Slowdown to affect organised retail in India
31 Mar 2009, 2037 hrs IST, Writankar Mukherjee, ET Bureau
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KOLKATA: Continuing economic slowdown is slated to take a major toll on the penetration of organised retail in India. A brand new study has pointed out that organised retail penetration, which was expected to touch 16% by 2012 from the current 5 %, is likely to reach only around 10.4%. Investment flow in organised retailing in India, which was projected to reach $25-billion over next 4-5 years, is also slowing down, the study by KPMG noted.
The report, released on Tuesday, pointed out that domestic retail chains expects the slowdown will be a short-term phenomenon and likely to persist for the next 12-18 months. However, the confidence level of Indian retailers seems to be quite eroded. Even though retailers are trying to combat the slowdown through promotional offers and discounts, nearly 70% of the retailers surveyed said their footfalls have been extremely low.
KPMG noted that Indian retailers have been adversely affected in areas like bottomline, working capital availability, cost of finance, store expansion, advertising spend and headcount expansion. However, the retailers have big opportunity in this scenario to become cost competitive, tap the availability of real estate in low cost and expand into tier II and III towns.
"Certain erstwhile business strategies of the Indian retail chains have further aggravated their problems. This includes crowding in unattractive locations, inability to provide service that matches that of the kiranas and over reliance on debt funding. A large number of Indian retailers are highly leveraged and now battling high interest payments," KPMG India national industry director (consumer markets) Ramesh Srinivas said. the KPMG report noted that those retailers who take immediate strategic measures like store rationalisation, changes in supply chain, consolidate operations and improve IT infrastructure will benefit in the long-run. In the current scenario, Indian retailers should also look out for opportunities to partner with foreign players as it could bring in the much needed capital and expertise.
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MUMBAI: The Mobile Store (TMS), telecom retail arm of the Essar Group |
is close to launching private labelled cell phones to garner a share of the hand set market is clocking double-digit growth despite slowdown.
While TMS is a venture of the Ruias, the branding will be independent of the Essar Group. "Before end-April, we will launch phones with our private label. We hope to sell half a million units in the first year," TMS CEO Rajiv Agarwal told ET.
The new brand will largely be targeted at the youth segment, with prices ranging between Rs 2,500 and Rs 10,000.
The company's strategy is in tune with the practice in the fiercely competitive mobile retail market. TMS competes with HotSpot of the Spice Group and Chennai-based large-format mobile retail chain Univercell.
HotSpot sells own handsets under the Spice brand, while Univercell is also expected to launch its private label in the next few months. Cellucom, another retail chain, was bought by HotSpot last month.
TMS will import from handset manufacturers mobiles, which will have full quality assurance and IMEI (international mobile equipment identity) numbers. "We feel there is a market with potential for creating a private brand. This is the right time to get started with feature-rich, affordable phones," he said.
TMS, which offers multi-brand handsets, accessories, connections, repairs, besides value-added services, is currently finalising handset models and branding for the new label. These mobiles will offer premium features, including music, camera and multimedia, at a lower cost compared with other branded mobiles.
According to industry estimates, the Indian handset market clocked sales of around 105 million units in 2008. This excludes the huge second hand mobiles sales, which form a sizeable portion of buys in rural areas. Nokia is the market leader with over 70% share in India, with other major players being Sony Ericsson and LG. Vodafone also has its own handset brand in India, apart from other smaller players.
TMS is handling branding internally and has not roped in any agency for the purpose. "We are doing it on our own. Over the years, we have developed a team of marketing, technical and segmentation experts to work on packaging, branding and other things," said Mr Agarwal.
TMS is planning to tie-up with other retailers over a period of time to reach out to more customers. "First, they will be available in our own stores and then in others. We will preview it before taking it out," he said
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INFLATION FALLS TO NEAR-ZERO L |
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India's inflation rate fell to a record low of 0.44 % in the first week of March, signaling a state of deflation. The inflation rate as measured by the wholesale price index fell from 2.43 % in the preceding week, led by falling food prices and cheaper fuels. It is expected that Reserve Bank of India will take measures to infuse more liquidity to induce demand to lift prices. But the government maintained that though prices may drop to below 2008 levels, demand continues to remain strong especially in core sectors like steel, cement and automobiles. Also while the whole sale price index is falling, Retail inflation, measured by various consumer price indices (CPI), is still high. CPI for industrial workers has moved to 10.45 % in January, the highest in over a decade. But even retail inflation may eventually cool, if food, especially fruits and vegetables, become substantially cheaper in the coming months. They are already less expensive compared to January. Annual food inflation index has dropped to 7.24 % from a 10-year high of 11.64 % in January.
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VISHAL GRAPPLES WITH RISING DE |
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According to analysts, Vishal Retail, the discount retailer with around 180 stores across the country has seen its debt to equity ratio rise to 2.65:1 in recent months. The total debt on Vishal's books is around Rs 750 crore. Of this Rs 140 crore is high-cost short-term debt which the firm has raised at 16%-a relatively high rate of interest, but around the same rate at which most companies raise money. Vishal also has unsold goods worth Rs 740 crore in its books on 31 March 2009, as compared to goods worth Rs 557 crore on 31 March 2008. Though the increase in inventory can be attributed to the increase in retail space which went up from 2.1 million sq. ft in March 2008 to 3 million sq. ft at Rs 750 crore it still amounts to over 6 months of sale. The company ended the year to March 2008 with revenue of Rs 1,010 crore and a net profit of Rs 41 crore. In the first nine months of 2008-09, it turned a profit of Rs 22 crore on revenue of Rs 1,100 crore. Slowing sales in recent quarters have dented Vishal's cash flow, preventing it from fulfilling its debt obligations. The company has already deferred payments and may look for a further debt extension. The company is in talks with the lenders to recast the debt from short term to long term. In the meantime Vishal Retail has put its expansion plans on hold. The company currently has 187 outlets in the country, including hypermarkets and small-format stores. The company has also closed down its big warehouses in Mumbai and Kolkata and has opened a centralized centre in Gurgaon as part of cost-cutting.
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BHARTI RETAIL TO SHUT STORES |
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In spite of a slow, staggered launch, Bharti Retail is also expected to down the shutters on 4 of the 28 stores it has launched, as they are not turning in the desired results. The company has been slow to expand relative to its competitors, wanting to learn the retail business in a relatively controlled environment. In the last year they have been testing the market through a mix of stores in different sizes. They are currently available largely in Punjab with a small presence in Haryana. The initial response has revealed that Bharti store margins are 40-50% better than competition on a per-square-foot basis. Given the slowdown, Bharti Retail continues to adopt a cautious strategy. The company will shortly be setting up a big cash-and-carry store in Punjab.
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Metro Cash & Carry India, which is targeting hotels, restaurants and catering companies (HoReCa) |
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Metro Cash & Carry India, which is targeting hotels, restaurants and catering companies (HoReCa) as prime customers, has decided to launch an array of private labels in India in the food and non-food segments. Some of Metro's international private labels that have hit India in the first flush are Aro, H-line, HoReCa Select and Fine Food. And the focus is to widen the product range under these private labels. For instance, Metro has launched Tea bags in India in nine flavors under its H-line label. Such a strategy will ensure much higher margins for the company. The German wholesaler also plans to customize its private label offerings to meet niche requirements of the Indian hospitality industry. The strategy is to learn the needs of the HoReCa customers and provide a complete solution with a wide range, the right packaging size and competitive pricing. The products are developed in close consultation with professionals in the industry and designed to meet all kinds of requirements, from kitchen to table and guest amenities. The company is even customizing its products and private label range for a particular region in India. For instance, in Kolkata they may keep certain varieties of rice or spices to cater to the local taste
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Want to Sell in a Downturn? India's Retailer-in-Chief on What Marketers.... Miss |
Capitalism runs on sentiment as much as money. Almost daily doses of bad news on television screens and newspapers have possibly done as much damage to the economy as the events on either side of the Atlantic. The biggest consumers and believers in this news are the salaried class – people who work in large companies that are integrated with the global markets.
Being the biggest consumers of media, they are also the largest consumer segment for Indian marketers. And companies that are catering to this segment have seen weakening consumer sentiment and sluggish sales.
However, hidden behind the consumer statistics of most marketers is a segment that is largely ignored. Yet they form an overwhelming majority of Indian consumers. They are the self-employed Indians.
Our economy is not that of wage earners and shareholders. A significant portion of the economy consists of the self-employed. The share of the national income represented by proprietor-run concerns and partnerships is 35%. The share of companies is around 15%, government around 25%, and agriculture around 25%. Combine agriculture and the self-employed in industry and the service sector and nearly 60% of the national income is generated by the self-employed.
“Dresses that many in the large cities may find loud and garish are perfectly desirable in the smaller towns.”
They form the largest consumer segment in almost every city outside the major metropolises. Removed from financial markets and distant from the IT companies and transnational conglomerates that are integrated into the global economy, I find the self-employed the least affected by the slowdown sentiment. They neither fear job losses nor a shrinking global marketplace. Instead they are businessmen and entrepreneurs who are selling tangible products to real local customers who are paying in hard currency.
They are shop owners, small traders, first-generation entrepreneurs and self-employed professionals. And their sense of identity, behavior and fashion sensibilities make them quite different from their salaried cousins in large metros.
For the salaried class in urban India, the company they work for or their designation precedes their introduction and identity. The self-employed, in contrast, don't carry a visiting card. Instead a gold chain, an expensive watch or a luxury car – even if it is second hand and imported from the large metros – helps them make a statement and boost their identity.
Dresses that many in the large cities may find "loud and garish" are perfectly desirable in the smaller towns. Unlike salary earners, the self-employed use products much more to signal success. Self-employed people want to stand-out rather than blend into the crowd, as the salaried classes typically do.
The self-employed businessman also is far sharper at evaluating "deals" offered by marketers. Too many offers and promotions or an overt attempt at "creativity and humor" in communication can lead him to question the real value offered.
Unlike professionals who have migrated to the metropolis, the self-employed live with their joint families. The average ticket size of any purchase is quite high. The availability of ready cash is also higher among the self-employed, making it easier to sell higher ticket items. They have little time for credit cards. And a shopping trip can take place any time, on any day of the month. It is not concentrated on weekends or at the beginning of the month as it is with the salaried class.
Read More from India Journal
Deep Kalra: Tempting Tourists in Tumultuous TimesAll these differences increase once you start to factor in regional and cultural diversity across our country. But the reality is that customer strategies, communications and customer profiling are done by salaried professionals based out of their head offices in the large cities. And invariably, we fail to take into account the needs, aspirations, sentiments and subtle nuances of marketing to -- and communicating with -- the self-employed.
Yet self-employed consumers could well be the solution to revive the sluggish sales of most companies. For that, we need to understand and respect their tastes and preferences. They are not only the least affected by the economic downturn, they are there in the greatest numbers. Remember, only one out of every 14 Indians has a salaried job.
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WILLS LIFESTYLE |
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Will Lifestyle is planning to set up stores at its 14 ITC-run star hotels. The first store has been set up at ITC Maurya, New Delhi. ITC hotels will train its employees in customer service. On the product front the company is strengthening its position in the ramp-to-rack initiative where designer wear will be available at affordable price. Presently, 15 % of sales come from Wills Signature brand. The company is also focusing on women's wear which is growing at 35 % annually. In the coming season the brand will be offering a wider product assortment with a shorter product lifecycle of 6-8 weeks, as opposed to 3-4 months earlier. To maintain its fashion forward content, Wills has collaborated with international design studios Alessandra Macchi Studio (Italy) for flat knits and with Ricardo Rami Studio (Italy) for fashion wear for women. Notwithstanding the market slowdown, the company is targeting a 20 % growth for its premium Wills Lifestyle brand in 2008-09. In 2007-08, the brand had registered a 25 % growth over the previous year.
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WADHAWAN LAUNCH OF HYPERMARKET |
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Wadhawan Food Retail has shelved plans to launch hypermarkets in the country. As per media reports, the retail chain, which runs stores under the brands Spinach, S-Mart, and Sabka Bazaar, has also laid off all but three of its 35-strong team for the hypermarket project. The company was scheduled to launch its first hypermarket in Bhandup, a Mumbai suburb, in April. The hypermarket was to be spread over 150,000 sq. ft and would have come up at a cost of Rs 100 crore. The company had planned to open nine more hypermarkets of at least 100,000 sq. ft each over the next three years. On account of the market slow down the project has been shelved for the moment.
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RELIANCE BIG BAZAR TRADEMARK |
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India's trademark office has approved the use of the trademark "Reliance Big Bazar" for the Reliance-Anil Dhirubhai Ambani Group (R-Adag). This is likely to create conflict between R- Adag and Pantaloon Retail, which runs a chain of hypermarkets under the Big Bazaar brand name. Though the trademark granted to R-Adag is different: it spells Bazar with a single "a" while Pantaloon uses two "a"s in spelling Bazaar, the names are pronounced in an identical manner. In November 2006, R-Adag had filed at least six applications to trademark "Reliance Big Bazar" for a variety of businesses including advertising, business management, clothing, footwear, games and toys, education, training, hospitality, beauty care, and medical services. While two have been granted registration, four are being contested by Pantaloon and a Surat-based firm Asim Plast Pvt. Ltd. According to the trademark office's website, R-Adag has been allowed to register Reliance Big Bazar for "games and playthings, gymnastics and sporting articles, and decoration for Christmas trees," and "clothing, footwear, and headgear". The trademark approval means Pantaloon cannot sue R-Adag for trademark infringement case in the event the company opens stores selling clothing, footwear, headgear, games and playthings among others, under the Reliance Big Bazar brand name. India's Controller General of Patents, Designs and Trademarks made R-Adag's applications public in October 2007. The trademark office accepts objections to any applications within three to four months from the date of making them public. Once the application was made public, Pantaloon challenged three applications arguing the company has been running its business under the Big Bazaar name for years.
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FOODLAND FRESH STORES?? |
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After selling Radhakrishna Hospitality Services to Sodexo, the Shetes of Mumbai have decided to shut their retail business that operates under the Foodland Fresh brand. The Mumbai-based food and grocery retail venture, which had been put on the block, has now decided to close down operations. The Foodland brand may be used for other businesses of the company. Most retailers operate from leased premises and hence a takeover would make sense to an acquirer only if it brings properties at key locations with attractive rentals and an established brand. However, real estate prices and rentals in metros such as Mumbai have fallen drastically. As a result, taking over a store chain with higher rentals is not attractive. The company has therefore been unable to find buyers in the last few months. Also as the retail sector is going through a squeeze, it has reduced the ability of many potential acquirers to fund acquisitions as slow equity markets have led to conserve cash for their own expansion plans. Expansion plans have been put on hold and the previous model of aggressive store roll-out with an intention to sell the business three-five years post-expansion now won't occur. Profitability, not market share, is now the key driver.
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DABUR EXPANDS ITS FOOD BUSINES |
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Lite Bite Foods promoted by Dabur's vice chairman Amit Burman is set to expand even as the market slows. It has set up Food Union, its food court in Delhi and at Infosys and Microsoft campuses at Hyderabad. Food Union consists of various restaurants and cuisine formats like Fres Co, a joint venture with a Spanish food company, Punjab Grill, a joint venture with foodies Jiggs Kalra and Zorawar Kalra, Asia foods a JV with Mumbai-based restauranter Nikhil Chip, Pino's a pizza and pasta eatery, Big Gulp, a beverages joint, Baker, a cake shop, Street Foods of India, a value meal restaurant that serves all kinds of cuisines from Lucknowi chaats, kababs to south Indian and north Indian meals. Lite Bite is also a franchisee for Subway in India. The company also has two food courts in Delhi under the brand name of Food Union Clicks, a stand alone, high street format. In the short term the company will establish a pan India presence for Life Bite and in the long term they see the potential for specialty restaurant like Street Foods of India to be the Indian version of McDonald's globally. The company has already invested Rs 40 crore in the last one year to open 38 restaurants.
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RETAILERS EXIT MALLS |
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It is not only the larger retailers who are shutting stores, even the smaller retailers are packing up in droves from malls. As per a report in the Financial Chronicle, of the 70 shops functioning in the TDI mall at Rajouri Garden in the west of Delhi, 10 have already vacated. The retailers who have vacated are mostly smaller lifestyle shops. Penta Menaka Shopping Mall in Kochi is also seeing tenants moving out. Of the 104 rooms in the complex, 38 are vacant. The shops that have vacated recently are mainly mobile phone stores and a few private offices that have either closed down or moved to cheaper suburbs. Many of the existing tenants are waiting till the end of March. According to Kumar Rajagopalan, CEO of Retailers Association of India, sales in shopping malls have gone down by at least 10 % and in some cases even up to 50 %. This is reflected in the occupancy levels too. According to Samar Singh Shekhawat, vice-president, marketing of Spencer's Retail, on an average about 15 % shops in malls have closed down. The footfall has also come down by 15 to 20 %. The conversion rates in malls are usually lower than that in stand-alone and high-street stores since the novelty value of malls attracts more 'tourist traffic'.
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PROZONE SCALES DOWN OPERATIONS |
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Prozone, the mall development joint venture between apparel retailer Provogue and the UK's Liberty International, is scaling down its projects as retailers hold back their expansion plans in the current slowdown. Earlier, Prozone was planning 10 malls in the country. It will now build only six, postponing the rest to a later stage. The company is also scaling down the size of these upcoming malls. Originally, Prozone had plans to develop at least a million sq ft of space each in upcoming malls at Aurangabad, Jaipur, Nagpur and Indore. Now, it plans to build the malls in phases. The first phase will comprise only six lac sq ft. Prozone is also postponing the construction of parking lots at its four malls to save on building time and reduce capital expenditure. Earlier, the company was building two-level basement parking at its malls. Now it plans to build the levels at a later stage to conserve funds. Capital scarcity, high leverage positions and rising debt to equity ratios are slowing down expansion of retailers.
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UNORGANIZED RETAIL BUZ DOWN |
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Hawkers and small shopkeepers are witnessing a decline in business as per a survey of 400 hawkers and 100 shopkeepers across five cities by India FDI Watch and Action Aid. About 85% of those surveyed said business had fallen and attributed competition (from corporate retail outlet) as the number one reason for the decline of their business. This inspite of the fact that shopkeepers have increased their work hours to compete with big retailers with about 60% of hawkers and 64% of shopkeepers working 10-12 hours per day, while 24% worked for 13 hours or more.
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VINEET KAPILA, SPENCER RETAIL |
On rentals : "We are also negotiating with mall owners for rent, either in the form of reduction or revenue sharing. Rentals have dropped by around 30 - 40 % in tier-II and III cities. In tier-I and metropolitan cities, the correction is in the range of 15-20 percent. A further correction and its impact is likely to come by in the next few months. Ideally, 3-4 % of sales should go towards paying rents, but that situation will take years to happen."
On the company's focus areas : "On private labels and on fashion and accessories, as they provide twice the margin as compared with food. Close to 10 % of our revenues come from private labels and fashion (individually) right now and we intend to take it to 25 % each, in the next 18 to 24 months. In garments and accessories, profit margins can be as high as 30 - 50 percent, while for food and other FMCG products, the margin is around 12-15 %. We earn around 70 % from food. The rest is from non-food categories."
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