News and views about the Retail sector in India

Weekly news updates on trends and happenings in the Indian Retail Industry

While the retail sector is expanding at a fast pace, retail companies are slowing down on expansion plans due to high cost of rentals. Will the real estate market stabilize enough for retailers to expand once again?

- Chillibreeze Business Research Team

General Plans and Information
Big players - plans and investments
International
HR News
Sector specific

General Plans and Information

Political opposition to retail short-term
Retailers everywhere have been surprised at the opposition to modern retail formats and suggest that this is only a short-term phase. R Subramaniam, managing director of the Subhiksha retail chain, will not be slowing down his expansion and opening 120 new stores in the state of Uttar Pradesh. Despite Reliance Retail having faced so many protests in Jharkand, Uttar Pradesh and West Bengal, the company still remains as positive about opening stores in the states.

The recent political opposition has been coming from politicians at the local level and not from the central government, so it’s not a question about “ideology”. Another interesting factor is that while several large retailers such as Subhiksha, Spencer’s and Food Bazaar have been operation for several years without any protests, it is only after the high profile entry of Reliance Retail that there have protests of these kinds.

Consumers by and large, are all happy with the entry of large retail firms in the food and grocery segment, as it saves money as well as time for shoppers. In some cases, the prices are lower by only a few paise, so the main reason for shopping at these stores is not saving money, but for the experience and atmosphere of it. Larger stores are also able to stock products in bulk and have a larger variety of items, another winning combination for consumers.
Date: Wednesday, September 19, 2007
Source: Business Standard

High rentals leading to slower expansion of fashion brands
The sky rocketing rentals are causing fashion brands to slow down on their expansion plans. Several newly opened stores are still working to cover their costs and there are likely to be many who will not make it past the first few months of next year.

With rentals accounting for 25-30% of the cost base for fashion brands, and 45-50% for standalone stores, the chances of being successful are rapidly falling for many retail stores. Single brand fashion stores usually have a 15% rental cost in the international arena, making Indian fashion retail one of the most expensive propositions in the world.

According to Sailesh Chaturvedi, CEO for Tommy Hilfiger in India, there has been an indication that rental prices will be slowing down which should come into effect in the next 4-6 months. Arvind Mills is one company that is working on getting the right mix of low cost street stores with expensive high street stores, to balance the rental cost and store sales.
Date: Wednesday, September 19, 2007
Source: The Economic Times

AP govt. supports Kerala’s anti-retail stance
The Andhra Pradesh government announced that it fully supports Kerala’s anti-modern retail stance. The minister for food and civil supplies, KV Krishna Reddy, said that the efforts of the government of Kerala were “worth emulating” and that the AP government would “extend all support to take the campaign forward”.

He also added that AP would open outlets on the lines of Supplco in Kerala to fight the retail monopoly giants. The AP government also plans to start a scheme where prices of pharmaceutical drugs will be available at 10-40% lower prices than even at Supplyco in Kerala.
Date: Friday, September 21, 2007
Source: The Hindu Business Line

Government urges states not to “politicize retail”
The Union Minister for Food Processing Subodh Kant Sahai said that state governments should refrain from politicizing organized retail, as it will ultimately affect both farmers and consumers. There have been protests against organized retail in several states in the past few months, which are going to hurt the interests of both parties.

He asked large retail firms to include smaller shop-keepers and middle men like Mandi commission agents as part of their supply chain, in an effort to make everyone profit from this new format. Sahai stressed on the fact that the retail sector has the potential to be the driver of growth for farmers, as their bargaining power will rise as “demand-driven agriculture picks up”.
Date: Friday, September 21, 2007
Source: The Economic Times

High rentals slowing retail expansion
The rapidly increasing rentals are putting a dampener of expansion plans for Pantaloon. According to Mayur Toshniwal, vice president and business head for the northern region for Pantaloon Retail, the company’s expansion plans for new cities is facing problems as there are very few good properties available at good rental prices.

According to a study by Jones Lang LaSalle, rentals in prime locations in Indian metro’s rose the fastest in the Asia Pacific region, with Delhi rentals increasing by 40% from a year before and Hyderabad rentals increasing by 76.5% over the previous year.

The high cost of real estate is also reducing profit margins according to S Ranganathan, chief of operations for Shoppers Stop. He estimates that there is likely to be shortage of retail space to the tune of 40 million sq ft in the next five years. Despite the high costs of real estate, there are new entrants to the retail segment constantly, showing the enormous potential of the industry.
Date: Friday, September 21, 2007
Source: Reuters

Big players - plans and investments

Trent looks to tie up with 3-4 premier apparel brands
Tata Group’s retail venture Trent is looking to tie up with 3-4 premium brands so that it is able to make more of an impact in the high-end segment. Its latest tie up has been with the Benetton Group’s Sisley brand for which it will be the master franchise for India for the next five years.

According to Noel Tata, managing director of Trent, the company is very serious about participating in the rapidly expanding premium segment in the country. It has already made an impact in the mid-market segment with its Westside and Landmark brands and in the mass-market segment with its Star Bazaar hypermarket division.
Date: Wednesday, September 19, 2007
Source: Business Standard

DLF holds talks with international luxury brands
India’s largest real estate group DLF announced that it has been holding talks with some of the world’s best-known luxury brands and hope to bring in some of them to India. While there have been news reports about the company’s impending tie-up with Carrefour, a company source said that DLF will first tie up with luxury retailers and only then think about entering the supermarket business.

The company has held talks with Giorgio Armani for which it is likely to have a franchise agreement, and with Dolce and Gabbana with which it will have a 51:49 joint venture. Pia Singh will head DLF’s retail business.
Date: Wednesday, September 19, 2007
Source; The Economic Times

Reliance Retail takes a Rs. 11 crore loss
Reliance Industries Limited (RIL) announced that its retail division, Reliance Retail posted a loss of Rs. 10.9 crore for its first year of operations, on a total income of Rs. 259.85 crore. The company opened its first outlet in Hyderabad in December 2006 and has been opening stores across the country since then, plans to have 5,000 stores by 2009 covering a variety of formats.

So far, Reliance Retail has more than 300 Reliance Fresh outlets and have also opening their first consumer electronics store Reliance Digital and also their first hypermarket Reliance Mart, both of which have received a positive response from customers.

The company also launched its B2B format called Ranger Farms to cater to small retailers. Reliance Retail’s in-house brand Reliance Select has been received well by consumers at its Reliance Fresh stores, leading the company to invest more in in-house labels for food as well as for other segments.
Date: Wednesday, September 19, 2007
Source: The Economic Times

Future Brands to develop private labels
Pantaloon Retail’s subsidiary Future Brands will be developing private labels and turning them into “strong brands”, which will eventually be moved outside the company’s retail stores to standalone stores.

The company has about 15 such labels already in a variety of segments, such as John Miller, Bare Jeans and Buffalo in apparel, Tasty Treat in snacks, Dreamline in the home segment and Koryo in consumer durables. These private labels already contribute to 10-12% of the group’s sales, showing their strong potential for further growth or Rs. 600 crore last year.

According to Santosh Desai, MD and CEO of Future Brands, most consumers are still not familiar with brands and the company is making all efforts to push their own brands to them via mainstream advertising and making a connection with consumers.

The first of the brands that will get a big push will be John Miller, which is one of their best selling brands. The company hopes to convert all of its 15 labels into strong and effective brands in their own right that can sustain standalone stores in the near future.
Date: Friday, September 21, 2007
Source: The Hindu Business Line

Madura Garments to expand its brand
Madura Garments announced that it would be expanding its sub brands and extensions to get a larger share of the branded apparel segment, which is worth Rs. 4,000 crore at present and likely to reach Rs. 10,300 by the year 2011. The company recently launched Peter England Elite as a sub brand of its Peter England brand, which is one of its most popular brands.

According to Vikram Rao, business head of the textiles and apparel business for the Aditya Birla Group, the company is moving from the wholesale model to a retail model and is also changing its positioning to a lifestyle focus. The company aims for the Peter England brand to grow to a Rs. 500 crore brand in the next three years.

While Peter England caters to the mid-price segment, the new brand Peter England Elite will cater to the sub-premium segment and will be launched in major cities such as Mumbai, Delhi, Bangalore, Pune and Nagpur. At present, the company sells the Peter England brand from 2000 multi-brand outlets, 250 exclusive brand outlets and 30 company owned stores.
Date: Friday, September 21, 2007
Source: Business Standard

Reliance Retail to open its first apparel store
Reliance Retail will debut its much anticipated apparel store later this month in New Delhi and will open another 10 stores by the end of the year. These stores will stock around 4,000 products covering 94 brands in men’s, women’s and kid’s wear, all of which have been manufactured exclusively for Reliance.

With 211 designers and a large number of tie ups with apparel manufacturers for its merchandise, Reliance Retail seems to be all set for a winning formula of offering something that is not available anywhere else and at great prices as well.

Since it’s highly publicized entry into retail, Reliance has nine product formats and will also be launching Reliance Footwear, Reliance Lifestyle and Reliance Auto. The company seems to be covering all segments of retail and is building its stock of private labels to increase profit margins and decrease dependence on outside brands.
Date: Friday, September 21, 2007
Source: Business Standard

Aditya Birla Group looks to create specialty store for men
The Aditya Birla Group announced that it would be opening a specialty store for men on the high street by next year. The brand will be in the premium segment and store sizes will range from 10,000-15,000 sq ft in size. No official name has been given to these stores as yet and they have been named MLS for the time being. These stores will stock international brands for fashion and accessories and will start late next year.

According to Vikram Rao, AVB Group’s business director for textiles and apparels, the company has hired George Santacruz, the former president of Tommy Hilfiger in the Bahamas, to head the project. The company has already started finding locations and has selection one store in Bangalore’s Vittal Mallaya Road for this venture.
Date: Saturday, September 22, 2007
Source: The Economic Times

Reliance Retail to launch Reliance Lifestyle
The roll-outs and launches continue, this time it is the announcement of Reliance Lifestyle, that will cover the entire gamut of lifestyle products such as cosmetics, watches, home accessories, books, optics, photography and much more. The company will be setting up 123 Reliance Lifestyle stores covering an area of 21,000-28,000 sq ft each.

Stores will be located in major cities such as Delhi, Hyderabad, Bangalore and Mumbai initially and in tier I and tier II cities subsequently. Surender Gnanaoliyu has been appointed as the vice president for the lifestyle business merchandising and will handle all lifestyle store operation in the country.

Products will be sourced from major brands such as Procter & Gamble, Breitling, Perryroche, Kolber etc, but the company will also have it’s own private labels as well. ORG Gfk estimates that the market for lifestyle stores is increasing by 14% each year, and with limited players in the market as yet, the segment has great potential for growth.
Date: Saturday, September 22, 2007
Source: DNA India

International

LVMH to invest $500-600 million in India
Louis Vuitton Moet Hennessy (LVMH) announced that it would be making an investment of $500-600 million in a private equity fund in India for its brands and retail stores. Ravi Thakran LVMH President for South, South-East and West Asia operations, said that the group was also in talks with real estate developers such as DLF to acquire land for developing luxury destinations spas and entertainment areas.

The private equity fund is to be launched by L Capital Partners of LVMH in 12 months. The company hopes to open another 25 outlets in the country as well, Sephora, LVMH’s beauty and cosmetics brand is likely to open in India by next year.
Date: Sunday, September 23, 2007
Source: The Economic Times

HR News

Bharti Retail announces new appointments
Bharti Retail announced the appointment of its large formats and HR department. Rajeev Krishnan has been appointed as the head of large formats and comes from Target Corporation, the second largest retail chain in the US, where he worked at various levels for 18 years. The second major appointment was of Hari Abburi who is the new head of HR, and was earlier with Baxter (India and South Asia) as its HR director. He has also worked with GE, Coca Cola and Arthur Anderson’s Human Resource Consulting previously.
Date: Friday, September 21, 2007
Source: The Economic Times

Organized retail to create 2 million jobs in next 2 years
The retail industry is growing at a fast clip of 30% annually and is expected to provide up to 2 million jobs over the next two years. According to a study conducted by Elixir Web Solutions, the growth of the retail sector will translate into employment for millions of workers. An interesting insight to the study is that more than half of the workers in organized retail will be women.

At present the Indian retail industry employs over 21 million people and consists of 13% of the GDP. The retail industry in India is valued at $300 billion and likely to grow to $427 billion by the year 2010, becoming the second largest employer in the country after only agriculture.

The key factor of the retail industry is to be maintaining quality standards that will lead to companies to hire the best and put a lot of emphasis on training employees.

While it is the young who are pushing the retail industry forward due to higher amounts of spending power, a rise in the standard of living and a larger number of working women, challenges such as sky-rocketing real estate costs, dearth of skilled retail professionals and saturated merchandise supply lines need to be taken care of.
Date: Saturday, September 22, 2007
Source: The Economic Times

Rural Retail

Indian Oil and Dabur to tie up for rural retail
The Indian Oil Corporation and consumer products manufacturer Dabur will be entering into a retail agreement to open stores in the rural areas. While the agreement is yet to be signed, both companies are showing considerable interest in the mutual benefit from the tie up.

According to AMK Sinha, executive director of retail sales for IOC, the company is keen on expanding sales from beyond the fuel segment and is keen to increase FMCG items to attract rural women customers. Dabur, on the other hand, is keen to expand its base to the rural sector, where it already has a considerable following.

The tie up will give Dabur to sell its products across 1,000 additional outlets in the rural areas, which is sure to increase its sales significantly, as about half of Dabur’s sales come from the rural areas.
Date: Thursday, September 20, 2007
Source: Nasdaq.com

Sector specific

Apparel & Footwear

Benetton opens mega store in Chandigarh
Benetton opened its largest mega store in Chandigarh and announced that it will be opening 30 new stores across the country this year, making its tally to 170 stores in the country by the end of the year. The company, which has always targeted the metro cities, is now very keen on tier II cities as well.

The new store in Chandigarh covers a total area of 1,100 sq mt and offers the complete range of clothing and accessories for men, women and children. There are seven stores in the state of Punjab and three in the city of Chandigarh. New stores will be coming up in Delhi, Bangalore and Kolkata.

According to Alessandro Benetton, Executive Deputy Chairman for the Benetton Group, the company sees India as the fifth most important market and thus an important potential for the company. From its operations in India, Benetton had a turnover of $30 million and hopes to achieve $55 million this year, due to additional stores opening up.
Date: Friday, September 21, 2007
Source: Business Standard

Provogue to open 40 additional outlets this year
One of the most popular apparel brands in the country, Provogue announced that it will be opening 40 new stores this year and will also be introducing new categories in its stores. A new store is set to open every ten days, with an investment of Rs. 500,000-600,000 each.

Provogue will also be expanding its discount format stores Promart in tier II and tier III cities. At present, there are two Promart stores, one in Ahmedabad and one in Indore. Four new Promart stores are being planned by the end of this financial year.

The company also introduced its bed and linen segment as a pilot project at its Mumbai stores and plans to add more categories, especially those that compliment its products and meet the requirements of its clients. Currently, there are 116 Provogue stores in 61 cities.
Date: Friday, September 21, 2007
Source: Business Standard

Home Furnishings

Nilkamal to expand its retail business
Nilkamal’s @home brand will be expanding in a major scale over the next few years. The company started two years back and expects a turnover of Rs. 70 crore from its retail business this financial year. By the year 2010, it is aiming for a turnover of Rs. 750 crore.

The company currently has nine stores in operation at present and plans to have 38 operational stores by 2010. Stores are located in Mumbai, Pune, Bangalore, Hyderabad, Nasik, Amhedabad and Chennai. New stores will be opening in Coimbatore, Ghaziabad, Faridabad, Surat, Vadodrara, Thane and an additional store in Pune.

The latest store to open is in Chennai, which is also its largest so far, and is spread over 33,000 sq ft. About 25% of total stocks are home accessories with the rest being furniture. The company has also tied up with a Mumbai based modular kitchen, Sleek for its stores.
Date: Friday, September 21, 2007
Source: The Hindu Business Line

Food & Grocery

Vishal Retail to open quick service restaurants
Retailers are trying their hand at a variety of formats these days, and Vishal Retail is all set to open a chain of 10,000 quick service restaurants across the world, that will stock Indian snacks and will be generally be modeled after McDonalds.

There will also be some of these in destination areas that will combine retail and entertainment that the company establishes on the highways in India. So far, 25 of such projects are being planned, which will cover 10-20 acres and will have a full range of retail stores, spas and water parks.

In its main line of business, Vishal Retail will also be opening 100 new stores in the next few months with an investment of Rs. 200 crore. Upcoming stores will be both large format, covering 25,000-30,000 sq ft and small format, covering 5,000 sq ft of space. Vishal Retail has 54 stores at present in 42 cities, covering 140,000 sq ft of space.
Date: Saturday, September 22, 2007
Source: Business Standard