Sagar Malviya, Economic Times
26 October 2023
Surging demand for fitness wear and sports equipment for disciplines other than cricket and football helped Decathlon’s India unit expand sales 37% to Rs 3,955 crore in FY23. With more than 100 large, warehouse-like stores selling products catering to 85 sporting disciplines, the French company is bigger than Adidas, Nike and Asics all put together in India.
In FY22, sales were Rs 2,936 crore, according to its latest filings with the Registrar of Companies. The retailer, however, posted a net loss of Rs 18.6 crore during the year ended March 2023 compared to a net profit of Rs 36 crore a year ago.
Experts said a host of factors – from pricing products about 30-40% lower than competing products to selling everything from running shoes, athleisure wear to mountaineering equipment under its own brands – has worked in its favour. “They have an extremely powerful format across different sporting activities and have something for both active and casual wear shoppers. For them, the market is still under penetrated with the kind of comprehensive product range they sell for outdoor sports beyond shoes and clothing,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight. “Even their front end staff seem to have a strong domain knowledge about products compared to rival brands.”
By selling only private labels, Decathlon, the world’s biggest sporting goods firm, controls almost every bit of operations, from pricing and design to distribution, and keeps costs and selling prices low.
Decathlon uses a combination of in-house manufacturing and outsourcing to stock its shelves. In fact, it sources nearly 15% of its global requirement from India across sporting goods. And nearly all of its cricket merchandise sold globally is designed and made in India.
(Published in Economic Times)
It was a contentious plan to repay overseas bondholders in full that brought what would have been India’s biggest retail deal to a grinding halt.
Debt-laden Future Retail Ltd.’s offshore bondholders — a relatively smaller part of the creditor pool — were promised 100% payment in the rescue offer from billionaire Mukesh Ambani, according to people with knowledge of the matter. Indian lenders were asked to take a haircut of as much as 66%, the people added, asking not to be identified discussing confidential information.
The unequal treatment led to the move last week, when the local banks rebuffed the $3.2 billion offer from Ambani’s conglomerate. Reliance Industries Ltd. announced the purchase plan in August 2020 but struggled to complete the transaction in the face of legal challenges mounted by Amazon.com Inc., which argued it had the first right of refusal contractually.
Bank of India and State Bank of India, the main bankers to Future Retail, didn’t immediately respond to emails seeking comment on reasons for voting down the deal. Representatives for Future Group and Reliance also didn’t immediately comment.
State-run lenders risked probes from federal agencies if they accepted these discriminatory terms, they said, explaining their preference now for a court-mediated insolvency process where bids are called in and there’s no risk of them being accused of cutting a bad deal. Bank of India has already requested an Indian court to initiate the process.
The hard-nosed decision by Indian banks has pushed the teetering Future Retail, which ran one of the nation’s largest retail grocery chains before the pandemic struck, one step closer to bankruptcy. Future Retail is almost certain to default on its $500 million bond coupon payment due July 22, S&P Global Ratings said Tuesday, while downgrading the company’s ratings deeper into junk territory.
The lenders’ action has also taken the wind out of a tortuous two-year-old litigation between Reliance and Jeff Bezos-owned Amazon — the e-tailer had started arbitration proceedings in Singapore to block the deal — but left the door open for Ambani to snag these retail assets, possibly at an even cheaper price, under the bankruptcy process.
“Reliance and other parties could be eligible to bid for its assets by submitting their resolution plans” even if Future Retail ends up in bankruptcy, according to Satwinder Singh, New Delhi-based partner at law firm Vaish Associates Advocates. “This would also lead to moratorium on any or all ongoing arbitration proceedings against Future.”
While the local lenders were agreeable to the deal when it was first announced, a lot changed in the past year or so, the people said. While the Amazon lawsuit dragged on, the asset value eroded and the pandemic worsened the cash crunch at Future Retail that began defaulting on its debt repayments.
Secured Indian lenders were promised recoveries ranging between 34% to 88% of the total $4 billion in dues and even those payouts were staggered over seven years, the people said.
Reliance dealt a body blow to the Kishore Biyani-led Future Group in February when it quietly began poaching employees and taking over rental leases of hundreds of stores earlier run by Future Retail and Future Lifestyle Fashions Ltd. Ambani’s bloodless coup prompted Amazon to suggest settlement talks on the bitter dispute and alarmed Future’s investors and lenders who worried about asset-stripping.
Reliance’s unexpected takeover of Future’s stores eroded bankers’ confidence in the deal as it stripped off value from the chain and potentially could erode Reliance’s offer terms.
The out-of-court truce talks between Amazon, Future and Reliance collapsed soon after the store-purchases were initiated, the companies informed India’s top court on March 15. Amazon will continue with its arbitration proceedings against Future Group in Singapore, according to a person familiar with the matter, who asked not to be identified as the deliberations are private.
“A major turning point was when Reliance physically took over Future’s stores, which turned it into a no-holds barred situation,” said Devangshu Dutta, head of New Delhi-based retail consultancy Third Eyesight. “Before this the battle was being fought in courts and across the negotiating table. But at this point it moved over to the real business.”
Written By Vaishnavi Gupta
UAE-based Tablez has launched a kids’ super store in India
Tablez, the retail arm of UAE-based LuLu Group, has launched its kids’ super store House of Toys in India. Tablez has been around in the country as the master franchisee of brands such as Desigual, Build-A-Bear, Go Sport, Yoyoso, Cold Stone Creamery, and Galito’s. The toy market in India, currently pegged at $1 billion, is estimated to double in size by 2025, according to a FICCI-KPMG report.
All stacked up
The first House of Toys store was unveiled at Global Malls, Bengaluru, in December, 2021. The store offers more than 20,000 products, from feeding bottles, strollers, and bathtubs, to wearable tech, remote-controlled toys, and stationery. Spread across 5,100 sq ft, the store also houses the Build-a-Bear shop, where kids can make their own soft toys. “We have toys starting from Rs 30, going up to Rs 30,000 in our assortment. We have 3,000 toys in the value segment of below Rs 500,” says Adeeb Ahamed, managing director, Tablez.
House of Toys aims to open 12-15 stores by the end of this year, initially in South India, and metros, followed by tier I cities and beyond. Tablez also plans to rebrand at least 10 Toys“R”Us stores in India to House of Toys in the second half of this year. The store’s products are available on Tablez’s own e-commerce platform, and will soon be listed on third-party marketplaces like Amazon and Flipkart. “House of Toys has potential to be one of the top revenue contributors of Tablez,” Ahamed says.
Tablez has been consolidating its presence in the Indian market lately. Last year, Tablez launched Yoyoso’s seventh outlet in India, and opened another outlet, its 33rd, of American ice cream brand Cold Stone Creamery, both in Kerala. Further, it has earmarked an investment of Rs 100 crore for the expansion of sportswear store Go Sport. Fashion brand Desigual, which caters to women in the 25-45 age group, is now present on Tata CLiQ Luxury, and will soon make inroads into Mumbai and Bengaluru, followed by Chandigarh and Hyderabad.
Presently, Tablez operates 80 brand stores in India; it plans to take this number to 250 over the next five years.
Given that more than a quarter of India’s population is under 15 years of age, intuitively, it makes for a “great market for toys,” says Devangshu Dutta, founder, Third Eyesight. He says upper-income households with fewer children tend to buy more toys, games and learning aids, especially since children have been much more confined to the home environment in recent years.
According to Angshuman Bhattacharya, partner and sector leader (consumer products & retail), EY India, the growth of this market has been driven by improved availability and penetration of branded toys, upgradation from manual to automated toys, and improved awareness and availability brought about by e-commerce.
However, any kids category, whether apparel or toys, has been a difficult model to crack, owing to factors such as low SKU proliferation, and difficulty in inventory management, says Bhattacharya.
To stand out in the market, analysts say, brands need to create an authoritative and diverse product mix, which, in turn, requires a relatively large store footprint in high-visibility high-footfall locations. “The stock turnover is also slower than many other product categories, so merchandising and replenishment strategies need to be really smart. Branded merchandise offers lower margins, so private labels and unique products are necessary to add to the margin mix,” Dutta notes.
Deeply understanding a store’s catchment, so that consumer engagement can be kept high through the year — rather than being limited to local celebratory peaks and holidays — could be a useful strategy, say analysts.
Devika Singh, Moneycontrol
December 23, 2021
Male grooming products startup The Man Company, known for its online-first strategy, is looking at offline expansion for its next leg of growth. The company, which operates 28 exclusive brand outlets in the country, plans to launch 60-70 more stores by the end of this fiscal to gain presence across at least 100 locations.
“A lot of growth will come from the offline channel for the next one year at least, especially in Tier II and III cities where launching exclusive stores is a good way to introduce the brand to the consumer as shopping malls are weekend destinations there,” co-founder Hitesh Dhingra told Moneycontrol.
The company, backed by fast-moving consumer goods (FMCG) major Emami which holds a 48.49 percent stake in it, is also looking at introducing its products in more multi-brand outlets. The Man Company is present in 1,200 multi-brand outlets which include lifestyle stores such as Shoppers Stop, Central and Lifestyle as well as hypermarkets, supermarkets and pharmacies. The company plans to be in 2,500 multi-brand outlets by the end of financial year 2022-23.
It currently draws about 70 percent of its sales from online channels including its own direct-to-consumer (D2C) platform and online marketplaces and 30 percent from offline channels. The startup’s strategy is focused on expanding its base in Tier II cities and beyond, which account for 50-55 percent of its sales even on online marketplaces.
“Out of our 28 exclusive brand outlets, only five to six are in top 10 cities and the rest in Tier II and smaller towns. For the new store openings also, we are going to adopt a similar strategy and only 10 percent of the new outlets will be in large cities,” said Dhingra.
The offline way
Several D2C brands have been eyeing the physical retail channel as they try to scale up and tap a wider set of consumers. Brands in the women’s beauty and personal care segment such as Mamaearth, Sugar Cosmetics and Plum Goodness are expanding their presence in the offline retail format. Plum, for instance, is looking to launch 50 exclusive brand outlets in the next two years.
Male grooming startups, too, are following a similar trajectory. For instance, Bombay Shaving Company and Baeardo are launching their products in more and more offline stores.
Devangshu Dutta, chief executive of retail consultancy Third Eyesight, said it makes sense for digitally-native companies that have achieved some brand recognition to launch in offline format for the next phase of growth. Brands in the 1990s for example, he said, who wanted to establish an identity, entered new formats or channels besides the existing ones. Similarly, digitally-native brands need not restrict themselves to online platforms alone, he added.
But he pointed out that these brands will have to address challenges such as ensuring availability of their products in offline channels. “In the online segment, companies can cater to customers with limited stocks. However, in the offline channel, they need to ensure availability of products across stores,” he said.
Apart from new retail categories, The Man Company has plans to enter categories such as sexual wellness and personal appliances. It has tied up with a marketplace for the launch of personal appliances such as beard trimmers and shavers and the category will be launched exclusively on the platform. The sexual wellness products, too, will be introduced on its D2C platform and later to other marketplaces and offline stores.
“We always launch a product on our platform to test it and get consumer feedback and, based on the response, we introduce the product to the wider market,” said Dhingra.
Launched in 2015, The Man Company caters to the men’s grooming segment and claims to have developed more than 65 stock keeping units. According to Dhingra, the company which competes with Beardo, Bombay Shaving Company and Ustraa will double its sales to Rs 100 crore by the end of this financial year.
Male grooming startups have of late attracted attention from FMCG companies. Marico last year completed the acquisition of Ahmedabad-based Beardo by buying an additional 55 percent stake in the company. It had acquired an initial 45 percent stake in 2019. British consumer goods giant Reckitt Benckiser Group invested Rs 45 crore in Bombay Shaving in February 2021. LetsShave and Ustraa are backed by Wipro Consumer Care.
According to industry estimates, the male grooming market in India was valued at Rs 15,806 crore in 2019 and is expected to cross Rs 36,402 crore by 2025, growing at a compound annual rate of 15-14 percent. Though growth was hit by the pandemic, experts are still bullish about the segment.
(Published in Moneycontrol)
Written By Mihir Dalal
(From left to right) Doug McMillon, CEO of Walmart, which owns Flipkart; Mukesh Ambani, chairman and MD of RIL; Jeff Bezos, CEO of Amazon
BENGALURU : Last month, Nimit Jain, an entrepreneur, ordered biscuits, shampoo, toothpaste and other items for his family in Kota. He used JioMart—the new online shopping app by Mukesh Ambani’s Reliance Industries Limited—lured by its low prices and freebies.
JioMart was to deliver the order within two days, but Jain’s family didn’t receive the items on time and JioMart didn’t inform Jain about the delay. The delivery was done four days after he had placed the order, a few hours after Jain had complained to the firm via email and Twitter.
A few products were missing, Jain’s parents informed him. It took time to figure out the missing items because the details of the order weren’t available on the app. Jain had paid online and asked JioMart for a partial refund. Instead of receiving an acknowledgement for his refund request, he received a response for his previous email about the delay in delivery. Five days later, Jain got a refund.
Mumbai-based Jain, a computer science graduate from the Indian Institute of Technology, Madras, usually orders groceries from BigBasket and sometimes from Dunzo. He said that he doesn’t plan to use JioMart again.
“A couple of my friends and relatives (in Mumbai and Kota) have also had similarly bad experiences. It doesn’t look like JioMart is ready for online groceries. Their operations and customer care teams weren’t in sync,” Jain said.
Since JioMart expanded to more than 200 cities this summer, scores of customers like Jain have complained about missing products, delayed deliveries and generally poor service. Still, industry executives say that while its service levels have been inconsistent, JioMart is registering similar order volumes to BigBasket, the largest e-grocer, on the back of aggressive marketing and discounts.
These volumes still comprise a small fraction of the overall business of Amazon India and Walmart-owned Flipkart, the two dominant online retailers. But that’s because JioMart is only selling groceries now; it plans to sell other products like fashion and electronics soon. It’s clear that after many years of talk and hype, Reliance, which owns India’s largest offline retail chain, is finally becoming a serious challenger to Amazon and Flipkart, as well as BigBasket and Grofers.
Still, industry executives, logistics firms, consultants and analysts that Mint spoke with said that Reliance will find it tough to break the dominance of Amazon-Flipkart in e-commerce, similar to how Walmart is struggling to challenge Amazon in digital sales in the US even as its stores continue to prosper. Amazon and Flipkart both have deep pockets, proven expertise in e-commerce, popular brands and good knowledge of the Indian market.
“Reliance has the financial muscle, but Walmart (Flipkart) and Amazon are no pushovers,” said Harminder Sahni, managing director, Wazir Advisors, a consultancy. “Today, most people who want to shop online are happy with Flipkart and Amazon. These companies have achieved significant scale and have very few weaknesses. As a latecomer, it will be very difficult for Reliance to make a big dent in the market.”
Reliance did not respond to an emailed questionnaire seeking comment.
Local internet powerhouse
During the pandemic, Reliance has not only moved fast to make inroads into the e-commerce market, it has also consolidated its leadership in organized offline retail. Last month, Reliance bought most of the businesses of Future Group for about $3.4 billion in a deal that will take its retail footprint to nearly 14,000 stores—by far, the largest in India.
In the past six months, Reliance has raised more than $21 billion for its digital unit Jio Platforms. This month, Reliance kickstarted a separate fund-raising spree for its retail unit, Reliance Retail, bagging about $1.8 billion from private equity firms Silver Lake and KKR, two of the investors in Jio. Several more investment firms, including other shareholders in Jio, are expected to join them.
These moves are part of Reliance’s efforts to transform itself into a 21stcentury digital behemoth. It is positioning itself as India’s answer to Amazon, Facebook, Google, Alibaba and other world-class digital giants, and unlike local startups like Flipkart, Ola and Paytm that have or had similar ambitions, Reliance enjoys some unparalleled advantages.
It is now accepted wisdom among politicians and regulators that India needs a ‘local’ internet powerhouse to counter the dominance of America’s Big Tech and the growing influence of Chinese firms, partly because of sovereignty concerns. Reliance’s mastery in lobbying and its political clout makes the firm best-placed to exploit this urgent establishment need to find a domestic internet powerhouse.
Amazon, Flipkart, Facebook and others face many policy-related restrictions that not only serve as obstacles to them but pave the way for domestic firms led by Reliance to enter the fray. For instance, foreign investment rules prevent Amazon and Flipkart from owning inventory or selling private labels (though critics say that these firms do it anyway using clever legal workarounds), while Reliance has no such constraints. Apart from a supportive policy environment and huge capital resources, on the business front, too, Reliance has an enviable digital distribution network and reservoir of customer data on account of Jio.
But despite these formidable advantages, Reliance has yet to prove that it has the chops to realise its ambitious vision.
The war among Reliance and Flipkart and Amazon and other internet firms is also not restricted to retail, but will extend to other sectors like financial services, content and business-to-business commerce. The technology-centric nature of the battle is more suited to the internet companies than to Reliance. There’s little doubt that Reliance will be a major player in the digital business, but the jury’s out on how much value the firm can corner. Its foray in e-commerce and B2B will provide early answers to this question.
After JioMart began testing its service late last year, media reports said that the company would deliver products to customers from local kirana stores. After Facebook invested in Jio in April in a deal that included a business partnership between JioMart and WhatsApp, Ambani said that JioMart would soon connect some 3 crore kirana stores with their neighbourhood customers.
Many analysts, too, expect the partnership with WhatsApp, the most popular app in India, to be a game-changer. In July, Goldman Sachs estimated that Reliance’s entry will help expand the online grocery market by 20 times to about $29 billion by 2024. Reliance’s partnership with Facebook could help the firm become the leader in e-grocery and garner a market share of more than 50% by 2024, Goldman said.
But Mint learns that Reliance is sourcing a majority of orders on JioMart in many cities through Reliance Retail’s supply chain; only a small number of orders are served through kirana stores. JioMart is signing up a few thousand kirana stores every month, but its expansion is happening at a slower rate than many analysts expect. Two industry executives said that JioMart’s average order value is lower than that of other e-grocers, which means that Reliance is losing larger amounts of money on every order.
According to one e-commerce executive, for BigBasket and Grofers, the delivery cost is about 3-4% of the average order value, which exceeds ₹1000. For Reliance, the delivery cost is presently much higher because its order value is below ₹800. The lower order value is partly because most of JioMart’s 200 city-markets are non-metros. BigBasket and others generate an overwhelming majority of their business from the metros. Reliance is betting on expanding the e-grocery market rather, than taking market share from incumbents, which generate an overwhelming majority of their sales from 10-15 cities. But while Reliance may be able to attract customers in smaller cities initially with discounts, profitability will be tough.
“The economics of serving metros are very different from the rest of India. In the mass market, bill values are much, much lower. Right now, Reliance’s main focus is to scale JioMart, so they aren’t worried about the delivery cost,” the executive cited above said. “But eventually, reality will catch up, and they will have to increase basket sizes because this model isn’t sustainable. Grocery has very thin margins to start with. “
Private label push
One obvious way for Reliance to boost margins is by selling more private label products. In the grocery category, Reliance Retail already generates 14% of its revenues from private labels. People familiar with Reliance’s plans said that the company wants to push its private label products to kirana stores. While there are hundreds of well-known brands in FMCG, the grocery category (products like rice, pulses and flour) is largely unstructured. Reliance plans to sell its private label products both in grocery and FMCG.
Apart from retail, Reliance is also rapidly expanding its B2B business. Its private label products form a key component of its retail and wholesale business plans, the people cited above said.
The private label push, however, is making large FMCG companies like Hindustan Unilever, Marico and Dabur, which sell competing products, wary of working with Reliance’s B2B arm.
Like Flipkart and Amazon, which are also expanding their B2B businesses, Reliance’s grand vision over time is to have an integrated ecosystem of wholesale and retail in which it connects consumer goods makers with kirana stores and retailers, supplies a large number of private label products across many categories to retailers and end-customers, and becomes the biggest omnichannel retail firm in the country. But realising this vision will require Reliance to work seamlessly with millions of kirana stores, thousands of brands, modern retailers (all of which will see the firm as a rival to an extent)—and provide exceptional service in a profitable manner to retail customers.
Analysts and industry executives said that Reliance has a higher probability of finding success in categories like fashion (in which it already runs a portal called Ajio) and grocery that are mostly unorganised and have a shortage of established brands. In these categories, Reliance faces fewer barriers from existing players and has a better chance of pushing its private labels in both the wholesale and retail markets. But in categories like electronics and FMCG, which are dominated by entrenched brands, kirana stores and e-commerce firms, Reliance may struggle to scale as fast.
For instance, Flipkart and Amazon dominate online sales of electronics and fashion, which together comprise more than 75% of all e-commerce. To win significant share in electronics, Reliance will have to spend enormous amounts on discounts, marketing and offering favourable terms to brands . But, in fashion, Reliance can tap its low-priced private labels to lure customers without resorting to value destruction.
“The market is too varied for one player to be big in all categories,” an investment banker said. “Reliance will have to carefully choose its battles. There’s a risk that it may spread itself too thin, so it’s wise for them to have started with grocery.”
Meanwhile, while Google and Facebook have together invested more than $10 billion in Reliance, both companies are continuing to expand their own businesses in India. Google and Facebook have ambitions to enter e-commerce and expand in other sectors like payments and content. What this means is that while Google and Facebook will end up collaborating with Reliance in some areas, they will also compete with the firm in others, joining Flipkart and Amazon in the war of the digital conglomerates.
Flipkart and Amazon have already stepped up their lobbying efforts with the emergence of Reliance as a threat. Because of the pandemic that has made e-commerce indispensable, there has been a thaw in the government’s attitude towards the US e-commerce firms. A more antagonistic attitude may return when the pandemic passes.
Eventually, though, the war will be decided by customers. Here, experts are divided on whether Reliance will emerge as the winner. “Reliance still has to do a lot more on getting the customer experience in place, but given the strides they’ve made, it is well-placed to compete in the digital space,” said Devangshu Dutta, head of retail consultancy firm Third Eyesight.