News and views about the Retail sector in India

This week, we look back on all the retail events of 2007 and those that we can look forward to in 2008. FDI in retail is again in the news and is likely to have a positive outcome this time around. International retail giants, Wal-Mart and Carrefour will be making their forays into the Indian retail scene in 2008 and it will be an exciting year for retail in India. Read more on this and all the other news in this edition of the retail news.

- Chillibreeze Business Research Team

General Plans and Information

Retail FDI likely to be permitted in three phases

The Indian government could be permitting FDI in retail in three phases. Sources report that the commerce and industry ministry has started discussions on permitting FDI in certain segments of the retail sector, such as consumer electronics and sports goods, in its first phase. These two fields being specifically looked at to be opened before the Commonwealth Games in New Delhi in 2010. The second phase will likely see the opening up of single-brand retail to 1000% from the current level of 51%.

The third phase of opening up FDI in retail in other segments will only take place depending on the impact of the earlier phases. According to a commerce and industry ministry official, “The government would always take local vendors, kirana stores and traders into confidence before moving ahead on the retail policy. We would try and overcome resistance from factions opposing the move. But we would do it gradually.”

Kamal Nath, the commerce and industry minister, had also stated that the government is keen to permit international retailers in specific sectors before the Commonwealth games begin, and feels that permitting foreign consumer goods retailers will not upset kirana store owners.

Date: Monday, December 31, 2007
Source: The Economic Times

India’s retail sector to reach $365 billion in 2008

The continued boom in the retail sector in India will lead it to reach $365 billion in 2008, compared to $300 billion on 2007. According to a study by the Associated Chambers of Commerce and Industry (ASSOCHAM), year-on-year growth will remain between 30-35% and is likely to reach $440 billion by 2010.

The major thrust of the retail industry has been due to the rapid expansion of organized retail formats, which now occupy 14 million sq ft, as compared to 1 million sq ft in 2002. In 2008, organized retailers are likely to add on another 2 million sq ft of space. While organized retail has focused on the major cities, on the other end of the spectrum, are rural retail stores which are also likely to experience strong growth, rising from $30 billion in 2007 to $36 billion by 2008 and $45 billion by 2015.

Date: Monday, December 31, 2007
Source: The Economic Times

Common entrance test for retail

The Retailers Association of India (RAI) is offering a Post Graduate Programme in Retail Management (PGPRM) with a tie up with 15 business schools in India. The Common Admission Retail Test (CART) will be held on January 27, 2008. Around 1,500 candidates will be selected for the course through CART.

According to Gibson Vedamani, CEO of RAI, “The objective of the PGPRM programme is to provide students with a high level of knowledge and understanding of the concepts and processes involved in retailing and equip them with operational and analytical skills necessary for a professional career in the retail sector.”

The CART test will be held in 25 cities and will test candidate’s quantitative ability, data interpretation, logical awareness, verbal and business skills, and consumer awareness.

Date: Friday, December 28, 2007
Source: Chennaionline.com

Increasing rental rates cut into retailers’ margins

Retailers are trying to come up with new strategies to compete with rising real estate rentals in the metros. Some of the ideas include being innovative with formats, going in for a revenue sharing model with mall developers and focusing on smaller towns where the real estate rates are still manageable.

Levi Strauss India has already announced that it will be changing its strategy and pulling out of malls in 2008, and will instead be increasing its stores in smaller towns. According to Shumone J Chatterjee, MD of Levi’s, “Profit margins are getting lower and we cannot wait for the next four to five years for things to stabilise. Passing on costs to the customer is also not an option. So we will exit places that are too expensive and increase our distribution network in small towns instead.”

Cushman & Wakefield have estimated that rentals in malls in the metros have increased by 25-45% in the past year. Currently, the rate for space in a mall varies from Rs. 550-1,000 per sq ft, depending on the size and location of the mall. Retailers are turning to expand in tier II cities to combat these skyrocketing prices.

Other retailers are becoming innovative with their formats, in an effort to increase margins. Arvind Mills has converted some of its single brand outlets to multi-brand outlets where it sells some of its higher-value items. According to Suresh J, CEO of Arvind Brands, “We had opened our largest Arrow showroom in Bangalore and found it was not profitable. So, we innovated with the product-offering and introduced a suits gallery, which has increased our sales. We will also be introducing other brands in some of our mono-brand outlets.”

Date: Friday, December 28, 2007
Source: The Economic Times

Govt. to set up designers’ streets to attract foreign tourists

The government will be setting up designers’ streets and arcades in many major cities, in the hope of attracting foreign tourists, especially Indians living abroad. According to Shilabhadra Banerjee, “We are considering setting up exclusive facilities for designers to promote special interest shopping among foreign tourists as there is increasing global recognition of Indian designers.” The government plans to promote local artists and craftsmen along with fashion designers.

ASSOCHAM estimates that India’s fashion design segment will reach Rs. 750 crore by 2012, from the current Rs. 270 crore. The significant rise is mainly due to huge investments coming into the sector. Despite its rapid growth, the sector barely accounts for 0.2% of the international fashion design market.

Date: Thursday, December 27, 2007
Source: The Economic Times

Big players - plans and investments

Reliance Retail and Bata form alliance

Reliance Retail will be giving a boost to its footwear division with its tie up with Bata, where it will retail its private label footwear. The tie-up will ensure that Reliance will have access to Bata’s 1,200 stores, located across the country. In return, Bata will get an exclusive display area in Reliance Footprint stores.

Reliance Retail will retail eight private labels for footwear at the Bata stores, including labels such as Mancini for men, Viviana for women, Pitter Patter for children, Monza for sportswear and Tosca for women’s party footwear. The Reliance Footprint brand was launched in November, with a store in Bangalore. The company hopes to have 100 stores in the next three years and is targeting a turnover of Rs. 3,000 crore during this period.

Date: Monday, December 31, 2007
Source: The Economic Times

Mahindra & Mahindra to enter lifestyle segment

One of the country’s largest corporations, the $4.5 billion worth M&M will be entering the lifestyle retail segment. The company has reportedly already selected key personnel, including a senior official from the Al Futtaim group of Dubai, and has set up its retail division, which is to be based in Bangalore. M&M is specifically targeting the urban customer for its foray.

M&M’s subsidiary, Mahindra Intertrade, which has been selling kids toys like LEGOs, will be handling the retail endeavors of the company. The company will be focusing on the premier segment of the market with products such as antiques, high-end apparel, home décor, toys, jewelry, home entertainment and health and wellness products. The urban lifestyle segment is considered a safe segment as it is unlikely to ruffle too many feathers and the margins are good.

M&M is only the latest in a long line of corporations that are venturing into the retail minefield of India. The Hero Group’s Munjals also decided to take the high-end road with their Oma chain of stores, instead of an all-round retail entry. Dabur Group’s Burmans are also specializing and will be starting a health and wellness segment.

Date: Wednesday, December 26, 2007
Source: The Economic Times

International

Carrefour to have several partnerships

French retail giant, Carrefour is planning to tie up with several partners for its operations in India. According to a source, the company is likely to go in for multiple licensees for different parts of the country as a way to testing the best method. Carrefour is not looking for a long term arrangement with any single partner at the moment and is keen on having a flexible arrangement of opening stores on its own, once FDI in retail is permitted.

There are already several other companies who function under this format in India. Fast food chains, McDonalds’s and Yum! Restaurants also use this method and have multiple partner companies in different parts of the country. Carrefour wants to tie up with licensees for short contracts of 2-3 years. For now, the company has set up two separate business divisions: Carrefour Wholesale Cash & Carry India, Carrefour India Master Franchise Company for its front-end retail operations.

Date: Tuesday, January 01, 2008
Source: The Economic Times

Starbucks ties up with PVR to enter Indian market

US coffee chain Starbucks will finally be opening in India via a distribution tie up with PVR, a leading multiplex company in India. PVR has already started selling some Starbucks products at its Mumbai and Delhi multiplexes and will be expanding to cover 25 additional movie theaters in the metros.

According to Ranjan Singh, Marketing and Sales General Manager for PVR, “The retailing of Starbucks products has already started on an experimental basis at three multiplexes in Mumbai and Delhi. The arrangement is for sourcing the Starbucks products directly from the US, but does not include brewing coffee.” At present, PVR is selling Starbucks products that have a long shelf life, such as cold coffee and mineral water. The company might start brewing hot coffee in the future as well.

Date: Monday, December 31, 2007
Source: Business Standard

E-Commerce

E-commerce in India to reach $100 billion

It’s not just brick and mortar retail stores that are booming in India, e-commerce is also seeing a surge and sales are expected to reach $100 billion in 2008. According to Bikky Khosla, CEO of Tradeindia, a B2B portal, "With the advent of Internet; far-flung global markets shrunk into one small market. The B2B portals have succeeded in breaking the geographical and other conventional barriers involved in trading." As the reach of the Internet increases, ISPs are reducing costs and improving connection speeds, which is one of the major reasons of the rise in online sales.

Date: Sunday, December 30, 2007
Source: The Financial Express

Apparel & Footwear

S Kumars separates its retail business

S Kumars Nationwide ltd (SKNL) announced that it had de-merged its retail divisions into Brandhouse Retails Ltd (BHRL) so that the company could focus on expanding this division. According to Jagdish Shetty, President (Finance), “Brandhouse Retails will be listed in a couple of month’s time or earlier, on completion of the court procedure. The equity shareholders of SKNL will get one equity share in BHRL for every five shares held in SKNL free of cost.”

Brandhouse Retails will be headed by Tarun Joshi and will have a complete specialized team to handle its portfolio of brands, including in-house brands Reid & Taylor, Belmote and Carmichael House, and international brands Dunhill, Stephens Brothers and Escada. S Kumars will now concentrate only on manufacturing, marketing, branding and distribution.

Date: Saturday, December 29, 2007
Source: The Hindu Business Line

Apparel brands gear up for 2008

While 2007 was a good year for the branded apparel segment; the coming year is likely to see more brands broaden their reach to a wider audience. The year saw several brands add lines for a younger audience, many economy brands realized that mass market did not equate to poor design or fashion. The coming year is going to be for the consumer, as it is the brands that will be wooing the consumer and not the other way around.

Arvind Brands changed the way it marketed its Excalibur brand, making it trendier and more appealing to a younger audience. Madura Garments mass market brand, Peter England created a new Elite brand to appeal to high-end customers. According to Ashish Dikshit, President of Madura Garments, “With more youngsters coming into the workforce, the youth cannot not be ignored. Especially since they have aspirations to own brands and have international exposure and greater awareness.”

Another change occurred at Madura Garments high-end brand, Louis Philippe who launched Lp, a sub-brand targeted at the younger consumer. Allen Solly also launched Solly Youth for its younger clientele. Several brands such as Excalibur, ColorPlus and Wrangler entered the women’s wear segment as well this year.

Date: Thursday, December 27, 2007
Source: The Hindu Business Line

Apparel companies focus on women’s wear segment

Apparel brands are targeting women, as it is perceived to be the segment that will rise substantially in the coming year. Reliance Brands feels that it will be women’s wear and lingerie that will be the frontrunners and will be introducing brands for both segments. Raymond also launched its women’s wear collection at its Park Avenue stores as well as a casual wear collection at ColorPlus.

According to Darshan Mehta, CMD of Reliance Brands, “Women-oriented brands have ample growth opportunity as there are only a handful of labels available, and most of them are brand extensions. The premium westernwear and fusionwear market is expected to grow as the number of working women increases.”

Retailers such as Esprit, Allen Solly, Mango are now focusing on women’s wear, along with denim retailers such as Lee, Wrangler and Levi’s. Raymond is especially bullish on this front and is aiming for a 25% share of the women’s wear segment, expecting revenues of Rs. 400 crore in the next three years.

The branded lingerie segment is estimated to be worth Rs. 1,700 crore, which is attracting lots of new players. Etam joined up with Pantaloons Retail, La Perla also entered the Indian market and Benetton India will be focusing on its lingerie label Under Colours of India.

Date: Sunday, December 30, 2007
Source: Business Standard

Food & Grocery

Subhiksha shows how to do it right

The Chennai based food and grocery retailer, Subhiksha is quietly moving along to success, while bigger rivals like Reliance Fresh are facing problems every step of the way. With its ‘less money for greater value’ focus, the retailer is showing other retailers how to maintain the perfect balance, of keeping customers happy with low prices while also not antagonizing the competition and trade associations.

The battle is not won as yet, since the retailer is fighting other small retailers in its vicinity, which is one of the major problems it is facing. Subhiksha offers 7-10% discounts on all its products as a way of bringing in customers from neighboring stores. According to Ravi, manager of the West Delhi Subhiksha store, “Unlike mall centric retail outlets where primarily, high end customers are in the scheme of things, we have chosen to focus on the middle class. And for that very reason we cannot afford to ignore the discount part. To ensure loyalty, consistent low price is the only carrot in this competitive sector.”

Date: Wednesday, December 26, 2007
Source: The Economic Times