago (in August 2006), some friends looked at the title and said I was being pessimistic. I disagreed, and said that I was being realistic, especially since I ended it by saying that the real retail boom had not yet happened, and we had only scratched the surface. Organic growth will get us there – crash and burn won’t. (To judge for yourself open that article as a PDF – click here.)

What do you think?

August is the month when India celebrates gaining its independence in 1947.

So it is quite apt to think about the implications the word “independent” has in the world of grocery retailing as well.

India’s food and grocery retail sector (as most of the other product sectors) is full of traditional “mom-and-pop” operations. Estimates of their share of the market vary from 97% to 99.5% of the total food and grocery sales – but it is given that “independent” retailers rule the roost, and the estimates vary only in the degree of predominance.

The word “independent” in this context differentiates an entrepreneur-run stand-alone operation from a chain store, and encompasses all the kiranawalas and corner shops – traditional, modernizing, as well as the best-of-breed. The business owner-manager of these operations is solely responsible for merchandising, buying, staffing & HR, finance and the rest of it. If he works well, he makes a decent living and helps others to make a living as well. If he doesn’t work well, others may still make a living but he will most likely just scrape by.

In many ways, of course, the word “independent” is related to “freedom”. The phrase “independent retailer” also conjures up a picture of overall economic freedom, of self-ownership of one’s business and economic destiny.

There is freedom from an externally imposed operating framework, freedom in selection of products, freedom in pricing, freedom to service local customers for the store in the most appropriate and locally-relevant way, freedom to manage the cash-flows as the owner-manager wishes to, and so on.

This picture obviously is based on the premise that the independence that is assumed is actually available, as it would be if the market remains hugely fragmented and the supply base also becomes fragmented with many suppliers and brands fighting out for their share of the pie.

Clearly, to anyone who is actually involved in the retail sector that is a huge assumption.

Yes, the supply base is certainly becoming more diverse than earlier as new brands get launched in the market and battle for shelf-space. These brands include not just start-ups or mid-sized companies, but also large companies who are well-equipped to deal with the large incumbents on their own terms. This is surely a good thing for the independent retailer, as it provides him more choice and makes his shelf-space more valuable.

However, there is a quantum difference in the sophistication in organisation, information availability and financial capability between a single-location independent retailer, and even a mid-sized branded supplier, and the balance of power is actually more fragile than it seems. As a supplier grows, it builds up a differentiated position and a distinctive branding and becomes less easily replaceable, while each independent retailer becomes more and more generic, and therefore replaceable. The major differentiating or sustaining factor for most such retailers is their physical location, whose desirability and marketability is not as much within their own control.

When you add large modern retailers into the mix, the economic freedom of the independent looks even more fragile.

Some observers would have us believe that in India modern retailers have little or no impact on the long-term health of independent retailers. This is quite contrary to the ample evidence available from the modernization of retail over several decades in other markets around the world. (Should we chant the old hymn, “But India is different”?)

The fact is that modern retailers don’t suddenly lead to a boom in consumption of food and FMCG products. While there may be some increment due to greater supply and better retail techniques, a new store will invariably take business from existing retail channels. After all, given a choice of a wider variety, a better shopping environment, similar or better products, and similar or better pricing, why would consumers not shift some or all of their spending to a modern retail store?

This, then, brings us to the (sensitive) question – what would happen to the independent retailers in such a circumstance?

Of course, we can take heart from the fact that independent retailers continue to exist even in highly-consolidated and more “developed” markets, and imagine that such a thing will happen in India as well.

Let’s not forget that in some developed and consolidated markets, independents may be supported by local laws and regulations (such as urban planning constraints), while in other places they are supported by the community which may not just show their support by shopping at the mom-and-pop store but also by actively blocking the entry of large retailers and chain stores.

In India the picture is a bit more complex and nuanced.

One the one hand, the consumer is apparently quite happy to enjoy better shopping environments, the convenience of all-under-one-roof. And, while estimates of “wastage” in the food supply chain vary widely, it is widely acknowledged that modern retailers can have a significant positive impact on product quality, value addition, and logistical infrastructure. That is surely a good thing for the country when it is vital to explore every bit of efficiency in food production and its delivery to the population.

On the other hand, regulatory or activist blocks have started to appear already, very early in the growth cycle of modern food and grocery retailing. A few state governments have even taken to banning or at least restricting the growth of corporate-promoted retail chains. Traders’ associations in many markets are quite clear in their perception of the threat from modern retailers to the independent’s normal existence. They express the wish to retain a livelihood threatened by corporate-backed retail operations that are perceived to be competing unfairly with their deeper pockets.

One of the core issues here is the sense of ownership, of being one’s own boss, the dignity offered by being an entrepreneur. Think about what we said earlier about the sense of freedom. Is there a way to retain, or even improve upon that?

The answer may lie in franchising. This may be the bridge between the two sides, and the vehicle for a “co-opted” growth of both.

In a fragmented market like India, it will certainly be a while before corporate retailers can understand and service diverse localities as well as the independents can, or have operations that are as efficient as a kirana-store. As long as independents evolve their own business to offer consumers better service, keep their operating expenses low, manage their inventory closely and retain the energy to run their family business, they will thrive. Imagine if that management capability, sense of ownership and drive became available to a corporate retailer.

At the same time, surely the sourcing scale and marketing muscle that are available to retail chains could be useful to an independent retailer, and help him build more business.

The fundamental successful structure for franchising is identical the world over. The franchiser is an entrepreneur or a company with a product or service that has a market beyond what he can immediately service. The franchisee is an entrepreneur who wants to have the pleasure and privilege of being a business owner, but would also like to benefit from being part of an organisation.

For a win-win, both franchiser and franchisee have to bring something to the table, they both have obligations and responsibilities and both have rights. The framework of the franchise relationship has to be clear in defining these, and yet allow operational flexibility. The partners must also be able to break-away if things don’t shape up the way they have planned, without being too restrictive of each other after the break-up.

The Indian market is not new to franchising. Lifestyle products such as apparel, footwear and others have franchise networks that date back to the 1960s. However, food retail has only seen sporadic attempts at franchising (many of them unsuccessful).

Some of the problems can be tackled by improving the operational and system rigour, while others (such as how do you manage fresh produce consistently at franchise outlets) may be insurmountable in the short term and will require some constraints to be built into the business model.

I believe food and grocery retailers need to explore the option of franchising for faster and possibly more efficient growth, and for encouraging a spirit of partnership in the development of the grocery retail sector. Inclusive growth is a trite phrase, but very true in this context.

India has been and will remain a land of entrepreneurs, and companies would be wise to co-opt that energy.

Who knows – you may even be giving birth to a retail giant. After all, Sam Walton also began his business as a franchisee of another company.