Mom-and-Pop stores stay alive

The year 2008 saw some dramatic twists in the discourse on big retail. From a spate of controversies surrounding the entry of corporate houses and fears that big players will swallow small kirana stores, the debate has clearly shifted to whether big retail can survive in its current form.

“Kiranas have clearly won the first round. The story of ‘modern retail vs Kirana’ is over. The past year was about the survival of modern retail,” said Kishore Biyani, CEO of India’s biggest retailer Future Group that operates hundreds of stores in multiple formats.

Modern retail players such as Future group, Reliance, Aditya Birla group, Subhiksha and Vishal Retail went on an expansion spree creating footprints across the country in different formats. Many other smaller players such as 6Ten, Wadhwan Retail, LM365 too joined them. And in the expansion frenzy, many of them lost their way.

By the end of the year, retailers were struggling with sales, shutting down stores and laying off staff in hundreds. “We have grown too fast. With this kind of pace, we make mistakes,” says Thomas Verghese, CEO of Aditya Birla Retail. He admits that retailers chose wrong locations or paid too high rentals in the race to open more stores.

Meanwhile, Kiranas rarely shut shop. Not that big retailers failed to attract shoppers. But they failed to manage cost. “Before modern retail could attain scale, the economy went into a tailspin,” said Mr Biyani, adding that Kirana has been more efficient at managing cost.

Both Kirana and big retail had their sales going up, possibly because a booming economy, rising income levels and a higher propensity among middle class to consume more. Both Kirana stores and local vegetable vendors survived because they offered a value proposition, which modern retailer couldn’t match- local vegetable vendors almost always offered fresher vegetables than the modern retailer, while Kirana offered the luxury of home delivery and interest-free credit. Naturally, customers chose different shopping destination for different needs.

“One could see a slight bias towards processed food and personal care products in terms of sales through modern retail stores,” said Mr Verghese.

A downturn in the economy and terror strikes also played spoilsport for the big retail, still in its infancy in India. “Consumers don’t want to spend as they fear for their jobs. Terror strikes have further eroded consumer sentiment and reduced footfalls at shopping destinations,” said R C Agarwal, chairman and managing director of Vishal Retail.

Retailers see 2009 as the year of consolidation and are cautious about expansion. Most retailers are already in cost-cutting mode and some are even looking at exiting the business lock, stock and barrel. Some of the smaller retailers have been seeking buyers and lobbying for FDI in retail. “I will sell my entire stake as soon as FDI is allowed in the sector,” said a Delhi-based retailer who had earlier held talks with at least two potential buyers, but failed to seal a deal. He says no retailer with less than 150-200 stores will survive. While Mr Biyani is in favour of calibrated approach towards FDI in retail, Mr Agarwal favours 51% FDI in multi-brand retail.

As sales slipped and cost mounted, several retailers were also engaged in a tug of war with suppliers. Major suppliers refused to supply goods to many retailers after they failed to pay or delayed payments. Pilferage was another challenge retailers struggled to find solution to, which made a significant dent in their margins.

The silver lining, however, was a fall in real estate rentals, which is likely to bring down the cost for retailers.

Sources :- Economic Times

Esprit gears up to take 51% in JV with Madura

BANGALORE: Fashion giant Esprit Holdings may assume direct charge of its Indian operations. The $5-billion group may take 51% stake in a joint venture with Madura Garments, part of the AV Birla Group, which manages Esprit’s retail stores through a licensing agreement in India.

Sources said Esprit, listed on Hang Seng and London Stock Exchange, has been discussing the possibility of 51:49 JV with the AV Birla Group company for sometime, and a breakthrough could be in the offing. If the deal goes through, this will be the first instance of AV Birla Group inking an equity deal with an international player in the fashion and retail space.

Indian regulations allow maximum 51% foreign direct investment (FDI) in single-brand retail, and Esprit’s decision will be one of the most significant moves after the government opened up specialty retail to overseas investors. When contacted, Aditya Birla Group business director (textile and apparel) Vikram Rao said: “There is no agreement on a joint venture.” Esprit, with over 40 doors, has significant retail spread at the super-premium end of the domestic apparel market and has set an ambitious target of opening up to 150 doors in the country by 2010. Esprit and Madura have cordial ties and the formation of a JV is unlikely to impact the existing operational management.

It is believed that the employees working for Esprit’s brand management and retail operations will be part of the proposed JV. Esprit entered into a licensing agreement with Madura in 2005, and reported over Rs 75-crore revenue from local operations in FY08. With government opening up FDI norms, several foreign brands that came through licensing agreements are expected to crossover to the equity route to navigate their businesses better in a growth market like India, a sectoral expert said.

Esprit’s product range includes menswear, womenswear, kidswear, innerwear and accessories. The company had announced plans to extend its offerings to sportswear, home furnishings and footwear in a bid to become a complete lifestyle brand.

Source:- economictimes.indiatimes.com

Samsung looks at increasing sales in India

NEW DELHI: Consumer durables major Samsung is aiming for a 30 per cent increase in the company’s sales in the Indian market this year, on the back of increased research and development (R&D) activity and new product launches. The company has appointed Olympic gold medallist Abhinav Bindra as its new brand ambassador and also plans to set up 30 additional brand outlets in various cities.

“We clocked a sales turnover of 1.3 billion dollars in India under our various consumer durables categories and expect to increase the figure by 30 per cent this fiscal,” Samsung India Deputy Managing Director R Zutshi told reporters here. He said the company would be focussing on enhanced R&D as part of the effort and also bring out new products in various segments this year.

“We are doubling the number of our R&D engineering staff from the existing figure of 2,000 to 4,000 within the next two years for our Noida facility,” Zutshi said. The company is planning to put special emphasis on the LCD TV and Flat CRT TV segments as part of its growth strategy.

“We currently enjoy a market share of 42 per cent in the LCD TV and 21 per cent in the Flat CRT TV segments and our target is to increase our share in the two segments to 45 per cent and 26 per cent, respectively, by end of the year,” he said. The company is also increasing its sales branch offices by more than double this year. “We have 20 branch sales offices located across the country and are planning to take the number to 50 by end of the current fiscal,” he added.

The number of Samsung’s exclusive brand shops are also set to witness an increase of 50 per cent this year. “We had 120 brand shops by end of last year and have increased the number to 150 this year. Our target is 180 such stores by end of 2008-09,” Zutshi said.

The company expects a growth of 80 per cent in its retail business and is planning to tap new large format retails chains including Croma, Reliance Retail and Aditya Birla Group.

He said Samsung is planning to bring out a series of new products across various segments in the approaching festive season. The company is launching six new variants of its home theatre and the 14.7 megapixel NV 100 HD and the 10.2 megapixel NV 9 digital cameras this month, as part of the strategy. Its brand ambassador Abhinav Bindra, for the period of next one year, would campaign for the company’s all consumer electronics products through print and electronic media.

Regarding the impact of inflationary pressure, Zutshi said the company has hiked the prices of its products across all segments by an average of five to six per cent during past few months.

“Although prices can escalate further, we hope the market will sustain,” he added.

Sources:-www.economictimes.indiatimes.com

‘Young spenders will drive India’s economy’

Sydney, Sep 28 (IANS) As the Indian consumer goes all out to seek new experiences from food and wine, installs an in-home spa and holidays in exotic destinations, modern retail is well on its way to becoming the key driver of the country’s economy, says Geoff Hiscock, an Australian author who studies the economies in Asia, especially India.Hiscock’s latest book “India’s Store Wars: Retail Revolution and the Battle for the Next 500 million Shoppers”, published by John Wiley & Sons, has just hit the stands in India while being available in Australia.

“Modern retail is well on the way to being the key driver of the Indian economy over the next decade because India’s consumer demand is simply unstoppable. For Australian suppliers of a whole range of goods and services, that represents a marvellous opportunity over the next few years,” Hiscock told IANS in an interview.

The book explores the changes in the demographic profile, tastes and spending habits of the Indian consumer, how younger Indians have more confidence and are willing to borrow to finance their consumption.

Despite the recent shocks caused by the sub-prime crisis in the US, young Indians are prepared to borrow money to buy a new two-wheeler or car, a digital TV, air-conditioner or even a house. They are also more aware of the sources of credit available to them, says Hiscock.

According to the latest research in the India Retail Report 2009, retail spending by Indian consumers is expected to rise from Rs.13.3 trillion (US$0.28 trillion) now to Rs.18.1 trillion ($0.38 trillion) by 2010.

“That is a huge increase in spending, and we can put it down to the fact that not only are incomes rising but younger people entering the workforce are more prepared to spend money than their parents were. The ’save’ mentality is being replaced by the ’spend’ mentality,” Hiscock told IANS.

For the author the most interesting aspect of India’s consumer boom has been the far faster growth in the modern retail sector – hypermarkets, supermarket chains, mini-marts, department stores and specialist shops in shopping malls – than the traditional retail sector made up of the 12 million ubiquitous grocery stores, wet markets, bazaars and weekly or monthly rural fairs.

Until only a few years ago, modern retail’s share of the total consumer spending was only 3-4 percent. But after growing at more than 40 percent in 2007, modern retail has a share of 5.9 percent and by 2010 could have a 13 percent share, according to a report prepared by Images F&R Research, and released at the 2008 India Retail Forum held in Mumbai last week.

The book provides rich insights on the intriguing subject of what makes India tick and the challenges facing the country’s retail sector.

For three years in a row (2005 to 2007), consulting firm A.T. Kearney has ranked India the top retail destination globally, ahead of Russia and China.

“However, the outlook is not all rosy. Apart from the global economic situation, there are some specific problems India must contend with. Perhaps the most obvious is the poor supply chain, which leads to terrible wastage rates in the shipping of fresh fruit, vegetables and dairy products. India desperately needs better logistics, including a comprehensive cold chain system in transportation,” the author warns.

“There is a lack of retail management skills and the information technology backbones necessary to run modern stores efficiently. Retailers face high real estate prices and extreme competition in the key metropolitan markets,” he adds.

The author also draws attention to the volatile political environment where market middlemen, small traders’ associations, grocers and street vendors, fearful for their economic future, are opposing big domestic retail newcomers such as Bharti Group, Reliance Industries and Aditya Birla Group, and foreign contenders such as Wal-Mart.

“But overall, I’m confident India’s modern retail sector can work through these issues, and the consumption boom will continue, thereby driving up India’s growth rate,” says the veteran journalist-turned author.

Hiscock’s other hugely successful books include “Asia’s Wealth Club” (1997), “Asia’s New Wealth Club” (2000) and “India’s Global Wealth Club: The stunning rise of its billionaires and the secrets of their success” (2007).

source:-www.thaindian.com

Organised retail players rethinking their strategy

NEW DELHI: Just over two-years ago, India’s largest private sector company , Reliance Industries (RIL), announced its grand entry into what remains one of the biggest, and largely unexplored markets anywhere in the world — the $350 billion Indian retail market.

RIL chairman Mukesh Ambani outlined the company’s ambitious plans to carve out a slice of this market — a Rs 25,000 crore investment by 2010 — with big and small Reliance shops across 1,500 cities, employing over a million people and an enviable logistics chain sewing up millions, from farm to fork.

Like with everything else, when Reliance pins its faith on any new idea, the world took notice and followed suit — from global retailing majors (Wal-Mart to Carrefour) and India’s other big corporations — Bharti Group, Aditya Birla Group, Mahindra & Mahindra and the Tatas. Cut to the Sept 2008. At a time when organised retailers should have been busy ramping up their operations and pouring cash to actualise that $350 billion promise, most are doing everything but that.

South India-based retail major Subhiksha is busy denying media reports of its selloff plans even as rumours of smaller retail chains looking for buyers flying thick and fast. India Inc’s heavyweights in the organised retail — Reliance , Birla, Tata — are back to drawing boards taking a relook at their strategies. Most seem to be trudging cautiously on their multi-faceted plans in the face of the continuous northbound march of property prices, soaring rates of interest and supply chain challenges that have exposed them to unbearable pressures.

It’s time for reality check for the Indian retail sector. Reliance Retail, with a target of 1,000 stores by the end of 2007, has managed only 735 outlets till July this year.

The company has booked a net loss of Rs 10.99 crore last year on reported revenues that hover around 1% of its total sales (Rs1.39 trillion). Similarly, Aditya Vikram Birla Group too fell short of its expansion target by two dozen outlets of ‘More’ , its retail chain brand.

Bharti Retail is also going slow. Grocery stores from retail biggies are reportedly registering losses, forcing them to rationalise their numbers. Adding to their woes are vendors and FMCG players refusing to supply, citing payment delays.

Grounded in reality

Let’s put things in perspective. Three years back, organised retail in India was expected to grow as fast as 38% annually. Then, the global management consultancy, AT Kearney had announced India’s arrival as the hottest retail destination.

Yet, Indian organised retail is still far from the target of becoming a $60 billion industry by 2011. It is growing at only about 30% per annum (contrary to the grandiose predictions) and stands at 4% of the $350 billion Indian retail industry.

Even Wal-Mart — the world’s biggest retailer — hopes to open its first cash-and-carry store only by 2009, a full three years after announcing its collaboration with Bharti retail. It is realising that it would take more than its legendary supply-chain management and margin-shaving acumen to bring a change in the country’s retail landscape.

Ditto for Tesco, UK’s biggest retailer that is yet to help out Tata Trent’s operations through a cash and carry initiative. In other words, despite attracting the world’s mightiest retailers, the India retail story doesn’t sound as attractive as it was supposed to be. Arvind Singhal, chairman, Technopak Advisors sees no reason to panic. “The current turbulence is not entirely unexpected,” he says.

“The sector is experiencing a steep learning curve and the situation should improve during 2009-2013 period when most of the players would have expanded, consolidated, merged or acquired.” Share of organized retail, he adds, would go up to 16% during that period providing direct employment to 2 million people.

While Technopak projections sound pleasing enough, the current scenario offers no reason to cheer. “The present retail environment is very chall

enging,” says Lalitha Banerjee, principle consultant, retail and consumer industry group, PricewaterhouseCoopers (PwC) pointing to the mounting costs and supply chain problems. Adds retail analysts Piyush Sinha, who is a part of marketing faculty at IIM-Ahmedabad : “Just adding numbers or bringing in foreign players doesn’t ensure success unless you have operational efficiency and that will come only with time.”

Knee-jerk reaction

Little wonder then, most retailers are busy formulating fresh strategies. Take the case of Reliance Retail. It has downsized its hypermarket in Ahmedabad and is tweaking its strategy in response to changing consumer demand. It is said to be leasing out an entire floor to other retail players in some cases. In response to an email, query, this is all that the company’s official spokesperson had to say: “In retail, processes are continuously evolving in accordance to the customer’s tastes and choice.”

Perhaps, it is these conditions that have forced the country’s largest retailer (by volume), Kishore Biyani — promoter of the Rs 8,600 crore Future Group that owns Big Bazaar — to turn from ‘an eternal optimist to a realist’ . “Every business has a process and it is only natural to go through such phases,” says Biyani.

Even though the group posted about 71% increase in net profits this year, it had to close two of its Big Bazaar outlets in Ahmedabad earlier this month. Clearly, the inviting ambience and all the trappings of modern retail have failed to draw consumers’ interest, who are looking for functional benefits from the retail experience.

“The core proposition and value offered is not sufficient to make consumers visit the modern retail store often enough,” says Rajan Chibba, CEO, Intrim Business Associates, a Delhi-based marketing consultancy. “Unless a repetitive visit frequency pattern is built, retailers stand to lose.”

So cost cutting is the mantra. Big Bazaar has now begun integrating the management, marketing , human resources and IT departments of its units into one, which it says, will help save around Rs165 crore a year. Big Bazaar is also planning to prune its advertising budget, reduce electricity bills and cut packaging costs. “We are closing some stores to integrate operations that helps us save costs,” says Rajan Malhotra , CEO, Big Bazaar.

According to Chibba of Interim, commercial power costs in India are three times the global norms, a lot of the retail chains are over-staffed . While newfound financial prudence is now universal , consolidation is also gaining currency. After learning that too many brands were creating confusion, RPG Group decided to consolidate 5 of its retail brands.

Spencer’ Hyper, Super, Daily, Express and Fresh have been merged into just two brands — Spencer’s Hyper and Spencers. The group also plans to consolidate its supply chain for both the formats under one business unit. Samar Singh Sheikhawat, VP marketing, Spencers Retail, says the chain is now relocating stores while focusing on large format.

Apart from high costs, insufficient investment in strengthening back-end operations, high rate of attrition and retaining a talented workforce have been a big challenge.

So what is the way out? Perhaps RC Agrawal, MD, Vishal Retail, spells it out most unequivocally . “It is good to amputate body parts that are not functioning,” he says metaphorically.

Meanwhile, the only good news for the organised retail comes from ICRIER. Its recent report on retail, Impact of Organized Retailing on the Unorganized Sector, argues that organized retail is not harming the traditional Indian retailer.

In fact, the two will co-exist to make Indian retail story a success. The report notes that 22% of the consumers shopping at organised outlets still want unorganised retail outlets and 34% of them shopping at the kirana outlets want more organised retail outlets .

Says Nirupama Soundarajan, who coauthored ICRIER report, “The initial decline in turnover and profit will smoothen out over time as organised and unorganised retail begin to coexist.”

She believes, this co-existence will lead to improvements in logistics and infrastructure, efficient supply chains, better quality produce, increased revenue for the government through taxes and lower wastage.

source:-www.economictimes.indiatimes.com