Terror and inflation deliver a double whammy to retail business

Terror strikes and inflation delivered a double whammy to retail business in the week gone by. Retailers also realize that mere footfalls do not convert to sales. Many of them are betting on offering entertainment solutions within their premises, while others like Subhiksha prefer to stick to what they do best - retail.

-Chillibreeze Business Research Team

General Plans and Information

Retailers on terror edge

Every time there is a terror attack, or a threat of one, it’s bad news for shopping malls and large retail outlets that not only see a drop in visitors and sales, but also come under greater scrutiny of security agencies.

The serial bombings in Bangalore and Ahmedabad through Friday and Saturday hit weekend sales at retail hubs of these two cities as several shopping malls were ordered to shut early and people were kept away fearing more explosions. Retail trade was also hit in other parts of the country, but to a lesser extent.

“There has been a definite fall in business especially in areas such as Bangalore, Ahmedabad, Gujarat and Surat,” said Rajan Malhotra, CEO of Big Bazaar. “We were asked to shut our stores early in Indore and Surat. Overall, there was a 10 per cent fall in business as apart from fear psychosis, business also got affected due to heavy rains in many major cities.”

Grocery and food retailer Subhikha saw a 20 to 30 per cent drop in footfall at its stores in Bangalore and major cities of Gujarat, but elsewhere business was as usual, said R Subramanian, managing director of the company.

Vishal Retail, which is mostly into apparels and home furnishing, said its sales were down 20 to 30 per cent compared to a normal weekend.

The drop in visitors is the most immediate impact, but in the longer run retailers have to step up security-related spending, including insurance cover against terror attacks.

“We spend close to Rs 14-15 crore on security every year,” said Subramanian. “We also have an insurance policy in place worth about Rs 1,500 crore.”

Shoppers Stop, which has not yet taken any specific insurance policy against terrorism, said it is reviewing its security needs. “We have made all the necessary investments we needed to for purpose of security,” said BS Nagesh, managing director of the company. “We will be in discussions today to take appropriate decisions to beef up security.”

July 28, 2008
Source: Hindustan Times

Mall hoppers don’t spell sales

Mall developers and retailers in India may be on an expansion spree but signs that everything is not right with the retail industry in Gujarat are beginning to show. Picture this — Around 50 per cent of the branded store outlets have shut down at India’s first designer mall Gallops, located off the Sarkhej-Gandhinagar Highway, while a furlong away, Reliance Mart, the first in India inaugurated by Mr Mukesh Ambani on August 15 last year, attracts mostly tourist crowds.

These shoppers do not spend money at the mall. They are a new breed of tourists who hop from mall to mall ‘just to see’ what it is like or simply to beat the heat in the fully-air-conditioned atrium.

They are different from the youngsters who hang out at malls with friends or frequent the food courts. Most people seen at the Iscon Mall, which houses Reliance Mart as well, are either tourists from other cities or local people visiting the mall for the first time, shop-keepers admit.

“We have just come to see what it is like here. When we came to Ahmedabad, people told us that this was a must-see place, as it is the biggest in Asia,” said Ms Geeta Parikh of Jamnagar, visiting the mall with her son.

The retail scene of Ahmedabad, which used to be concentrated on the business artery of CG Road, has begun to shift to other areas of the city, of which SG Highway is one. Malls such as Big Bazaar, Dev Arc and Vishal Mega Mart are jostling for space on the Highway, leaving the customer spoilt for choice. That is the reason why some of the malls, such as the 3.5 lakh sq.ft Gallops, set up at an investment of Rs 80 crore, wear a deserted look. “As many as 50 per cent of the shops have shut down here. Of the 12 outlets opened two years ago at the food court, only four are operational today,” says painter Mohsin Shaikh, whose art gallery Spandan is located on the second floor of Gallops.

He has an interesting theory about retail in Gujarat. “People in Ahmedabad are new to mall culture and mostly prefer shopping from places they are comfortable with,” he says. For instance, if a customer living in Maninagar wanted to visit Gallops he would have to cross Manek Chowk, Lal Darwaja, C G Road, etc, all of which are major shopping destinations where he would get whatever he wants at a lower price than in a mall on the highway; moreover, he could even bargain at the shops. If this theory holds good, then, it would mean good footfalls, with lower conversion to sales.

He goes on to add, “Mostly, the retail outlets that are shutting down are small brands. The national retail chains situated at the outskirts of the city are thinking of 10 years down the line, when real-estate prices will soar. The city will also expand, bringing the customers closer to them.”

July 27, 2008
Source: Hindu Business Line

Retailers bet on entertainment activities to lure customers

As spiralling inflation dents buyer sentiment, leisure and entertainment forays seem to be big retailers’ weapons to fight flagging sales.

Leading the way is Kishore Biyani-led Future Group that is opening unisex salons, gaming centres and family entertainment centres at its nine Big Bazaar Supercentres. Similarly, Vishal Retail is planning to start salons within the premises of its 120-odd outlets.

Shoppers Stop has introduced its brand of cafes, bookstores and spas within its stores to make consumers spend more time and entice them to buy more.

Shoppers Stop vice-president (marketing) Vinay Bhatia feels such options are important to retain customers. “A customer now looks for more than just shopping. We realise that convergence of retail and entertainment is the way to enhance a shopper’s experience. We are constantly trying to get things that are ‘shopping plus’. So we have Crossword, our bookstore, Cafe Brio & DesiCafe and other such specialty stores within Shoppers Stop stores to enrich consumer experience.”

The Raheja Group-promoted Shoppers Stop is putting its best foot forward to attract shoppers. The company has added small spa centres, allowing consumers a quick foot massage. Then there are bookstores and cafes along with several other initiatives to attract customers and make them spend more time inside the store. It has also introduced a ‘Monsoon Makeover’ offering that promises free makeover for people who walk in.

Following suit is Vishal Retail that will begin by opening salons within the premises of its stores. Says Vishal Retail chairman RC Agarwal, “The initiative is in the planning stage. There is a definite market for these services.”

Spencer’s Retail is also going the extra mile to ensure visitors stay longer and are entertained well. Across the stores, there are live kitchens on weekends that have Japanese, Thai and Italian chefs.

Then there is Books & Beyond, Spencer’s brand of bookstores that has periodic book reading sessions and launches. Stores are also lined with interactive LCD screens that have both original and borrowed content entertaining people.

“We do a business of Rs 100 crore every month. This is 5% of our revenues. Today, consumers expect to feel relaxed and entertained. This is important for a chain like ours that wants to be differentiated. This concept, however, may not have much potential with discount chains,” says Spencer’s Retail marketing V-P Samar Singh Sheikhawat.

There are still others like Subhiksha Retail MD R Subramaniam who think it wise to continue retailing what they currently do. “We are staying focused on what we sell, groceries, mobile phones and medicines. There will be a foray into consumer durables and IT products soon.”

Gaining Share

• Future Group is opening unisex salons, gaming centres and family entertainment centres at its nine Big Bazaar Supercentres.

• Vishal Retail is planning to start salons within premises of its 120-odd outlets.

• Shoppers Stop has introduced its own brand of cafes, bookstores and spas within its stores to make consumers spend more time at the store and entice them to buy more.

• Spencer’s Retail has set up live kitchens and book stores to ensure customers spend more time.

• Smaller players like Subhiksha Retail think it wise to continue retailing what they presently do.

July 26, 2008
Source: Economic Times

Discount retailers make hay while inflation shines

Everyone loves a good discount. And it comes in as an incentive especially during times of inflation. For apparel discount retailers, inflation has proved to be a blessing. Arvind’s branded discount retail chain Megamart has seen an improvement in walk-ins of 15% in the past few weeks.

“During inflation, customers always prefer to shop in a value retail outlet,” says K E Venkatachalapathy , business head of Megamart. The increased footfall is reflecting in the sales figure of Megamart as well. While he refuses to divulge exact numbers, Venkatachalapathy says there has been a 20% increase in sales compared to the corresponding period last year. Discounts here vary from 10% to 30%.

“Inflation and discount retailing are directly proportional. Customers normally tend to flock to value retail stores where they are assured of good quality at reasonable prices,’’ says Raghunath Narayanan, MD of Chennai based discount retailer Europa.

Discount retailing, a post World War II phenomenon, is an established market practice in countries like the US. This concept is now picking in India, where customers are extremely price sensitive. Discounts have always worked well with apparel and factory outlets in the suburbs of many Indian cities and shopping hubs like Fashion Street in Mumbai and Maratahalli in Bangalore bear testimony to this. Now inflation has come to the aid of these retail majors.

The Loot, a discount chain, has seen footfalls increase by at least 10% in the last few weeks across its 35 stores in 15 cities. “In Mumbai alone, our footfalls are up by 17% in the last three weeks. In the first quarter, we had sales of Rs 15 crore. In the next quarter, we expect this to climb upto Rs 25 crore,” says Jay Gupta, MD of The Loot.

In apparel, children’s wear seem to be the biggest beneficiary. “As children, especially toddlers, normally outgrow their clothes pretty fast, parents are flocking to discount stores such as ours more than ever before,” says Narayanan. While the discount offered by Europa is between 25 and 30%, in kids wear it’s 30% - 40%.

The consumer base is also widening. “From largely middle class audiences, I now see people getting out of cars like Honda Accord and Mercedes Benz outside our stores,” says Gupta. The rush to such outlets is also due to the fact that regular apparel retailers and multi-brand outlets mostly offer off season sale only twice in a year. “But in times of inflation and continued price rise, the consumer is looking to cut spends across categories on a daily basis,” says Venkatachalapathy.

Brand Factory too has seen a 5% - 7 % increase in our sales over the past few months. “While we cannot say that entirely due to inflation, we cannot rule out that it has played a role,” says Vishnu Prasad, CEO of Brand Factory.

July 26, 2008
Source: Economic Times

Big players - plans and investments

Reliance Retail to bring in 250-year-old Hamleys

Reliance Retail has clinched a deal with the world’s largest toy shop, Hamleys. India’s largest private conglomerate will be the partner in one of the biggest international expansions by the 250-year-old Hamleys till date.

Sources said Hamleys and Reliance have struck a franchise deal to open large format stores. ET first reported on the discussions between the two players on March 21. Reliance Retail is believed to have pipped the Wadias and Kishore Biyani’s Future Group in snapping up the deal.

The Mukesh Ambani-led Reliance and the Icelandic investor Baugur Group-controlled Hamleys are expected to make a joint announcement shortly. Reliance had also explored an arrangement with the US chain Toys ‘R Us before deciding to strike a deal with Hamleys.

Hamleys’ foray into a potentially big market like India could be interesting. The seven-storey Hamleys store on London’s Regent Street is one of the top tourist draws. Despite its cult appeal globally, Hamleys has largely restricted itself to the UK market.

It is believed that Reliance plans to open four standalone Hamleys stores in the first 24 months, which is a significant expansion move for the marque UK brand. Baugur is also working on expanding Hamleys to Middle-East, Russia, Turkey and China. Hamleys operates a standalone store in Jordan’s capital Amman.

While the local stores may not be as big as the London flagship, it will surely be unlike anything seen before in India’s toy retailing space. The Indian stores will be around 25,000 sqft and will be opening doors in metros like Delhi, Mumbai and Bangalore initially.

With Hamleys selling toys of several brands besides its own, Reliance had little elbow room to work on an equity structure. Indian regulations don’t allow foreign players to hold stakes in Indian companies that sell multiple brands. It, however, allows foreign retailers to hold up to 51% in a company in India if it sells goods under a single brand only.

The Hamleys deal marks Reliance’s third engagement with a major international brand in recent times. It has unveiled JVs with iconic apparel retailer Marks & Spencer and optical chain Vision Express.

July 28, 2008
Source: Economic Times

Timex to launch three luxury brands

Timex on Monday said it plans to introduce three high-end brands in India in the next few months, besides launching its iControl watches, which connect Apple's music device I-Pod, very soon.

The company is planning to launch Ferragamo brand by next month while another luxury brand Marc Ecko would be introduced by September. It has recently started marketing the Nautica brand.

"We are launching two-three luxury brands in India starting with Ferragamo next and Marc Ecko by September. We will also bring iControl very soon," Timex Group India Managing Director, Mr Kapil Kapoor told reporters here.

"We will first introduce iControl in the metros and later take it to smaller cities. It will be priced at around Rs 5,000," he added. Timex is also looking to expand its retail foot-print in the country, with adding 40 stores in the current fiscal to ta ke the total number of outlets to about 100. It currently has 62 stores.

"We will open new stores in smaller cities like Lucknow and Coimbatore," Mr Kapoor said. The company opens all its stores through the franchisee model.

July 28, 2008
Source: Hindu Business Line

Reliance sets up Autozone in Gurgaon

Reliance Autozone launched its automotive specialty store at Ambience Mall, Gurgaon in continuation of its move to bring world class auto retailing facilities to India.

Reliance Autozone, Gurgaon spread over an area of 6,500 sq ft, matches the global auto retailing standards. The product offerings at Reliance Autozone include a comprehensive range of car and bike accessories, electric scooters, tyres, batteries and many more useful accessories.

Reliance Autozone would be retailing electric scooters by offering multi-brand choice under one roof. Tyres and batteries are the other two focus areas at Reliance Autozone.

Mr Arun Dey, Chief Executive of Reliance Autozone, said, “This new format provides a one-stop solution to automobile owners who face inconvenience by having to crisscross between various touch points for accessories, batteries, tyres and lubes etc. at different locations at different times.”

Reliance Autozone has ambitious plans to capitalise upon this business opportunity. This accessory store format shall offer consumers a comprehensive range of products in a pleasant and conducive retail ambience at best value along with quick fitment facility. The range shall include accessories of utility, audio, videos, safety, car care, upholstery, navigation systems etc.

The range also includes an exciting array of products sourced from overseas.

July 27, 2008
Source: Hindu Business Line

Pantaloon’s Brand Factory ropes in Planet M, Globus into retail format

Pantaloon Retail’s fashion value retail format, which opened its seventh outlet in the country and the second in Bangalore on Thursday, expects to touch revenues of Rs 500 crore by June 2009.

Plans for the year include six more outlets by June 2009, according to Mr Rajesh Seth, Vice-President, Marketing, Central and Brand Factory, Pantaloon Retail (India) Ltd. The company has budgeted investments of around Rs 6-10 crore a store, he said.

Brand Factory will now offer products from Planet M, Globus, Staples and Dollar stores.

“We want to make this a lifestyle store and all out future Brand Factory outlets will be similarly designed,” Mr Seth said.

Spread across 55,000 sq ft of space, the new outlet offers over 200 brands at 20-50 per cent discount 365 days a year. Products offered are across various categories including apparel, footwear, eyewear, watches, home and kitchen accessories, travel and cell phones.

“This will be bigger and better than other Brand Factory stores, not only in terms of size, but also in our brand offerings,” said Mr Seth. Bangalore’s first Brand Factory outlet located at Marathahalli, the heartland of discount and value retail stores in the city, experiences footfalls of around 150,000 a month. Value retailing in India, estimated at Rs 45,000 crore, is growing at 20 per cent every year.

Brand Factory reported revenues of Rs 200 crore in June 2008, out of which Rs 60 crore came from the Bangalore store alone, Mr Seth told Business Line.

The average billing ticket size of a customer in Brand Factory is around Rs 1,500 and is expected to go up to Rs 1,700 in the new format, with the introduction of segments other than apparel and footwear. About 80 per cent of the billing comes from the apparel sections, Mr Seth said.

July 26, 2008
Source: Hindu Business Line

Gloria Jean's to set up cash-&-carry subsidiary in India

US-based coffee chain major Gloria Jean’s is setting up a wholly-owned cash-and-carry subsidiary in India to supply coffee beans, merchandise and equipment to its cafes in the country operated through the franchisee route.

The retailer currently has a master franchisee agreement with Citymax Hospitality (India). Gloria Jean’s has applied to the Foreign Investment Promotion Board (FIPB) for permission. Under the current law, 100% FDI is permitted in the cash-and-carry wholesale business.

The proposed Gloria Jean’s subsidiary would be involved in local procurement of roasted coffee, apart from paper cups, syrups and equipment. It would also import incidental products from China, Australia and other countries. The cash-and-carry subsidiary would sell coffee and other incidental products to Gloria Jean’s master franchisee in India.

This is similar to the model being followed by Wal-Mart, the world’s largest retailer, in India. The retail giant has invested directly in a cash-and-carry subsidiary which will supply to the front-end stores under a franchisee agreement with the Bharti Group.

Taking a different approach, Starbucks, the world’s largest coffee retailer, had last year applied to the FIPB for setting up a 51:49 joint venture with an Indian partner for investing in single-brand retail stores in the country.

However, the application was rejected twice for lack of clarity over the shareholding pattern of the proposed JV. Starbucks withdrew its application last July, without citing any reasons.

Gloria Jean’s entered into the master franchisee agreement with Citymax in December 2007 to set up 500 coffee outlets across the country over the next 10 years. The cafe chain is known for its hot and cold coffee drinks including traditional espresso, blends and whole bean coffees, specialty teas, pastries and coffee accessories.

In India, it is targeting executives in the age group 25-45 years, positioning itself higher than Cafe Coffee Day and Barista and closer to Costa Coffee. Gloria Jean’s also plans to retail roasted coffee under the brand name GJC in India.

July 26, 2008
Source: Economic Times

Dabur's retail arm to open six new stores across country

FMCG major Dabur India's retail subsidiary H&B Stores on Wednesday announced plans for setting up six new outlets across the country as part of its expansion plan. The company will open new stores in Delhi, Gurgaon, Amritsar and Panchkula during the next three months, H&B said in a statement. H&B's seventh outlet in the country was opened at Hyderabad today, it said.

"This marks the opening of our third outlet in Hyderabad within a span of just 3 months. As the business strives forward, so does our ability to deliver even better value and choice," H&B Chief Executive Officer Peter Baker said.

H&B Stores is a wholly-owned subsidiary of Dabur India and operates a pan-India chain of beauty, health and wellness retail outlets under the brand name 'newu'. The stores offers a range of health, beauty and wellness products.

"Our private label development programme and exclusive brand offering continues to grow, delivering international quality products, at very competitive prices," Baker said.

H&B is also planning to launch of its customer loyalty programme 'Advantage U' intended to demonstrate its commitment of customer experience and service, as well as great value and choice, the release added.

July 23, 2008
Source: Economic Times

Regional News

Kerala slaps 10 pc surcharge on retail chains

Under pressure from the domestic traders, Kerala government has slapped a 10 per cent surcharge on the big retail chains, thus becoming the first state in the country to impose such a levy on super and hyper markets run by monopolies.

The proposal in this regard, made by state Finance Minister T M Thomas Isaac in the budget presented in March, came into effect with assembly adopting Finance Bill 2008-09 on Tuesday.

The surcharge would be applicable on retail chains, including direct marketing chains, which import at least 50 per cent of their stock from outside the state or the country.

Commercial ventures, whose 75 per cent of the total business is in retail space and total turn over exceeds Rs 5 crore a year would come under the purview of the surcharge.

The retail chains run by the state and those in the co-operative sector such as Civil Supplies Corporation and Consumerfed, would, however, be exempted from the levy.

Curbing the entry of both national and multinational monopolies in retail sector has been an openly acknowledged policy of the ruling party.

The coalition, however, is aware of the constraints it has in imposing total ban on monopolies and that it could only restrict them through regulatory measures like additional levies.

The well-organised trading community in Kerala has been spearheading a campaign demanding tough measures to curb big retail chains and earlier this month organised a statewide shutdown to press its demand.

July 23, 2008
Source: Economic Times

Luxury & Lifestyle Retail

Luxury bed-maker Hastens forays into India

Sweden-based luxury bed-maker, Hastens, will foray into the Indian market by launching its first store here on July 27. The launch of the store in India is part of Hastens’ strategy to focus on the Asian markets, Mr Sanjay Verma, Country Manager, Hastens (India) Pvt Ltd, told newspersons here on Friday.

Priced between Rs 2.5 lakh and Rs 35 lakh, the beds are targeted at the upper-end customers. “Our prospective customers in India are those who own a Mercedes ‘S’ class or similar luxuries for whom price is not a deterrent,” he said. The price includes 32.8 per cent import duty as the beds are manufactured in Hastens’ facility in Koping, Sweden.

Unlike beds in India which come without cots (bed frames), Hasten beds come with a bed-frame carrying patented springs.

July 27, 2008
Source: Hindu Business Line

Telecom Retail

Corner stores next hot spot for mobiles

Organised mobile retailers like HotSpot and Mobile NXT have found a new way to deal with competition from mom & pop stores: make neighbourhood retailers their franchisees to sell mobile phones and accessories under their brand.

Currently, more than 70% of the mobile retail sector is unorganised and market analysts believe there is a huge potential for the franchise model. “The return on investment (RoI) for the franchisee is somewhere around 60-65%.

It will allow us to expand our presence and enter deep into the cities,” says HotSpot CEO Sanjeev Mahajan.

HotSpot has recently adopted the franchise model with 25 stores operational in Delhi alone and has plans to expand to 100 such stores besides the 400 company-owned, company-operated (co-co) stores across the country.

“Customer experience and pricing is the crux of this business. Therefore, we provide stock management, professional training for the in-store sales team, and an after-sales customer support at all our franchised stores.

The role of the franchisee is restricted to the operational level,” says Mobile NXT CEO Vijay Menon.

Mobile NXT adopted the franchise model in tier-II and tier-III cities across India in 2007. The company operates more than 55 stores all over the country.

Mr Menon, however, concedes that the franchise model in mobile retailing is difficult to adopt since there is no uniqueness in the product and the return on investment is not very attractive.

That is why players like Subhiksha and Mobile Store are refusing to join the bandwagon. They believe the franchise model is not profitable at this stage, given the low profit margins and low market penetration.

“We are concentrating on a co-co model based on pricing. We don’t think franchise model is the way to go, since the business already accounts for low margins; expanding through franchise would dent the margins further,” says Subhiksha president-marketing Mohit Khattar. Subhiksha operates the largest chain of mobile stores with around 1,300 stores all over the country.

Mobile Store CEO Rajiv Agarwal also feels that the franchise model in the current scenario does not hold much ground. “There is the risk of our brand value being diluted. This is a business where you cannot allow your service proposition to get diluted,” says he. Mobile Store has significant presence in the country with more than 800 stores.

However, RPG Cellucom head-marketing Biswajit Pandey feels that with improving margins and marketing strategies, the franchise model may take the front stage in future. The company currently operates over 25 stores.

It’s a win-win situation since it allows rapid expansion and presence in local areas for the franchiser and an opportunity for the traditional retailer to enter the newfound trend of organised retail. Moreover, the operational costs in case of franchise model is low in comparison to co-co model, giving both the parties a better RoI,” says global management consulting firm Technopak chairman Arvind Singhal.

July 26, 2008
Source: Economic Times

Subhiksha Mobile to invest Rs 500 cr

Telecom retail major Subhiksha Mobile is going for a major expansion and will invest Rs 500 crore this year to add around 800-1,000 stores to its existing 750 outlets in the country.

The company which opened its 100th outlet in Andhra Pradesh today, said in a press release that the state is a important for Subhiksha and we are delighted to be the first mobile retailer to cross the 100 stores benchmark here.

The company said its has mananged to have 15 per cent share in the mobile retailing market in Andhra Pradesh since opening its first store there in second half of 2007, the release added.

July 23, 2008
Source: Economic Times