Devangshu Dutta
December 5, 2013
(Published in ETRetail.com on 6 December 2013)
Franchising isn’t rocket science, but advanced space programmes offer at least one parallel which we can learn from – the staging of objectives and planning accordingly.
A franchise development programme can be staged like a space launch, each successive stage being designed and defined for a specific function or role, and sequentially building the needed velocity and direction to successfully create a franchise operation. The stages may be equated to Launch, Booster, Orbiter and Landing stages, and cover the following aspects:
Stage 1: Launch
The first and perhaps the most important stage in launching a franchise programme is to check whether the organisation is really ready to create a franchise network. Sure, inept franchisees can cause damage to the brand, but it is important to first look at the responsibilities that a brand has to making the franchise network a success. Too many brands see franchising as a quick-fix for expansion, as a low-cost source for capital and manpower at the expense of franchisee-investors. It is vital for the franchiser to demonstrate that it has a successful and profitable business model, as well as the ability to provide support to a network of multiple operating locations in diverse geographies. For this, it has to have put in place management resources (people with the appropriate skills, business processes, financial and information systems) as well as budgets to provide the support the franchisee needs to succeed. The failure of many franchise concepts, in fact, lies in weakness within the franchiser’s organisation rather than outside.
Stage 2: Booster
Once the organisation and the brand are assessed to be “franchise-ready”, there is still work to be put into two sets of documents: one related to the brand and the second related to the operations processes and systems. A comprehensive marketing reference manual needs to be in place to be able to convey the “pulling” power that the brand will provide to the franchisee, clearly articulate the tangible and intangible aspects that comprise the brand, and also specify the guidelines for usage of brand materials in various marketing environments. The operations manual aims to document standard operating procedures that provide consistency across the franchise network and are aimed at reducing variability in customer experience and performance. It must be noted that both sets of documents must be seen as evolving with growth of the business and with changes in the external environment – the Marketing Manual is likely to be more stable, while the Operations Manual necessary needs to be as dynamic as the internal and external environment.
Stage 3: Orbiter
Now the brand is ready to reach out to potential franchisees. How wide a brand reaches, across how many potential franchisees, with what sort of terms, all depend on the vision of the brand, its business plan and the practices prevalent in the market. However, in all cases, it is essential to adopt a “parent” framework that defines the essential and desirable characteristics that a franchisee should possess, the relationship structure that needs to be consistent across markets (if that is the case), and any commercial terms about which the franchiser wishes to be rigid. This would allow clearer direction and focussed efforts on the part of the franchiser, and filter out proposals that do not fit the franchiser’s requirements. Franchisees can be connected through a variety of means: some will find you through other franchisees, or through your website or other marketing materials; others you might reach out to yourselves through marketing outreach programmes, trade shows, or through business partners. During all of this it is useful, perhaps essential, to create a single point of responsibility at a senior level in the organisation to be able to maintain both consistency and flexibility during the franchise recruitment and negotiation process, through to the stage where a franchisee is signed-on.
Stage 4: Landing
Congratulations – the destination is in sight. The search might have been hard, the negotiations harder still, but you now – officially – have a partner who has agreed to put in their money and their efforts behind launching YOUR brand in THEIR market, and to even pay you for the period that they would be running the business under your name. That’s a big commitment on the franchisee’s part. The commitment with which the franchiser handles this stage is important, because this is where the foundation will be laid for the success – or failure – of the franchisee’s business. Other than a general orientation that you need to start you franchisee off with, the Marketing Manual and the Operational Manual are essential tools during the training process for the franchisee’s team. Depending on the complexity of the business and the infrastructure available with the franchiser, the franchisee’s team may be first trained at the franchiser’s location, followed by pre-launch training at the franchisee’s own location, and that may be augmented by active operational support for a certain period provided by the franchiser’s staff at the franchisee’s site. The duration and the amount of support are best determined by the nature of the business and the relative maturity of both parties in the relationship. For instance, someone picking up a food service franchise without any prior experience in the industry is certainly likely to need more training and support than a franchisee who is already successfully running other food service locations.
Will going through these steps guarantee that the franchise location or the franchise network succeeds? Perhaps not. But at the very least the framework will provide much more direction and clarity to your business, and will improve the chances of its success. And it’s a whole lot better than flapping around unpredictably during the heat of negotiations with high-energy franchisees in high-potential markets.
Devangshu Dutta
October 9, 2013
[This article appeared in Daily News & Analysis (DNA) on 10 October 2013, under the headline “Without Wal-Mart, can Bharti play it alone?”]
A year ago, Wal-Mart had called Bharti its natural retail partner in India. But today the companies have jointly and publicly changed their relationship statuses to “single”, calling off the 6-year old marriage. Bharti will buy out or retire Wal-Mart’s debentures in the 200+ store Easyday retail business, while Wal-Mart in turn will acquire Bharti’s stake in the 20-outlet Bestprice cash-and-carry business.
By some estimates, the split was imminent for perhaps a year or longer, as the pressure rose for the two companies due to multiple factors. Several regulatory changes governing foreign investment in the Indian retail sector made it difficult for Wal-Mart to acquire a stake in the existing retail business that the two partners had set up. Anti-corruption investigations in Wal-Mart’s India business (in addition to Mexico, China and Brazil), as well as questions around the legality of US$ 100 million worth of quasi-equity compulsorily convertible debentures issued to Wal-Mart at a time FDI was not allowed in multi-brand retail businesses brought down even more external scrutiny upon the joint business. And finally, pressure against foreign investment in multi-brand retail of basic goods such as food and grocery, continued to exist not just amongst opposition parties but also parties within the ruling coalition and individuals in the government.
The split means that Wal-Mart can now overtly take complete ownership of the Bestprice business, and drive it as it sees fit. The fragmented retail market and the myriad small businesses in India do potentially provide a large customer base for the cash-and-carry business if Wal-Mart chooses to be more aggressive. However, that may not happen immediately. The business has been coasting for over a year without new openings that were already planned and significant personnel changes have happened from the seniormost levels down. Wal-Mart’s investigations of corruption allegations continue and before committing more resources it will definitely want to strengthen systems so as to not be in violation of Indian and US laws.
On the other hand, if it wishes to now enter the retail business, Wal-Mart would also have to look for a new Indian partner to set up new retail stores in a separate company. Retail is capital-hungry so Wal-Mart would need a cash-rich partner who can accept a junior position in the venture in which Wal-Mart would clearly be the driver financially, strategically and operationally.
At this time Wal-Mart seems to have decided to take a step back and evaluate what the Indian market means to it right now and in the future, what sort of investment – both in financial and management terms – it demands, and what returns the investment will bring. It remains to be seen whether it will choose to grow aggressively, coast up incrementally or, in fact, take the next exit out of the market as it has done in some other countries earlier.
And what of Bharti? Will it be able sustain the retail play without Wal-Mart’s close operational guidance and financial participation, or will it choose sell the Easyday operation to another domestic investor? On its part Bharti has stated an ongoing commitment to the business, and has also hired the former CEO of the joint venture, Raj Jain, as a Group Advisor. A 200-plus store chain is sizeable and credible in India’s fragmented food and grocery market, and is seen by the group as “a strong platform to significantly grow the business”.
However, Bharti’s core telecom business is also capital-intensive and highly competitive, and it will be difficult at this time to sustain high-paced growth in another cash-hungry, thin-margin business such as grocery retail. For now the Group’s best bet would possibly be to consolidate operations, unearth more margin opportunities and take a call at a more opportune time whether to further invest in growth or to treat retail as a non-core business and exit it.
Creating a substantial, profitable retail business is a long-term play in any part of the world. In India, as retailers are discovering, it takes just that extra dose of patience.
Devangshu Dutta
February 16, 2013
About six years ago, Kishore Biyani of the Future Group and I were discussing a presentation I had delivered at CII’s National Retail Summit, during which I had mentioned “Purushartha”. This millennia-old living philosophy takes a balanced view of life. Aspects related to consumption are two of its major components including Artha (wealth, commerce) and Kama (sensory pleasure). Dharma (righteousness in society and individual life) and Moksha (liberation) are the other two. My point was that most “traditionalists” and certainly policy-makers in the country have tended to view the retail sector negatively or dismissively.
Of course, at that time most businesses themselves hardly demonstrated any sense of balance, let alone any connection with the reality of India, whether in terms of the consumer’s needs, or in terms of the operating environment in the country. By and large the theme was: push explosive growth, margins be damned; promote “westernised” consumption aspirations, regardless of capability to fulfil those aspirations. Conversely, the four years after the global financial crisis in 2008 have been possibly the worst that the retail sector has faced in recent decades, whether in terms of total losses or the quantum of lost growth opportunity, and business sentiment has swung to the other extreme.
On its part the government has not done much to encourage the sector. After several policy flip-flops, approving investment proposals of some high-profile global brands is a positive signal to the outside world, but none of them so far have unlocked or grown the value of Indian retail businesses in any significant way. There is no doubt that foreign brands and retailers can and should be an integral part of India’s developing retail landscape, but they cannot be the prime drivers of the retail business in India or the saviours of its supply chain. That vision and energy needs to come from within, and the resultant growth will benefit all – Indian and international companies, consumers and the government.
From the ancient treatise Arthashastra, Professor Thomas Trautman quotes the concept of concept of “shad-bhaag” (the state having one-sixth share) as “entrepreneurial” because it has a sense of mutual interest, promoting production and the growth of everyone’s share. This spirit of co-ownership and entrepreneurial participation is largely missing in today’s governance. Direct and indirect taxation remains a complex net for all but the savviest evaders, not to mention all the other regulation and approvals that each business – large or small – needs to comply with.
Somehow the mandarins don’t seem to see that the retail business is a platform for the multi-fold growth of new enterprise, that it is a vehicle for urban renewal, and that it can help enormously in channelling the economy into visible taxable revenues. It also seems to escape them that the biggest drivers for this growth and change will typically be small entrepreneurial businesses, who themselves can only thrive in a simpler and non-adversarial regulatory environment.
The wishlist is not large, but needs some bold steps: enact policies that free up unproductive real estate to reduce costs, reduce regulatory hurdles, remove tax traps, reduce import duties. For instance, one estimate for illegal imports in watches is 75 per cent, where the beneficiaries are the smugglers and those who oil the wheels for them, not the consumer, not the brands or retailers, not the revenue department.
It is an important budget year politically due to impending elections but also economically due to the dismal GDP growth. The animal spirits that the Prime Minister has referred to in the recent past are more in the nature of a “bheegi billi” right now rather than a roaring tiger. The caged golden bird will not lay any golden eggs. Will the Finance Minister choose to crack the whip this year, or cut the chains? We watch with bated breath.
(An edited version of this piece was published as in Daily News & Analysis – DNA on 19 February 2012, under the title “Foreign brands can’t be prime drivers of retail”.)
Tarang Gautam Saxena
May 1, 2012
India’s economic growth may seem to have taken a dip last year with India’s GDP growth falling to 6.9% for 2011-12 from 8.4% the previous year. But that has not translated into a slower entry of international brands entering the market. There already exist over 200 international fashion brands in India with more than a quarter of these operating predominantly in the footwear and accessories category. Bata may be an exception, having been present in India for over eighty years, but since the 1980s international brands have been trickling in, and the numbers really picked up in the 2000s.
Since 2006, the number of international shoes and accessories brands entering the market has increased 4-fold. The year 2012 has already ushered in international brands such as Claire’s (jewellery), Christian Louboutin (shoes) and Kelme (sports shoes and apparel) within the first three months, while more brands are there on the anvil. While India is expected to grow at 7.6% this year, the pace of growth of international brands may just as well surpass this relatively slow growth rate.
Business Environment & Choice of Operating Structure at Entry
The choice of entry strategy is a key decision for brands entering new markets. This decision hinges on internal and external business factors including the degree of control that a brand wants to exercise on the brand, the product and the supply chain, the market potential, the internal capabilities and strategies of the international brand in their home market or other overseas markets and the government policy pertaining to foreign investment in that particular market.
In the late 1980s and 1990s the Indian retail market was largely unorganized with few national Indian brands and an under developed modern retail network. Import duties were high and there were many investment barriers for foreign brands. The early players entering the market in the shoes and accessories segment were primarily sports footwear and equipment brands targeting the Indian men. Bata was perhaps a lone brand that offered footwear for the entire family.
The international brands that entered the Indian market at that time largely opted to license the brand to an Indian partner that allowed the international brands to gain quick access to the Indian market with a minimal investment. Brands such as Lotto, Hush Puppies and Puma chose to license the brand to a partner based in India. The Indian partner invested in sourcing or manufacturing, merchandising, branding, marketing, distribution, and even retail while the international brand received royalties and other fees for lending its brand to the market. However, this left the brands with very little control on their growth path in the market. A few formed joint ventures (Reebok, Adidas) or entered into licensing and distribution tie-ups (Nike, Umbro) with Indian partners to leverage the partners’ manufacturing or distribution strengths.
Over time, certain brands decided to move their existing entities (licensed, franchised or joint venture) into wholly owned subsidiaries. These brands may have invested a disproportionate amount of management time and effort initially but the investment has paid off well. Reebok is today the largest international sports goods brand in India with a reported turnover of Rs 600 crores last year, followed by Adidas, Puma and Nike.
The 2000s saw a rising interest of women’s footwear and accessories brands in the Indian market as the market further evolved. Many of these players operated in the luxury segment appealing to a limited few. There was a distinct shift in the choice of entry strategy and franchising emerged as the preferred entry route for the brands stepping afoot in the Indian market testing the waters. The successive lowering of import duties for fashion products resulted in imports being a less expensive sourcing option and the realty boom brought investors in retail real estate that were ideal franchisees for the international brands.
At the same time the count of sports footwear and accessories brands also continued to grow. This product category was primarily distributed through agents, regional distributors and through a combination of exclusive branded outlets, multi-branded outlets and large department chains at the retail end. By 2003, franchising became the preferred launch vehicle for an increasing number of international companies, including Accessorize, Aldo, New Balance and Nine West, while only a few chose to enter through licensing.
In 2006 the Government of India reopened retail to foreign investment (allowing up to 51 per cent foreign direct investment in “Single Brand” retail). Later the Indian government also announced the possibility of gradually increasing the FDI limit in single brand retail from 51% to 100%. The possibility of having part or an eventual complete ownership encouraged brands, seeking a more controlled business in India, to use joint venture as the launch vehicle. International footwear and accessories brands such as Clarks, Fendi, Kipling, Pavers England either entered India by forming joint ventures or shifted their existing structures to joint ventures.
Thus the last decade saw the international brands largely using the franchising route or forming joint ventures to create a presence in the Indian market. While franchising became the choice for risk-averse brands, those that were convinced about the longer-term value of India took the more committed ownership route.
While the government has recently allowed 100% foreign direct investment in single brand retail, it has placed the rider that 30% of the sourcing would happen from small and medium enterprises in India. The lack of clarity as to what this actually means, as well as the need to set up an adequate sourcing presence in India has meant that most brands have not pushed their Indian presence into a 100 per cent ownership structure.
Of course, for a few brands India may be the key source for their entire range and given our government’s manufacturing policy they may already have an existing small and medium enterprise vendor base. These brands may go for complete ownership if India is a strategic and important enough market and sourcing base in their global portfolio.
One such international company is Pavers England, a premium leather footwear brand from UK, which has recently approached the Indian government to allow the retailer 100% foreign direct investment in single brand retail. The group has been present in India since 2008 through a joint venture and currently sells the brands, Pavers England and Staccato in India.
At the moment, 35% of the international brands are present through an ownership business model, either through a wholly owned subsidiary or a joint venture with majority stake which reflects the growth of confidence level of international brands in the Indian market.
Changeovers, Exits & Re-launches
The road to success in the Indian market has not been an entirely smooth ride even for the large brands that are successful globally. Brands that have invested in understanding the psyche of the Indian consumer, adopted flexibility in market approach and displayed persistence, have been paid off handsomely and some of these have even exceeded domestic brands in size and reach. Some others have had to reconcile to being niche operators.
Some brands have shifted their strategy and changed their operating structures and even partners in response to the dynamic market conditions and the increasing importance of India’s contribution in their global business. Some brands that may not have achieved success in their initial stint and have exited the market, only to return with renewed strategy, energy and rigour and more suitable business models and or partners. There are plenty of examples of international brands that have changed over their operating structure, partners, exited the market and yet re-launched again.
Puma, for instance, had first entered the Indian market through a licensing arrangement with Carona in the early 90s to sell sports footwear, but the agreement was revoked in 1998. The brand entered the market again in 2002, this time with a licensing / distribution tie up with Planet Sports. The company positioned itself as a lifestyle brand this time with a wider product range. While the Indian partner was responsible for sourcing of apparel and accessories, distribution and retail, Puma ensured that the quality of footwear being sourced from India was upto mark and also ensured brand consistency throughout all marketing, product and retail efforts. To the international company, India occupied an important position in Puma’s global as well as Asian business. With an aim to strengthen the brand’s position further in the country through greater control over its India operations, Puma set up a wholly owned subsidiary in 2006 subsequent to the end of its licensing tie-up.
Another early entrant, Lotto Italia, re-entered the market in 2005 through a license deal after a gap of ten years. More recently, in an effort to move to the higher growth trajectory, the brand has changed its partner last year and the brand is looking for aggressive growth by planning to grow its network of exclusive stores across India from 50 at the moment to 200 in the next three years. The brand is also undertaking various marketing activities to gain high visibility and connect with the consumers. Recently, the brand has been reported to be working on launching cricket equipment in India in the next six months, which will be a pilot run for the global launch of the product as well.
The renowned Italian brand Gucci was brought into India through a franchise agreement with Murjani Retail in 2006. However, the global economic crisis and its resultant impact on the Indian market, led a shift in the Indian partner’s focus from luxury to premium brands. The franchise agreement with Murjani Retail was terminated and replaced with a new franchisee, Luxury Goods Retail, in 2009. Simultaneously, the international brand Gucci, converted this new franchise agreement into a majority owned joint venture for more control over the Indian operations.
Clarks, a British footwear brand, first entered India in 2005 through a distribution agreement with an India partner and also set up a few exclusive stores across India. It withdrew from the market due to below-par performance. However, after researching and understanding the Indian consumer further it re-entered the market 2011 through a joint venture with Future Group. Now Clarks is offering differentiated products across segments (men, women and kids) with lower price points and is focusing on high brand visibility through exclusive branded stores to break through the clutter. India is an important sourcing base for this company and it is also drawing synergy for its global product range from the products being developed as per the tastes and preferences of Indian consumers. From the new partner the brand hopes to leverage their experience in real estate and their understanding of the Indian consumer.
The Italian fashion brand Miss Sixty exited the market and their partnership with Reliance Brands in 2007. The brand re-launched shoes and accessories in 2009 through another franchise agreement and currently the brand has three stores across Delhi, Mumbai and Chennai.
The German lifestyle brand, Aigner that entered India in 2004 is perhaps a lone brand that has not yet re-entered the market since its exit in 2010, but it will be no surprise if it returns to India again at an appropriate time.
The strategies of international brands have changed due to various factors. Many of the changes in strategy and structure have been due to the actual performance in the market falling well short of expectations and projections. Perhaps, the changes in partnership could have been moderated had the companies been more careful in questioning the criteria and motivations for choosing partners. (This is discussed further in detail in our earlier articles, relating to the International Fashion Brands in India). In choosing their partners, the international brands need to carefully identify what role they wish to play in the market, and what capability and capacity they need operationally to create the success that can truly root a brand into the rich Indian soil.
International Brands: Here to Stay
India is at the early stage of consumer growth and is emerging to be a strategic market to many international brands with a promising market potential. The market conditions are much better and the barriers to entry much lower for the international brands as compared to even the last decade. The overall confidence of the international brands in the potential of the Indian market is highly positive.
So far, the shoes and accessories market has been led by international sports and outdoors brands. Though there are already over a dozen international brands present in this category, we can expect to see more entering this category. The recently announced joint venture between Wolverine and Tata International to strengthen the presence of CAT and Merrell brands in the Indian market and to possibly introduce other brands from the portfolio shows that this segment is far from saturation.
Indian women are emerging as another important segment, drawing more footwear and accessories brands into the market and expansion of the existing brands through stand alone stores for women. There is still open ground available in the premium and value segment of women’s accessories for the growth of both international and national brands.
Over the last decade, the pace of growth of a brand has accelerated; the time needed for a brand to scale up has shortened. The modern retail network has expanded and there are an increasing number of distribution channels today, even as existing players such as Bata and new ones such as Reliance Footprint offer growing platforms for international accessory brands to plug into.
The online channel is further emerging as an important route to reaching the consumers especially in the tier II and III cities where demand exists but there is low accessibility due to inadequate distribution network. Vans Shoes, an international footwear brand from USA, has tied with online portal myntra.com to widen its consumer reach having entered India last year through a joint venture with Arvind Brands. The online channel also offers the possibility of “pilot runs” and test marketing for brands at the early stage.
Going further, not only do we see more brands customizing their product range for Indian tastes, but India also becoming the testing ground and an inspirational source for global product range.
International brands clearly are here to stay. The more successful brands will be the ones that take pragmatic view of what is achievable and make course-corrections to their India business model as often as required.
Devangshu Dutta
January 6, 2012
The transition between calendar years offers a pause. We can use it to evaluate what passed in the previous year, chalk out our journey for the next one.
The first response of most people to the question “What happened in the Indian retail sector in 2011” would be probably something like this: lots happened, and then – at the end – nothing did!
That is because one theme ran through the entire year, month after month, fuelled by tremendous interest in the mainstream media as well. This was about the change expected, hoped for, in the policy governing foreign direct investment (FDI) into the retail sector. Hearing the debate go back and forth, on one side it seemed as if FDI was going to cure every ill of the Indian economy, and on the other it seemed as if the country was being sold out to neo-colonists.
It’s worth remembering that not too long ago foreigners could invest in retail businesses in India freely. Benetton ran some of the key locations in the network through its joint-venture which subsequently became a 100 per cent owned subsidiary. Littlewoods (UK) set up a 100 per cent owned operation in India during the 1990s before its home market business collapsed, and its Indian operation was bought by the Tata Group to form Westside. And well before all these, one of the early multi-nationals, Bata, had already built a humongous network of stores across the length, breadth and depth of India.
The motivation for the decision to exclude foreigners from this sector may have been political, economic or mixed – that is not as important as the timing.
By the mid-90s India had just started to attract interest as private consumption was just about picking up steam. Several international apparel, sportswear and quick service brands entered the market during this time. Many of these brands started setting up processes and systems that changed the way the supply chain worked. They gained market share, and more importantly mindshare, with young consumers. In this process some of the domestic brands did suffer, some of them irrecoverably. However, with foreign investment suddenly blocked-off, many brands that wanted direct ownership in the business in India turned away. In their opinion the opportunity just wasn’t big enough to take on the hassle of a partner. Some did enter, but with wholesale distribution structures rather than in retail.
During this last decade, the Indian retail landscape has changed dramatically. During the 2000s the economic boom happened and India became “hot” again. So did retail and real estate, as large corporate houses pumped in significant amounts of capital into setting up modern chains to tap into the fattening consumer wallets. Clearly, FDI was going to come up on the agenda again, but not quite at once. Indian companies needed some headroom to grow; and grow they did, partly with indigenous business models and brands, and partly as partners to international brands.
By 2011, there was more of a clear consensus among the Indian businesses that retail could be opened to FDI and must be. Internationally, too, political and economic heavy-weights from the significant western economies pitched for opening up the retail sector in India to foreign investment. Here’s the small public glimpse of the hectic activity that happened internationally and domestically:
Such an anticlimax! For many, 2011 was the year that could have been a turning point. Could have been! If you had slept through the year and woken up on New Year’s Eve, would you have found nothing had really changed?
Ah, that’s the thing! I think most people observing the retail business actually slept through the year, because they were just focused on the FDI dream. Those actually engaged in the retail business know that many other things did change, some of which create the foundation for further growth.
The government did push on with the GST (goods and services tax) agenda. While stuck in politics at the moment, we look forward to incremental changes in harmonizing the taxes and tariffs regime, vital for truly unifying the country in the economic sense. On the downside, excise being levied on the retail price of clothing was a blow to retailers.
Growth continued. Indian’s retail giant, Future Group, grew to around 15 million square feet. The other giant, Reliance, announced renewed vigour and focus on the retail business with additions to the management team partnerships with international brands such as Kenneth Cole, Quiksilver and Roxy. Other new partnerships were announced, including significant American food service brands Starbucks (with the Tata Group) and Dunkin’ Donuts (with Jubilant). The British footwear brand Clark’s announced that it was aiming to make India its second-largest source country and among its top-5 markets within 5 years. Marks & Spencer pushed to expand its chain by more than 50 per cent, adding 10 stores to 19, while Walmart said its focus was on building scale rather than trying to squeeze profitability from its US$ 40 million investment so far. For fashion brands, the Rs 500 crores (US$ 100 million) sales threshold seemed more achievable as they used the accelerated pace of growth.
Many in the retail business talk about “the people problem”. Fortunately, some decided to demonstrate positive leadership, reflected in RAI’s announcement of an ambitious skill development plan for 5 million people in next 4-5 years, and industry veteran BS Nagesh announcing the launch of a non-profit venture, TRRAIN.
There was some bad news on the issue of shrinkage: a sponsored study placed India at the top of the list of countries suffering from theft. But the level was reported to be lower than the previous study, so there seemed to be hope on the horizon. The study didn’t say whether consumers and employees had become more honest, better security systems were preventing theft, or whether retailers themselves had become better at counting and managing merchandise over time.
A significant highlight was the e-commerce sector, which has found its way to grow within the existing restrictions and regulations, even as the online population is estimated to have grown to 100 million. Flipkart delighted customers with its service and racked up Rs. 50 crores (US$ 10 million) in sales. Deal sites proliferated and media channels celebrated the advertising budgets. Even offline businesses, notable among them pizza-major Domino’s, found their online mojo; Domino’s reported 10 per cent of its total revenues from online bookings within a year of launching the service.
In all of this the biggest story remains untold, which is why I call it an Invisible Revolution. This revolution is made up of the changes that are happening in the supply chain in the entire country, including investment by private companies in massive, large and small facilities to store, move and process products more efficiently. And in spite of the high costs of capital, suppliers are continuing to look at investing in upgrading their production facilities as well as their systems and processes. While the companies at the front-end will no doubt get a lot of the credit for modernizing India’s retail sector, it would be impossible without the support of the foundation that is being built by their suppliers and service providers.
2011 seems to have ended with a whimper. 2012’s beginning will be tainted by large piles of leftover inventory that needs to be cleared. Inflation seems tamer, but consumers have already tightened their belts, anticipating difficult times. The policy flip-flops and the political debates are sustaining the air of uncertainty. So what does 2012 hold?
Remember, the ancient Mayan calendar stops in December 2012, and no doubt there are many predicting doomsday! However, there are several others that see this as a possibility of rejuvenation, renewal.
Hope and fear are both fuel for taking action. Investment cycles are caused by an imbalance of one over the other.
In 2012, we’ll probably continue to see a mix of both. I recommend that we don’t take an overdose of any one of them. Even if you think 2011 was “the year that could have been”, I suggest still treating 2012 as “the year that could be”.
Here’s wishing you a successful New Year!
