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Retail 2020

Remember the year 2000? After Y2K passed safely, that year some optimistic analysts predicted that India’s modern retail chains would reach 20 per cent market share by 2015. Two years after that supposed watershed, another firm declared that modern retail will be at around that level in 2020 – but wait! – only in the top 9 cities in the country. Don’t hold your breath: India surprises; constantly. As many have noted, “predictions are tough, especially about the future!” What we can do is reflect on some of this year’s developments that could play out over the coming year.

In many minds 2019 may be the Year of the Recession, plagued by discounting, but that demand slowdown has brewing for some time now. However, there’s another under-appreciated factor that has been playing out: while small, independent retailers can flex their business investments with variations in demand, modern retail chains need to spread the business throughout the year in order to meet fixed expenses and to manage margins more consistently.

To reduce dependence on festive demand, retailers like Big Bazaar and Reliance have been inventing shopping events like Sabse Sasta Din (Cheapest Day), Sabse Sachi Sale (Most Authentic Sale), Republic Day / 3-Day sale, Independence Day shopping and more for the last few years. In ecommerce, there’s the Amazon’s Freedom Sale, Prime Day, and Great India Festival, and Flipkart’s Big Billion Day Sale. This year retailers and brands went overboard with Black Friday sale, a shopping-event concept from the 1950s in the USA linked to a harvest celebration marked by European colonisers of North America. (The fact that Black Friday has a totally different connotation in India since the terrorist bombings in Bombay in 1993 seems to have completely escaped the attention of brands, retailers and advertising agencies.) Be that as it may, we can only expect more such invented and imported events to pepper the retail calendar, to drive footfall and sales. The consumer has been successfully converted to a value-seeking man-eater fed on a diet of deals and discounts. With no big-bang economic stimuli domestically and a sputtering global economy, we should just get used to the idea of not fireworks but slow-burning oil lamps and sprinklings of flowers and colour through the year. Retailers will just have to work that much harder to keep the lamps from sputtering.

Ecommerce companies have been in operating for 20 years now, but the Indian consumer still mostly prefers a hands-on experience. The lack of trust is a huge factor, built on the back of inconsistency of products and services. The one segment that has been receiving a lot of love, attention and money this year (and will grow in 2020) is food and grocery, since it is the largest chunk of the consumption basket. Beyond the incumbents – Grofers, Big Basket, MilkBasket and the likes – now Walmart-Flipkart and Amazon are going hard at it, and Reliance has also jumped in. Remember, though, that selling groceries online is as old as the first dot-com boom in India. E-grocers still struggle to create a habit among their customers that would give them regular and remunerative transactions, and they also need to tackle supply-side challenges. Average transactions remain small, demand remains fragmented, and supply chain issues continue to be troublesome. Most e-grocers are ending up depending on a relatively narrow band of consumers in a handful of cities.  The generation that is comfortable with an ever-present screen is not yet large enough to tilt the scales towards non-store shopping and convenience isn’t the biggest driver for the rest, so, for a while it’ll remain a bumpy, painful, unprofitable road.

Where we will see rapid pick-up is social commerce, both in terms of referral networks as well as using social networks to create niche entrepreneurial businesses – 2020 should be a good year for social commerce, including a mix of online platforms, social media apps as well as offline community markets. However, western or East Asia models won’t be replicated as the Indian market is significantly lower in average incomes, and way more fragmented.

As a closing thought, I’ll mention a sector that I’ve been involved with (for far too long): fashion. In the last 8-10 decades, globally fashion has become an industry living off artificially-generated expiry dates. A challenge that I have extended to many in the industry, and this year publicly at a conference: if consumption falls to half in the next five years, and you still have to run a profitable business (obviously!), how would you do it? Plenty of clues lie in India – we epitomise the future consumers; frugal, value-seeking, wanting the latest and the best but not fearful about missing out the newest design, because it will just be there a few weeks later at a discount. If you can crack that customer base and turn a profit, you would be well set for the next decade or so.

(Published as a year-end perspective in the Financial Express.)

Wellness: From Lifestyle to an Industry

Ayurved

In recent decades, the dependence on established medical disciplines has begun to be challenged. There is the oft-quoted dictum that healthcare sector tends to illness rather than health. Another saying goes that some of the food you eat keeps you in good health, but most of what you eat keeps your doctor in good health. With a gap emerging between wellness-seekers and the healthcare sector, so-called “alternative” options are stepping in.

Some of these alternatives actually existed as well-structured and well-documented traditional medical practices for thousands of years before the introduction of more recent Western medical disciplines. This includes India’s Siddha system and Ayurved (literally, “science of life”), which certainly don’t deserve being relegated to an “alternative” footnote. Ayurved is also said to have influenced medicine in China over a millennium ago, through the translation of Indian medical texts into Chinese.

Other than these, there are also more recent inventions riding the “wellness” buzzword. These may draw from the traditional systems and texts, or be built upon new pharmaceutical or nutraceutical formulations. Broader wellness regimens – much like Ayurved and Siddha – blend two or more elements from the following basket: food choices and restrictions, minerals, extracts and supplements, physical exercise and perhaps some form of meditative practices. Wellness, thus, is often characterised by a mix-and-match based on individual choices and conveniences, spiked with celebrity influences.

A key premise driving the wellness sector is that modern medicine depends too heavily on attacking specific issues with single chemicals (drugs) or combinations of single chemicals that are either isolated or synthesised in laboratories, and that it ignores the diversity and complexity of factors contributing to health and well-being. The second major premise for many wellness practitioners (though not all!) is that, provided the right conditions, the body can heal itself. For the consumer the reasons for the surge in demand for traditional wellness solutions include escalating costs of conventional health care, the adverse effects of allopathic drugs, and increasing lifestyle disorders.

After food, wellness has turned into possibly one of the largest consumer industries on the planet. Global pharmaceutical sales are estimated at over US$ 1.1 trillion. In contrast, according to the Global Wellness Institute, the wellness market dwarfs this, estimated at US$ 3.7 trillion (2015). This figure includes a vast range of services such as beauty and anti-ageing, nutrition and weight loss, wellness tourism, fitness and mind-body, preventative and personalized medicine, wellness lifestyle real estate, spa industry, thermal/mineral springs, and workplace wellness. Within this, the so-called “Complementary and Alternative Medicine” is estimated to be about US$200 billion.

There are several reasons why “complementary and alternative medicine” sales are not yet larger. Rooted in economically backward countries such as India, these have been seen as outdated, less effective and even unscientific. In India, the home of Siddha and Ayurved, apart from individual practitioners, several companies such as Baidyanath, Dabur, Himalaya and others were active in the market for decades, but were usually seen as stodgy and products of need, and usually limited to people of the older generations and rural populations. In the West they typically attracted a fringe customer base, or were a last resort for patients who did not find a solution for their specific problem in modern allopathy and hospitals.

However, through the 1970s Ayurved gained in prominence in the West, riding on the New Age movement. Gradually, in recent decades proponents turned to modern production techniques, slick packaging and up-to-date marketing, and even local cultivation in the West of medicinal plants taken from India.

As wellness demonstrated an increasingly profitable vector in the West, Indian entrepreneurs, too, have taken note of this opportunity. Perhaps Shahnaz Husain was one of the earliest movers in the beauty segment, followed by Biotique in the early-1990s that developed a brand driven not just by a specific need but by desire and an approach that was distinctly anti-commodity, the characteristics of any successful brand. Others followed, including FMCG companies such as the multinational giant Unilever. The last decade-and-a-half has also brought the phenomenon called Patanjali, a brand that began with Ayurvedic products and grew into an FMCG and packaged food-empire faster than any other brand before! While a few giants have emerged, the market is still evolving, allowing other brands to develop, whether as standalone names or as extensions of spiritual and holistic healing foundations, such as Sri Sri Tattva, Isha Arogya and others.

An absolutely critical driver of this growth in the Indian market now is the generation that has grown up during the last 25-30 years. It is a class that is driven by choice and modern consumerism, but that also wishes to reconnect with its spiritual and cultural roots. This group is aware of global trends but takes pride in home-grown successes. It is comfortable blending global branded sportswear with yoga or using an Indian ayurvedic treatment alongside an international beauty product.

Of course, there is a faddish dimension to the wellness phenomenon, and it is open to exploitation by poor or ineffective products, non-standard and unscientific treatments, entirely outrageous efficacy claims, and price-gouging.

To remain on course and strengthen, the wellness movement will need structured scientific assessment and development at a larger scale, a move that will need both industry and government to work closely together. Traditional texts would need to be recast in modern scientific frameworks, supported by robust testing and validation. Education needs to be strengthened, as does the use of technology.

However the industry and the government move, from the consumer’s point-of-view the juggernaut is now rolling.

(An edited version of this piece was published in Brand Wagon, Financial Express.)

Café Coffee Day – steaming or sputtering?

(Published in the Financial Express, 10 May 2016)

In about 20 years, Café Coffee Day (CCD) has grown from one ‘cyber café’ in Bengaluru to the leading chain of cafés in the country by far.

In its early years, it was a conservative, almost sleepy, business. The launch of Barista in the late 1990s and its rapid growth was the wake-up call for CCD — and wake up it did!

CCD then expanded aggressively. It focussed on the young and more affluent customers. Affordability was a keystone in its strategy and it largely remains the most competitively priced among the national chains.

Its outlets ranged widely in size — and while this caused inconsistency in the brand’s image — it left competitors far behind in terms of market coverage. However, the market hasn’t stayed the same over the years and CCD now has tough competition.

CCD competes today with not only domestic cafés such as Barista or imports such as Costa and Starbucks, but also quick-service restaurants (QSRs) such as McDonald’s and Dunkin’ Donuts. In the last couple of years, in large cities, even the positioning of being a ‘hang-out place’ is threatened by a competitor as unlikely as the alcoholic beverage-focussed chain Beer Café.

CCD is certainly way ahead of other cafés in outlet numbers and visibility in over 200 cities. It has an advantage over QSRs with the focus on beverage and meetings, rather than meals. Food in CCD is mostly pre-prepared rather than in-store (unlike McD’s and Dunkin’) resulting in lower capex and training costs, as well as greater control since it’s not depending on store staff to prepare everything. However, rapid expansion stretches product and service delivery and high attrition of front-end staff is a major operational stress point. Upmarket initiatives Lounge and Square, which could improve its average billing, are still a small part of its business.

Delivery (begun in December 2015) and app-orders seem logical to capture busy consumers, and to sweat the assets invested in outlets. However, for now, I’m questioning the incremental value both for the consumer and the company’s ROI once all costs (including management time and effort) are accounted for. The delivery partner is another variable (and risk) in the customer’s experience of the brand. Increasing the density through kiosks and improving the quality of beverage dispensed could possibly do more for the brand across the board.

The biggest advantage for CCD is that India is a nascent market for cafés. The café culture has not even scratched the surface in the smaller markets and in travel-related locations. The challenge for CCD is to act as an aggressive leader in newer locations, while becoming more sophisticated in its positioning in large cities. It certainly needs to allocate capex on both fronts but larger cities need more frequent refreshment of the menu and retraining of staff.

An anonymous Turkish poet wrote: “Not the coffee, nor the coffeehouse is the longing of the soul. A friend is what the soul longs for, coffee is just the excuse.” There are still many millions of friends in India for whom the coffee-house remains unexplored territory, whom CCD could bring together.

The Season of Opportunism

(The Hindu Businessline – cat.a.lyst got marketing experts from diverse industries to analyse consumer behaviour during the last one month and pick out valuable nuggets on how this could impact marketing and brands in the years to come. This piece was a contribution to this Deepavali special supplement.)

Two trends that stand out in my mind, having examined over two-and-a-half decades in the Indian consumer market, are the stretching or flattening out of the demand curve, or the emergence of multiple demand peaks during the year, and discount-led buying.

Secular demand

Once, sales of some products in 3-6 weeks of the year could exceed the demand for the rest of the year. However, as the number of higher income consumers has grown since the 1990s, consumers have started buying more round the year. While wardrobes may have been refreshed once a year around a significant festival earlier, now the consumer buys new clothing any time he or she feels the specific need for an upcoming social or professional occasion. Eating out or ordering in has a far greater share of meals than ever before. Gadgets are being launched and lapped up throughout the year. Alongside, expanding retail businesses are creating demand at off-peak times, whether it is by inventing new shopping occasions such as Republic Day and Independence Day sales, or by creating promotions linked to entertainment events such as movie launches.

While demand is being created more “secularly” through the year, over the last few years intensified competition has also led to discounting emerging as a primary competitive strategy. The Indian consumer is understood by marketers to be a “value seeker”, and the lazy ones translate this into a strategy to deliver the “lowest price”. This has been stretched to the extent that, for some brands, merchandise sold under discount one way or the other can account for as much as 70-80 per cent of their annual sales.

Hyper-opportunity

This Diwali has brought the fusion of these two trends. Traditional retailers on one side, venture-steroid funded e-tailers on the other, brands looking at maximising the sales opportunity in an otherwise slow market, and in the centre stands created the new consumer who is driven by hyper-opportunism rather than by need or by festive spirit. A consumer who is learning that there is always a better deal available, whether you need to negotiate or simply wait awhile.

This Diwali, this hyper-opportunistic customer did not just walk into the neighbourhood durables store to haggle and buy the flat-screen TV, but compared costs with the online marketplaces that were splashing zillions worth of advertising everywhere. And then bought the TV from the “lowest bidder”. Or didn’t – and is still waiting for a better offer. The hyper-opportunistic customer was not shy in negotiating discounts with the retailer when buying fashion – so what if the store had “fixed” prices displayed!

This Diwali’s hyper-opportunism may well have scarred the Indian consumer market now for the near future. A discount-driven race to the bottom in which there is no winner, eventually not even the consumer. It is driven only by one factor – who has the most money to sacrifice on discounts. It is destroys choice – true choice – that should be based on product and service attributes that offer a variety of customers an even larger variety of benefits. It remains to be seen whether there will be marketers who can take the less trodden, less opportunistic path. I hope there will be marketers who will dare to look beyond discounts, and help to create a truly vibrant marketplace that is not defined by opportunistic deals alone.

Macro Consumer Trends: Implications for the Events Industry – (2014 March, Devangshu Dutta)

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.)

 

Entry Strategy of Global Brands – Impact of FDI

By Tarang Gautam Saxena & Devangshu Dutta

Since the onset of reopening of India’s economy in the late 1980s, fashion is one consumer sector that has drawn the largest number of global brands and retailers. Notwithstanding the country’s own rich heritage in textiles the market has looked up to the West for inspiration. This may be partly attributable to colonial linkages from earlier times, as well as to the pre-liberalisation years when it was fashionable to have friends and relatives overseas bring back desirable international brands when there were no equivalent Indian counterparts. Even today international fashion brands, particularly those from the USA, Europe or another Western economy, are perceived to be superior in terms of design, product quality and variety.

International brands that have been drawn to India by its large “willing and able to spend” consumer base and the rapidly growing economy have benefitted in attaining quick acceptance in the Indian market and given their high desirability meter, most international brands have positioned themselves at the premium-end of the market, even if that is not the case in the home markets. In addition, Indian companies – manufacturers or retailers – have been more than ready to act as platforms for launching these brands in the market and today there are over 200 international fashion brands in the Indian market for clothing, footwear and accessories alone, and their numbers are still growing.

Global Fashion Brands – Destination India

Europe’s luxury brands have had a long history with India’s princely past, but modern India tickled the interest of international fashion brands in the 1980s when it set on the path of liberalisation. The pioneering companies during this stage were Coats Viyella, Benetton and VF Corporation. At the time the Indian apparel market was still fragmented, with multiple local and regional labels and very few national brands. Ready-to-wear apparel was prevalent primarily for the menswear segment and was the logical target for many international fashion brands (such as Louis Philippe, Arrow, Allen Solly, Lacoste, Adidas and Nike). (Addendum: The rights to Louis Philippe, Van Heusen and Allen Solly in India and a few other markets were sold after several years to the Indian conglomerate, Aditya Birla Group, as part of the Madura Garments business.)

The rapidly growing media sector also helped the international brands in gaining visibility and establishing brand equity in the Indian market more quickly. However, this period did not see a huge rush of international brands into India. West Asia and East Asia (countries such as Japan, South Korea, Taiwan and even Thailand) were seen as more attractive due to higher incomes and better infrastructure. In the mid-1990s there was a brief upward bump in international fashion brands entering the Indian market, but by and large it was a slow and steady upward trend.

The late-1990s marked a significant milestone in the growth of modern retail in India. Higher disposable incomes and the availability of credit significantly enhanced the consumers’ buying power. Growth in good-quality retail real estate and large format department stores also allowed companies to create a more complete brand experience through exclusive brand stores in shopping centres and shop-in-shops in department stores.

By the mid-2000s, however, a very distinct shift became visible. By this time India had demonstrated itself to be an economy that showed a very large, long-term potential and, at least for some brands, the short to mid-term prospects had also begun to look good.
While India was a promising market to many international brands, it was not completely immune to the global economic flu. More than its primary impact on the economy, it sobered the mood in the consumer market. Even the core target group for international brands tightened the purse strings and either down-traded or postponed their purchases.

In 2008, in the midst of economic downturn, scepticism and uncertainty, international fashion brands continued to enter India at nearly the same momentum as the previous year. Many international brands such as Cartier, Giorgio Armani, Kenzo and Prada entered India in 2008, targeting the luxury or premium segment. However, given the high import duties and high real estate costs, the products ended up being priced significantly higher than in other markets. Many brands ended up discounting the goods heavily to promote sales, while a few gave up and closed shop.

The year 2009 saw the true impact of the slowdown as fewer international brands were launched during the year. The brands that launched in 2009 included Beverly Hills Polo Club, Fruit of the Loom, Izod, Polo U.S., Mustang, Tie Rack, Donna Karan/DKNY and Timberland amongst others. Some of these had already been in the pipeline for quite some time and had invested considerable time and effort in understanding the dynamics of the Indian retail market, scouting for appropriate partners, building distribution relationships and tying up for retail space, setting up the supply chain and, most importantly, getting their operational team in place.

2010 was better in comparison: although initially slow, the growth of new international brands entering the Indian market in 2010 bounced back later during the year, and some brands that had exited the Indian market earlier also made a comeback. Amongst the new launches, a highlight of the year was the launch of the most awaited and discussed-about Spanish brand Zara. The first store was launched in Delhi to an absolutely phenomenal response, followed by a store in Mumbai, and a third again in Delhi. The Italian value fashion brand, OVS Industry, was launched in 2010 by Oviesse through a joint-venture with Brandhouse Retail from the SKNL group. While in its first year products were imported from Italy, the company had mentioned that it intended to bring in the merchandise directly from the supply source for speed and cost effectiveness, to achieve aggressive growth over the following five years.

2010 indicated a fresh round of optimism as the pace of new brands entering the market picked up, and those already present in the market showing signs that they were adapting their strategies to grow their India business, including lowering prices and entering new segments.

Though the number of new brands entering the Indian shores in 2011 and 2012 may not have matched the numbers in the peak years, both years have been healthy and the list of new brands ready to enter in 2013 already seems promising.

Amongst others, 2011 saw the entry of Australian brands such as Roxy and Quiksilver having tied up with Reliance Brands for distribution. The largest British football club and lifestyle brand Manchester United, signed up with Indus-League Clothing Ltd. to bring the fashion products to India, after having launched café bars in India in 2010 through a franchisee.

2012 brought in luxury brands such as Christian Louboutin, Roberto Cavalli and Thomas Pink, womenswear brands such as Elle, Monsoon and fashion accessories brands such as Claire’s.

Routes to Market – The Evolution

The choice for entry strategy for the fashion brands has evolved over the years. During the initial years licensing was the preferable route for international brands that were testing the market. This shifted to franchising as import duties dropped and brands looked at exerting more control on the product and the supply chain. More recently, brands seem to be opting for some degree of ownership, as they begin to take a long-term view of the market.

In the 1980s and the early 1990s, licensing was a popular entry strategy amongst the global fashion brands, with minimal involvement in the Indian business.

Entry Routes Jan 2012

In the mid-1990s a few companies such as Levi Strauss set up wholly owned subsidiaries while others such as Adidas and Reebok entered into majority-owned joint ventures. This helped them to gain a greater control over their Indian operations, sourcing and supply chain, and brand. In the subsequent years import duties for fashion products successively came down making imports a less expensive sourcing option and the realty boom brought in many investors in retail real estate who became franchisees for the international brands. By 2003, franchising became the preferred launch vehicle for an increasing number of international companies, 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). Using this route, many brands have entered India by setting up majority-owned joint ventures, or moving their existing franchise relationships into a joint venture structure. By the end of 2008, more than 40 per cent of the international brands were present through a franchise or distribution relationship, while more than 25 per cent had either a wholly-owned or majority-owned subsidiary. All these structures allowed the brands to have greater control of operations, particularly of the product.

Amongst the international brands that entered the Indian market, a few were on their second or even third attempt at the market. For instance, Diesel BV initially signed a joint venture agreement in 2007 with Arvind Mills. However, by the middle of 2008, the relationship ended with mutual consent, as Arvind reduced its emphasis at the time on retailing international brands within the country. Within a few months of ending this relationship, Diesel signed a joint venture with Reliance Brands as the iconic denim brand wanted to take on the Indian market full throttle and the Indian counterpart had indicated that it wanted to rapidly build its portfolio of Indian and foreign brands in the premium to luxury segments across apparel, footwear and lifestyle segments.

Similarly, Miss Sixty entered India in 2007 through a franchisee agreement with Indus Clothing. It switched to a joint venture with Reliance Brands in the same year but the partnership was called off in 2008. Miss Sixty finally entered India through a franchisee agreement with a manufacturer of women’s footwear and accessories.

During the turbulence of 2008 and 2009, a few brands also moved out of the market. Some of them were possibly due to misplaced expectations initially about the size of the market or about the pace of change in consumer buying habits. Others were due to a failure either on the part of the brand or its Indian partners (or both), to fully understand what needed to be done to be successful in the Indian market. Whatever the reason, the principals or their partners in the country decided that the business was under-performing against expectations for the amount of effort and money being invested, and that it was better to pull the plug. Amongst the brands that exited the market during 2008 and 2009 were Gas, Springfield and VNC (Vincci).

In the last few years as the foreign direct investment rules are being softened in particular with regard to the more flexibility in the 30% domestic sourcing and clarification on brand ownership norm there is an increasing preference for international companies to enter the India market with some form of ownership while those that are already in the market are looking to increase their stakes in the business.

Several brands have taken the plunge into investing in the Indian operations and moved more aggressively into the market. Since the year 2009, international brands increasingly opted for joint-ventures as the choice for entry into the market. Even the brands already present started looking to modify the nature of their presence in India in order to exert more control over the retail operations, products, supply chain and marketing. Brands that changed their operating structures and, in some cases partners, include VF (Wrangler, Lee etc.), Lee Cooper, Lee,  Louis Vuitton, Gucci, Burberry amongst others. Mothercare, the baby product retailer, which was initially present through a franchise agreement with Shoppers Stop, formed a joint venture with DLF Brands Ltd to enable the expansion through stand-alone stores.

During 2011, Promod changed its franchise arrangement with Major Brands into a joint-venture that is majority-owned by Promod. From its launch in 2005, the brand has opened 9 stores so far. However with the new joint venture in place, the international brand is reported to be looking at opening 40 stores in the next four years with the hope of increasing the contribution of India business to its global revenue to the extent of 15-20% from a mere 3% at present.

After its partnership with Raymond fell through in 2007 and all of its standalone stores were shut down, Gas (Grotto SpA) scouted around for an appropriate partner for India business.  Eventually, the brand set up a wholly owned subsidiary in 2010 for wholesale operation while retail stores were franchised. In 2012 the company formed an equal joint venture partnership with Reliance Brands with plans to ramp up India retail presence.

2012 was a defining year marking the government’s decision to allow 100% foreign direct investment in single brand retail business and permitting multi-brand retail in India. Not only has this encouraged new brands to consider the Indian market but many existing brands have started reviewing their existing operating structures and alliances, and have initiated moves towards greater ownership and a stronger foothold in the Indian market. Some of the brands have taken the decision to step into an ownership position in India as they felt that India was too strategic a market to be “delegated” entirely to a partner (whether licensee or franchisee), or that an Indian partner alone might not be able to do justice to the brand in terms of management effort and financial capital.

S. Oliver restructured its India operations in 2012 by exiting its prior relationship with the apparel exporter Orient Craft and tied up with a new partner through a majority joint venture. To gain a larger share in the Indian market the company has repositioning the brand, changed its sourcing strategy, reduced the entry-level prices by 40% while reducing the store size (from 5,000 sq. ft. to 1,200-2,400 sq. ft.). It has also put in place an aggressive expansion strategy for tier II towns. The change in FDI norms towards the end of last year may cause it to review its position further.

Canali has entered into a majority-owned joint-venture with its existing partner Genesis Luxury. The brand had entered in India in 2004 through a distribution agreement. Through this change the international brand plans to grow its presence in India multi-fold by opening 10-15 stores over the next three-four years.

Pavers England is the first international brand to have applied for and been granted the permission to own and operate its retail business in India through a 100 per cent subsidiary owned by a UK based company. Newcomers such as H&M and Loro Piana are reportedly considering the joint venture route.

As we have already mentioned in one of our earlier papers (“Tapping into the India Gold Rush”) we do not expect a dramatic short-term growth in the number of international brands following the retail FDI relaxation in September 2012. However, at that time we did foresee some changes in the operating structures for the single brand ventures already active in the market, as well as entry of new brands that have been holding back so far as they wanted greater control in their India retail business and this seems to be happening already.

In the luxury sector, 51 percent FDI and distribution relationships are likely to continue to be a norm, since it is virtually impossible for most luxury companies to meet the 30 percent domestic sourcing requirement in its true spirit. In many cases, the local partner in a joint venture is a mere placeholder until FDI rules are liberalised further and, unless the business grows significantly, most brands will be content to keep the existing structures in place.

In the other segments some more relationships could be reconstituted during 2013, taking the international brand at least a step closer to gaining greater control, even if their partners remain the same.

Operating Models Jan 2013

Franchising is still the more common form of route to market for most single brand retail companies although for many international companies an eventual ownership in India business may be desirable. However, licensing should not be excluded from the choice set, especially for companies that are multi-brand retail concepts such as Sephora or those that manage to find a suitable Indian partner that can provide end-to-end support from product sourcing to distribution and retail (for example, the relationship between Elle and Arvind).

Today two thirds of the international fashion brands come from three countries the U.S.A., Italy and the U.K. with nearly 30 per cent originating from the U.S.A. alone.

 COO Jan 2013

 Is This A Lucky 13?

The theme for the year 2013 is positive for most brands, although still cautious.

Amongst the international brands that one can look forward to shopping in 2013 are “Uniqlo” of Fast Retailing, Japan’s largest apparel retailer, Sweden’s H&M, Emilio Pucci and Billabong. But India is not merely a destination anymore for the international brands to grow their business. The country is also increasingly becoming the innovation-platform or testing ground for new concepts and trends. World Co. a Japanese retailer with  more than 3,000 stores in Japan and 200 stores in other parts of Asia is also test-marketing women’s apparel and accessories brands such as Couture Brooch, Opaque.clip, zoc, Tk Mixpie and Hot Beat to gain insights into consumers’ psyche. Italian brand United Colors of Benetton has recently introduced a global retail interior design concept which is present in major European cities but is the first-of-its-kind store in Asia and may well set the trend for the rest of Asia.

Gucci recently opened its largest store in India recently Delhi-NCR after two failed joint ventures. All of its five stores are now run directly by the company and the Indian business also reported to have turned profitable this year.

Brands such as Mango who have chosen the franchise route are tying up with additional partners (e.g. DLF) in the hope of making the Indian business contribute significantly to the overall revenue of the company.

UK-based apparel chain Marks & Spencer is accelerating its expansion in India with plans to add ten stores in the next six to eight months in the country. The company has identified India as one of the key markets to become the world’s most sustainable retailer by 2015. It  plans to increase the number of stores in India from 24 currently to over 30 through the 51:49 joint venture with Reliance Retail.

Puma SE, the global sports lifestyle company for athletic shoes, footwear, and other sports-wear aggressively set out to gain 30 per cent of the Indian organised retail sportswear market within a year, from a share of 18-20 per cent in the top four branded sportswear segments in 2011. To this end the company targeted opening nearly 100 more stores during 2012. While the actual numbers are reportedly short of target, the brand has been opening amongst the largest stores during the year.

The confidence in the India opportunity is rising again, with existing global brands expecting the contribution from India business to grow multi-fold in a few years. However, the approach is of careful consideration and brands realise that India is a unique market, different not only from the West but also from other Asian economies such as China. Rather than adopting a “cut-and-paste” approach one needs to seriously consider the appropriate business model for India. Many of the global players have had to create a different positioning from their home markets. Some have significantly corrected pricing and fine-tuned the product offering since they first launched; these include The Body Shop and Marks & Spencer. Others are unearthing new segments to grow into; for instance, Puma and Lacoste are now seriously targeting womenswear as a growth market.

It is not only international brands that are more optimistic. Indian partners are also reviewing their approach. For instance, the Arvind Group that had looked at reducing its emphasis on international fashion brands in 2007-08 has recently acquired the business operations of Planet Retail which operated the franchises of British fashion retailers Debenhams and Next, and American lifestyle brand Nautica in India. The company termed Debenhams’ franchise as a significant acquisition as it provided an entry into the department store segment. Arvind plans to increase the India presence of Debenhams from 2 stores to 8 over the next three years. It also plants to grow the network of Next, the large-format speciality stores, from 3 to 12 in the same period.

As customer footfall and conversions pick up, international brands are also shoring up their foundations for future expansion in terms of better processes and systems, closer understanding of the market, and nurturing talent within their team. Third Eyesight’s study of the market highlights international brands’ concerns with ensuring a consistent brand message, improved organisational capabilities right down to front-line staff, and focussing on unit productivity (per store and per employee).

India shows signs of a healthier business outlook for International brands but the game has just begun and with competition getting tougher, we can expect interesting times ahead.

Shopping Centres – Boon or Bane

Many people I know treat shopping centres or malls as a new phenomenon, a progressive development of recent times or a modern blot on the traditional cityscape (depending on your point of view).

However, Grand Bazaar (Istanbul, Turkey) is the earliest known mall, with the original structures built in 1464, with additions and embellishments later.

In India, if one were to include open arcades, Chandni Chowk in Delhi is reported to have opened around 1650, with its speciality shopping streets. (Of course, more traditional bazaars have been around many thousands of years around the world.)

But even if one were to get more “traditional” about the definition of a mall, possibly India’s first mall was founded in the hottest city in the country then, Kolkata (New Market) in 1874.

In more recent history, Delhi’s municipal pride, the air-conditioned underground Palika Bazar was a novelty in the mid-1980s, while Bangalore’s Brigade Road saw several early pioneers with their shopping arcades in the late 1980s.

Then came the mall-mania beginning with Ansal Plaza in Delhi and Crossroads in Mumbai. Everyone started looking at malls as the new goldmine, being pushed ahead by a “retail boom”.

The early stage of any such gold rush usually has several experiments missing their mark, which is what has happened with the hundreds of mall-experiments that have been launched in the last 7-8 years.

Some of the significant and common issues are starting to be addressed, but many others remain.

Catchment-Based Planning is Needed

The top-most issue in my mind is “oversupply”. While this may sound absurd to many people, given the low figures quoted for modern retail, I am referring to the over-concentration of malls in a small geography. If 8-10 malls open 4-5 million sq. ft. of shopping in a catchment that can only support 1 million sq. ft., everyone knows that some of the malls will fail. But everyone also believes that their mall will succeed (otherwise, they would obviously not have invested in the mall).

What happens to the malls that fail? Depending on the design of the building, many of them can be repurposed into office space – another area where a lot of investment is still needed. So in the end, actually, most people win, one way or the other. Yet, there will be some losers. Does anyone “plan” on being one?

The second key issue in my mind has been that mall developers have been thinking as “property developers” rather than retail space managers. The successful shopping centre operators worldwide (now also in India), are actually as concerned about what and who is occupying that space as a retailer would be. They are concerned about the composition of the catchment, the shopping patterns, the volume of sales, the shopping experience. Therefore, the tenant mixes as well as adjacencies are factored into the earliest stages of planning the shopping centres.

In fact, if I were to identify the most critical operational problem for many of the malls, it is the lack of relevance to catchment and, therefore, the low conversion of footfall into sales for the tenants other than the food-courts. Customer flow planning within the mall is another factor that can make a tremendous impact on the success and failure of the tenant stores.

Once you start looking at these factors during the planning of a mall, another obvious aspect that jumps out is “differentiation”. Currently, there is little to choose from between malls (other than possibly the anchor store). However, with more clarity in terms of the target audience, the potential strategies for differentiation also become clearer. The visitors also become segmented accordingly, and there is a natural benefit to the tenants occupying the mall.

If, as a mall operator, you want to be in business for long, and also develop other properties in the future, the success of your tenants is probably the most critical driving factor for your business.

Integration into the Urbanscape

When we gauge malls from the perspective of integrating within the urban landscape, there are obviously some glaring errors being made. Instead of aesthetic design that reflects the heritage and culture of the location and its surroundings, or some other inspirational source for the architect, most malls that have come up are concrete and glass boxes.

Beyond the looks, some of the malls are a victim of their own success. They attract more crowds during the peak than they have planned for. Not only does the parking prove to be inadequate, there is no holding capacity for cars entering or exiting the mall. The result is a traffic nightmare – not just for general public, but even for the visitors to the mall. Someone who has spent 45 minutes stuck in a jam waiting to get into the parking of a mall will certainly not be in the best frame of mind to buy merchandise at the stores occupying the mall.

Some of the problems lie outside the mall-developer’s control – for instance land costs are a major driver of the cost of the project (and, therefore, the lease costs to the tenants), and land is a commodity which is independent. Real estate is available within the cities as brown-field sites (former industrial locations), but the regulations are convoluted and the strings are in the hands of too many different departments of the government (city, state and central). This needs joint creative thinking on the part of developers, the government and the public, if our cities are to develop in a more sane fashion than they have in the past.

Similarly, land deals are still not clean enough for foreign investors to be comfortable participating in many developments. This obviously is holding back a tremendous source of capital and domain expertise that could contribute to the growth of this sector.

Many other operational issues exist – manpower, systems, health & safety – some of them can be managed or controlled by the mall developers, and it is a question of time (and of their gaining experience). Other issues are more in the domain of the government, and need a visionary push to make “urban renewal” a true mission.

New Life for the Cities

In my opinion, one of the most interesting areas which would be in the joint interest of almost all parties (that I can think of) is the possibility of revitalizing the high streets and community markets, and reinventing them as the true centres of shopping.

Many of our markets are rotting (a strong word, but let me say it anyway). The individual stores are owned by individual owners who are not all equally capable of maintaining the same look and feel throughout. The infrastructure in and around the markets are owned or managed by several different agencies. To make matters worse, there is often no cohesiveness and no synergy in the interests of most of the members of the market association. None of these individually have the power or the mandate to recreate the shopping centre. But what if they could get together and take the help of a re-developer?

If an example is needed, New Delhi’s Connaught Place provides the example of one stage of redevelopment. Connaught Place had lost its pre-eminent position as a shopping centre, due to the spread of Delhi’s population and the new local markets that had come up. Further disruption was caused by the construction by Delhi Metro. But DMRC has reconstructed an “improved” centre, and the Metro connectivity has made the customers come back into CP, as it is affectionately known in Delhi.

There are clearly many such opportunities around India’s cities. These need to be looked at as a commercial opportunity for all concerned (revenue for the redeveloper, better sales for the store owners / tenants, more tax revenue for the government from additional sales and consumption). But it is also a broader social opportunity to breathe a new life into our cities, and to make them proud beacons of a growing India.

It would be a mission that would truly prove the worth of shopping centre developers, urban planners, regulators and the retailers themselves.
Any takers?

Brand Immortality and Reincarnation

The entertainment business suggests that nostalgia is a very powerful driver of profit.

It is quite clear that retro is “in”. The movie business worldwide is full of sequels, prequels, re-releases and remakes. The music business is ringing up the cash registers with remixes and jukebox compilations.  Star Wars and Sholay still have a fan following. ABBA has leaped across three decades, Hindi film songs from 30-60 years ago have been given a skin-uplift by American hip-hop artists, while Pink Floyd is hot with Indian teens along with Akon and Rihanna.

As copyright restrictions are removed from the works of authors long-gone, the market gets flooded with several reprints of their most popular writings. Of course, we know that classic literature survives not just a few years but even thousands of years. Examples include the still widely-read 2,500-year-old Indian epic Ramayana by Valmiki, the Greek philosophers’ works that continue to be popular after two millennia and the Norse legends that have been told and re-told for over a thousand years.  Spiritual and religious leaders’ writings are also recycled into the guaranteed market of their followers and possible converts for a long time after their passing away.

On the other hand, the basic premise of today’s fashion and lifestyle businesses is that silhouettes, colours and design-cues will become (or be made) obsolete within a few weeks or a few months, and will be replaced with new ones.   This principle is true not just of clothing and footwear, but is applied to home furnishings, furniture, white goods, electronics, mobile phones and even cars.  In fact, the fashion business (as it exists) would find it impossible to survive if customers around the world chose only classics which could be used for as long as the product lasted in usable form.

What Fashionability Means for Brands

Other than individual styles or products falling out of favour, as fashions move and as the market changes, it is evident that some brands also become less acceptable, are seen as “outdated” and may also die out as they lose their customer base.

Of course, that some brands become classics is quite apparent, especially in the luxury segment where brands such as Bulgari have survived several generations of consumers, and continue to thrive.

However, the past is of relevance to the fashion sector because, other than planned or forced obsolescence, the fashion business has also long worked on another principle – that trends are cyclical.

Skirts go up and down, ties change their width, and the colour palette moves through evolution across the years.  A style formula that was popular in the summer of a year in the 1970s might be just right in another summer in the first decade of the 21st century.

So, the question that comes up is whether the same logic that is applicable to individual products, styles and trends, could also be applied to brands.

The answer to whether apparently weak, dead or dying brands could be brought back to life is provided by brands such as Burberry’s, Lee Cooper and Hush Puppies.  Sometimes innovative consumers create the opportunity – as with Hush Puppies in the 1980s – while in other cases (such as Burberry’s, Volkswagen’s Beetle, or Harley Davidson), vision, concerted effort and resources can make the brand attractive again.

The question then is not whether brands can be relaunched – they can. The more important question for brand owners is: should a brand be relaunched. And using the logic of the fashion business, rather than being left to linger and then dying a painful death, could brands be consciously phased-out and later brought back into the market as the trends change?

The Brand Portfolio – Diversifying Opportunities and Risks

These questions are particularly important for large companies, or in times when market growth rates are slow, or when the market is fragmented. Organic growth can be difficult in all these scenarios, and companies begin to look at developing “portfolios” by acquiring other businesses and brands, or by launching multiple brands of their own.

The car industry worldwide has lived with brand portfolio management for long. Even as companies have merged with and acquired each other, the various marques have been retained and sometimes even dead ones have been revived.  The companies generally focus the brands in their portfolio on distinct customer segments and needs (such as Ford’s ownership of “Ford”, “Volvo” and “Jaguar”, or General Motors with its multiple brands), and then further play with models and product variants within those.  When things go right portfolio strategies can be quite profitable, but the mistakes are especially expensive. Sensible and sensitive management of the portfolio is absolutely critical.

In the fashion and lifestyle sector, the players who already follow a portfolio strategy are as diverse as the luxury group LVMH, mainstream fashion groups like Liz Claiborne (with brands in its portfolio including Liz Claiborne, Mexx, Juicy Couture, Lucky Brand Jeans) and LimitedBrands (Limited, Victoria’s Secret, La Senza etc.), retailers such as Marks & Spencer (with its original St. Michael’s brand having given way to “Your M&S”, and also Per Una) and Chico’s (Chico’s, White House | Black Market, and Soma Intimates) who wish to capture new customer segments or re-capture lost customers.  Some of these companies have launched new brands, some have relaunched their own brands, and some have even acquired competing brands.

The issue is also relevant to the Indian market, whether we consider Reliance’s revival of Vimal, the new brand ambassador for Mayur Suitings, or the PE-funded take over of Weekender.  As the market begins evolving into significantly large differentiated segments, branding opportunities grow, and so will activity related to existing or old brands being resurrected and refreshed. An additional twist is provided by Indian corporate groups such as Reliance, Future (Pantaloons) and Arvind that are looking to partner international and Indian brands, or grow private labels to gain additional sales and margin.

The issue also concerns those companies whose management is attached to one or more brands owned by them which may not have been performing well in the recent past, but due to historical or sentimental reasons the management may not like to close down or sell them.

It is equally critical for potential buyers who would like to take over and turn brands around into sustainable profits. This is a real possibility in this era of private-equity funds and leveraged buyouts, where a company or a financial investor might find it cheaper and more profitable to take over an existing brand and turn it around, rather than building a new brand.  This is already happening in the Indian market. More interestingly, Indian companies have also already acquired businesses in the USA and Europe, and the potential revival or relaunch of brands is certainly relevant for these companies as well.

When to Recycle and Reuse

Relaunch or acquisition of an existing active or dormant brand can be an attractive option when building a portfolio, or when a company is getting into a new market.

For the company, acquiring an existing brand is often a lower cost way to reach the customers, and also faster to roll-out the business. The company may assess that the brand already has an existing share of positive customer awareness that is active or dormant, and that the effort and resources (including money) needed to build a business from that awareness will be much less than that to create a new brand.

The risk of failure may also be lower for a relaunched brand than for a new brand.

This is because the softer aspects, the hidden psychological and emotional hooks, are already pre-designed. This provides a ready platform from which to re-launch and grow the brand.

From the customer’s point of view, there is the confidence from previous experience and usage, and possibly also nostalgia and comfort of the ‘known’.

‘Age’ or vintage is respectable and trustworthy. This is especially powerful during volatile times or in rapidly changing environments when there is uncertainty about what lies in the future, and makes an existing brand a powerful vehicle for sustaining and growing the business.

On the Downside

However, when handling brands it is also wise to keep in mind the cautionary note that mutual funds issue: “past performance is no indicator of the future”.

In re-launching active or dormant brands, there is also a downside risk.  While the brand may have been strong and relevant in its last avatar, it may be totally out of place in the current market scenario.  The competitive landscape would have shifted, consumers would have changed – new consumers entering the market, old consumers evolving or moving out – and the economic scenario itself may now be unfriendly to the brand.

Also, the “awareness” or “share of mind” may only be a perception in the mind of the person who is looking to re-launch the brand, and the consumer may actually not care about the brand at all.  There are instances where the management of the company has been so caught up in their own perception of the brand that they have not bothered to carry out first-hand research with the target segment to check whether there is actually an unaided recall, or at worst, aided-recall of the brand. They are imagining potential strengths, when the brand has none.

It is also possible that, during its last stint in the market, the brand may have gathered negative connotations – consumers may remember it for poor products or wrong pricing, the trade may remember it for late deliveries, vendors may remember it for delayed payments…the list goes on. In such a scenario, it may be a relaunch may be a disaster.

So how does one know whether to resurrect a brand, or to reincarnate it in another form, and when to just let it die?  The answers to that lie in answering the question: what is a brand? And then, what is this brand?

A Critical Question: What is a Brand?

Even in these enlightened marketing times, many people believe that the brand is the name. They believe that once you advertise a name widely and loudly enough, a brand can be created. Nothing could be further from the truth.  High-decibel advertising only informs customers of the name, it cannot create a brand.

If we put ourselves in the customer’s shoes, a brand is an image, comprising of a bundle of promises on the company’s part and expectations on the customer’s part, which have been met.  When promises are delivered, when expectations are met, the brand develops an attribute that it is defined by.

The promise may be of edgy design (think Apple), and the customer expects that – when the brand delivers on the promise and meets the expectation the brand image gets re-affirmed and strengthened. However, these attributes are not always necessarily all “positive” in the traditional sense. For instance, a company’s promise may be to be low-cost and low-service (think Ikea, or “low-cost airlines”), and the customer may expect that and be happy with that when the company delivers on that promise.  The promise may be products with a conscience (think The Body Shop), which may strike a chord with the consumer.

What that brand actually stands for can only be created experientially. Creating this image, creation of the brand, is a complex and step-by-step process that takes place over time and over many transactions. Repetition of the same kind of experience strengthens the brand.

The brand touches everything that defines the customer’s experience – the product design and packaging, the retail store it is sold in, the service it is sold with, the after-sales interaction – all have a role to play in the creation of the brand.

For instance, to some it may sound silly that market research or how supply chain practices can help define a brand, but that is exactly how the state of affairs is for Zara.  Changeovers and new fashions being quickly available are what that brand is about, and it would be impossible for Zara to deliver on that promise without leading edge supply chains, or a wide variety of trend research.

Similarly, it may sound clichéd that your salesperson defines the brand to the consumer, but even with the best products, extensive advertising, and swanky stores, for service-oriented retailers everything would fall apart if the salesperson is not up to the mark. This is indeed a sad reality faced by so many of the so-called premium and luxury brands.

Of course, brand images can be changed or updated, but the new image also needs to be reinforced through repeated action, a process just like the first time the brand was created.

Reviving a Brand: the New-Old Seesaw

Given that a brand is created over multiple interactions and repetitive delivery of certain attributes, it is only natural that the older the brand, the more potential advantage it would have over a new brand.  Just the sheer time it would have spent in the market would give an old brand an edge.

An old brand can appear to be proven, experienced and secure, while a new brand could be seen as untested, raw and risky.  An old brand may have had a positive relationship with the consumer, but may have been dormant due to strategic or operational reasons.  In this case, reviving the brand is clearly a good idea.  There is already an existing awareness of an older brand, which can act as a ready platform for launching the same or a new set of products or services.  Often, there may be a connection with the consumer’s past positive experience of the brand.

On the other hand, a new brand may appear to be fresh, more up-to-date and relevant, and vigorous, compared to an old one that may be seen as outdated and tired.  Certainly, if nostalgia had been all that brands needed to thrive, then old brands would never die and it would be difficult to create new brands.

Clearly, there is no single answer to whether it is a good idea to re-launch an existing or old brand.   If you are considering whether it would be a good idea to revive an old brand, or to acquire and turn an existing brand around, ask yourself this:

  • Is there evidence of enough customer awareness and support for the brand?
  • Are there positive connotations for the brand that can be built upon in the current market context?
  • Is there an opportunity to refresh the brand, so that it does not appear outdated, while retaining its core promise and authenticity?
  • Does the company have the resources and inclination to be a “caretaker” or “steward” of the relationship that has been created in the past between the brand and its customers?

If the answer is “No” to any of these questions, then one needs to think again.  However, if the answers are all “Yes”, then a resuscitation is just what the doctor might have ordered.