Janees Reghelini , Retail Today
Mumbai, April 2012

Once again the Central Government doesn’t seem to have listened to retailers’ calls. Janees Reghelini analyses this year’s budget.

Modern retail might be growing fast, but it is now starting to face considerably more obstacles than it did in its nascence. It is also having a much wider impact on India’s economy.

“Traditionally, retail has been known to be one of the largest employment generators in the world. For a country like India this is the biggest advantage. Policy changes by the government, for example, will open up strategic investment opportunities for global retailers. This, along with spurring employment creation, will have a significant positive impact on all stakeholders and will provide a necessary fillip to the growth of the Indian economy on the whole,” says Rajendra Kalkar, senior centre director, High Street Phoenix.

Having great expectation from the Union Budget 2012-13, retailers voiced a number of demands they feel would help.

One of the most obvious demands was granting industry status, although it wasn’t addressed once again.

Contributing to over 10 per cent of the country’s GDP, Indian retail is India’s second largest employer after agriculture. With an increasing market demand, the sector is expected to grow at a pace of 25 to 30 per cent annually. Providing industry status would be the first basic step to reform the sector, politically.

Kalkar feels retail would benefit from having a ministry for a number of reasons, not least because its role has changed profoundly over the last few years. “Today, large-scale retailers are no longer perceived as mere sellers of products. A modern, advanced retailer must be able to innovate and enrich the value of its offering throughout its network, integrating more goods and services under an umbrella brand that increases distinctiveness and loyalty. In order to do so, it is necessary to have an entrepreneurial ability orientated
Retail still in the cold towards the evolution of demand, a socially-focused company mission, and also a legislative landscape that allows for this innovation process,” he says

“The present value of the Indian retail market is estimated by the India Retail Report to be around $500 billion. For consumption of this size, a ministry is entirely justified for us.”

CHALLENGES FACING INDIAN RETAIL INDUSTRY
• Tax structure in India favors small retail business
• Lack of adequate infrastructure facilities
• High cost of real estate
• Dissimilarity in consumer groups
• Restrictions in FDI
• Shortage of retail study options
• Shortage of trained manpower
• Low retail management skillretail in India.

The advantages of such a status include greater focus on retail development, fiscal incentives for the industry, an availability of organised financing and the establishment of integrated insurance norms. Currently, retail businesses are answerable to a number of authorities, from local municipalities to a hotchpotch of central ministries — Consumer Affairs, Commerce, Urban Development and Human Resource Development, to name a few. “Due to the nature of the sector, while the accountability to many authorities will remain, many of the larger retailers are lobbying to be taken under the wing of one ministry that can be a single source of cohesive policy and also champion the sector’s cause, similar to other significant business sectors, such as the Ministry of Commerce Industry, Mining, Textiles and Telecommunications,” says Devangshu Dutta, CEO of Third Eyesight.

“We must provide retailers with the necessary incentive to improve their overall standards and practices by recognising retail as an industry. This also means encouraging large companies with large investments, so they will be able to bring new methods of working into the market much more quickly.”

Dutta firmly believes that, if given due attention and supported by a planning and policy infrastructure, organised retail could become an unexpected source of widespread economic benefit.

Indian retailers were expecting much more by way of GST from the Union Budget 2012; they had hoped to see definite plans for the roll-out of a formal GST regime. But no significant announcements were made on the FDI and GST fronts, although it was announced that efforts were underway to arrive at a consensus on FDI in multi-brand retail.

Guruduth Prabhu of the Shopping Centres Association of India (SCAI) has been particularly vocal about the contents of the Budget: “It was insignificant from a shopping centre point of view. The industry’s much awaited FDI in multi-brand retail was not even considered as the government is yet to arrive at a consensus.”

So what will it take to convince the government to open up FDI in multi-brand retail? There is a dire need to find a catalyst to speed up this process. Can agencies like SCAI play a role to make this happen?

“As a body, SCAI has been attempting to meet with ministers and convince them of the advantages of retail, but it is a process that is so time consuming. As an association, we will be attempting to motivate relevant ministries and educating them about organised retail, and particularly retail real estate, as a future driver in terms of employment opportunities and the growth of economy,” Prabhu says.

Shopping centres are an important asset class for investors and developers who believe in returns over a long-term investment. Presently real estate itself is trying to motivate the government for recognition. “We are also approaching the government for separate status for the retail real estate industry as we believe that this sector will be one of the major drivers of economy. Secondly, the sector feels that shopping centres should be considered as part of urban infrastructure. Opening up of FDI will have a positive impact by opening up a number of avenues for both retail and real estate. We urgently need a catalyst, and any directives by the Government to assist with the inflow of international retailers and brands into India would be welcome,” Prabhu says

Agreeing with Prabhu, Dutta also believes that we must view retail as part of urban and social infrastructure, and it needs adequate planning, support and guidance for growth, rather than being treated as a “trading activity”, an afterthought in the urban planning of the last few decades. “It should also not be overly consolidated. A healthy mix is needed between the large and the small, between local, regional, national and international,” he insists, adding that opening up FDI will help bring more international brands into the country to fill the ample retail space that India has on offer and plug the gap made by a shortage of Indian-grown brands.

The budget might have fully exempted branded silver jewellery from excise duty but it has still imposed a four-per cent import duty on gold bars and ore, and 10 per cent on platinum and coloured gems.

“This has led to a setback in the jewellery industry and the jewellers association has planned a three-day nationwide bandh to protest against new excise, customs duty and consumer tax on gold imports,” says Subhash Verma, CEO of Aerens Gold Souk Group. “Also, the downside of this increase in custom duty is that it will lead to the trafficking of gold through illegal channels and will reduce demand among consumers, who will have to pay more.”

It is important to consider both the positive and the negative aspects of the impact of FDI, says Ian Douglas Watt, director of Pioneer Property Zone. “Regrettably, most of the discussion revolves around the perceived negative aspects, rather than the opportunities that exist for both local and foreign retailers by embracing it as a positive contribution toward India becoming a major player in the retail space internationally.”

Comparing retail to the Indian cricket team, Watt says that to be considered one of the best in the world, it is important to look at developing strengths overseas. The cricket team cannot only play under a protected umbrella locally where wickets are prepared to suit their strength and nullify the strength of the competing teams. They need to master all conditions, and that is also the case for retail.

“Given the size of the Indian population and their aspirations, it needs to be recognised that the Indian retailer has to plan to be a major player in world markets in the future. Right now, because the retail industry has not had the opportunities to become globally competitive, it is at a disadvantage as it really does not have a full understanding of the standards of the other players,” he says.

The sheer force of weight once this happens will mean that Indian companies will have the potential to become significant players internationally, even if this might not be immediately obvious as there is just so much to do to meet local needs. Every international retailer that enters the Indian market creates an employment opportunity for local Indians and the demand for their goods will only be as much as the Indian consumer sees as the need.

It is important to note that by preventing international players from having a presence in India will only compel them to establish a rather stronger online presence to meet Indian demands. This will eventually place them at an advantage as they will have established a presence and developed a customer base without even having entered the country.

“They scrape off the cream with very little cost whereas if they were to establish a physical presence, they would have to do so with local conditions influencing how they operate,” adds Watt.

Kalkar says: “Reforming the corporate tax system is an international innovation we should look at. Retailers pay the highest effective tax rate of any industry. Simplifying the tax code will ease the industry’s tax burden so retailers can grow.”

He continues to address the supply chain as another huge challenge. “The government must support efforts to streamline the transportation of goods from manufacturer to retailer to customer. The industry opposes regulatory proposals that lengthen the supply chain, raise transportation costs, or undermine the rapid delivery of affordable products.”

On the government’s part, harmonisation of taxes and tarriffs across the country is another area that needs immediate attention, says Dutta. “We might be one nation, but we are not yet one economically integrated zone. This leads to fragmentation of manufacturing and distribution, inefficiencies and additional supply chain costs that are entirely avoidable.”

By the next general election in 2014, retailers hope that the scenario would have improved significantly.

Payal Chopra, director of PS Srijan Group, spells out his perfect-world scenario for 2014: “The ministry will understand the importance of the retail industry and the advantages of a regulated sector in retail. Retailers and retail developers will have a healthy understanding and will work together in bringing an organised set-up to India. Small- and medium-sized players will receive assistance from a ministry so that their presence is not eliminated; and big chains will also receive incentives so investment can flow.”

Recently, Tier- II and III cities have become major drivers for the progress of retail. “It is for sure that these cities offer major potential for more retail giants by 2014, not least with their low lease rentals compared to the metro cities; they also require lower overhead costs and offer greater availability of manpower at much lower cost,” states L.V.S Rajasekhar, CEO of LEPL. “One can only hope that by the next general elections, Indian retail will be a stronger entity by itself and work towards ensuring that all their current demands are met by then.”

Sarah Jacob , The Economic Times

International fashion brands Versace, Corneliani and Guess are all set to break away from their Indian partners, joining a growing list of international fashion brands struggling to settle down in India.

Italian luxe brands Versace and Corneliani are expected to part ways with little-known Delhi-based firm Blues Clothing Company , three industry executives with knowledge of the development told ET.

“It is the case of a small firm going beyond its means,” a retail executive said. “This business needs deep pockets.” He said a team from Versace would be travelling to New Delhi this week and could scout for new partners. Email queries sent to Versace and Corneliani remained unanswered.

Dinesh Sehgal, MD of the family-controlled Blues Clothing, denied a split. But he admitted that a Corneliani store and one or two Versace stores are being shut.

Sehgal said his company, formed in 1996 with the aim of becoming the largest retailer of suits in the country, plans to pump in funds into the business but would not dilute equity. Other international brands Blues Clothing retails in India include Cadini and John Smedley.

PLANET RETAIL’S WRONG GUESS

Meanwhile, Guess is changing hands after its long-time partner Planet Retail decided to restructure its business. The American clothing maker will now tie up with Major Brands, the marketer of Mango and Aldo in India.

Ramesh Tainwala, co-owner and chairman of Planet Retail, says letting go of Guess is part of the firm’s restructuring plan.

Planet Retail had expected increasing buying power in India to help it break even by 2012-13. But it will take twice the time now, says Tainwala.

That is mainly because most Indians prefer to buy luxury products from abroad because high import duty makes these products costlier here than elsewhere. Also, while rentals in a metro like Mumbai is comparable to global cities, the average sales per sq ft per day in a shop in Mumbai is one-tenth of Hong Kong and one-fourth of Dubai.

“Controlling the bleed is the name of the game,” says Tainwala. “I have no doubt that retail will be profitable. But I doubt if that is two, five or seven years from now,” he adds.

Despite such issues, the luxury garment business is thriving in India with foreign brands rushing in to make the most of a fast-growing economy, thriving middle class and Indian consumers’ rising aspirations and growing exposure to western products.

Madura Fashion & Lifestyle, in fact, is in talks to convert its licensing and distribution deal with Esprit into a joint venture.

BREAK-UPS GALORE

While India recently allowed 100% foreign investment in single brand retail, most international brands prefer to have a local partner for the complex Indian market. But often, the partner does not invest enough to scale up the brand.

About one-third of the more than 150 international fashion brands launched in India over the past seven years have either changed partners or exited the market. Around 26 brands have changed partners, while 23-26 exited the market with at least half of those later returning either as a wholly-owned subsidiary or with a new partner, says consumer goods and retail consultancy Third Eyesight.

Reliance Brands President and CEO Darshan Mehta says, “The single-biggest reason for conflict between foreign brands and their partners is when the interests of both parties are not aligned.”

Differences also crop up over brand positioning , choice of store location and partners’ inability to offer services at global standards, industry players say.

“There has been an explosion in the number of brands entering India but there have not been as many stores,” Devangshu Dutta, chief executive of Third Eyseight, says. “This suggests either that brands have to wait it out or their proposition is not as relevant to the market,” he adds.

Writankar Mukherjee and Sarah Jacob , The Economic Times

Kolkata/Bangalore, March 23, 2012

So what if they are in their late sixties, the Ghoshs have a weekly ritual of tucking into burgers and fries mostly at the McDonald’s outlet in Kolkata’s Mani Square mall. The couple, whose children are settled abroad, often proceed to unwind with friends at a cafe later. "Its a nice feeling to hang out in places. You feel young at heart, can spend time without interruption and the food is yummy," Indranil Ghosh, a retired banking executive, says while his wife Meera, a retired schoolteacher, is busy with her fish burger.

Eating out joints, including youth centric quick service restaurants such as McDonald’s and Subway, now have a loyal clientele among senior citizens.

Many restaurants are offering special loyalty cards and comforts of blankets and shawls besides reaching out to old-age homes to woo what they say is a booming club of elders feeling young and having enough spare time and money.

This comes at a time when sales have been declining at quick-service and fine-dining restaurants in recent months because of lower discretionary spends by regular consumers. "There is a change in perception and a shift of guests from a very high-flying dining to young and lively restaurant formats or a youthful cafe," says Amit Burman, chairman of Lite Bite Foods, which owns chains such as Subway, Asia 7, Zambar and Punjab Grill.

"This is also noticed from the fact that a lot of our senior citizen guests actively operate Facebook and Twitter accounts and become member of our online forums," he says. The likes of McDonald’s, Mainland China, Little Italy, Subway and Punjab Grill estimate that 60+ age-group consumers account for up to 15% of their sales. "The trend of senior citizen-led families eating out is fast becoming prominent, more so in the tier II and III towns," says Rudra Kishore Sen, director at McDonald’s India (North & East).

WOOING THE ELDERLY

McDonald’s is now developing a menu specifically targeted at this age group and reaching out to old-age homes. It is also evaluating a loyalty programme to grow its relevance as a true-bred family restaurant. Mainland China, a fine-dining Chinese restaurant chain owned by Specialty Restaurants, has introduced some off-the-menu dishes steamed butter noodle (for easy chewing) and special steamed fish (where soya garlic sauce replaced the more spicy chilli soya sauce) for senior citizens and offers complementary dessert for the elderly.

Restaurants have also become attentive about smaller comforts for this age group. At Specialty Restaurant outlets, adult diapers are kept on standby. Just in case the air-conditioning is too much for this age group, shawls and blankets are offered up at many restaurants. Little Italy, an 18-outlet chain finedining restaurant chain, offers reading glasses and is also introducing grab bars or rods to help older people maintain their balance in washrooms. "Many senior citizens find the font size too small on the menu," Raj Mehta, MD of Little Italy Group of Restaurants, says.

Another chain, Barbeque Nation is training its staff in emergency medical assistance like helping a customer suffering from sudden heart attack, which it says would be most beneficial for this age group.

MORE MONEY, MORE TIME

These eat-out joints are tweaking their offerings because a growing chunk of senior citizen have more disposable income due to increase in pension income by the central and state governments as well as increased income-tax exemption limit, say analysts.

While the frequency of eating-out may not be as high, senior citizens are typically more profitable consumers. "This group is less likely to look at the right side of the menu (where the price would be)," says Devangshu Dutta, chief executive officer of management consultancy Third Eyesight. They usually have fewer domestic pressures such as loan repayment commitments, rent or education of children. "They tend to not only have more spare money but spare time too," Dutta says. Anjan Chatterjee, chairman and MD of Specialty Restaurants, which runs 82 restaurants across brands such as Mainland China and Oh! Calcutta, says senior citizens are the most loyal customers.

"They may not be marketer’s first choice, but our experience shows that their bill sizes are at least 10% more than when the youngsters dine," he says. And they account for a significant number of population, though much less than the youth. Babita Jayaram, vice president-operations at BJN Group, which runs restaurants such as Firangi Paani, Aromas of China, Indijoe and Khansama, feels there is no need to segment the older consumer as food preferences do not typically change when they turn 60.

"Consumers only become more health conscious as they become older, which is why they are free to customise their food order for lesser oil or spices," he says, adding over 30% of BJN Group consumers are above 60 years. Raj Mehta of Little Italy says more and more old consumers are now curious to experience what the younger generation favours.

Shweta Jain, Indiaretailing.com

Mumbai, March 14, 2012

The session on “Workwear Market Scenario in India” on the second day of the ongoing InFashion 2012 at Mumbai focussed on the consumption potential of the workwear segment and highlighted how the general attitude towards “uniformed people” has to change for the category to evolve. The panelists said that though the consumption of workwear in the country is low, it has a lot of potential to multiply.

A six-member panel discussion moderated by Devangshu Dutta, Chief Executive, Third Eyesight, revealed the necessity to follow three main actions – identification, branding and uniformity – to enhance and grow the segment. Sharing their thoughts were prominent personalities from the fashion retail industry, such as Sunil Tibrewal, COO, Uniform QMAX; Vikas Todi, Director, SPARSH Textiles; Mukesh Vijaywargi, President, Klopman; Anupam Bansal, MD, Liberty; Sejal Shah, M10Uniforms, and; Kishore Kothari, Director, Ranjit Silk Mill.

India in increasingly becoming a significant player in the world economy and is witnessing a rise in employment figures in the organized sector. In this backdrop, the future of the workwear segment in the country is certainly bright. A major growth factor for the industry is businesses that have begun to focus on branding, such as schools, hospital, and hotels. As these continue to grow and open multiple branches across the country, they create demand for uniforms, boosting the prospects for the workwear segment.

“Comfort is a primary factor for all workwear, so colours, fabrics and functionality play a pivotal role in the equation and have to be designed according to the requirements of the job,” said Tibrewal of Uniform QMAX.

Todi of Sparsh Textiles said people are increasingly ready to spend on uniforms because the mental attitudes and financial issues that prevented the growth of the sector earlier are improving. The panelists were of the view that education, awareness and cultural change are some of the important aspects that have to be promoted among the consumers to create a positive outlook towards workwear. In the current market scenario, uniforms are considered as something forced upon people, rather than accepted by them on their own, they felt.

To give a boost to the workwear segment, the speakers stressed on promoting the concept of uniforms in tier II and III towns of India which are the hubs of many industries. The need of the hour is to create awareness where there is a potential market, but there is also the concern about duplication in design that needs to be address, they said.

Throwing light on another aspect of the segment, Bansal from Liberty said that their company makes three kinds of shoes under the workwear category: safety shoes such as weight-bearing ones and non-piercing gum boots which are need-driven but their awareness is low; uniform shoes which are for corporate use, and; school shoes which are gradually becoming fashionable and trendy.

The industry experts believed that workwear could be more technology driven, offering innovations such as stain-free, anti-creasing, and fire-resistant products to make them more functional. Also, promotional events are a huge opportunity to players in this category. In events such as the Indian Premier League, a huge amount of knitted fabrics was consumed to manufacture the tees and jerseys of cricket players, they pointed out.

Meghna Maiti Mar, Financial Chronicle

Mumbai, March 14, 2012

Major Brands India, the India partner of premium brands such as Mango, Charles & Keith and Aldo is now looking to add some heft in the affordable brands segment by inking a joint venture (JV) with France-based Happychic group. The JV expects to target the mass segment of apparel retailing with a diversified offering.

“The company is in talks with Happychic for a JV agreement,” said at least three officials in the know of the development. “Major Brands is looking to diversify into the mass segment to break the price-point barrier and use its expertise in Indian retail on a wider platform,” said industry experts.

An email sent to Major Brands India on March 13, 2012 seeking comments on the Happychic JV did not elicit any response till the time of going to press. When contacted at the “India Fashion Forum”, Christophe Ader, international development and partnerships supervisor of Happychic declined comment. “Major Brands is doing very well in the Middle East. The JV could be its India strategy to try out lower tier brands to increase profitability,” said Harminder Sahni, founder and MD at Wazir Advisors.

“Retailers dealing only with the high luxury brands become very restricted. The JV would be a sensible move to broaden the business opportunities,” said Devangshu Dutta, CEO at Third Eyesight, a consulting firm focused on retail and consumer products sector.

Major Brands has been the partner in India for international brands such as Aldo Accessories, Inglot, Le Senza, Nine West, Queue Up and Promod. Happychic has three brands in its portfolio — Jules, Brice and Bizzbee. While Brice is a menswear brand in France, Poland and Belgium. Jules is targeted at youth, while Bizzbee is a teens’ brand.

(This article appeared in the online version of the Financial Chronicle.)