Raghavendra Kamath, Financial Express

June 29, 2023

Zara, touted as “Fast Fashion Queen”, has achieved a unique feat in India. The Spanish brand has been growing its revenues without opening any new stores.

The fashion brand, run by a joint venture between Tata-owned Trent and Spain’s retail group Inditex, posted a 40.7% growth in its revenues to Rs 2553.8 crore in FY23. The catch is that while many retailers/brands garner sales from opening new stores, Zara did not open any store but closed one during FY23.

In FY21 and FY22, its store count remained constant at 21 but its revenue grew 61.2% in FY22. Zara’s revenues grew at a 15.5 % CAGR in the last five years.

“Zara did not foray into any new city and closed one store. That said, it saw an exceptional performance on store productivity (83% higher than FY19). The increase in revenues lead to highest ever Ebitda margins at 16.3%,” said Nuvama Institutional Equities in a recent report.

The contribution in productivity includes contribution from online and also increase in store sizes, the brokerage said.

A mail sent to Inditex did not elicit any response. Trent executives could not be contacted.

Experts attribute Zara’s success to increase in customer spends and improved offerings by the brand.

“The customer base they are targeting has grown and their merchandise mix has become sharper,” said Devangshu Dutta, chief executive officer at Third Eyesight, a retail consultant.

Dutta said when a retailer opens stores, it would immediately boost sales, but to maintain sales momentum, one has to have “right merchandise at right price and have stores at right locations”.

Zara is known to churn its designs and styles very fast, and target young customers. In its Indian venture also, its parent Inditex controls merchandise mix and so on.

“The said entities (Zara and Massimo Dutti) are obliged to source merchandise only from the Inditex Group. Also, the choice of product & related specifications are at the latter’s discretion. Further, the entities are dependent on Inditex for permissions to use the said brands in India subject to its terms & specifications,” Trent said in its FY23 annual report.

Zara is also focusing on opening in select locations, a reason it could not open more stores in the country, experts said.

“The incremental store openings for Zara continue to be calibrated with focus on presence only in very high-quality retail spaces,” Trent said.

Susil Dungarwal, founder at Beyond Squarefeet, a mall management firm, said that propensity to spend has gone up among Indian shoppers after the pandemic and Zara being a renowned global brand with its stylish merchandise seems to be have been the beneficiary of the trend.

“They understand customers very well and brought products which are liked by Indian shoppers in terms of looks, styles and so on,” Dungarwal said.

Zara is a case study for Indian brands as to how to run a retail business successfully, he said.

(Published in Financial Express)

Written By Vaishnavi Gupta

The furniture brand’s retail roadmap includes city stores in Delhi, Mumbai and Bengaluru, followed by tier I and II towns

For the Ikea model to succeed, adequate demand-concentration is crucial, which is being currently provided by the bigger cities in India.

After launching two large-format stores in India in a span of three years — one each in Hyderabad and Navi Mumbai — Ikea opened its first small-format store in Worli, Mumbai, to become “more accessible and convenient”. About 90,000 sq ft in size, these ‘city’ stores are already present in markets such as New York, London, Paris, Moscow and Shanghai.

The furniture market in India stood at $17.77 billion in 2020, and is expected to reach $37.72 billion by 2026, growing at a CAGR of 13.37%, according to a Research and Markets report. Godrej Interio, UrbanLadder and Pepperfry are among the big players in this space, all with a significant online presence, too. Godrej Interio has 300 exclusive stores in India, while Pepperfry has more than 110 Studios.

Spread across three floors, Ikea’s first city store has 9,000 products in focus, of which 2,200 are available for takeaway and the rest for home delivery. “We have observed that it is not easy to find large retail locations in cities like Mumbai and Bengaluru. The small store offers convenience and accessibility for consumers to experience Ikea products,” says Per Hornell, area manager and country expansion manager, Ikea India. This launch is in line with the company’s aim to become accessible to 200 million homes in India by 2025, and 500 million homes by 2030.

More launches are being planned: another city store in Mumbai in the spring of 2022 and a large-format store as well as a city store in Bengaluru by the end of 2022. For its retail expansion in Maharashtra, the company plans to invest Rs 6,000 crore by 2030. “We are on track to exceed the investment commitment of Rs 10,500 crore made for India in December last year,” adds Hornell. Delhi, Mumbai and Bengaluru are the three cities on its radar at the moment, which will be followed by tier I and II towns.

Furthermore, Ingka Centres, part of Ingka Group that includes Ikea Retail, is coming up with its first shopping centre in Gurugram (followed by Noida), which will be integrated with an Ikea store.

In India, unlike its organised furniture market competitors, Ikea doesn’t have a pan-India online presence yet. It has been following a “cluster-based expansion strategy” for its online offering, but the company insists this is not a limitation. “At present, 30% of our overall India sales come from online channels,” Hornell informs. Through its e-commerce website and mobile shopping app, the company currently operates in Hyderabad, Mumbai, Pune, Bengaluru, Surat, Ahmedabad and Vadodara.

On the other hand, players like Godrej Interio and Pepperfry have big plans to tap new markets. The former aims to add 50 exclusive stores each year, while Pepperfry aims to achieve the 200 Studios mark by March 2022. In September this year, Pepperfry forayed into the customised furniture segment with the Pepperfry Modular offering, which focusses on modular kitchens, wardrobes and entertainment units.

Good start?

This is a good time for Ikea to establish its presence in the Indian market, says Alagu Balaraman, CEO, Augmented SCM. “Earlier, people used to rely on carpenters for furnishing their homes; now, they prefer to buy ready-made furniture. The market is moving towards acceptability, making plenty of headroom for growth for these companies,” he says.

Ikea’s cautious expansion approach in a market like India where several local dynamics are at play, is tactful, analysts say. Devangshu Dutta, founder, Third Eyesight, says, “In the past, Western businesses have made the mistake of simply copy-pasting formats and strategies in emerging markets from their more developed markets.” He believes there is “nothing wrong” in being incremental while growing footprint. “There’s no sense in carpet-bombing the market with stores, when many may end up being loss-making or sub-optimal,” he adds.

Getting the product mix and pricing right would be key in realising the full potential of this market. Balaraman says Ikea will have to balance its global portfolio with what it is doing locally, and make sure it is profitable.

For the Ikea model to succeed, adequate demand-concentration is crucial, which is being currently provided by the bigger cities in India. Given its global popularity, the furniture giant, analysts say, is poised to see traction in the metros and tier I cities.

Source: financialexpress

Written By Sangeeta Tanwar

Two of India’s leading retail chains are currently preparing the ground for their full-fledged e-commerce forays, albeit in totally different ways.

While the Kishore Biyani-led Future Group, which operates the popular Big Bazaar hypermarket chain, is busy listing its labels on Amazon, rival Reliance Retail is withdrawing its products from all e-commerce platforms, as parent Reliance Industries (RIL) gears up to launch its own online marketplace.

For both the traditional players, cracking online sales is important as they prepare for a future beyond high street retail.

Online sales in India will balloon from last year’s $18 billion (Rs1.25 lakh crore) to $170 billion by 2030, Jefferies India predicted recently. This potential aside, Indian e-commerce is still nascent and retailers are still perfecting their strategies.

“E-commerce is now a game of two dimensions, one of scale and the other of last-mile ubiquity. Whoever gets this right, will manage growth, revenue, and customer acquisition,” said Anil V Pillai, director of the independent marketing firm Terragni Consulting.

As for the Future Group, it thinks the best way to achieve this is by riding piggyback on Amazon’s proven capabilities in scale and last-mile delivery.

How the plan evolved

In 2016, the Future Group had made its first e-commerce acquisition by buying out the struggling furniture retailer FabFurnish from its German incubator Rocket Internet. Biyani had hoped to find synergies between the startup and his group’s furniture brand Hometown.

A year later, hit by heavy losses, FabFurnish was shuttered. Biyani downplayed the move saying his losses were “compensated” as the company had learnt “enough” from the episode.

The move now to partner Amazon seems to have stemmed from that learning.

Over the past month, the two have been trying to make joint plans, including in distribution, warehousing, and creating products for Amazon and its grocery format, Pantry. Also, Future group brands, including Big Bazaar, are being aligned with Amazon Now, which promises delivery of everyday essentials within two hours, suggest media reports.

A more serious handicap will be Amazon controlling Future Group’s data and customer relationships in the partnership. “In e-commerce, ownership of customer relationship and data, which offers consumer insights, is the real asset,” points out Devangshu Dutta, CEO of Third Eyesight, a consulting firm focussed on retail and consumer products.

Vianello agrees: “When you have your own e-commerce venture, as Reliance Retail plans, you are the owner of the data and you can slice and dice it to come up with exciting product offerings and improved service experience.”

This is one of the advantages that RIL might have seen in going it alone.

Going solo

“Reliance Retail has taken a more integrated approach towards e-commerce,” observed Dutta. “The company is set to leverage its pan-India retail presence and Reliance Jio’s (RIL’s telecom business) data capabilities to roll out an e-commerce platform,” explained Dutta.

The synergy between Reliance Jio and Reliance Retail is a big advantage. The retailer has about 10,000 stores across 6,500 towns in India, while Jio has a subscriber base of 306 million. After bringing many Indians online with Jio’s affordable data offerings, Reliance now hopes to get most of them to start shopping online as well.

The challenge, though, would be in getting the last-mile delivery right. “Reliance Retail could be at a disadvantage here compared to the Future Group, which has its delivery mechanism in place courtesy its partnership with Amazon,” suggested Vianello.

Moreover, like with Jio, consumers will expect heavy discounts from Reliance’s e-commerce venture as well, which may be difficult to sustain given the initial investments. “Biyani’s (online) launch involves lower upfront costs, while Reliance Retail’s will be resource hungry since it’s an almost greenfield project,” pointed out Pillai, adding, “Reliance’s challenge is the overwhelming perception about the group being a price warrior and disrupter.”

So, which strategy will triumph? Everything comes down to execution. “Success in retail, including e-commerce, is about more and more customers choosing to transact with you repeatedly. Achieving this is a difficult and ongoing process. There are no guaranteed or permanent winners,” says Dutta.

Source: qz

In this piece I’ll just focus on one aspect of technology – artificial intelligence or AI – that is likely to shape many aspects of the retail business and the consumer’s experience over the coming years.

To be able to see the scope of its potential all-pervasive impact we need to go beyond our expectations of humanoid robots. We also need to understand that artificial intelligence works on a cycle of several mutually supportive elements that enable learning and adaptation. The terms “big data” and “analytics” have been bandied about a lot, but have had limited impact so far in the retail business because it usually only touches the first two, at most three, of the necessary elements.

“Big data” models still depend on individuals in the business taking decisions and acting based on what is recommended or suggested by the analytics outputs, and these tend to be weak links which break the learning-adaptation chain. Of course, each of these elements can also have AI built in, for refinement over time.

Certainly retailers with a digital (web or mobile) presence are in a better position to use and benefit from AI, but that is no excuse for others to “roll over and die”. I’ll list just a few aspects of the business already being impacted and others that are likely to be in the future.

1. Know the customer: The most obvious building block is the collection of customer data and teasing out patterns from it. This has been around so long that it is surprising what a small fraction of retailers have an effective customer database. While we live in a world that is increasingly drowning in information, most retailers continue to collect and look at very few data points, and are essentially institutionally “blind” about the customers they are serving.
   However, with digital transactions increasing, and compute and analytical capability steadily become less expensive and more flexible via the cloud, information streams from not only the retailers’ own transactions but multiple sources can be tied together to achieve an ever-better view of the customer’s behaviour.
2. Prediction and Response: Not only do we expect “intelligence” to identify, categorise and analyse information streaming in from the world better, but to be able to anticipate what might happen and also to respond appropriately.
   Predictive analytics have been around in the retail world for more than a decade, but are still used by remarkably few retailers. At the most basic level, this can take the form of unidirectional reminders and prompts which help to drive sales. Remember the anecdote of Target (USA) sending maternity promotions based on analytics to a young lady whose family was unaware of her pregnancy?
   However, even automated service bots are becoming more common online, that can interact with customers who have queries or problems to address, and will get steadily more sophisticated with time. We are already having conversations with Siri, Google, Alexa and Cortana – why not with the retail store?
3. Visual and descriptive recognition: We can describe to another human being a shirt or dress that we want or call for something to match an existing garment. Now imagine doing the same with a virtual sales assistant which, powered by image recognition and deep learning, brings forward the appropriate suggestions. Wouldn’t that reduce shopping time and the frustration that goes with the fruitless trawling through hundreds of items?
4. Augmented and virtual reality: Retailers and brands are already taking tiny steps in this area which I described in another piece a year ago (“Retail Integrated”) so I won’t repeat myself. Augmented reality, supported by AI, can help retail retain its power as an immersive and experiential activity, rather than becoming purely transaction-driven.

On the consumer-side, AI can deliver a far higher degree of personalisation of the experience than has been feasible in the last few decades. While I’ve described different aspects, now see them as layers one built on the other, and imagine the shopping experience you might have as a consumer. If the scenario seems as if it might be from a sci-fi movie, just give it a few years. After all, moving staircases and remote viewing were also fantasy once.

On the business end it potentially offers both flexibility and efficiency, rather than one at the cost of the other. But we’ll have to tackle that area in a separate piece.

(Also published in the Business Standard.)

In 2016, brick-and-mortar modern retailers seemed to have begun recovering their confidence, and cautiously investing in expansion. However, currency shortage has significantly dampened demand at the end of the year. The hangover would continue into the first half of 2017, and consumers could be muted overall on discretionary purchases, including fashion, mobile upgrades and out-of-home dining.

On the other hand, while digital transactions introduce a note of caution (friction) in the consumer’s purchase decision, for e-tailers they do reduce complexity, cash-handling costs and potential returns which could provide significant unexpected wins.

I’ve written about this for years, and don’t tire of reiterating: the retail sector must recognise that shopping is a unified activity for the consumer; physical stores and non-store environments are alternative but complementary channels. Brands can and must use whatever channel mix works for them, and brick-and-mortar retailers need to invest in creating an integrated growth blueprint towards “unified commerce”.

On their part, while e-commerce companies are constrained by FDI policy, they will need to invest more in developing “old economy” strengths – strong product differentiation and distinguishable brands. Fashion, accessories, home decor and other lifestyle products are strong drivers of gross margin for all multi-product retailers, and e-commerce players struggling on the path to profit would focus on these even more, as well as on private labels. They also need to have management teams that are able to cast their minds 3-5 years into the future, while keeping close watch on immediate cash flows. Capital is available, but turning risk-averse. All businesses need to focus on up-skilling their teams, retaining good people, improving processes and adopting technology. In recent years, growth in the retail sector seems to have been driven by a “spray-and-pray” approach, not necessarily management sophistication. Spending like there’s no tomorrow is a sure way to no tomorrow.

In short, 2017 could be the year where the entire retail sector grows up – a lot. We hope.

(This piece was published in The Hindu – Businessline on 29 December 2016).