News and views about the Retail sector in India

This week, our focus is on the restructuring going on in the retail sector, with the Future Group and Planet Retail parting ways, Next Retail buying Planet M and Marks & Spencer deciding to focus more attention on India. Will these changes push the retail sector to the next level? Find out all this and more in this edition of the retail news.

Chillibreeze Business Research Team

General Plans and Information

High rental prices put specialty retail in a bind

The sky rocketing prices of retail rentals is putting specialty stores in a bind, especially in the malls. According to B. S. Nagesh, MD and CEO of Shopper’s Stop, “Malls are being planned and developed without keeping in mind the retailer. And with the kind of rentals, I don’t think any retailer will ever make money. It just didn’t make business sense. In my observation, going forward, specialty retail will prove to be a tough business.”

Most experts agree that since there is no set outer limit of rental costs, as leasing retail space is always looked at as a percentage of overall revenue, so as revenues increase, successful retailers are willing to pay a higher amount, and therefore spoil the market for all others. For small specialty stores, lease rentals should work out to 12-15% of the revenue, but most now have to pay close to 20%, which makes their businesses unviable.

According to Raman Manglorkar, MD or Greenbox Realty, a company that specializes in real estate for retail purposes, states that even though specialty retail will be around for a long time, general departmental stores are more susceptible to high real estate rates as well as other factors such as increases in operating costs and margin pressures.

Date: Wednesday, November 07, 2007
Source: DNA India

India on it’s way to become a luxury retail destination

Several international luxury product companies are planning their entry into the Indian market, which is being perceived as the next major retail destination for premium products. According to Tikka Shatrujit Singh, Advisor to the Chairman of Louis Vuitton, “India is becoming the beacon of the future.” One of the foremost steps to achieving this is by creating world class shopping environments, the first of which is being created by UB and Prestige Group and will be called UB City-The Collection.

According to Shashikanth, CEO of UB Global, the group has signed international luxury brands such as Dunhill, Gucci, Mont Blanc, Van Cleef & Arpels, Zegna and several others. While the luxury retail market is currently estimated to be worth Rs. 1,500 crore it is expected to grow by 20% in the next five years.

Vivek Kaul, Retail and Leisure advisory of Jones Lang LaSalle, a retail advisory service, feels that Indian consumers have become global and have gained a greater exposure to well known international brands. The Indian consumer is an ‘aspirational shopper’ and is ready to be a part of this luxury market now, even though they might only start off with a small purchase, they are quick to graduate to larger purchases and higher amounts.

Date: Wednesday, November 07, 2007
Source: DNA India

Malls gain at the cost of Kirana stores

This Diwali shopping season, the lines at kirana stores have been shorter than normal, while they have been growing at stores in the mall. According to a dipstick survey of small stores in Mumbai, growth in sales has been much less this year, at less than 15% instead of the usual 30% growth in earlier years.

Kirana stores usually work on a 12% margin, while larger retailers sacrifice larger margins, even selling at –2% for certain promotions and schemes. Manufacturers are usually keen on working with large retail stores due to their higher volumes.

A large part of sales at kirana stores take place over the telephone, so any item that requires to be felt or seen, are relegated to the background. This year, many kirana stores have drastically reduced the number and type of dry fruit packs they keep, since most consumers are heading to larger retail stores to do their Diwali shopping.

Date: Thursday, November 08, 2007
Source: The Economic Times

Pre-Diwali sales give boost to retailers coffers

The last few days of the Diwali season has seen a huge surge in sales for several retail chains. Spencer’s Hyper in Mumbai has recorded sales of more then Rs. 1 crore during their pre-Diwali weekend sales, an increase of over 150% on other weekends. An estimated 17,000 visitors came to the store, which covers 36,000 sq ft.

According to Sumantra Banerjee, CEO of Spencer’s Retail, sales estimates are expected in increase 250% during the current week as well, with shoppers thronging the stores for last minute shopping. Usually, the store sees an increase of 50-100% during the special Diwali sales, but this year has been exceptional, due to higher purchase amounts.

Kishore Biyani, MD of Pantaloon Retail, said that the average spending per consumer had increased by 50% to around Rs. 1,200. The company has created a media campaign using print and television, and has received a great response, especially in north India.

Shopper’s Stop has recorded sales growth of over 25% during the festive season, according to Govind Shrikhande, CEO of Shopper’s Stop. Piramyd Retail’s food and grocery retail chain, TruMart has also seen a growth of 35% during Diwali sales, according to Upamanyu Bhattacharya, CEO of TruMart.

Date: Thursday, November 08, 2007
Source: Business Standard

Duty-free retailing face tough times

The duty-free shopping at Mumbai airport is facing troubling times as it is plagued with several issues that are keeping them from making money. The Mumbai duty free retailing space was awarded to Aldeasa and ITDC earlier this year, but has not been able to take off since the contract is being renegotiated. Operations were set to start from June this year, but since the companies have not formed a joint venture, no operations have taken place.

Aldeasa is a Spanish company and has operated duty free stores for over 30 years, running 183 stores at 40 airports in 14 countries. It is the fourth largest airport duty free retailing company in the world and recorded over $600 million of sales in 2005.

Date: Friday, November 09, 2007
Source: The Economic Times

Retailers end Q2 on a positive note

The quarter that ended in September 2007, was an exceptionally good one for most retailers, with huge growth in volumes for several companies. While most of the companies that are undergoing expansion, will show an improved performance in the future. Several new companies such as Koutons and Vishal Retail were listed on the stock markets this quarter as well.

While volumes increased, it was also the average selling price as well as an increase in the average transaction size that have increased over the past quarter as compared to last year. Shoppers’ Stop, for instance, reported an 11% increase in its average transaction size, which shows that consumers are willing to spend much higher amounts each time they make a purchase.

Other aspects that have affected retailers are the stabilizing of raw material costs, since most retailers are reducing their vendor base. This move has led to better standards of quality, reduction of stock shortages and better payment terms.

Date: Friday, November 09, 2007
Source: The Economic Times

Diwali brings in big business for retailers

Retailers recorded huge sales this Diwali season, with stores such as Big Bazaar in Lower Parel, Mumbai reaching sales of more than Rs. 200 crore on Diwali, an increase of 50% from sales during this period last year. According to a Pantaloon Retail spokesperson, “Sales have been very good and our target for this season, Rs. 800 crore, seems to be well within reach now.”

Smaller stores saw the gain this Diwali as well, with stores such as Milap Sarees, a well-known saree shop in Dadar, seeing a large number of customers on Diwali. Some of the best selling items this Diwali were, HD TVs, home theatre systems and designer sarees. According to Shahid Bhatti, a sales executive at Vijay Sales Opera House location, there have been sales of over 30 home theatre systems and 10 HD TVs per day.

Date: Saturday, November 10, 2007
Source: The Economic Times

Big players - plans and investments

More protests against Reliance Fresh outlets

Traders called an all out bandh to protest the opening of Reliance Fresh outlets in Bhubaneshwar, leading to all stores and businesses remaining closed on Wednesday. The bandh call was given by the Rajdhani Byabasai Jibika Bancho Samiti, who were protesting the government’s decision to allow Reliance Retail Ltd. (RRL) to be permitted to open outlets.

Date: Wednesday, November 07, 2007
Source: The Economic Times

Future Group and Planet Retail Holdings to part ways

The Future Group and Planet Retail Holdings will be ending their agreement once the Pantaloon Board approves it at the end of the year. Planet Retail Holdings is owned by Indonesian NRI businessman VP Sharma and was started by him in 1999, merging with Pantaloon Retail Holdings in 2005.

Once the de-merger takes place, Planet Sports, the footwear retailing company will be transferred to the Future Group, while Planet Retail will hold the lifestyle business. When the merger took place in 2005, it was said to be one of the most strategic joint ventures in the retail business, as VP Sharma had access to international firms such as Marks & Spencer, Next, Guess, Speedo and Puma, while Pantaloon had access to lots of prime lots of real estate as well as an in-depth knowledge of the local retail market.

Planet Sports is the licensing holder of brands such as Wilson, Converse, Speedo, Callaway and Prince. There are 45 Planet Sports stores in the country, earning revenue of Rs. 100 crore for the financial year that ended March 2007. The company has plans to expand their stores to 150 and increase revenue to Rs. 500 crore by the end of 2010.

Date: Wednesday, November 07, 2007
Source: The Economic Times

Next Retail buys Planet M

Next Retail, which is owned by Videocon’s Venugopal Dhoot, has bought out Planet M from Bennett, Coleman & Co. According to Arun Arora of the Times Group, “We were looking for a partner who shared our vision about the business and was not going to be merely a financial buyer. It gives me great pleasure to announce that we have now found a good home for Planet M, where excellent care will be taken of the brand, the employees and the growth of the business.”

Planet M has a conversion rate of 40%, with a compounded annual growth rate of 33% in the past four years. With 146 outlets in the country, of which 74 are owned by the company directly and 72 are satellite outlets.

Date: Wednesday, November 07, 2007
Source: The Economic Times

Reliance kicks off ‘Footprint’

Reliance Retail Ltd (RRL) launched its latest specialty store under the name Footprint, to sell footwear, handbags and accessories. The company opened two stores simultaneously in Hyderabad and Bangalore. Footprint stores will carry more than 25,000 products, with prices ranging from Rs. 300 to Rs. 4,000.

Besides all the major footwear and accessory brands from Europe and America, the company will also sell its own private label Footprint in its stores. The company is aiming to open 15 such stores in metros as well as mini-metros in the coming year, reaching 100 stores in tier I and tier II cities by the year 2010. It is estimated that these stores will contribute 4-5% to the total revenue of Reliance Retail.

Date: Thursday, November 08, 2007
Source: Business Standard

ITC keen on store-in-store concept

ITC’s robust growth of its Agri Business Division has led to the expansion of its Choupal Sagar and Fresh outlets but has also given a much-needed boost to branded horticultural produce. This has also given an opportunity to open up store-in-stores. According to S. Sivakumar, Chief Executive of ITC’s International Business Division, “We manage food and vegetable section at some of Food Bazaars and True Mart stores. In a way, this is forward integration of wholesale business.”

ITC has 15 Choupal Fresh outlets located in several major cities across the country, such as Hyderabad, Pune and Chandigarh. An estimated 50 of the new Choupal Fresh stores planned for the next few months would be store-in-stores. The company would also be increasing its Choupal Sagars from 20 to 100 in the next two years, some of which will be smaller versions of their stores. In all, the company plans to open 700 outlets in the next 7-10 years spread across the country.

Date: Saturday, November 10, 2007
Source: The Hindu Business Line

International

Marks & Spencer plans to invest big in India

UK based retailer Marks & Spencer announced that it will be investing 1.1 billion GBP (around Rs. 91 billion) in India as well as China. The company will be announcing its partner for a joint venture in India. According to Stuart Rose, M&S Chief Executive, 'To get to where we are going, we have to make investments. If I said we are cutting back on capital expenditure, you would say the business is going nowhere.'

He added that even though the short-term scenario looks uncertain, the company is sure that the changes that it has made in the past three years in restructuring and revitalizing the company will create a positive result. India is seen as a long-term opportunity for the company. The company aims to double the international revenue in the next five years.

Marks & Spencer will open its first wholly owned store in China in Shanghai by the end of this financial year. In the UK, the company will also be expanding and will add 15-20% more selling space over the next three to four years.

Date: Wednesday, November 07, 2007
Source: Yahoo News

Rothschild considering retail foray in India

The Rothschild Group is considering making its own individual foray into the retail sector in India, after it has reduced its stake in the joint venture with Bharti and is now planning to “make a long-term investment in small, mid-sized technology companies”. According to Lady Lynn de Rothschild, “We are keen on being active owners and operators with local partners and not simply be financial investors.... We are interested in being in India with the best international brands that are most committed to broad-based success in an India-specific way, as well as with the best Indian brands that aspire to achieve international stature.”

The Rothschilds were earlier part of a joint venture with Bharti under the name of FieldFresh, where both companies had an equal partnership, but Rothschild had recently reduced to just 9.9% once DelMonte Pacific bought part of the company. At the present, the company has not specified if it is to be tying up with any specific investment partner either Indian or international.

Date: Sunday, November 11, 2007
Source: Business Standard

Mattel asks India to open up retail sector

The largest toy firm of the US, Mattel Inc, has asked for the Indian retail sector to be opened up to foreign players as well, which would boost the $250 million domestic toy industry. According to Chris Willson-White, Vice President of Mattel Inc, "If the Indian government does not open up 100 per cent foreign direct investment in retail, then it will limit our ability to grow here." The company is interested in thinking of India as a long-term investment and sees India as an extremely viable and large market.

Mattel had earlier entered the Indian retail market in the 1980s via a joint venture agreement with Blowplast, where toys were sold under the name Leo-Mattel, but the venture was called off in the 1990s, when Mattel decided to go it alone for India. According to Willson-White, "The quality of Blowplast toys did not meet Mattel standards. That was one of the reasons we broke up the joint venture with Blowplast."

During the joint venture agreement, Mattel was sold in 110 cities, but on its own is only available in 40 cities, but is still managing to make a profit. Starting with only 50 toys when it first entered the country, the company now has a range of over 500 toys that it gets from companies in China, Thailand, Indonesia and Mexico.

Date: Sunday, November 11, 2007
Source: The Economic Times

Marks & Spencer to launch food and kids’ wear collections for Indian market

UK based departmental store chain, Marks & Spencer announced that it would be launching its food and kids’ wear categories in the Indian market, in an effort to boost its sales in the country. The first store to get these new categories will be the flagship store in Gurgaon, which is spread over 20,000 sq ft of space.

The food segment is one of the company’s major growth drivers across the world and therefore, it is expected to show significant results in the Indian market as well. The stores will stock a range of biscuits, confectionaries, groceries and special packs for the festive season, with prices ranging from Rs. 95 to Rs. 1,800.

In the kids’ wear category, garments will be priced from Rs. 395 to Rs. 3,000, which are slightly higher than local brands. The company believes that its garments offer something unique to its customers, who will be willing to pay a slightly higher price for both the brand name and the superior quality. The food and kids’ wear categories will be added to stores and will not have standalone stores just for these categories.

Date: Monday, November 12, 2007
Source: The Hindu Business Line

Regional Trends

Bangalore retail space drying up

As several retail majors are opening up larger stores in the Bangalore area, the city is facing a severe shortage of available retail space and retailers are getting aggressive in their approach to expand. The city of Bangalore currently has 12 malls under construction, which will add 4.6 million square feet of retail space in the city by end 2008. There are also a large number of smaller retail developments taking place besides malls.

Vacancy rates in the city have fallen to just 0.3% for the first 2 quarters of 2007, which is the lowest it has ever been in the city. The main drive for retail space is being spearheaded by categories such as groceries, fashion, sports, food and beverage and jewelry.

According to a report by Jones Lang LaSalle Meghraj, “The city is witnessing high demand and limited supply. This has seen rents climb higher, showing an increase of 7.1 per cent over first quarter levels. Average rental value in prime malls are around Rs. 150 per square feet per month. Coveted high streets in Jayanagar, C M H Road and 100 feet road in Indiranagar have witnessed a 15 per cent quarter-on-quarter increase in rental.”

In the last 2 quarters, there have been 3 new malls opening up in the city, one in CBD and two in the suburbs of the city. According to Mayank Saksena, the rush by both international and domestic retailers towards the city of Bangalore, show the confidence the companies have in the city. This demand for property in the city is expected to continue in the future as well.

Date: Saturday, November 10, 2007
Source: Business Standard

HR News

Retailers target women employees to combat attrition

Large format retailers are testing out a variety of models to combat high attrition rates. One such model is of hiring a higher number of women professionals that are more suited to retail jobs and are less likely to change jobs as easily as men. Companies such as Reliance Retail, Future Group, Shoppers’ Stop and RPG Retail are initiating several initiatives for hiring housewives, employee spouses and even having all-women stores.

According to Rituparna Chakravarty, TeamLease Services vice president, “With attrition levels shooting up to 70% for profiles like counter sales, retailers are trying out new strategies to bring in stability. It is here that they’ve hit the magic formula with women professionals who are found better suited for retail jobs across functions.”

Reliance Retail is going full steam in its initiative to hire employee spouses and are encouraging them to work full time, part time or just on call for Reliance Retail. According to an official with Reliance Retail, around 400 housewives are being trained to work at Reliance stores.

The Future Group will be launching stores that will be entirely operated by women employees and has tied up with Avtar, a Chennai based HR company to create flexi-career opportunities for women who are interested in working just 4 hours a day. The first such store will be opening in Kolkata.

At present, women employees make up 25-30% of the organized retail sector in the country. In general women employees in retail are known for their superior service standards and in understanding customers.

Date: Saturday, November 10, 2007
Source: The Economic Times

Home Furnishings

Nilkamal expects turnover of Rs. 600 crore in next three years

Nilkamal’s @home stores have been seeing success on all fronts and the company is now expecting to reach a turnover of Rs. 600 crore in the next three years and open 40 @home malls across the country by the 2010-11 financial year. The announcement was made by Manish Parekh, director of Nilkamal, at the opening of the second @home mall in Pune and the 10th one in India.

The company will be investing Rs. 75 crore for opening up 40 new @home malls in the country by 2010-11, some of which will be located in Mumbai, Surat, Thane and Coimbatore in the west and south. In the north, @home malls will be opening in Ghaziabad, Faridabad and Delhi. All locations will be of over 20,000 sq ft, so that there is adequate space for display of all items. Stores will be run by the company themselves, instead of being franchised out.

In the 2006-07 financial year, @home contributed Rs. 29 crore to the company’s overall business and in is expected to reach Rs. 70 crore in the current financial year. Most of the company’s merchandise comes from Southeast Asia and Europe and is channeled through its purchase office in China.

Date: Friday, November 09, 2007
Source: Business Standard