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September 27, 2014
Alys
Francis, Nikkei Asian Review
New
Delhi, 27 September 2014
A few months ago, a group of wealthy industrialists and other
businessmen gathered in a plush Mumbai hotel suite to pore over
a selection of John Lobb handmade welted shoes that cost up to
$12,000 a pair.
It may just be a temporary “pop-up” store, but Thomas Collette, John Lobb’s commercial director for India, was excited. He said that a local agent for the bespoke shoemaker would start taking orders by appointment only. “This is a big step for us and a big step as well for the country,” he said.
Although international luxury brands have opened flagship stores all over developing Asia, they have hardly touched the Indian market. This may be about to change.
After all, many people in the population of 1.3 billion are steadily getting wealthier. According to the Associated Chambers of Commerce and Industry of India, luxury spending will reach $14 billion a year by 2016 compared with $8.5 billion in 2013.
But foreign luxury brands have had a tough time in the country, partly due to restrictions on investment.
Many major brands, such as Prada and Versace, only entered after 2006 when the government began to allow foreign investors in single-brand retail operations. Prior to that, foreign companies were only allowed to operate wholesale “cash-and-carry” outlets.
While companies welcomed the chance to open in India — albeit
with the requirement that a local partner owned at least 49% of
the business — they struggled with the lack of suitable retail
space and trained staff, bad supply chains, and a raft of customs
taxes and duties, as well as a long wait to turn a profit because
there was only a nascent market for their goods.
Since 2006, Prada and Gucci have been among the 50-odd brands that have either left India, restructured or quit soured partnerships, according to a 2012 report by retail consultant Third Eyesight.
In 2012, India started allowing full foreign ownership of single-brand retailers but included restrictions such as the need to source at least 30% of products from local small and midsize enterprises. That is virtually impossible for most luxury labels since their brand integrity often rests on the craftsmanship of products made in their home country. Unsurprisingly, the new rules did not trigger an influx of foreign brands.
Jones Lang LaSalle, the real estate company, in August ranked New Delhi and Mumbai near the bottom of its list of 30 major Asia-Pacific cities in terms of the presence of top luxury brands.
Indians optimistic
Some foreign brands, like John Lobb, have decided that franchise and distribution deals are a better way to establish their presence in a difficult market.
John Lobb’s local partner is Regalia Luxury, which spent a year wooing the Hermes-owned brand before securing a deal to sell John Lobb’s “By Request” line of shoes that are custom-made for each client.
Regalia Luxury is one of a number of Indian companies eyeing the rising number of style-conscious local shoppers who are hungry for Western luxury brands but are wary of entering the market on their own.
“From a longer-term perspective, there’s immense opportunity if you do it the right way,” said Regalia Luxury founder Pratik Dalmia, who clinched a franchise for bespoke Italian suitmaker Kiton in 2013 and expects to sign up two more brands by year-end.
But he admits that the market boom has yet to start and that operators will have to “run a tight ship” for the next couple of years.
Indian companies that represent foreign luxury brands need to have a long-term view and keep a close eye on what the younger generation likes — these are the customers with the most potential, since they are more exposed to overseas fashion trends.
“India is all about the customer of tomorrow,” said Darshan Mehta, CEO of Reliance Brands, a subsidiary of Reliance Industries that was set up in 2007 to bring foreign luxury fashion to India.
Mehta often sits in a cafe at DLF Emporio, New Delhi’s first luxury mall which opened in 2008, and watches shoppers. He said many people shop at Zara but they walk into Gucci and Zegna just to have a look. “That is what makes markets like India so promising: the aspirational consumer,” he said.
Unlike China, where a lot of luxury retailers are now at a consolidation stage after years of rapid expansion, brands are still struggling to find space in India for their first shops.
Even in Mumbai, the Emporio is the “only true luxury mall,” according to Mehta.
It may take some time before India’s luxury market takes off, but the market has been boosted by a stream of well-off Indian professionals and students returning after working and studying abroad, including many bankers who left Wall Street and London after the global financial crisis.
Luxury players are also expecting a boost from the introduction of a Goods and Services Tax, which was promised by India’s new government and would get rid of complex multi-level taxes that are hampering the sector.
Reliance Brands, which also represents Reiss and BCBG Max Azria, expects to add three more brands to the company’s stable of 16 foreign brands by year-end.
A few pioneers are even setting up boutiques in smaller cities. Bangalore firm Fervour, which has licenses to sell Nina Ricci and Christian Lacroix, is planning to expand to Chennai and Hyderabad.
But most don’t see these cities as viable markets just yet.
“There is no sustained luxury market outside of Bombay and Delhi,” Mehta said. He expects luxury demand outside the two main cities to take another three years to reach critical mass.
Sanjay Kapoor, the founder of distributor Genesis Luxury, said India’s luxury market is not yet at the point where China was 10 years ago, even if the potential for growth is immense.
Kapoor founded Genesis Luxury in 2008 to sell foreign luxury brands in India and has deals with Jimmy Choo and Armani, among others.
“As awareness and retail space spread, demand will accelerate in smaller cities in the interior of India,” Kapoor predicted.
Tight ships
Amid the shortage of high-quality retail space, one option is to use the “shop in shop” model.
R&B International rents small spaces in other retailers’ stores to sell Australian luxury label Easton Pearson. The manufacturing firm supplied embroidery to the brand for years before nabbing a distribution agreement in India in June.
Dalmia also said he is in no hurry to open flagship stores for John Lobb and Kiton before 2016.
Instead he is targeting ultra-rich customers who want the pampering that comes with exclusive, by-appointment-only services. Clients are shown samples of Kiton’s made-to-measure suits and John Lobb shoes, and then measured by a trained team at a place and time that suits them, often at home in the late evening.
Collette said he’s been pleasantly surprised by how well the brand has been received in India. While the brand has wholly-owned stores in Japan and the U.S., Collette said it would have been impossible for it to enter India alone.
(Published in Nikkei Asian Review.)
admin
July 9, 2014
B2B event companies don’t often think about consumer spending as something directly relevant to their business. However, consumer trends can allow industry event and exhibition organizers to get an advance view of where the opportunities can lie in the future. In this Keynote address at UFI’s Asia Open Seminar in Bangalore, Devangshu Dutta shares his views about the key consumer trends in India, and the implications for the events and exhibitions industry.
(This presentation was delivered on 6 March 2014 in Bangalore, India.)
Devangshu Dutta
May 17, 2014
(If you’re in a hurry, go to the Slideshare presentation, and bookmark this post for a complete read later.)
These pages usually focus on the consumer and retail sector, its constituents, its problems and the opportunities therein.
The consumer and retail sector is all about choice, and it is worth noting that we’ve just concluded what was possibly the most massive consumer event in the world. I’m referring, of course, to the Indian elections, where more than 500 “consumers” were bombarded with above-the-line and below-the-line marketing by various organisations pushing their brand, product (candidate) and services (ideology and manifesto).
The sum total of analyses of India’s 2014 election results already exceeds what one sane person can read in a lifetime. The BJP and its allies have won a majority of seats unprecedented among non-Congress alliances, in the first-past-the-post system. While opinions may be fractured, the Parliamentary mandate is clear.
In this context and in this spirit, it is also relevant for us to take the big picture view. Retail is a sector that touches the lives of virtually every citizen of this country on a daily basis. So anything that affects their lives and their aspirations have a direct bearing on the retail business as well.
India’s citizens are creative and entrepreneurial. They are hungry for growth. While they are respectful of heritage, they are also devastated by the decline that has come about over decades, centuries, and are determined to change this situation. What they need is the government to shoulder its responsibilities.
If there is one narrative that can pull diverse, divided strands of opinion together, it is “inclusive growth”. Throughout his campaign Narendra Modi has repeated the mantra: “Sabka Saath, Sabka Vikas” (literally “all together, development for all”). In recent weeks, on more than one occasion he has extended this to mean pulling together the efforts of leaders across the political spectrum as well. At the time of this writing, the Prime Minister elect Modi has already set out to manage expectations. He has positioned himself as “mazdoor (labourer) no. 1”, and is asking the electorate for 10-years, making it amply clear that there is no magic broom to remove the dirt of corruption overnight, nor a magic hand that will conjure out ever-increasing incomes out of bottomless magic pockets.
While there are many problems to be tackled at the macro and the micro-level, I think the “business of government” can be captured broadly in an 8-point agenda, and each of these has a significant bearing on the consumers of this country, and the businesses they transact with:
1. Healthcare: While India’s average life-expectancy has improved steadily since Independence it still hangs in the mid-60s while China’s and Brazil’s is over 73. India offers less than one bed for every thousand of its citizens, while both China and Brazil are well over 2. The United Kingdom, whose National Health Service is constantly lambasted as being “overstretched”, offers about 4 hospital beds per 1000 people, and the average for former British colonies is also around 4. Public healthcare infrastructure in India – from primary to speciality – remains critically under-funded, and the public hospitals that exist are chronically under-equipped and under-staffed. Where equipment exists, it is underutilised, as commission-seeking individuals refer patients to the burgeoning private clinics and hospitals. Over the last decade or so private healthcare providers have achieved prominence in the media and among investors, and concessional access to public infrastructure and assets such as land, but they have proved to be consistently out of reach of the general public. Livelihoods and family savings are routinely destroyed in the search for better-quality healthcare in the new, profit-maximising business models. Health should be every citizen’s fundamental right, as one of the foundation stones of a strong nation. It is a right that is denied daily to hundreds of millions. Providing health support is the core business of the government, and needs urgent attention and substantial investment dispersed nationally.
2. Power: India’s power consumption average is about one-third of the Chinese average and less than a tenth of the USA, and this is not only because Indians have smaller homes or live more frugally, but because hundreds of millions of Indians spend most of their days and nights without electricity. If you think you can get a sense of the deprivation from a household that gets power a few hours a day, you actually have to visit one where power availability has improved due to grid power or micro or off-grid availability through solar or biomass units – the enormous impact that the improved power availability has on the lifestyle, livelihood and quality of life can only be truly gauged then. Across the nation, private participation has been invited into the power sector at different times, but the execution has been mixed. Private companies would also like to serve those areas where population concentration and decent financials allow the private provider to create a profitable business. Large swathes of the Indian population lie outside of such areas, and the onus is upon the government to provide the required electricity for households to live a fuller life, for students to complete their lessons, for healthcare and administrative facilities to run effectively, for small entrepreneurs to be able to grow their businesses.
3. Clean water: Imagine one train crash every day of the year, each killing all passengers on board. Sounds catastrophic, doesn’t it? Wouldn’t that get some serious attention? Well, it is estimated that around 1600 deaths are caused every day by diarrhoea alone (higher than the train wreck fatalities), and that 21% of communicable diseases in India are related to unsafe water. The problem is not only in far flung villages, but acute even in the largest cities of the country. Both those numbers are shamefully high for a nation that wants to see itself as a global superpower. There are no technological gaps for effectively harnessing the existing water resources, and for maintaining cleaning, distribution and recovery systems – only management gaps.
4. Transportation infrastructure: While India has one of the largest rail networks in the world, at about 20 kilometres per 1,000 sq km of land area it compares unfavourably to highly industrialised European countries (Germany: 115 km per thousand sq. km., UK: 65, France: 53) or even the large less densely populated USA (26 km per thousand sq. km.). On road development India’s picture has improved in the last 15 years, but it still trails world-leading economies in terms of length as well as quality. Poor transportation systems cut people off from economic opportunities, and force them to migrate to already overloaded cities, perpetuating problems in both urban and rural areas. Historically, all strong nations, democratic or otherwise, have flourished due to extensive, superior transportation networks. Where people and goods can move quickly and freely, both trade and culture flourish, and build the strongest ties that bind people together.
5. Education: This is another area which has systematically been under-invested in by the government. From pre-schools to universities, the growth of educational institutions for the last 30-40 years has predominantly been in private hands, where affordability is not the prime driver. The number of seats in government-run institutions has not grown in proportion with the population, let alone in correlation with the demand. Access remains a problem, as does the quality. There is no reason why government-run educational institutions need to be bad – there are enough examples around the country within government schools and colleges, where organisational systems and individual intent produces excellence. Without immediate and adequate government focus on education, the massive young population of India will go waste, at worst it would be a ticking time-bomb of under-skilled frustrated underachievers.
6. Environment: This might seem like a strange inclusion in this “development-oriented” list. However, it is essential that the environment should be on a list of core items that the government needs to manage well. The government is usually in the news for either not doing enough (such as not monitoring the systematic encroachment in and destruction of the Aravalli Hills) or, at the other extreme, getting in the way by holding back environmental approvals to development projects. Another term for the environment is “the commons”, reflecting that the natural resources belong to the people, together. The commons need not just protection, but regeneration, resurgence. Defence and political experts around the world list climate change and clashes over natural resources as among the highest conflict risks in coming years, and the evidence is frequently visible. When “growth” is measured only by those activities that extract and deplete the common resources, support and encouragement is provided for those individuals and companies that do this the “best”. It is short-termism and selfishness of the worst sort. Evidence of large scale climate-related changes and the debilitating impact on civilisations exists around the world and across the span of history; the closest might be the Ganga-Saraswati civilisation that is said to have dispersed due to the depletion of one of its greatest rivers. We don’t even need to forecast huge impacts far into the future. Millions of Indians increasingly are born and live with chronic diseases that are related to deteriorating air quality, depleted water resources, polluted soils and disappearing vegetation. Indigenous natural species of plants and animals are declining, mostly invisible to the nation at large. A comprehensive, evolving framework is needed that goes beyond short-term planning and management by knee-jerk reactions.
7. Competition: This is an area which requires little investment, relative to the other items on this list, but a huge amount of intent and follow-through. No economic system is perfect and, indeed, it is the imperfections and discontinuities that provide business opportunities. When the imperfections are exploited by many, competitive forces balance each other out. The need to diversify is well-understood by people who care to think about risks. Concentration of efforts, resources, power behind a few initiatives or organisations can bring about disproportionately good results, but also creates the risk of wipeout. Diversity is a challenge because it creates fragmentation, but it is also an essential source of innovation, combating not just present risks but future threats as well. Self-moderation is too much to expect from even the most enlightened of large business leaders and even the most progressive of industries. Anti-competitive and customer protection frameworks have improved in recent years, but are still understaffed and underequipped. As the economy grows, so does the need to provide oversight against unethical behaviour by large organisations.
8. Accountability: None of the above can truly happen without transparency in governance, and productivity in public service i.e. respect for schedules, budgets and commitments. Measures such as Right to Information (RTI) have moved the country several steps up the transparency ladder, but accountability to “service deliverables” is still missing in a vast number of people employed in government departments. Entry into “government service” is seen as a ticket to a reasonably comfortable employment if you are inclined to not rock the boat. The idea is to not question the status quo as far as possible, and to ensure that the outcomes for the “overclass” are taken care of. This attitude needs to change. In fact a small start could be made by replacing the phrase “government service” with “public service” – the business of government is to serve the public at large, and this needs to be recognised and acknowledged by everyone involved in it. Efforts in all the other areas will fall flat if accountability and productivity are not embedded into the money and efforts invested. (Imagine if we could sign SLAs – service level agreements – with each and every individual hired for public service roles!) The roles that accountability brings with it include “upholding the law” and “enabling an environment where each citizen has a fair chance of success”.
Someone else might come up with a slightly different list – this is mine, the seven pillars and the overarching beam. I’ve not listed the areas in any specific order of priority. Some of them need more government intervention, some need less private intervention, a few (such as education) need both. These are all areas that are the foundation on which everything else is built. These are the areas which, to a very large extent, determine the levels of dignity with which a country’s citizens lead their lives.
In this day and age, the government is not needed to run steel mills, airlines or even handicraft retail stores. But without high quality and high availability ensured by the government in the above areas, even the most capable individual will find it easier to build a life and even the best private enterprise will find it more profitable to do business elsewhere in the world.
A much-followed new-generation business leader recently rhetorically asked in a social media post that, if we have an economy swinging towards services with a large chunk of it being technology, “Why do we need government?”
The reasons above, my friend, are why and where we need government, because business is not delivering on these areas in an equitable manner, and these are areas where technology will not necessarily provide all the answers. We have years of evidence of this, in some cases decades, and it is time we choose to move.
By and large, most people would rather choose to move something, than move somewhere (else). And the retail business will be one of the first to benefit.
Tarang Gautam Saxena
May 15, 2014
“Ingredients for Speed & Innovation” Conference 2014 gathered together senior delegates (CEOs/ CXOs) of the food & beverage Industry, on 7 May 2014 in Delhi. The event was organised by Third Eyesight in association with Infor India Pvt. Ltd. & Nagarro Software Pvt. Ltd.
Devangshu Dutta, CEO, Third Eyesight
The conference was focused on the emerging opportunities for the companies in food and beverage sector amidst the challenging business environment. In his opening presentation, Devangshu Dutta, CEO, Third Eyesight reflected on the current macro-economic environment and the dichotomous changes in the consumer mindset. Dutta highlighted the need for companies to invest in developing advance insights, and to not only anticipate change but to seed ideas and invest in creating industry segments. Manish Gupta, VP Business Development, Nagarro provided insights on various technological solutions that have been engaged by companies that could enable companies achieve faster and better visibility into the data.
Manish Gupta, VP Business Development, Nagarro
A panel discussion that followed discussed industry leaders’ experiences related to challenges faced with respect to demand fluctuations, demand fragmentation, complex supply chains for products with low shelf life, lack of homogeneity in food ingredients sourced through diverse geographic locations within India, as well as high levels of personnel attrition.
Devangshu Dutta, Manish Agarwal, Arshad Siddiqui, Tarang Gautam Saxena, Manish Gupta
Manish Agarwal, Director, Bikanervala mentioned that while consumers are including other cuisines in their diet, they still prefer to have Indian food on a regular basis. Standing firm on its positioning of being a leader in Indian traditional snacks and QSR has helped his company to sustain business in these challenging times.
Arshad Siddiqui of Rasna Beverages shared the challenges related to diversity in India not only of the demand base but even the supply base. He highlighted how flavours of the same fruit vary across different geographic regions within India and adds to the complexity of maintaining consistency in the product range.
The conference was received well by the delegates who found immense value in exchanging thoughts on some highly relevant business issues.
Tarang Gautam Saxena
February 14, 2014
2013 has been a mixed year for retail in the Indian market with multiple factors working in favour of and against the business prospects.
Economic growth had slowed to 5% for 2012-13 (as per advance estimates by The Central Statistics Office, Government of India), down from 9.3% in 2011. The ray of hope is that the growth rate is expected to rebound to 6.8% in 2013-14. Spiralling inflation, with prices of some basic vegetables shooting up almost eight to ten times, distracted the consumers from discretionary spending. The year hardly saw irrational expansions by retail businesses as they primarily focused on bottom line performance.
While the Government of India liberalised Foreign Direct Investment (FDI) policy in retail in September 2012, international investors have been slow to respond and sizeable foreign investments have been announced only recently at the end of 2013.
The political environment also took unexpected turn with the success of Aam Aadmi Party (AAP) at the Delhi Assembly Elections held towards the end of the year. This may augur in a new era of politics driven by performance and results but in the short term it could restrict market access for international multi-brand retailers, as the AAP has declared their opposition to investment from foreign multi-brand retailers.
So is India still a strategic market for international fashion brands to look at?
FDI Policy – Clarifications and Impact
India’s Foreign Direct Investment (FDI) policy has come a long way with foreign investments now being allowed in multiple sectors including retail, telecom, aviation, defence and so on. The Indian government is now exploring the possibility of allowing FDI in sectors such as railways and construction.
The year 2006 was a significant year for international brands in fashion and lifestyle space as the Government of India allowed up to 51 per cent foreign direct investment in the newly-defined category of “Single Brand retail”. In September 2012 the Indian Government liberalised the retail FDI policy to allow foreign investment up to 100 per cent in single brand operations and up to 51 per cent in multi-brand retail albeit with certain conditions related to the ownership of the brand, mandatory domestic sourcing norms for both single-brand and multi-brand retailers and additionally certain investment parameters for the backend operations of the multi-brand retail business. The idea was to attract foreign investment in retail trading a part of which could flow into improving the supply chain while providing Indian businesses access to global designs, technologies and management practices.
Large Investments in the Pipeline
The investments flowed in slowly initially. Some of these have looked at converting existing operations, such as Decathlon Sports which was present in India through a 100% owned subsidiary in cash and carry business. The brand is converting its cash and carry business in India to fully-owned single brand retailing business.
But there have been some significant moves as well. A record breaking FDI proposal in single brand retail is the Swedish furniture brand IKEA’s, that had to apply three times since December 2012 before its’ proposed investment of €1.5 billion (Rs. 101 billion) received the nod from the Government. However, the proposal is reportedly still in the works, as Ikea looks to structure the business to comply with the laws of the land. And as the year came to a close the Government cleared Swedish clothing brand Hennes and Mauritz’s (H&M) US$ 115 million (Rs.7.2 billion) investment proposal. According to news reports the brand had already begun blocking real estate with the goal of launching its stores in India at the soonest.
While the initial response to the relaxation of FDI policy spelt positive inflow for single brand retail, there was no new investment forthcoming in multi-brand retail. The existing foreign multi-brand retailers present in India through the cash and carry format showed a marked lack of interest in switching to a retail business model. On the other hand Walmart, the only foreign multi-brand retailer having access to a network of retail stores through its wholesale joint venture Indian partner, Bharti Enterprises Ltd., ended its five year long relationship and has restricted itself to the wholesale business. Though the company cited that it was disheartened by complicated regulations, it was also caught up in its own corruption investigation as well as allegations that it had violated foreign investment norms. The sole bright spot was the world’s fourth largest global retailer Tesco proposing and getting approval for a US$ 115 million investment into the multi-brand retail business of its partner, the Tata Group. At the time of writing the precise scope of this investment remains unclear.
If you want the full paper please send us an email with your full name, company name and designation to services[at]thirdeyesight[dot]in.
