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September 19, 2012
Leonie
Barrie, just-style.com
September
19, 2012
Moves last week by the Indian government to open the country’s multi-brand retail sector to foreign investment have been hailed as everything from a “historic decision” to a “big bang” reform.
But observers also warn that far from reviving economic growth, the plans come with so many restrictions that they may well deter overseas firms from investing in the country. And the prospect of strong opposition from within the ruling coalition may also mean the measures have to be abandoned before they have a chance to get off the ground.
After all, relaxation of foreign direct investment (FDI) rules in India has long been a contentious issue, and it was just nine months ago that a similar plan was rolled back in the face of fierce opposition.
At the time, the government was able to ratify its decision allow up to 100% FDI in single-brand retail – but was forced to suspend plans to extend FDI to 51% in multi-brand retailers.
It now hopes the latest raft of reforms settle outstanding concerns about easing investment restrictions.
Under the proposed new rules, multi-brand retailers such as Wal-Mart, Tesco and Carrefour will be allowed to own a 51% stake in supermarkets, but with conditions that include:
This last point also applies to single-brand operations in India. At the moment, if they have more than 51% foreign investment, at least 30% of merchandise must be sourced from small and mid-sized Indian companies, artisans and craftsman.
Who stands to benefit?
The changes would enable single-brand companies to take complete control of their Indian businesses, as long as 30% or more of the merchandise on sale is already sourced locally.
It’s an attractive market, since India’s single-brand retail sector is valued at roughly $7bn, and is expected to reach $20-25bn in value over the next five years. The country also boasts a growing population, including 300m individuals identified as ‘middle-class’ with a purchasing parity equivalent of $30,000/year.
As retail consultancy Third Eyesight notes, this is an important change and “opens up possibilities of sourcing from the retailers’ current supplier base that may comprise of larger companies.” It may also lead to the growth of Indian companies who benefit from being plugged into the retailers’ global supply chains.
However, the management consultancy also points out that, conversely, for multi-brand retailers the sourcing stipulation remains a significant barrier, “since neither the retailer nor the SME vendor base would be able to draw upon efficiencies of scale with growth of the retailer’s business in India, nor benefit significantly from any export opportunities presented by the retailer.”
It also notes that the local sourcing requirement will remain a barrier for brands that do not source any significant volumes from India.
The changes would also mark a milestone for international retailers of multi-brand products who have until now been restricted to cash and carry formats and “back-end” supply businesses. “This is a significant motivator for global retailers who are looking at future decades of expansion,” Third Eyesight says.
The Washington based US-India Business Council (USIBC) describes the government as “courageous” for making another attempt to push through the reforms, and says it “serves as an assurance to investors that its economic liberalisation agenda is back on track.”
“India’s supply chain infrastructure will see improved efficiencies and expertise, consumers will benefit from increased quality and choice, and inflation and rising food costs will be tamed,” says Ron Somers, president of USIBC. “These big bang reforms send a crystal clear signal that India is open for business.”
Meanwhile, the Confederation of Indian Textile Industry (CITI) hails the decision for encouraging organised retailing and its centralised procurement and improved supply chain management. This, in turn, will reduce costs for businesses and prices for consumers, especially for textiles, and push up consumption,” its chairman SV Arumugam claims.
The Apparel Export promotion Council (AEPC) agrees that the move “will give a much-needed fillip to the entire textiles industry.” Its chairman, Dr A Sakthivel, notes employment opportunities, increased manufacturing activity and a rise in demand for cotton products and yarn are among the likely benefits.
“Domestic demand is going to pick up,” he enthuses, adding: “It will lead to easing of inflation in the country and small and medium enterprises will also benefit out of this policy change. Gradually GDP will pick up and economic outlook will improve.”
“This historic decision is going to be beneficial to domestic textile and garment export industry in a big manner and would also encourage overseas big retailers to source from India.”
A note of caution
But it’s important not to get too carried away just yet.
Fierce opposition from both outside and within India’s coalition government means there is no guarantee policy decisions will go ahead.
Indeed, Mamata Banerjee, founder and leader of All India Trinamool Congress, Chief Minister of West Bengal and member of India’s ruling coalition, has already announced her opposition to the reforms.
A key catalyst in last year’s abandoned attempt to drive change, she said yesterday (18 September) that the Party would resign in protest over plans to open the door to foreign investment in the retail sector.
Leftist parties have also called for a national strike on Thursday in protest at the plans and at other reforms announced last week, including a hike in diesel prices.
Another word of caution comes from Jon Copestake, retail analyst at the Economist Intelligence Unit. He notes the situation arising “appears to be identical to the postponed attempt to do so last December, when the government approved the easing of restrictions but was forced to backtrack by widespread popular opposition. It may still be premature to see the measures succeed in becoming law.”
(This article appeared in just-style.)
admin
September 18, 2012
Vandana,
The Week
September
18, 2012
There
was a time when the Murjani Group was synonymous with luxury retail
in India. It offered Indians a taste of luxury by bringing in
iconic brands such as Gucci, Jimmy Choo, Bottega Veneta and La
Perla. However, the “luxury powerhouse” exited all its
joint ventures in just about two years, and has now moved to premium
lifestyle brands.
What went wrong? “Imbalance between franchisers and franchisees is one of the biggest challenges for luxury retail in India,” says Mohan Murjani, the group’s chairman. Experts note that though margins are quite high in luxury business, Indian partners often get only a small share.
The Indian luxury market is going through a shake-up. Even as the country went full throttle in projecting itself as the most happening destination for luxury sales, recent developments seem contradictory.
About one-third of 150 international fashion brands launched in India since 2006 have either changed partners or exited the market. Twenty-six brands changed partners, and as many brands exited the market, says consumer goods and retail consultancy Third Eyesight.
Take the case of Alfred Dunhill. The British luxury menswear
and accessories brand is winding up its India operations. It has
already shut its stores in Delhi, Mumbai and Bangalore. Dunhill
was partnering Brandhouse Retails, which also deals with global
brands such as Reid & Taylor, Belmonte and Carmichael House.
Analysts say the disconnect between partners is one of the major reasons for ‘separations’. Deals fall apart when one fails to meet the other’s expectations. In the case of Dunhill, S. Kumars, which owns Brandhouse Retails, apparently did not have sufficient experience to market a luxury brand. Most brands in its portfolio are, at best, premium.
“Luxury is a high-gestation business. You need to wait for eight to ten years to reap the returns. S. Kumars might not have wanted to wait for that long,” says an investment banker who has worked on deals with the brand.
Also, store expansion of luxury brands happens at a slow pace. For instance, in the past four years, Dunhill opened just three stores in India.
“Basically, there is a very different thought process needed to market luxury,” says Neelesh Hundekari, principal at consultancy firm A.T. Kearney. “The luxury market in India is still at a very nascent stage. Consumers in India are still evolving and we have not even completed a cycle.”
While Dunhill chose to quit India, several other luxury brands have been breaking away from partners and realigning their India operations. DLF Brands, the retail vertical of India’s largest real estate developer, recently parted ways with Italian luxury major Giorgio Armani. It has also put on hold its expansion drive with Salvatore Ferragamo.
DLF Brands started off in 2008 with huge plans. It even started a dedicated luxury shopping destination, Emporio Mall, in Delhi. But it could not maintain the momentum. With the parent company under financial stress, DLF Brands was not able to invest into its partner brands. Also, it could not reach its five-year targets, which restricted growth further.
The group is now going the Murjani way and gradually freeing up its portfolio of luxury brands. “Luxury is a futuristic business at the moment in India. The premium segment is much more profitable and scalable,” says DLF Brands chief executive officer Dipak Agarwal.
He adds that luxury brands do have a big future in India, but they will need another five to seven years to achieve a strong scale and market size. “For us, size with speed was important,” he says. The company opened only four Ferragamo and three Armani stores since it entered the luxury brands segment in 2008 as expansion of such brands in a limited market was difficult.
In comparison, its British partner in the premium segment, Mothercare, which sells prams, pushchairs, car seats, baby clothes and maternity dresses, entered India in 2009 and already has 42 stores. It will add another 15 outlets this year. Understandably, DLF has planned aggressive expansion for premium brands in its portfolio.
Another separation story is of Delhi-based Blues Clothing Company and Italian brands Versace and Corneliani. Blues, which started off as a suit retailer, shot to fame by tying up with the two marquee brands. But the partnership hit the wall as, sources say, Blues did not have sufficient financial wherewithal and management bandwidth.
“International brands are looking for Indian partners who have the ability to facilitate growth and help multiply their presence across the country, housing them in the right environment and coming up with out-of-the-box ideas,” says Roasie Ahluwalia, general manager (marketing), Genesis Colors, which markets Burberry and Jimmy Choo.
The global slowdown, too, has been a spoiler. “It extends the gestation period for a business to break even. It also reduces the ability of companies to pump money into a venture,” says Devangshu Dutta, CEO, Third Eyesight.
And to top it all, policy roadblocks—chiefly FDI in retail—have irked foreign brands planning Indian launches. “It is a great disappointment that the government has not been proactive in pushing policy reforms,” says Tikka Shatrujit Singh, chief representative in Asia, Louis Vuitton Moet Henessey. “Instead of encouraging investment, they have delayed the whole process. And for want of a suitable avenue, investments may go elsewhere.”
(This article appeared in Week.)
admin
September 17, 2012
Nupur Anand, Daily News & Analysis (DNA)
Mumbai, September 17, 2012
Trousers
at 80% off, a pair of Reebok sneakers for 60% less, buy two shirts
and get four free.
Discounted apparel stores that include Cantabil, Koutons, Vishal
Retail and Loot had created a buzz with such too-good-to-believe
offers when they first appeared on the retail scene a few years
back.
The deals, available round the year, were good enough to tempt
even the tight-fisted shoppers.
And with inflation pushing up apparel prices, these firms were
expecting a windfall and long queues before their stores.
However, things haven’t turned out as per expectations as fewer
footfalls and inventory pile-ups have reduced the industry to
half in the last one year.
Experts said the discounted apparel industry, which was estimated
to be Rs 2,000 crore till 2010-11, is now not worth more than
Rs. 1,000 crore.
Extended sale seasons by regular brands to beat economic slump,
adverse impact of an excise duty hike, negative brand perception
and "deceptive" pricing have led to the decline of discounted
apparel stores, they said.
Consequently, stores that went on an expansion spree during 2008-2010
have been consolidating and closing down several stores across
cities. The excise duty hike of 12% in 2012 Union Budget has been
a huge dampener for the industry.
Abhishek Ranganathan, analyst at MF Global, said the tax was
required to be paid on the MRP (maximum retail price). "So
even if the company was selling the clothes at a discount it had
to bear the excise duty on the full price. These companies generally
work on margin of 15-20%. Following the duty hike, the retailers
have seen margins slipping to single digits," he said.
Big brands and other retailers stretching sale seasons to
counter competition and slowdown made matters worse for discount
stores.
Gimmicky discounts, too, drove consumers away. "Most
discount retail stores generally went for an inflated original
price and then offered a huge discount on it. As a result, the
net saving of the customer was very less and so they could see
through the fictitious discounts being offered," said Devangshu
Dutta, CEO of retail consultancy Third Eyesight.
Experts said that consumer perception of these brands being "cheap"
as they came with huge discounts probably hit sales.
"Not every one wants to be seen sporting a discounted brand
that offers ‘buy two get three free’," said a retail analyst.
No wonder Megamart, another apparel chain, is looking to get
rid of the discounted tag.
Though analysts don’t see a future in this business model, there
are still takers for it.
"The fact that several retailers in this space have shut shops spells huge opportunity for us. We know the mistakes these brands have made and so keeping that in mind we are treading carefully," said Punit Agarwal, director, Promart, a new entrant in the discounted apparel segment.
Also, the creation of affordable fashion by big retailers like Pantaloon, Max and Reliance is luring consumers that are looking for a value deal.
admin
September 15, 2012
Nupur Anand, Daily News & Analysis (DNA)
Mumbai, September 15, 2012
India’s retail industry, which is pegged at US$450 billion, could expand manifold with the opening up of foreign direct investment (FDI) on Friday.
Currently, the so-called modern trade — or retail chains – have only 5% share of that pie.
The catch, however, is that the 51% FDI decision has been left to the state governments. That’s where implementation problems will arise, said experts.
Trinamool Congress (TMC) that rules West Bengal has given a 72-hour notice to the government to change their decision. TMC, which is a key ally of the Congress, had managed to push back reforms in retail sector last year. After stiff opposition from TMC, BJP and Left, the government had to beat a hasty retreat in November 2011.
But Union minister of commerce Anand Sharma said the government is firm on its decision and there would be no rollbacks.
The opposers contend that entry of foreign retail chains will wipe out smaller, traditional players.
Arvind Singhal, chairman of Technopak Advisors, a retailing consultancy, strongly refutes this.
“Even when modern retail started in India there was hullabaloo that the mom-and-pop stores will be wiped away. This has been proven to be wrong. And if Indian retailers have not managed to harm the unorganised sector, there is no way foreign investments will. It has been already proven that both organised and unorganised sectors can co-exist without much friction.”
“Investments flowing in also means more jobs will be created,” said Akash Gupt of PriceWaterhouseCoopers. “As organised retail expands, it will hire more people.”
The government has pinned a few riders when opening up: Foreign entities will have to invest 50% in setting up back-end operations and 30% of the sourcing has to be done from small and medium enterprises.
The sourcing norm, however, is likely to be eased.
Analysts said these two rules will create more and better quality jobs.
What about pricing?
“The price will not be impacted majorly. If anything, it may come down due to stiff competition. Better infrastructure will also ensure that the quality of the products increases tremendously,” said Anil Talreja, partner, Deloitte Haskins & Sells.
The riders also include that any multi brand entity should have an investment of $100 million (Rs 500 crore) and the stores can be opened up only where the population is more than 10 million. At present, there are 53 cities in India that fit this bill.
Analysts said the largest investments are likely to flow into the food segment.
This decision will also be a big relief for cash strapped domestic players such as Future Group.
“Even global brands will be on the lookout for a strong domestic partner. This will provide the global players a customer base, infrastructure facilities and will reduce the gestation period,” said Devangshu Dutta of Third Eyesight, a retail consultant.
But investments are unlikely to flow in very soon. “Companies will take time to assess the market and make investments accordingly. They will also wait for the political situation to stabilise,” said Singhal of Technopak Advisors. The developments have warmed the cockles of Raj Jain, president of Wal-Mart India, the unit of the world’s biggest retailer.
“We are grateful that the government has realised and appreciated the value that we will bring to strengthen the Indian economy,” he told Reuters. “This policy change will allow us to connect directly with the consumer and help save them money.”
(Published online in DNA on 15 Sep 2012.)
admin
September 15, 2012
Dinesh Narayanan, Forbes India
New Delhi, September 15, 2012
A day after it raised the prices of diesel and restricted supply of subsidized LPG, the United Progressive Alliance (UPA) government decided to push its political gamble further by opening up multi-brand retailing, civil aviation and the broadcast sectors. The decisions, especially the one to allow 51 per cent foreign investment in retailing, has already attracted sharp reactions from the opposition parties as well as allies such as Mamata Banerjee’s Trinamool Congress and Mulayam Singh Yadav’s Samajwadi Party.
The union cabinet had first cleared the proposal last November
but left it in the cooler after opposition built up both within
and outside the ruling coalition.
Going by the reaction of political parties, the Manmohan Singh government has taken a calculated risk by almost taunting its belligerent allies to pull it down. In the past few months the opposition had the government virtually on the mat as a series of corruption scandals eroded its credibility and paralysed decision-making that had sowed frustration in the Indian industry and foreign investors even as the country’s economic engine threatened to seize up. This appears to be a last-ditch effort by the Congress Party to wriggle out from the corner it has been driven to and also divert attention from the slew of corruption scandals, including allegations of irregularities in allocation of coal mines now infamous as `coalgate’.
Today’s brazen move has the potential of leading the country
into a period of political uncertainty, even early elections.
Predictably, industry leaders, who have been bemoaning the government’s
inaction on important policies, hailed the move. “The series
of policy decisions announced by the Government today signal that
India is on the move,’’ said Sunil Bharti Mittal, chairman
and group CEO of Bharti Enterprises, in a statement. “They
send out a clear message to the global investor community that
the Government is committed to taking forward next generation
economic reforms,” Mittal, whose company has a venture with
global retail giant Wal Mart, said.
Friday’s decision on multi-brand retail came with an important rider: States would be free to choose whether or not to allow foreign retail chains to set shop. In a briefing commerce minister Anand Sharma said that Andhra Pradesh, Assam, Haryana, Delhi, Uttarakhand, Rajasthan, Manipur, Jammu and Kashmir — all ruled by the Congress Party or its allies — and some Union Territories had agreed to allow retail chains to start operations. Bihar, Orissa and West Bengal have opposed the policy.
Analysts believe that states could put in their own riders
when ratifying the policy. “Some states may put in conditions
for allowing stores,” said Devangshu Dutta, chief executive
of Third Eyesight, a retail consultancy.
Retailers would have to invest at least $100 million, half of
which must be in rural areas. Wal-mart, which has been lobbying
for foreign investment was quick to talk about its investments.
“We are willing and able to invest in back-end infrastructure
that will help reduce wastage of farm produce, improve the livelihood
of farmers, lower prices of products and ease supply-side inflation,”
Raj Jain, president of Walmart India said in a statement. They
would also be allowed to start store operations only in cities
with a population of 1 million or more. According to Raghav Gupta,
Principal, Booz and Co. the total addressable market would be
between 25-30 percent of urban retail.
Separately, in a boost to single brand retailers the government
agreed to do away with a clause that required them to source 30
percent of their goods from small and medium enterprises. Swedish
retailer IKEA had objected to these provisions. Now the policy
says the goods must ‘preferably’ be sourced from small
businesses.
All these reforms will see results only if this government survives.
In its previous term, Manmohan Singh had taken a similar gamble
when he stood his ground on going with the US on a nuclear deal.
At the time, the Left parties supporting the government withdrew
their backing, threatening its survival. Mulayam Singh Yadav’s
SP provided the crucial crutches then. Yadav bailed out the Congress
Party again recently when he supported Pranab Mukherjee for President,
neutralizing Mamata Banerjee’s opposition. Yadav is, however,
staunchly opposed to FDI in retail. Two days ago, the SP passed
a resolution to stop FDI in retail `at any cost’. No party
leader has, however, clarified whether the cost could include
early general elections.
The Congress Party has clearly played its most politically risky
card. None of the measures it has announced will be able to arrest
the economic slowdown, though they will give investors hope that
the government will take politically tough decisions. No political
party in the country is currently ready for an election. They
will avoid one if they can. One of the compromises with allies
could be to let today’s decision pass in exchange for rolling
back the diesel price hike and restrictions on subsidized LPG.
That will leave the BJP to fight the FDI battle. The party has
already taken flak for obstructing the last session of Parliament.
FDI is hardly an issue for rural voters. In any case it is allowed
only in cities with a population of more than a million. The urban
voter who has had a taste of glitzy malls and well-stocked supermarkets
may not really appreciate the opposition.
(Based on inputs by Samar Srivastava)
(Published online in Forbes India on 15 Sep 2012.)
