News and views about the Retail sector in India

Lots of luxury retailing news this week that points out to the potential locked in the Indian market. The restricting factors are availability of space, the right locations and high rentals. India will have to develop serious high street ambience as international retailers seek to grow beyond five-star hotels.

-Chillibreeze Business Research Team

General Plans and Information

India ranks 44 as global retail destination

India has been ranked 44th on the list of most preferred destinations by global retailers, according to a report by real estate consultant CB Richard Ellis.

The report explores the globalisation of the retail industry and scrutinises retailer presence in relation to market sectors, country of origin, regional trends and other influences.

"Even though the Indian economy is growing at a rapid pace with consumers having more buying power, we are still only at the 44th position," said Anshuman Magazine, chairman and managing director of CB Richard Ellis (South Asia).

"This is primarily due to FDI (foreign direct investment) restrictions in retail and also relatively lower average per-capita income in the country. Hopefully in the future, if the FDI norms are relaxed, coupled with expected economic growth, India would move up in the rankings," Magazine added.

Among the BRIC (Brazil, Russia, India and China) group of countries, only China and Russia have been able to make it to the top 10.

Britain leads the chart with the presence of 55 percent retailers, Spain second with 51 percent retailers followed by France, a close third with 49 percent retailers. France and Germany also performed strongly in the global ranking, achieving third and fourth positions respectively. The United Arab Emirates, China and Russia figured in the top 10, the report said. Interestingly, the US was ranked 11th with the presence of 39 percent of international retailers.

March 29, 2008
Source: Economic Times

Stealing the retail show: India has highest shrinkage rate

I am a thief, I stole from Wal-Mart”, a couple of convicted shoplifters in U.S were forced to carry these signs outside a store of the country’s largest retailer, Wal-Mart. It is hardly the kind of punishment that would be meted out to their Indian counterparts. Indian retailers are comparatively lenient and refrain from publicly `shaming’ first-time offenders or those who indulge in small-time pilferage.

Says R Subramanian, managing director of Subhiksha; “We treat such offenders as misguided people and therefore our policy is to deter. We put social pressure by informing parents (if he or she is a teenager), employers or just fine them.”

Big Bazaar follows a similar policy. Says one of its top officials; “Our rule is to not embarrass customers who steal (since many resort to it for the first time). So once our officials observe a case of stealing, the customers are discreetly taken away and questioned”. Hypercity seeks a written apology from the customer and forces them to cough up a fine.

Shrinkage could be the result of supplier theft, customer theft, process and employee theft. India has the highest shrinkage rate of 2.9% among 32 countries, as per a recent global survey of global retail theft conducted by Centre for Retail Research, England.

Shrinkage rate basically refers to the percentage of loss of products between manufacture and the point of sale which includes wastage. And since profit margins in retail are quite low (3-5% of sales), such thefts have higher impact on profitability. On an average, a retailer would have to sell 20-30 times more of a stolen product to recover the money.

In India, the items that get flicked are ‘small and pocketable items’; popular ones being shaving accessories (including cosmetics), confectioneries and chocolates, biscuits, toys and apparel. As per the survey, employee theft accounted for nearly 30% of overall retail theft globally.

In the business of retailing, framing a policy for deterring crime could be tricky. Experts say it is about striking a right balance between making stores seem welcoming as well as secure. So instead of treating shrinkage as just a security issue, retailers globally are bringing employees into the ambit. They are involving the whole team right from the manager right down to the floor staffs by incentivising them to reduce shrinkage levels.

March 28, 2008
Source: Economic Times

Run of the mall losing speed

Mall mania appears to be ebbing in the country. Even as falling sales seems to be forcing some retailers to quit malls, at least two malls in the NCR are being converted into office, signalling difficult times for some malls. Sensing this, mall developers are going slow on building new malls. According to property consultant Knight Frank, the number of malls likely to come up in the next two years may be just a little over half the projected figure of 250.

Property consultants say higher rentals and poor mall management have made it unviable for some retailers to carry on business at certain malls.

Most malls in Gurgaon have some spaces unoccupied in them. Some were never taken up, while in others, retailers, including a few big brands, quit after they found the going tough. The problem in Gurgaon seems more pronounced because it has too many malls in a small area.

A large part of the footfalls, which a mall attracts, doesn’t get converted into sales,” says retail consultant Sugato Bose. There is a growing realisation among mall developers that the market demand may be much less than what they had anticipated, says Knight Frank India chairman Pranay Vakil.

Parsvnath Developers COO B P Dhaka says it’s been a learning phase for developers. “A solid foundation, however, has been laid now. Smaller players might quit the game. But large developers are here to stay.”

March 26, 2008
Source: Economic Times

Big players - plans and investments

Reliance Retail may explore overseas markets

Reliance Retail (RRL) is likely to cede majority control to UK clothing and food chain Marks & Spencer (M&S) in their proposed joint venture in India. This marks a new beginning in the Indian conglomerate’s retail strategy where it is willing to be a minority partner with large global brands for domain knowledge and clout.

A senior M&S executive, Mark Ashman, is likely to head the company as its chief executive officer while Spencer Sheen, another M&S executive, will look after operations. A bunch of expats is likely to be relocated to India to manage the business, which will initially start with clothes and include homeware and food later.

At the same time, Reliance would like to explore the overseas markets. Talks are on with other global brands for possible associations, which could be franchisee agreements, licensing deals or joint venture partnerships.

M&S wants the international business to contribute 15-20% of group revenues within the next five years. It is believed that Planet Retail will continue to operate the existing 14 stores in India while the new JV will own and operate the new stores. The UK retailer is likely to reduce prices in India further (there was a price correction in 2007) for a bigger volume play. Sources said efforts are on to work out a viable local sourcing strategy, which is expected to go up to almost 100% from 30%.

March 31, 2008
Source: Economic Times

Reliance Retail looks at Town Centres, exclusive outlets

After opening 11 formats focusing on a variety of retail segments, Reliance Retail is now working on cash-and-carry cum entertainment malls for smaller towns and exclusive outlets to address all furnishing, kitchenware and building material needs.

Christened Reliance Town Centres, these outlets would come up in towns with a population of 1-4.5 lakh. “The first such centre is likely to come up in Haryana by the year-end,” Mr Raghu Pillai, President and Chief Executive Officer (Operations and Strategy) of Reliance Retail, said.

Addressing a press conference here on Saturday, he said the Town Centres would house cash-and-carry section, multiplexes, healthcare and financial services. The company had plans to open 400 such centres in the next few years. He said there were about 700 urban centres in the country beyond the big 70 cities.

March 30, 2008
Source: Hindu Business Line

Europe's Pearle to tie up with Reliance Retail for optical products

It’s official. The Netherlands-based Pearle Europe, part of international investment major HAL Group, is entering into a 50:50 joint venture partnership with Reliance Retail to sell optical products under the Vision Express brand. The new company would be called Abcus Retail and Pearle Europe has approached the Indian government seeking permission to invest in the Indian company.

In keeping with government regulations, which allow foreign companies to invest up to 51% in Indian companies provided they sell goods under a single brand, Pearle plans to sell all kinds of eyewear products — from lenses, spectacle to sunglasses and cleaning solutions — under the Vision Express brand. These will be sold through Vision Express stores located at Reliance Hypermarkets, Reliance Health & Wellness stores and Reliance Retail department stores.

Pearl Europe is part of the HAL Group, which is an international investment group based in the Netherlands. It has an extensive international expertise in optical retailing operations and operates 2,200 optical retail stores in 21 countries across Europe and the Middle East. HAL Investments also owns a number of optical retail chains in emerging markets, such as China, Russia, Turkey and Brazil.

March 28, 2008
Source: Economic Times

Food & Grocery

Cookie Man to double stores in India

Australian Foods, owner of the Cookie Man brand, is on an expansion drive to double its number of stores across India in the next one year. The company has been following a unique model of retailing its cookies through own franchise stores.

Cookie Man products are not sold in any other outlet and their franchise stores are located only in malls. The company will continue with this model for its next batch of outlets as well.

“Currently, we are present in 17 towns with 35 stores, but we are aiming to be present in 24 towns with nearly 60 stores by the end of next financial year. We want to deliver cookies fresh from the oven and that can be done well only if we serve them through stores that are in our control. We will also add four more ranges to our product portfolio,” said Pattabhi Rama Rao, president, Australian Foods.

The company has a strong presence in tier-II cities, but is now planning to enhance its reach in tier-I cities as well. It follows the policy of basing its stores in malls, which are high traffic shopping area with optimum visibility.

Through this expansion drive, the company hopes to double its turnover from Rs 20-40 crore.

March 30, 2008
Source: Business Standard

Apparel & textiles

Vimal to Offer Ready to Wear Apparel for Men

Vimal, the flagship textile brand of Reliance Industries Limited, opened its first exclusive retail store at MG Road in Cochin today.

The redesigned Vimal showrooms reflect the bold new spirit of Vimal, along with its brand new identity. An international retail design and architecture expert was involved in this redesign of the Vimal exclusive showrooms to ensure that the showrooms were designed on the lines of international retail centres in a modern, trendy and contemporary way.

These Vimal showrooms will now offer not just the latest fabric collections for premium menswear, but also the Vimal range of men's apparel – shirts, trousers, suits and jackets. This apparel would be available under three sub-brands, which will appeal to different sections of the male audience, viz Vimal Red, Vimal White and Vimal Black.

In October after the re-launch of its iconic textile brand, Vimal with a new look, new logo and new offerings, four showrooms were opened in Ahmedabad, Bangalore, Mumbai, Chennai and will open one more showroom this month in Bangalore. In phase two starting in the next financial year Vimal will launch another 18 Stores.

March 30, 2008
Source: BharatTextile.com

Luxury & Lifestyle

Space crunch, high rentals a dampener for luxury retailers

Luxury retailers are in a Catch-22 situation when it comes to their expansions plans for India. The $3.5-billion luxury goods market in India is on an exponential growth but the surging rentals and quality-space crunch are dampening aggressive roll-out plans.

“Luxury is not just about selling an emotion but also delivering an experience. Therefore, getting the space right is critical,” Mr Erico Marinelli, CEO, Frette, a luxury home furnishing company, told Business Line.

Noting that the five-star route is not always financially viable, he said, “Our international experience has been that a luxury store should give sales of $12-18 per square feet. However, it may or may not be true of India”.More than 200 international luxury brands are making inroads into India.

The 2007 Asia Pacific Wealth Report, released by Merrill Lynch and Capgemini, says that India has recorded the world’s second fastest growth in the number of high net-worth individuals (HNIs) at 20.5 per cent, making it a lucrative luxury market.

“On an average, the space requirement for luxury brands is higher (2,000-3,000 square feet) and only a handful of places fit the bill,” said Mr Rajneesh Mahajan, Director (Retail), Cushman & Wakefield India.

Says Mr Mark Lee, CEO, Gucci, “India will emerge as one of our key markets. However, today it is still in a state of fantasy.” Currently, Gucci has two stores here and plans two more this year. However, he added that infrastructure remains a constraint. Unlike China, where Gucci opens one store every six weeks, the company is far more cautious here.

Echoing a similar view is Mr Paolo Canali, Sales and Marketing Director, Canali. “We want to set up eight boutiques by 2010. However, we may slow down our expansion if the right ambience is not available,”

Real estate company DLF’s Emporio in New Delhi is slated to be launched mid this year. “We are clinching good rentals. This will be the first-of-its-kind luxury mall and will have leading global brands,” a DLF spokesperson said.
Mr Leonardo Ferragamo, Chairman, Altagamma, the association of Italian luxury goods manufacturers, said, “Partnering with real estate companies and acting as their anchor tenants will solve some of the problems”.

April 1, 2008
Source: Hindu Business Line

Armani heads east as India's rich keep spending

Giorgio Armani is to become the latest of a horde of high-end brands to target India’s growing appetite for luxury goods.

The Italian group will take a 51 per cent stake in a joint venture with DLF, the Indian property developer – the biggest presence it is allowed in the country under regulations.

The first Armani outlet will be opened at a new “super luxury mall” being built by DLF, which also has a partnership with Dolce & Gabbana, in New Delhi. By the end of the year, Armani expects to have around five stores across the subcontinent.

March 31, 2008
Source: Times Online

'Develop the market, we’ll be in'

Iconic luxury brands Gucci, Missoni and others think alike about India. It’s a huge market that needs to be stitched together — step-by-step.

“You have immense potential, Indian customers have very sophisticated taste and you need to build the market step by step, and develop India as a key market for the world,” Gucci CEO Mark Lee said at the third annual edition of the Mint Hindustan Times Luxury Conference.

Gucci, the $2-bn Italian fashion giant, wants to harness India as its new playing field. It already has two stores here — in Delhi and Mumbai — and plans to open two more by the end of this year. According to him, India needs to develop its retail sector as it is the only way for the market to grow.

For Carlo Rivetti, chairman of Sportswear Company, “India is an unknown jewel and a big and enormous market”. However, he feels India should “find the Indian way of luxury”, and then call people from outside to fill in the space.

Vittori Missoni, chairman of Missoni, who wants to develop “Missoni saris” one day, is enamoured by the colours of India. Missoni is not very impressed with the new generation of ‘wannabe’ designers. “They don’t want to cut and stitch but they want to be designers. Look at Tommy Hilfiger or Gucci, they first learned how to cut and stitch and took to designing.”

March 30, 2008
Source: Hindustan Times

Italian luxury brands Canali, Brioni plan India expansion

With the Indian luxury market set to touch $30 billion by 2015, Italy's premium menswear brands Brioni and Canali are firming up plans to strengthen their presence in the country.

Brioni, which opened its first boutique store in Mumbai last year in partnership with its franchisee Badasaab Designs, is all set to launch two new stores this year. Similarly, Canali, which currently has two franchise outlets with Genesis Colours, plans to have eight by 2010.

"We feel that the Indian market is more mature than other Asian markets and that is why we want to expand operations here. Our second store will open shortly in Delhi, while the third one will come up by this year-end in Bangalore," Brioni CEO Andrea Perrone said on the sidelines of the Mint-Hindustan Times Luxury Conference. The company expects to start making profits from its Indian operations from next year.

Echoing similar sentiments, Canali Sales and Marketing Director Paolo Canali said, "By 2008-end, we will have five stores with two coming up in Delhi and Bangalore within six months, eventually going up to eight by 2010."

He said the company might also look at sourcing fabrics and natural fibres from India. However, the Italian majors feel that availability of quality locations for luxury retailing was an issue. "We are finding it difficult to find the right kind of space and location to execute the plans," Brioni CEO Perrone said.

Expressing similar views, Paolo Canali also said that the company's expansion plans in India would depend on getting ideal locations.

March 28, 2008
Source: Economic Times

Retail industry all game for a revolution

The $12 billion Indian retail industry is all set to witness a revolution of branded exclusive gamestop zones in the cybercafe format in the next two to three years, according to console gaming majors.

The move will come in the wake of the drastic shift in consumers’ perception in experiencing console gaming products apart from buying products from modern retail formats instead of buying the products from the grey market. Besides, Indian console gaming market could see emerging trends in sync with the global trend such as party gaming and child gaming as well. While in the UK, Playstation II gaming series market has achieved a saturation level due to 75% penetration, Playstation III gaming series trend is shifting to emerging Markets such as India and Russia.

March 28, 2008
Source: Financial Express

Ferragamo plans venture with DLF for single brand retailing

Italian luxury apparel and footwear brand Salvatore Ferragamo SpA is in the process of entering into a 49:51 joint venture with real estate major DLF to set its foot in the Indian soil.

The company, which at present, has one premium outlet in India (through a distribution arrangement) is planning to scale it up to five by the end of 2008-09.

“The joint venture will help us explore the possibility of our brand in India. We have a history of working for the Indian royalty and the elite for a long time. However, this venture will help us establish the brand here,” Mr Leonardo Ferragamo, CEO, Salvatore Ferragamo SpA, told Business Line.

Ferragamo’s collection includes men’s shoes, accessories, scarves, ties, eyewear, watches, fragrances, ready-to-wear and handbags.

March 27, 2008
Source: Moneycontrol

Support Services

Retail media to touch Rs 3.4 billion by 2008-end

Spending on retail media, a new form of advertising medium, has increased from Rs 1.5 billion in 2006 to Rs 2.25 billion in 2007. The relatively new form of advertising medium includes space not only in malls now but also on Store TV, cinema theatres, departmental stores and supermarkets.

"Retail media, a part of the Rs 198 billion media market, has witnessed 300 million spends in supermarkets alone and it will be worth Rs 3.4 billion by the end of this year," said GroupM COO South Asia Vikram Sakhuja.

The advertising fraternity is continuously searching for new avenues and methods to reach out to their target consumers. And now with the retail sector booming in India, advertisers believe that retail media will continue to gain share in the advertising budget.

"Retail Media has developed immensely over the last year as it has moved from just ambient space and activation to In-store TV and more integrated plans. Thus today we can use retail media to reach our consumers with our marketing message exactly at the point of purchase making the consumers aware of the brands," added Vikram.

Retail Media involves 5 to 10 second spots on StoreTV within the retail store, in-store activation, branding through shopping bags wherein a particular logo and name is printed on the bags in which the consumers carry their goods and floor signage.

April 1, 2008
Source: Indiantelevision.com

Government / Policy

Luxury import relief in sight

India may reduce import duties on luxury products to stem revenue losses from luxury brands bought by Indians travelling abroad. The government is also planning to increase foreign direct investment in single-brand retailing.

“India has high tariffs and we recognise that if you go abroad and buy, then the country loses revenues. Therefore, we are working on both duties and countervailing duties,” commerce minister Kamal Nath said here at a conference.

Nath said he had forwarded proposals for duty cuts to the finance ministry. He, however, said there was a need to differentiate between high-end and low-end products. India is unwilling to reduce tariffs on low-cost imports, which can hit its own industries, he added.

Foreign luxury brands target about 100,000 millionaires in the country and millions more who can be categorised as upper middle class.Nath said he felt foreign luxury brands would not pose any problem for local businesses. The government allows up to 51 per cent foreign direct investment in single-brand retailing and wholesale marketing.

March 30, 2008
Source: The Telegraph