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Amazon enters India

February 3rd, 2012 by Devangshu Dutta

Amazon has beta-launched a consumer-facing business in India with its comparison shopping site Junglee.com.

The company has been engaged with India as a support and development centre for several years now, and its traffic and business from India has also grown steadily ever since it started shipping products to the country.

Given the critical mass that is now becoming visible in the Indian e-commerce market, it is logical for Amazon to look at a more direct customer-facing presence here. Its recent moves to set up a fulfillment centre and now the Junglee.com launch certainly look like precursors to a retail launch, whenever the government allows foreign investment multi-brand retail businesses.

Junglee’s current business model is technically not a retail business since the actual transaction would happen on Amazon and websites of other retailers whose product listings it is aggregating.

In the short term, Junglee could be a beneficial partner to existing e-commerce retailers, since Amazon’s robust technology and know-how would become available as a platform, and it would also provide an additional channel for customer traffic. However, with time, Junglee could well become a sizeable competitor for primary traffic which otherwise would have landed directly on the retailers’ own websites. Smaller e-tailers who sign up with Junglee may also find it harder to break away into an independent presence.

The benefit to Amazon, of course, is developing the customer base for a future Amazon-India site, and achieving much deeper insights on customer shopping behavior in India than it possibly gets from the Indian customers transacting on Amazon’s non-Indian websites.

With time, and as Amazon takes a deeper plunge into the market, Indian customers who have enjoyed the Amazon experience remotely can certainly look forward to a wider choice of products at lower costs and with quicker deliveries.

Posted in Branding, Customer Relationship, e-commerce, India, Market Research, Marketing, Retail, Strategy, Supply Chain, Uncategorized | No Comments »

Global QSRs Dissecting the Indian fast food pie

January 17th, 2012 by admin

Global quick-service restaurant brands are expanding their footprint in the quickly evolving Indian market. But some are also falling by the wayside.

Here are some perspectives from the industry (ET Now telecast video – about 6 minutes):

Posted in Branding, Consumer, Food & Grocery, India, Marketing, Product Development and Design, Retail, Strategy, Supply Chain, Uncategorized | No Comments »

The Year That Could Be

January 6th, 2012 by Devangshu Dutta

The transition between calendar years offers a pause. We can use it to evaluate what passed in the previous year, chalk out our journey for the next one.

The first response of most people to the question “What happened in the Indian retail sector in 2011” would be probably something like this: lots happened, and then – at the end – nothing did!

That is because one theme ran through the entire year, month after month, fuelled by tremendous interest in the mainstream media as well. This was about the change expected, hoped for, in the policy governing foreign direct investment (FDI) into the retail sector. Hearing the debate go back and forth, on one side it seemed as if FDI was going to cure every ill of the Indian economy, and on the other it seemed as if the country was being sold out to neo-colonists.

It’s worth remembering that not too long ago foreigners could invest in retail businesses in India freely. Benetton ran some of the key locations in the network through its joint-venture which subsequently became a 100 per cent owned subsidiary. Littlewoods (UK) set up a 100 per cent owned operation in India during the 1990s before its home market business collapsed, and its Indian operation was bought by the Tata Group to form Westside. And well before all these, one of the early multi-nationals, Bata, had already built a humongous network of stores across the length, breadth and depth of India.

The motivation for the decision to exclude foreigners from this sector may have been political, economic or mixed – that is not as important as the timing.

By the mid-90s India had just started to attract interest as private consumption was just about picking up steam. Several international apparel, sportswear and quick service brands entered the market during this time. Many of these brands started setting up processes and systems that changed the way the supply chain worked. They gained market share, and more importantly mindshare, with young consumers. In this process some of the domestic brands did suffer, some of them irrecoverably. However, with foreign investment suddenly blocked-off, many brands that wanted direct ownership in the business in India turned away. In their opinion the opportunity just wasn’t big enough to take on the hassle of a partner. Some did enter, but with wholesale distribution structures rather than in retail.

During this last decade, the Indian retail landscape has changed dramatically. During the 2000s the economic boom happened and India became “hot” again. So did retail and real estate, as large corporate houses pumped in significant amounts of capital into setting up modern chains to tap into the fattening consumer wallets. Clearly, FDI was going to come up on the agenda again, but not quite at once. Indian companies needed some headroom to grow; and grow they did, partly with indigenous business models and brands, and partly as partners to international brands.

By 2011, there was more of a clear consensus among the Indian businesses that retail could be opened to FDI and must be. Internationally, too, political and economic heavy-weights from the significant western economies pitched for opening up the retail sector in India to foreign investment. Here’s the small public glimpse of the hectic activity that happened internationally and domestically:

  • January: UK pushes for FDI; Indian ministers say the decision would not be rushed but look forward to attracting $250 billion FDI between 2011 and 2015
  • February: some ministers say that the government is close to a decision but the timing is not yet right
  • March: a senior government official notes that FDI is not essential to bring down inflation, while the finance minister reiterates that there is no decision yet
  • May: another senior government official says that FDI is needed to tame inflation
  • July: the prime minister says that the government is working to build consensus; the Committee of Secretaries recommends relaxation in FDI norms
  • August-October: pronouncements progressively indicate a relaxation, but without a definite time-line
  • November: cabinet approves 100 per cent FDI in single brand retail and 51 per cent in multi-brand, but severe political backlash pushes government to reconsider
  • December: murmurs emerge about the delinking of decisions on single brand and multi-brand retail, so that some progress can be made

Such an anticlimax! For many, 2011 was the year that could have been a turning point. Could have been! If you had slept through the year and woken up on New Year’s Eve, would you have found nothing had really changed?

Ah, that’s the thing! I think most people observing the retail business actually slept through the year, because they were just focused on the FDI dream. Those actually engaged in the retail business know that many other things did change, some of which create the foundation for further growth.

The government did push on with the GST (goods and services tax) agenda. While stuck in politics at the moment, we look forward to incremental changes in harmonizing the taxes and tariffs regime, vital for truly unifying the country in the economic sense. On the downside, excise being levied on the retail price of clothing was a blow to retailers.

Growth continued. Indian’s retail giant, Future Group, grew to around 15 million square feet. The other giant, Reliance, announced renewed vigour and focus on the retail business with additions to the management team partnerships with international brands such as Kenneth Cole, Quiksilver and Roxy. Other new partnerships were announced, including significant American food service brands Starbucks (with the Tata Group) and Dunkin’ Donuts (with Jubilant). The British footwear brand Clark’s announced that it was aiming to make India its second-largest source country and among its top-5 markets within 5 years. Marks & Spencer pushed to expand its chain by more than 50 per cent, adding 10 stores to 19, while Walmart said its focus was on building scale rather than trying to squeeze profitability from its US$ 40 million investment so far. For fashion brands, the Rs 500 crores (US$ 100 million) sales threshold seemed more achievable as they used the accelerated pace of growth.

Many in the retail business talk about “the people problem”. Fortunately, some decided to demonstrate positive leadership, reflected in RAI’s announcement of an ambitious skill development plan for 5 million people in next 4-5 years, and industry veteran BS Nagesh announcing the launch of a non-profit venture, TRRAIN.

There was some bad news on the issue of shrinkage: a sponsored study placed India at the top of the list of countries suffering from theft. But the level was reported to be lower than the previous study, so there seemed to be hope on the horizon. The study didn’t say whether consumers and employees had become more honest, better security systems were preventing theft, or whether retailers themselves had become better at counting and managing merchandise over time.

A significant highlight was the e-commerce sector, which has found its way to grow within the existing restrictions and regulations, even as the online population is estimated to have grown to 100 million. Flipkart delighted customers with its service and racked up Rs. 50 crores (US$ 10 million) in sales. Deal sites proliferated and media channels celebrated the advertising budgets. Even offline businesses, notable among them pizza-major Domino’s, found their online mojo; Domino’s reported 10 per cent of its total revenues from online bookings within a year of launching the service.

In all of this the biggest story remains untold, which is why I call it an Invisible Revolution. This revolution is made up of the changes that are happening in the supply chain in the entire country, including investment by private companies in massive, large and small facilities to store, move and process products more efficiently. And in spite of the high costs of capital, suppliers are continuing to look at investing in upgrading their production facilities as well as their systems and processes. While the companies at the front-end will no doubt get a lot of the credit for modernizing India’s retail sector, it would be impossible without the support of the foundation that is being built by their suppliers and service providers.

2011 seems to have ended with a whimper. 2012’s beginning will be tainted by large piles of leftover inventory that needs to be cleared. Inflation seems tamer, but consumers have already tightened their belts, anticipating difficult times. The policy flip-flops and the political debates are sustaining the air of uncertainty. So what does 2012 hold?

Remember, the ancient Mayan calendar stops in December 2012, and no doubt there are many predicting doomsday! However, there are several others that see this as a possibility of rejuvenation, renewal.

Hope and fear are both fuel for taking action. Investment cycles are caused by an imbalance of one over the other.

In 2012, we’ll probably continue to see a mix of both. I recommend that we don’t take an overdose of any one of them. Even if you think 2011 was “the year that could have been”, I suggest still treating 2012 as “the year that could be”.

Here’s wishing you a successful New Year!

Posted in Apparel, Branding, Consumer, Corporate Social Responsibility, Food & Grocery, Footwear, India, Leadership, Lifestyle & Fashion, Marketing, Outsourcing, Product Development and Design, Retail, Soft Goods, Strategy, Supply Chain, Textiles, Uncategorized | No Comments »

Indian Terrain looks at sourcing from the Americas

August 26th, 2011 by Devangshu Dutta

Indian Terrain Fashions’ plans to launch a ‘Made in America’ jeans brand using denim from a US mill made into jeans in Guatemala, is a move that bucks trends for brands sold in India. The move is an interesting twist in the growth story of a 10-year-old brand that was, until recently, a business division of the Chennai-based apparel manufacturer Celebrity Fashions. Celebrity’s notable customers include Gap, Nautica, Armani Jeans, Timberland, Dockers and Ann Taylor.

About five years ago, Celebrity had invested in growing its capacity by acquiring another exporter’s manufacturing facilities. However, Celebrity’s manufacturing and export business has been under pressure due to the difficult environment in its main markets, and last year Indian Terrain was demerged from its parent.

It now seems Indian Terrain is striking out on an independent path, with plans to launch a ‘Made in America’ jeans brand. Managing director Venkatesh Rajgopal says the company proposes to source the denim from an American mill and have the jeans manufactured Denimatrix in Guatemala, which also produces for brands such as Abercrombie & Fitch. According to him, Indian Terrain will use the same raw material as Abercrombie & Fitch, and “will be able to track every pair of jeans to the same cotton fields in Texas.”

The company’s competitors, both domestic and international brands operating in India, mainly buy denim products from within the country.

Denim is currently a very small part of Indian Terrain’s casualwear product mix which is largely sourced from its parent, Celebrity Fashions. The company is looking at launching the “mid-premium” priced brand in September that will not be “just about quality, but about offering a lifestyle.” Rajgopal estimates that denim has the potential to grow to 30-35% of the company’s business in three years.

The demerger of Indian Terrain from its parent company was carried out in 2010 with a view to achieving better valuation for the branded business and to provide additional liquidity to its founders and private equity investors. The company is currently present at about 80 exclusive brand stores and through 400 multi-brand retail stores, in eight cities, as well as in Singapore’s Mustafa Mall. It closed the financial year ending 31 March 2011 with sales of INR1.21bn (US$27m), and expects to grow its top line by 25% this year.

Its retail customers wait to see whether Indian Terrain will be able to effectively integrate denim into its core brand philosophy and grow to a third of the product range. However, for investors the critical question is this: after the demerger from the manufacturing parent and with product being imported from the Americas, will the brand business be able to maintain gross margins at the current levels of about 40% to 45%? Only time will tell.

Posted in Apparel, Branding, Consumer, Entrepreneurship, Footwear, India, Leadership, Lifestyle & Fashion, Marketing, Outsourcing, Product Development and Design, Retail, Soft Goods, Strategy, Supply Chain, Textiles, Uncategorized | No Comments »

Chargebacks – the Ugly Side of Retailer-Vendor Partnership

May 21st, 2010 by Devangshu Dutta

A lively discussion / debate took place on Retailwire.com about whether retailers were using chargebacks as justifiable penalties for poor performance by vendors or an unjustified means of generating income for the retailers.

The fact is that fees, discounts and chargebacks are becoming more common, and in private conversations – when no retail customer is within earshot – vendors will verify this. Retailers say that such chargebacks are only compensation for vendors not complying with processes that have been clearly laid down and agreed to, since non-compliance creates extra costs for the retailer, or loses the retailer margin.

But is vendor performance really becoming worse with each passing season? Or is it that difficult trading conditions or insufficient skills are making buyers take this easy road to margin?

It’s an open secret that merchandise quality and delays - the two most common causes for chargebacks - are easily overlooked when the market is hot and the product is in demand.

Chargebacks are a dangerous tool in the hands of a lazy, short-term thinking buyer who is incentivised on gross/realised margins from season to season; to him/her they are a quicker way to get to that bonus check for the season. Pragmatic vendors, for the most part, don’t want to antagonise the buyer because that risks not just business with the current retail customer, but any retailer that the buyer moves to in the future.

It’s ironic that vendors are mainly cited as “partners” when it comes to sharing the retailer’s pain. I don’t recall any retailer calling such vendor-partners up to a stage for distributing checks to share extra margin in particularly profitable years. Comments are welcome from anyone who can remember that happening; we’ll all have something inspiring to quote in industry meets, then. (And I’m really hoping some comments quoting such incidents will appear soon!)

The Retailwire discussion on this topic (with comments justifying both sides) is here - ”Clothing Vendors Take a Chargeback Hit” – and the original article in Crain’s New York Business is here - ”Retailer fee frenzy hits designers“.

Posted in Apparel, Food & Grocery, Footwear, Lifestyle & Fashion, Outsourcing, Product Development and Design, Retail, Soft Goods, Supply Chain, Textiles, Uncategorized | No Comments »

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