Discount sales picking up in Indian retail

Indian customers are getting better and better deals from organized retail as competition heats up in the discount retail segment. Analysts think the lower prices are a correction long overdue while retailers bemoan high rentals and overheads. A must read is the article on how Indian retailers are not customer friendly enough.

-Chillibreeze Business Research Team

General Plans and Information

Retail giants focus on discounts to perk up sales

Inflation-hit consumers are steering clear of discretionary spends to gravitate towards value formats and discount stores to stretch their buying power. The slowdown of growth rates has clipped sales in several high-priced categories like mobiles and apparel by over 20-25 per cent (industry estimates) in the past few months while spends on basic food and home items have grown by over 25 per cent, as per AC Nielsen estimates.

Bargain hunters are flocking to modern ‘value retail’ formats like Big Bazaar, Food Bazaar, Subhiksha and More, which have intensified their bargains and discount offers to encourage consumption. Modern retailers are now pushing private labels (lesser priced in-house brands) even with consumers opting for cheaper brands.

“Consumers are demanding higher benefits for their spends in inflationary times. We are now pushing the expansion of our value formats to gear up for the challenging times ahead,” said Kishore Biyani of Future Group. The retail group opened over four Big Bazaars in a single day last week to gear up for its massive bargain offerings on 15 August called ‘Maha Bachat Ke Paanch Din’.

Spends on top household categories rose 25 per cent during January-May 2008 with categories like refined edible oils, toothpaste, washing powder, biscuits, toilet soaps, beverages, packaged atta, breakfast cereals, shampoo and others recording an average growth of 25 per cent plus during the period.

KSA Technopak CEO Arvind Singhal said: “I do not think that the impact on purchases is on account of a slowdown. Some of the discretionary products were ridiculously over-priced by retailers and companies are now being forced to correct that. India’s growth rate continues to be one of the highest in absolute numbers, only lower than the previous years. Corporates are under pressure from value-seeking consumers and real-time competition. Consumer trends are merely a reflection of the fact that companies are focused more on capacity creation rather than demand creation.”

Industry observers said that consumer sentiments have been hit owing to inflation, rising borrowing costs, challenging business environment and the fact that salaries will not keep pace with rising costs. Discount formats benefit more during recession and a weak economy with their higher-priced counterparts noting a significant dip in sales. “Discretionary spends are clearly getting to be a challenge for most low and middle income shoppers and even affluent consumers are seeking higher worth for their rupee,” said Subhiksha managing director R Subramanyan.

Retailers are cross-subsidising discounts offered on basic purchases by hiking margins on the discretionary spends. “We have also been scaling down costs in our system to be able to offer value. Given our scale, we are in a position to negotiate better with consumer companies to get the best rate for consumers,” said Food Bazaar CEO Sadashiv Nayak.

Consumers are postponing purchases of big ticket and lifestyle items like durables, apparel, mobiles and accessories in recent times forcing companies to announce pre-season discounts and price cuts. Retailers, however, criticise FMCG companies resorting to what they describe as tactical moves to tackle rising costs and consumer purchases. “Several companies continue to hike prices or lower the grammage or quantity to manage costs. We see this move hurting long-term demand since consumers tend to switch to more competitive regional and lower-priced brands,” sources said

Retail analysts say consumer trends in India mirror global trends where more purchases are taking place at value formats like Walmart in the US which is also reeling under recession and inflation. Value retailers are expected to benefit from an economic slump as shoppers head to discount stores for a better deal.

August 11, 2008
Source: Economic Times

Indian retail sector fails consumer-friendly test

Despite global brands flooding retail chains across India and domestic players going an extra mile to woo consumers, the Indian retail sector is yet to provide its clients the complete retail experience. In what may come as a revelation to store designers, the otherwise untiring women shoppers are possibly not spending enough time and money during their visit to these outlets.

Crammed outlets, unpleasant mannequins and even lack of seating arrangement to make their husbands comfortable as they go about apparel bingeing are hampering the great Indian retail story, thanks to the unpleasant retail experience, points out a survey by the apparel design and merchandising department of National Institute of Design (NID).

Well, when it comes to being consumer-friendly, retail stores in our country have still have a long way to go. Even some of the leading retail stores fail to take into account customers’ preferences, mainly as they are yet to get down to the concept of ‘retail designing’.

While this is true for almost all major retail stores in the country, some ethnic wear stores surveyed by the final year NID students of the apparel design and merchandising department in the three cities of Ahmedabad, Mumbai and Pune had this to reveal.

The survey concludes that retail stores face huge gaps in modern retail design approach, ranging from the selection of location to services offered to the customers.

Based on consumer feedback , the survey also highlights aspects that retail stores should consider in order to increase footfalls and enhance consumers’ shopping experience.

On parameters ranging from accessibility, location, window display, facade, staff, packaging, decorative & props, ambience and interiors, retail stores-and in this particular case, exclusive branded stores for ethnic wear-do not consider the likes and dislikes of their target consumers.

“Retail stores are yet to understand the value of retail design and are oblivious of the consumer-centric atmosphere. Retail design doesn’t only include interiors but factors like where the store is located, which very much determines consumers’ attraction to the store,” said NID faculty member Somesh Singh under whose supervision the research was carried out.

August 9, 2008
Source: Economic Times

Big players - plans and investments

Reliance Retail to bring UK's Hamleys toys to India

Reliance Retail has entered into an exclusive pan India franchise arrangement with the UK-based Hamleys, the world’s most famous toy retailer, to bring the latter’s toys to India.

This arrangement is aimed at combining the distribution dominance and scale of Reliance Retail in FMCG, food, electronics, consumer durables, apparel, footwear, lifestyle and home improvement categories, and Hamleys’ world-class toy retailing experience, said a company release here.

Hamleys brings to this partnership its skills and capabilities of creating a store experience, training its staff to deliver this experience, designing stores and developing private label products to complement the brands. Reliance has the reputation of building the network and running its store operations nationwide efficiently.

The company is set to open two flagship stores in Mumbai and New Delhi in 2009. This will be followed by a regional expansion, across India, over the next few years.

Reliance Retail Ltd, a division of Reliance Industries Ltd, will be the partner in one of the biggest international expansions by the old iconic toy retailer, approaching its 250th anniversary in 2010. Reliance Retail will replicate the magical and experiential elements of Hamleys famous flagship store on London’s Regent Street and will promise the ultimate treat for the entire family. This will be seen with the combination of strengths that both partners bring to the country.

The stores will sell a wide range of toys from the much loved brands to more traditional and nostalgic toys, as well as quirky and unusual treasures. These will include Hamleys own brand range, renowned for exceptional quality and play value. Toy demonstrators and magicians will bring the store to life as well as well as a host of events and activities.

The Indian toys and games market is estimated at approximately Rs 2,500 crore and has been handicapped by lack of significant national brands and the availability of quality retail stores. Being a young nation, there is an opportunity to grow this market by providing a wide range of national and international brands and products under one roof and creating a store experience which is memorable and unique.

Bijou Kurien, president & CEO, Reliance Lifestyle Holdings Pvt Ltd, said, “Our partnership with Hamleys heralds the beginning of a new era in the evolution of the toy market in India. We hope to bring world class toy stores which will capture the imagination and attention of children in India. We are tremendously excited about this venture and our decision to partner with Hamleys.”

August 12, 2008
Source: Economic Times

Luxury & Lifestyle Retail

Ferragamo, Piquadro set for an entry

The Netherlands-based Ferragamo International B V (FIBV) and Italian designer leather goods brand Piquadro are all set to make an entry into India to tap the country’s $3.5 billion premium lifestyle market. Both the international brands are expected to take the single-brand retailing route to expand their footprints in the country.

The two designer brands have received foreign direct investment (FDI) clearance from the Foreign Investment Promotion Board (FIPB).

Media reports had earlier said that Ferragamo was pursuing a joint venture (JV) with real estate major DLF Ltd’s subsidiary Nelia Retail Pvt Ltd. However, details about Piquadro’s Indian JV partner could not be ascertained as the company’s chairman and CEO Marco Palmieri could not be reached for comments. DLF officials were also not available for comments.

Ferragamo will be investing Rs 30 crore and Piquadro Rs 1.53 crore for buying a 51% stake each in their respective Indian JV companies.

Ferragamo will set up Salvatore Ferragamo stores in DLF’s luxury retail malls that are coming up across the country. These stores will retail Salvatore Ferragamo brand of premium clothing and accessories. The Gurgaon store will be launched at the DLF Emporio mall, which is under construction.

Ferragamo currently has one store in Mumbai. The company is said to be planning five new stores in Delhi, Bangalore and Mumbai.

Piquadro operates its retail chain in 50 countries. Its leather product range includes professional bags and briefcases for men and women, travel items, planners, portfolios, small sundry items and a wide array of accessories.

August 8, 2008
Source: DNA

Health & Wellness

UK's Boots ties up with Reliance Retail

World’s leading pharma and beauty retailer, Boots Company, has signed a Bharti-Wal-Mart type agreement with Reliance Retail (RRL) to enter India’s health and wellness market. The two have decided to get into an equal joint venture for wholesale business and plan to operate front-end stores through a franchisee agreement.

The front-end stores may be launched under the Boots brand. The deal may also see Boots and Reliance launch pharmacies, high-street health & beauty destination stores and healthcare centres.

ET first reported the discussions between the two partners on December 5, 2007. Private equity giant KKR-controlled UK major Boots is now called Alliance Boots, following its merger with Alliance UniChem.

The deal with RRL marks Boots’ return to India after it exited a joint venture with Nicholas Piramal, following the worldwide sale of its OTC medicines business to Reckitt Benckiser in 2005.

RRL has gone for the dual model, joint venture in the back-end and franchisee in the front-end, as it was the only option wherein the foreign partner could have shown commitment through investments, sources added. Globally, Boots sells thousands of beauty and healthcare products under its own label. It also houses a host of brands owned by other companies.

However, in India, Boots could not have invested in the proposed front-end company which will sell directly to consumers, the way Marks & Spencer has done with RRL. The reason is that Boots sells multiple brands and Indian laws don’t allow foreign direct investment (FDI) in direct-to-consumer retail companies that sell more than one brand.

It, however, allows such foreign companies to invest in Indian companies that sell products under a single brand. Marks & Spencer sells products under its own label.

The other option for Boots was to get only into a franchisee agreement with RRL, but it seems the Indian company was not in favour of this model.

Being a new player in the tricky business of retail, it first wants to learn from the foreign partner the expertise and technical know-how of running a successful retail company. Further, Reliance felt that it required the backing of a strong brand and its experience in a specialised vertical like beauty and healthcare, sources added.

A joint venture in the wholesale business, supplying to the retail outlets, was thought to be necessary as Reliance, like most other new entrants in organised retail, faces maximum hurdles in procuring thousands of stock-keeping units (SKUs) for an expanding network of front-end stores.

Boots, UK’s biggest pharmacy chain, operates around 3,100 dispensing outlets world-wide. Its international operations are spread across Norway, Netherlands, Thailand and Switzerland. In the UK, it also runs health and beauty services across high streets and edge-of-the-city centres.

Interestingly, Boots also has a significant eye-care business, apart from manufacturing and marketing health and consumer products under Boots, No 7 and Soltan brands.

Reliance currently operates a few wellness stores offering pharma, beauty and healthcare products across allopathic, ayurvedic and homeopathic streams. The stores also have OTC health foods, self-help medical and fitness equipment in its portfolio. The wellness vertical at Reliance Retail is spearheaded by Ninu Khanna, who also looks after the company’s FMCG business.

Alliance Boots was formed through the merger of Boots Company with Alliance UniChem. However, a private equity consortium, led by KKR, acquired Alliance Boots earlier this year for around $22 billion. It was the first FTSE 100 Index company to be acquired by a private equity fund.

August 6, 2008
Source: Economic Times

Telecom Retail

Tata Indicom plans 100 low-cost retail outlets in AP

Tata Indicom is planning to set up at least 100 low-cost retail outlets in the rural areas and small towns of Andhra Pradesh in the next two months to increase its presence, according to Mr S. Ramakrishna, the Chief Operating Officer.

He told reporters here on Monday, after opening two exclusive Tata Indicom stores that such outlets would open up business opportunities for the small entrepreneurs in rural areas. “It won’t take more than Rs 25,000 to set up such a low-cost, no frill shop. We have already opened four such shops in Ranga Reddy, Guntur and Nalgonda districts,” he said.

Mr Ramakrishna said the company, presently having 2.8 million subscriber base in the State, wanted to cross the three-million mark as soon as possible and “by the end of the financial year we want to get as close as possible to the four-million mark”.

He said Tata Indicom was investing Rs 140 crore in the State in enhancing its network. The company was present in 482 places in the State and services would be rolled out in 68 more places within the next two months.

Mr Ramakrishna said Tata Indicom has 4,000 True Value Shoppes across the country in the circles allotted to it and in AP the number was 340. “In Visakhapatnam, we have 13 outlets and we want to set up more,” he added.

He said the survey conducted by the Telecom Regulatory Authority of India (TRAI) had stated that the Tata Indicom’s network in Andhra Pradesh was the least congested and “therefore, we are confident of giving quality service to the customer”.

He also spoke about a new product introduced by the company – a new cordless walky talky combining the features of a land phone and mobile one. Priced at Rs 1,299, it was getting a good response from the customers, he claimed.

August 12, 2008
Source: Hindu Business Line

Apparel & Accessories

Reliance Brands may propel Adidas retail

Adidas may bank on Reliance Brands, a subsidiary of Reliance Retail, for expanding its store network in the country. Reliance Brands is in discussions with Adidas to pick up store franchisee rights.

Sources said Reliance has pitched in to accelerate store development plans of Adidas. Reliance Brands and its parent, Reliance Retail, till now have stayed focused on striking equity joint venture or exclusive licensing deals to launch lifestyle brands in India.

But the move with Adidas is a pure distribution play, which is considered the single biggest challenge for the global lifestyle companies. There are just a few independent distribution companies focused on the lifestyle sector, with Aryan Lifestyle, part of Emaar MGF, and Primus being the prominent ones. These entities primarily pick up store franchisee rights for global brands operating in India, and the entry of Reliance into this space is significant, industry observers added.

“We are in discussions with several potential partners for franchisee operations and Reliance is one of them. We have very aggressive expansion plans and they can not be executed by one company alone,” Adidas India managing director Andreas Gellner told ET.

Mr Gellner said it will continue to operate with existing francisee partners like Primus in propelling the growth engine. “India’s fashion industry is singularly challenged by distribution (capabilities), and not by demand and supply challenges,” an industry source explained.

Adidas has around 330 stores at present and plans to open 100 more within a year, as it charts forays into smaller towns. The global giant saw its domestic business jump 30% in the first six months of the calender year.

August 12, 2008
Source: Economic Times

Food & Grocery

Heritage Foods expanding Fresh outlets

Heritage Foods India Ltd, promoters of Fresh retail outlets, plans to open another 20 outlets in Hyderabad in the next one year. The company currently has 30 outlets in various parts of the city.

“The idea is to attain saturation in every city that we are present in and also provide a platform for getting all the necessary items for a kitchen in one place,” Mr M. Sambasiva Rao, President, Heritage Foods India, told newspersons on the sidelines of a seminar here on Thursday.

The company, which has 23 outlets in Bangalore and 22 in Chennai, is looking at increasing the number to between 45 and 50 in both these locations.

Mr Rao said the cost of each outlet would vary depending on the rate at which it enters into the long-term lease in each location but on an average the investment required is close to Rs 50 lakh.

When asked if the company was looking at the inorganic route for expansion, Mr Rao said that as a policy it intends to grow on its own strength and is not looking at any mergers or acquisitions.

Speaking on the Diary Division, he said the availability of milk is a challenge and companies in the sector are operating at below optimum level.

“We have an installed capacity of 15 lakh litres per day but at the moment are producing between 7.5 to eight lakh litres per day. It might take another year to reach full capacity,” he said.

He said that the cost of procurement had also gone up by Rs 2 per litre at the farm level and currently they were paying between Rs 270 and Rs 280 per kg fat. Power cuts and increase in diesel cost have added to the problems.

August 8, 2008
Source: Hindu Business Line