News and views about the Retail sector in India

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

Rampant protests has led to Reliance Retail deciding to pull out of the state of UP, which could lead to serious repercussions to the retail industry in other regions as well. Interestingly, only Reliance Retail has been targeted and other retailers are not being affected by this massive protest against Reliance Fresh stores.

- Chillibreeze Business Research Team

General Plans and Information

Assocham urges government to reopen Reliance Fresh stores in UP

Industry body Assocham is urging the UP government to reopen Reliance Fresh stores in the state and is also asking Reliance Industries Chairman Mukesh Ambani not to exit from the state in a rush, as it would have far wider repercussions. According to a statement released by Assocham, "The UP government should withdraw its earlier order of closing down Reliance-owned retail stores, otherwise the decision will be seen and interpreted as a clear case of selective victimization and will also have impact on future investment inflows." If the stores continue to remain closed, the issue becomes more politicized and complicated, which might lead to a more intense situation that there already is.

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

Retail FDI could come in the near future

Finance Minister P Chidambaram said that retail FDI could happen in the near future, especially once mom-n-pop stores realize that their jobs and livelihoods are not at risk from large retail companies. Speaking at the Wharton School of Business at the University of Pennsylvania, he added that "In course of time their fears will be allayed and it is only a matter of time before the policy is tweaked to allow FDI in retail." There has been a lot of opposition to allowing foreign retailers into the country, especially from small traders, middlemen who are being left out of the supply chains etc.

Date: Thursday, September 27, 2007
Source: Yahoo News

AP chief minister welcomes big retail in state

While large retail companies are facing the ire of local traders and state governments in several parts of the country, the Chief Minister of Andhra Pradesh, YSR Reddy, said that he welcomes all large retailers to operate stores in his state and that the past experience for farmers as well as consumers has been very positive. He added that organized retail only hurts the middlemen and brokers but have been beneficial to farmers and consumers alike.

On whether large retail firms kill local business, he said that local merchants always have their own ways of earning. Modern retail formats have been running in several southern states for several years without any form of protest from either local merchants of middlemen and it is only in the past year that these protests have started, mainly due to the high profile entry of Reliance in to the sector.

Date: Friday, September 28, 2007
Source: Business Standard

Mall owners and retailers go in for revenue sharing model

Mall developers have started to offer a revenue sharing model of operation to retailers in an effort to improve occupancy levels. The high cost of real estate has led to retailers cutting back on expansion as well as profits. Interestingly, retailers have been proposing a revenue sharing model of operation to mall developers for quite some time now, so that both parties can share both the profits as well as the risks.

DLF has proposed a review sharing agreement with retailers in its malls and has tied up with Westside for its malls, for which it will get a certain percentage or a minimum amount guarantee, whichever is the higher amount. The company does not have any plans to offer such an agreement to all retailers as yet though.

According to Ajay Khanna, DLF Retail senior executive director, “The revenue-sharing model can work only if mall developers get access to the books of retailers. There has to be a guarantee that numbers would not be manipulated. Unless that credibility is established, the revenue-sharing model may not take off.”

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

Kirana stores are still the most popular type of shops

While local merchants protest furiously against the entry of large scale retail companies, Euromonitor International has released a study that shows that local kirana stores are the number one source for shopping for the majority of consumers, and account for 98% of all grocery sales by value.

While there has been an impact on sales due to modern retail formats opening up, their contribution is rather negligible at the moment. There are 11 million kirana stores in the country and as a whole they are performing much better than the larger grocery stores due to the sheer number of stores.

According to Umesh Madhavan, senior research analyst at Euromonitor International, “Over the next five years, kirana stores are expected to continue to co-exist with modern grocery retailers as the total grocery retail pie expands, though the share of modern grocery formats within grocery retailing is expected to increase to 5 per cent by 2011.” One way for larger grocery stores to win customers from kirana stores is to open smaller versions of their stores in residential areas and followed similar systems such as free home delivery and credit systems that kirana stores offer.

Date: Monday, October 01, 2007
Source: Business Standard

Big players - plans and investments

Reliance Retail forced to shut shops in UP

Reliance Retail has been forced to shut its Reliance Fresh stores in UP due to violent protests and has fired 1,000 of its 2,800 employees in the state. The company has opened 50 stores in the state, but is not slowing down its expansion in other areas of the country. The protests against Reliance Fresh are not limited to the state of Uttar Pradesh alone; there have been protests in the state of Orissa as well, in its capital city of Bhubaneshwar.

Kerala on the other hand is banning all modern retail formats from its state and West Bengal is also causing opposition to the company’s retail outlets. While most opposition has been coming in the form of smaller traders who perceive that they will lose their businesses, consumers and farmers are happy with the way that modern retail formats function.

Date: Wednesday, September 26, 2007
Source: Yahoo News

Future Group plans to invest heavily in Brand Factory

The Future Group announced that it would be investing Rs. 750 crore in establishing its Brand Factory outlets across the country. There will be 50 new outlets that will be opened and will stock around 120 brands that will sell for 20-50% lower prices than regular stores. Brand Factory outlets will cover a wide range of items, for women, men, children, luggage, mobile phones, accessories, footwear and much more.

According to Rajesh Seth, Brand Factory Marketing Chief, the company will be setting up 50 outlets in the metros as well as grade A cities in the next three years. Each store will require an average investment of Rs. 15 crore and will be approximately 6,500 sq ft in size. At present there are 6 outlets, located in Bangalore, Ahmedabad, Pune, Hyderabad and Ghaziabad.

The stores stock well-known brand names such as Arrow, Louis Philippe, Levis, Titan, Lee, Pepe, Wrangler, Lee Cooper, Nike, Adidas, Liberty, Reebok and much more. It’s wide range of merchandise and its extremely attractive prices have proved to be a winning combination for shoppers, especially those who are brand conscious but want to save money as well. The majority of shoppers at Brand Factory are under the age of 30.

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

Reliance Fresh shuts down in UP

The anti-modern retail bandwagon got its first dose of reality with the closure of Reliance Fresh stores in the state. The company handed out termination letters to 1,000 of its employees in the state as it prepares to leave the state. The company announced that it would be shutting down all 20 of its stores in the state, located in Noida and Ghaziabad. According to an insider of Reliance Retail, the company is being forced to exit the state due to the “vindictive approach” of the government.

The company has approximately 2,800 employees in the state, of which 1,000 have been let go of and the balance are said to be absorbed by the company in other locations. Its stores in Lucknow and Varanasi also had to be shut down last month due to opposition by local merchants, but the company was able to operate its Noida and Ghaziabad stores as they fall in the NCR area till earlier this week.

Reliance has been forced to close its stores in Bhubhaneswar in Orissa as well last week due to protests by local traders. It is interesting to note that modern format retailers such as Future Group’s Food Bazaar, Spencer’s and Subhiksha have been functioning for several years without any kind of protests, but it is only since the announcement of RIL’s plans for their retail venture that local traders have started to protest against modern retail formats.

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

World Gold Council to help source gold for Reliance Retail and Pantaloon

In an effort to boost demand of retail gold in India, the World Gold Council announced that it would be helping top retailers such as Reliance Retail and Pantaloon to source and market its gold jewelry. According to Philip Olden Managing Director of WGC, "We are negotiating with Reliance Retail and Pantaloon to provide marketing programme and identify as well as source gold jewellery from manufacturers in India and abroad to Reliance Retail and Pantaloon."

WGC sees India as a critical market and wants to have collaborative initiatives that will further increase sales of gold products in the country. WGC hopes to not only increase sales of gold in India, but also to improve and transform the way that the gold market functions here. At present, it spends an estimated $16 million on marketing initiatives in the country and has 12 Indian partners, with major companies such as D’Dmas and Tanishq being the most prominent.

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

Future Group bets big on Home Solutions

The Future Group’s home division is expected to be the largest contributor of the group’s revenue for this financial year. Home Solutions Retail Ltd, under which Home Town and E-Zone operate, are growing at 70-90% and Home Town is expected to have a turnover of Rs. 200 crore this year, making it one of the most profitable divisions of the company.

Home Town is a home improvement store that stocks everything to do with products for the home, but is not really comparable to Ikea where consumers need to assemble products themselves. According to Jacob Mathew, founder and director of Idiom Design and Consulting, the in-house design company for Future Group, Home Town is targeted at women shoppers and follows a “Don’t-do-it-yourself” principle.

One of the winning features of Home Town is that they have an in-house financing option where consumers can take a loan at 0% interest rates. According to Rakesh Makkar, CEO Future Capital Holdings, about 30-40% of Home Town customers take this offer.

Date: Friday, September 28, 2007
Source: The Hindu Business Line

Reliance Retail readies its apparel division launch

Reliance Retail is expected to launch its new apparel stores in a few days and announce the name of its new venture. The first store is set to open in Gurgaon in October and will stock 22 in-house brands that its team of 76 designers has been working on, for women’s wear, men’s wear and kid’s wear.

Some of the new brands that are to be introduced include DNM, a denim brand, Net Play, a sportswear brand, X Code, a casual wear shirt brand, and kids wear brands such as Sparsz, Panda and Pogo. Its women’s wear section will offer brands such as Grip, Network and Enamor.

While competitors such as Future Group have tied up with international lingerie brands such as Etam, Reliance will be creating its own line of lingerie and has appointed an expatriate to head the lingerie operations.

The company has also formed agreements with well-known brand names such as Lee, Wrangler and John Players that would be supplying their own sub-brands that will sell exclusively in Reliance stores. Wrangler has created a special label called Wrangler X that will be only for Reliance stores, as has ethnic wear brand Biba.

After it’s first store in Gurgaon in October, additional stores will be opening in Delhi, Bangalore, Mumbai and Hyderabad. In total, there are expected to be 110 standalone stores for apparel. The company’s apparel business will be headed by Arun Deshmukh, who has joined after the exit of Sriram Srinavasan, who joined from Indian Terrain.

Date: Saturday, September 29, 2007
Source: Business Standard

Rollback of Reliance Fresh stores in UP, exposes political risks

Reliance Retail’s decision to shut down its stores in the entire state of UP and fire close to half of its employees is set to show the political leadership of the state of the loss of employment that will have negative effects for everyone involved. While no other retailer has backed up Reliance yet, nor has industry body Retailers Association of India due to reasons concerning law and order.

While some see Reliance’s decision to fire its employees and pull out of the state as just a strategic tactic, others feel that the government needs to set up some sort of zoning regulations as there are in Vietnam and Thailand, where modern retail formats are only permitted in certain areas and local mom-n-pop stores can operate in other areas. The fallout of this major withdrawal could have an impact on other larger retailers such as Bharti and the Birla Group, as both companies have major plans for the state of UP.

Date: Saturday, September 29, 2007
Source: The Economic Times

Reliance Fresh on shaky ground in UP, but other retailers still remain strong

Reliance Retail’s decision to pull out of Uttar Pradesh after small grocery store owners ransacked their stores, has led to the company letting go of about 1,000 of its employees and might lead to similar situations in Orissa, where there have been similar protests against Reliance Fresh stores in Bhubaneswar. The company has not been asked by the government to shut down as yet, but will not be opening any stores that could be the target of mobs.

While Raghu Pillai, Reliance Retail Chief Executive (operations and strategy) emphasizes that the rollback is only for the state of Uttar Pradesh; there have been protests against its stores in several other states as well. The company could also be forcing the UP government to take a fast decision on how modern retail will operate in the state by its sudden withdrawal.

Interestingly, the protests have been aimed not just at large retailers but specifically at Reliance Retail since it is part of the largest business house in the country. Other retailers such as Subhiksha and Big Bazaar are continuing with their plans to open stores in UP. Subhiksha plans to have a total of 120 stores in the state of which 60 outlets are already open. Big Bazaar will be opening four stores in the coming months to add to the 6 existing stores in the state.

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

Reliance Retail fires 400 employees in West Bengal

Reliance Retail has let go of 400 employees from its operations in West Bengal, due to not being able to open its stores, since the venture has received stiff opposition from both political parties and local merchants in the state. According to a Reliance Retail executive, another 300 employees will also be fired in the near future.

After its decision to fire 1000 of its employees in the state of UP, Reliance Retail has had no option but to let go of its employees. In West Bengal, the company had a total of 800 employees for its Reliance Fresh outlets. Reliance Retail had planned an investment of Rs. 2,000 crore in the state to develop an agri-retail network, which has also faced stiff opposition.

Date: Monday, October 01, 2007
Source: Business Standard

International

Future Group to introduce Replay to India

The Future Group announced that it would be launching the Replay brand in India next month. The first store will be opened in Delhi, after which stores in Mumbai and Bangalore will open. According to Rakesh Biyani, CEO of Future Retail, the group has signed an agreement with Fashion Box, the parent company of Replay, for it to become the distribution franchisee for the country.

Replay will be competing with international brands such as Diesel in India and the Future Group plans to spend around Rs. 3 crore to create each store. There are 12 such standalone stores planned for the next three years.

One of its group companies, Planet Retail operates franchises of several international brands such as Marks & Spencers, Next and Guess in the country and has also tied up with US office supply giant Staples, UK based Lee Cooper and French lingerie company Etam. Another big launch will be of Debenhams that opens in the country next month, with two stores in Delhi.

Date: Saturday, September 29, 2007
Source: Business Standard

Rural Retail

Infrastructure crucial for success of rural retail

According to a study done by CII and YES Bank, the government and private firms will have to focus on building the infrastructure in order to tap the country’s rural population, which accounts for $100 billion in spending. Some of the challenges of rural retail have been a sub-standard infrastructure, seasonality of demand, complexity of buying behavior and extreme sensitivity to price, that all companies need to overcome to be successful in the rural sector.

The report “Rural Retail: The next phase in retailing” also highlights that growth in this sector would lead to several positive implications, such as employment, revenue and taxes, and reduce rural migration. The rural market has been a target for several companies, but so far there has been no large-scale penetration of this huge market.

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

FMCG

FMCG firms team up with kirana stores

Local kirana stores have found a formidable ally in large FMCG companies such as Hindustan Unilever, Marico and Dabur who are creating new brands especially for mom-n-pop stores and are also giving them similar deals as they give large retailers. Kirana stores in return display these products prominently, which has shown a 20% increase in sales for certain products.

Hindustan Lever has tied up with Super Value Store, Dabur has tied up with Parivaar and Marico has tied up with Mera. The layouts in certain stores have also been changed, so that consumers have direct access to the products just as in modern retail outlets. Market research has shown that 25-40% of consumers select their brands based on point of sale displays or by special promotions, showing just how important this aspect is to FMCG companies, for whom an estimated 95% of sales come from small kirana shops.

According to Ishmeet Singh, general manager for customer marketing with Hindustan Lever, "The purpose of this programme is to activate the general trade channel keeping shopper behaviour in mind.” Using such schemes will ensure that smaller retailers have access to the same benefits that large retail stores have.

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

Pharma

Pharmacists set to organized retail business

Pharmacists from across the country will be creating a more cohesive retail business to prevent MNCs from entering the domestic pharma market. According to AN Mohan, President of the All India Organization of Chemists and Druggists (AIOCD), the pharma wholesale business is organized and they are making all efforts to bring the same level of organization to the retail business as well.

The organization will be launching its own retail chain that will keep the multinationals and the large retailers from entering the industry. There are 550,000 chemists and druggists who are covered by the organization and have joined together to form a parent company, called All Indian Origin Chemists and Druggists Limited which will have subsidiaries in 22 states.

Date: Saturday, September 29, 2007
Source: The Economic Times

Jewelry & Watches

Titan remains focused on the mid-priced segment

After celebrating 20 years in the business, Titan still remains strong on its core segment, namely the mid-priced shopper. The company has three main sectors, jewelry, watches and eyewear, of which 60% of its total revenue comes from jewelry. The sectors are quite different as watches have high margins, jewelry has a low margin and eyewear is a completely new sector and is quite small right now.

Date: Monday, October 01, 2007
Source: DNA India