News and views about the Retail sector in India

This week, we focus on the new direction that retailers are taking to compensate for the high rentals and choosy consumers. Everything from private labels to specialty formats is being tried and tested and only time will tell how each endeavor does. Get the details on this and much more in this edition of the retail news.

Chillibreeze Business Research Team

General Plans and Information

India’s largest mall on the anvil

The country’s largest mall, aptly named Mall of India, is being built in Gurgaon by DLF and is being built and will cover 4.5 million sq feet of space by 2010. The mall will also have 9,000 parking spots and will be connected to New Delhi by its own light rail network. The developers hope to attract the country’s emerging consumer class, which is addicted to spending as much as they possibly can.

According to Rajeev Talwar, group executive director of DLF, "India's growing prosperity - the large population of under 25-year-olds who have grown up in an economy that is booming - means that lifestyles and shopping habits are shifting in favour of malls." At present, the country has 90 malls covering over 19 million sq ft of space.

DLF is also building a premium mall called Emporio in New Delhi, which besides a variety of retail stores will also have 10,000 sq ft of space dedicated solely to watches, featuring some of the most expensive time pieces in the world.

Date: Monday, December 24, 2007
Source: Rediff.com

The rise of the private label

Private labels who were once completely unknown are fast gaining popularity and are now able to compete with known global brands. The range of private labels varies from apparel to health and beauty and furnishings and customers are most willing to test out new and unknown brands.

The rise of private labels can be attributed to retailers such as Pantaloon, Big Bazaar, Shoppers’ Stop and Vishal Megamart who were some of the first companies to put forward these brands. In-store brands account for about 5% of the total organized retail market, so the potential for growth is still enormous.

Margins on private label products range from 15-20% in the FMCG sector; about 20% for electronics; and from 30-70% for apparel goods. According to Purnendu Kumar, senior retail consultant at Technopak Advisors, private labels accounts for 70-75% of sales at Future Group.

The primary reason a consumer buys a private label is usually price, but with improving quality of the products as well as labels and marketing, consumers tend to stick with these products rather than go back to branded labels. Most private label products are priced 5-20% lower than regular items.

Date: Monday, December 24, 2007
Source: Rediff.com

Retail boom tries to overcome skyrocketing rents and shortage of space

With the number of malls being built and the planned expansion of almost every retailing company, rents have shot through the roof, tripling in the past three years and are now going to play a significant role in how much a retailer is able to expand. According to Arvind Singhal, head of Technopak, a retail consultancy firm, "Rentals have shot up to a point where very few retailers will make a profit.” Retailers don't want to get into a mall it if there's no financial viability, so a lot of current retailers and likely new entrants are putting their growth plans in review mode."

Until more malls and shopping centers open up, retailers are not likely to see any reduction or easing up of the rents. According to Bijou Kurien, senor executive at Reliance Retail, the proportion of real estate expense is much higher than it should be and is an unhealthy trend. With mall rentals rising by 50% in the past year alone, many developers are trying to get out of old lease agreements with retailers to gain from the increasing rental rates.

Date: Sunday, December 23, 2007
Source: The Economic Times

Regional brands get a boost thanks to large retailers

Thanks to the advent of modern trade, smaller brands are being offered more shelf-space, better display areas as compared to kirana stores. According to Subhiksha MD, R Subramanian, “The smaller brands know they don’t have the marketing muscle to drive sales so they offer great deals. Lots of regional brands have become quasi-private labels for us.” Regional brands are usually sidelined are getting a lot more attention than before, thanks to modern format stores considering them as part of their in-house merchandise.

Subhiksha has more than 130 regional brands, most of which have exclusive distribution agreements with the retailer. According to ITC Foods Division CEO, Ravi Naware, “Regional brands rely heavily on trade push and offer higher margins since they hardly invest in conventional brand building. Bigger brands, on the other hand, depend more on establishing brand value and creating consumer pull.”

A perfect example of how a small regional brand has got nationwide attention is Capital Foods, whose brands such as Ching’s Secret Sauces, Smith and Jones ketchups and Keng Thai sauces have been very successful due to the promotion and space it gets at larger format grocery stores, something that is just not possible at kirana stores.

Date: Friday, December 21, 2007
Source: The Economic Times

Big players - plans and investments

Reliance Digital opens in Bangalore

Reliance Digital, the consumer durable format of Reliance Retail, opened its first outlet in the state of Karnataka, with an outlet in Bangalore. The company has two other Reliance Digital outlets in the country, located in Ghaziabad and Mumbai. Its Bangalore store is spread over 23,000 sq ft of space and stocks 4,000 products comprising of 150 brands.

According to Nitish Tipnis, Head-Operations for Reliance Industries, “The organised retail in Karnataka is growing at a healthy 25 per cent. We intend to open 10-12 stores over the next 16-20 months. Five of those stores will be located in Bangalore.” The company will also be opening stores in Mysore, Hubli and Belgaum. Nationwide, the company will be opening 60 Reliance Digital stores by 2009.

Date: Tuesday, December 25, 2007
Source: Business Standard

Bharti keen on acquiring Big Apple supermarket chain

Bharti Enterprises might be acquiring Delhi based Big Apple, a supermarket chain with 65 stores. The talks between Bharti and Big Apple are said to be at an advanced stage and if price expectations match, a deal could be finalized by January 2008. Bharti is looking to the acquisition as it plans to have 100 stores operational by the end of the financial year.

The company will be starting its retail business with its first store in North India, while its cash-and-carry business format with Wal-Mart will get started in the third quarter of next year. Lalwani Holdings and the Chaurasia Group own the Big Apple retail chain.

Date: Monday, December 24, 2007
Source: The Economic Times

Spencer’s looks to focus on specialty formats

RPG Group’s hypermarket division Spencer’s Retail recently did a soft launch for consumer electronic items and will also be branching out to launch specialty formats for home solutions and apparel. The company is already developing its merchandise lines for these categories and has also tied up with apparel brands such as Lee, Levis and Peter England, besides creating its own private labels.

The expansion is likely to be formalized in the next six months and will take and investment of Rs. 3,000 crore spread over the next three years. According to Samar S Sheikhawat, vice-president of Spencer’s Retail, “We have already initiated market research for a possible foray into the standalone home solutions and apparel stores. Several issues, such as the brand name, are yet to be decided.”

Spencer’s currently runs four formats, Spencer’s Hyper, Spencer’s Super, Spencer’s Daily and Spencer’s Express and its consumer durable stores are called Spencer’s Electronic. There are two Spencer’s Electronic stores at present, in Hyderabad and Pune. The company hopes to have 15-20 additional stores in the next year.

Date: Monday, December 24, 2007
Source: The Economic Times

Megamart to focus on tier II cities in south India

Arvind Brands retail division, Megamart is planning to focus on tier II cities in southern India and will be investing Rs. 400 crore in the next year towards this expansion. With Arvind Brands home base as Bangalore, the southern regions of India are the biggest markets for the company and it plans to capitalize on its knowledge of the region by opening stores in Mysore, Mangalore, Guntur, Vijaywada, Salem, Vishakapatnam, Pondicherry and other locations in India’s four southern states.

According to K E Venkatachalapathy, Business Head for Megamart, “Most of the apparel brands of Arvind Brands are doing extremely well in these secondary and tertiary cities. There is a huge demand for some of the premium brands like Arrow. We expect significant sales in these cities.” At present, Megamart has 75 outlets in 25 cities, with most stores averaging around 3,000-5,000 sq ft in space.

In terms of sales, its store in Bangalore has been the largest contributor. Besides Arvind Brands, several private labels and international brands are sold at Megamart outlets. Its future plans include setting up 30 large format stores under the name Megamart Outlet Centre and increasing its smaller format Megamart stores to 250 in the next few years.

Date: Friday, December 21, 2007
Source: Business Standard

Home Solutions to increase stores

Future Group’s Home Solution Retail Ltd (HSRL) announced its decision to increase both its consumer durable and electronic stores. Its lifestyle based eZone stores will increase from 26 to 75-100 in the next 2 years. Its value based electronics and consumer durables store; Electronics Bazaar will increase its stores to 200-250 in the next 2 years. The company will be investing around Rs. 450-500 crore for expanding both its chains.

According to Hemchandra Javeri, CEO of Home Solutions Retail, “We understand that due to the booming economy and rising disposable incomes among Indian consumers, there is a noticeable rise in consumer spend in consumer durables and electronics category. We will be better positioned to meet this increased demand, through planned expansion.”

Date: Friday, December 21, 2007
Source: The Economic Times

Trent to launch value format stores

The retail division of the Tata Group, Trent will be launching a value based retail chain this year, in an effort to broaden its consumer base. The first of these value based retail stores will be launched in the next six months and will stock mostly private label garments for men, women and children. The new brand of stores is yet to be named by the company.

Trent has found locations for some of its stores already, with its first store coming up in Mumbai. Overall, these stores will be located in 50 cities, and will on average by between 10,000-15,000 sq ft in range. These stores will compete directly with Arvind Brands’ Megamart format and Future Group’s Brand Factory format.

Date: Friday, December 21, 2007
Source: The Economic Times

Trent to double stores by 2010

Trent announced that it will be doubling its stores to 100 by March 2010.The company currently has several formats, including Westside, its lifestyle format, Landmark, its books, music and gifts format, Croma its consumer durable format and Star Bazaar its hypermarket format. The company will also be launching a new value based lifestyle format in the coming months. The focus of its expansion will be in southern and western India.

At present, there are 29 Westside stores, 10 Landmark stores and 3 Star Bazaar hypermarkets in the country. According to a Trent official, "We intend to take that up to 60-odd Westside stores, 25 Landmark stores and 15-20 Star Bazaar outlets by March 2010. We will have at least 100 stores, all three brands put together, by March 2010". He added that the company was also considering opening multi-retail outlets such as Central or Shoppers’ Stop and also is thinking of entering the fast-food retail segment.

Date: Thursday, December 20, 2007
Source: The Economic Times

Reliance Retail to shift to being supplier

After facing strident protests for its grocery format stores, Reliance Retail is turning itself into a trader and is entering the food trading business in an effort to restructure its food and grocery business. The company has created 2 supply chains; one chain to trade commodities in the open market at mandis and a second chain to supply merchandise to Reliance Fresh outlets.

With food prices to increase significantly next year, Reliance has realized the value of becoming a trader. The company is already setting up shop in mandis where it will sell fruits, vegetables and other staples, where it will be able to make a profit without the steep overheads or discounts. The company has reportedly signed an agreement to supply fruits and vegetables to the Spencers’ retail chain.

This new initiative of Reliance is likely to be named either Apni Dukan or Apni Mandi. According to the plan, there will be distribution and supply chain centers set up in hundreds of towns as well as mandis across the country. The likely investment for this project is reportedly more than Rs. 10,000 crore.

Date: Thursday, December 20, 2007
Source: The Economic Times

Reliance Brands to focus on brand acquisitions

Reliance Retail’s subsidiary, Reliance Brands will be focusing on creating brand partnerships to stand out in the highly competitive branded apparel segment in the country. The company will also be open to buying equity stakes in existing brands or designer labels. Reliance Retail recently formed a separate company for its brands and it is headed by Darshan Mehta, who feels that the company’s best alternative is to form partnerships with international brands.

He added that, “The Indian apparel space has certain entrepreneur-driven brands and designer labels with great concepts. They have the potential of having a pan-India presence, if marketed and managed on a wider scale.” Reliance is reportedly in talks with several Indian fashion designers to form equity partnerships for designer apparel.

On the international front, the company has tied up with Miss Sixty, Energie, Killah and Murphy & Nye for their operations in India. Maurizio Perich, commercial director for foreign markets for Miss Sixty, said that it was the lack of information on how to manage brands in the Indian market that led them to tie up with an Indian company. Reliance will be opening Murphy & Nye stores in Delhi and Mumbai and will be opening 40-50 denim-based stores for Miss Sixty in the top 10 cities of the country, over the next three years.

Date: Thursday, December 20, 2007
Source: Business Standard

Aditya Birla Retail plans on investing Rs. 80 billion on expansion

Aditya Birla Retail Ltd. will be investing Rs. 80 billion (over $2 billion) in the next 3-5 years to set up a chain of stores in the country. According to Suman Sinha, CEO of Aditya Birla Retail, the company will have a minimum of 1,000 outlets across the country.

The company has been implementing its plans with record speed, taking just 132 days to open the first store, according to Andrew Denby, CEO supermarkets for Aditya Birla Retail. At present, the company has 325 stores, with an average floor area of 4,000 sq ft. Most stores sell products at prices discounted by 2-25% and stock a wide variety of private and branded labels.

The main reason for its rapid expansion has been its acquisition of the Trinethra supermarkets in South India, which had 170 existing stores. The company has tied up with 350 vendors and sources fruits and vegetables directly from the farmers.

Date: Thursday, December 20, 2007
Source: Calcutta News

International

Amway to focus on middle-income group

Amway India will be making some changes in the way it does business and will be focusing on the middle class as its target market. Amway has so far been targeting the premium and super-premium categories and has also developed specific products for its Indian consumers.

It’s competitors Avon and Oriflame already target the mid-market section and are expanding to the premium segments, while Amway is doing the opposite. Amway is the second largest direct selling company in the country, after Tupperware. A new entrant to the market this year was US based Mary Kay who entered the country this year. Amway has 80 offices and 450,000 active distributors in the country, recording a turnover of Rs. 738 crore, which is expected to reach Rs. 800 crore this year.

According to Sanker Parameswaran, director-legal and corporate affairs for Amway, “Since a large section of our target consumers has lower purchasing power, we would develop products in the mid-price segment. We would also focus on youth and add 130 more offices this year as our offices act as information centres for new consumers and help them to know the company better.”

Date: Tuesday, December 25, 2007
Source: Business Standard

Calvin Klein plans to position itself as premium denim brand

US fashion brand Calvin Klein is keen to position itself as a premium denim brand in the country. According to Vijay Murjani, MD Murjani Group, who will be launching the company in India, “We plan to build on the brand recognition among young Indian customers of the CK Jeans brand as the most authentic global denim brand. While, so far there’s almost no competition for us in the premium denim business in India, we will build on that advantage through aggressive consumer education at our retail outlet level.”

CK already has six stores in the country, since it entered in April 2007 and hopes to achieve a 100% year-on-year growth for the coming two years. The company will be opening 12 CK Jeans stores by April 2008 and another 12 stores by 2008-09. Calvin Klein Underwear will also be opening up 60 stores by 2008-09.

Initially, the focus on the stores will be on Delhi and Mumbai, and after stores are opened here in April 2008, the company will be looking to the other metros such as Chennai, Kolkata, Bangalore, Hyderabad and Pune to open stores.

Date: Friday, December 21, 2007
Source: The Economic Times

Government Policy

UP Chief Minister says she is not against corporate retail

Five months after the Uttar Pradesh government closed down all western format food retail stores, Chief Minister Mayawati has stated that she is not anti-corporate retail and “if planned well” there was space for everyone to function in the state. In an interview with CFO Asia magazine, she stated, "I welcome private investment in all sectors of the economy. Corporate retailing will not be stopped." She also said the corporates entering the field of modern retailing should provide jobs for those who are affected adversely by their entry.

Further clarifying on her role in the fracas that took place earlier, she said, "I have not ordered their closure...There was a law and order problem with affected people taking to the streets after these retail outlets were opened. Many lost jobs at kirana stores run by families."

UP has also identified three areas in the state to be developed as SEZs on the line of how China has developed them and is trying to attract private sector companies to invest in these areas.

Date: Monday, December 24, 2007
Source: Rediff.com

Pharmaceuticals

Small pharmaceutical retailers team up to compete with large chains

Small local pharmaceutical retailers are teaming up to compete with large retail chains that are entering the segment. Local pharmaceutical company currently account for 97% of all business. In Ahmedabad, local pharmaceutical retailers have joined together to open Healthcare Pharmacy to compete with larger chains. Another such initiative is Planet Health that will open in 2009.

Spearheaded by the Indian Retail Pharmacy Network, an association formed by 7 pharmacy stores in Ahmedabad, the company opened its first store in April this year and now has expanded to 12 stores in the city.

Date: Wednesday, December 19, 2007
Source: The Economic Times