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                            The Indian Retail Market

                            October 15th, 2008 by Devangshu Dutta

                            (Written in September 2008)

                            Over the last few years India has had one of the highest GDP growth rates, across the world, and consistently. In the last two years GDP growth is estimated to have been 9.6 per cent (2006-07) and 9 per cent (2007-08).

                            A combination of private and public investments in recent years, as well as steady liberalisation of regulations, has created a situation that is unique in India’s history as an independent country, where business growth has lead to individual prosperity which is, in turn, leading to explosive growth of further business opportunities. Although India’s per capita income still places it in the list of “developing countries”, a significant population has emerged that is truly middle-class.

                            Rising incomes have created visible shifts in consumption patterns. Certainly, more Indians regularly consume cereal flakes, processed cheese and fruit-based drinks for breakfast than did ten years ago. A generation has grown to adulthood wrapped in ready-to-wear clothing (with visits to the tailor mainly for wedding trousseaux). And, yes, Indian consumers are increasingly welcoming modern retail environments over the traditional

                            These economic developments have attracted the attention of both domestic and international consumer-goods companies and retailers, and several of these companies have seen annual growth rates 20-50 per cent in the current decade. Many of the new entrants into the retail sector are large business groups that have set up modern retail chains whose share, although still small, is growing year-upon-year.

                            This growth of modern retailing is also having an impact on the processes and the infrastructure deployed for the retail sector. These businesses are run as true chains which require processes and systems similar to any chain-store business anywhere else in the world including merchandising, sourcing, human resource management, logistics and store operations. These modern retail stores demand Grade-A buildings for shopping centres, with associated infrastructure and services within them.

                            Therefore this, in turn, has created a growing opportunity for companies that are manufacturers or vendors of consumer products, suppliers of other goods that are used within a retail business or companies providing services to the retail sector.

                            In the rush to grow, while challenges have been acknowledged, none of them have appeared seriously debilitating in the long term, until possibly now.

                            During the years 2003 through 2007, news headlines mainly focussed on joint-ventures or strategic alliances, new store openings, new format launches, and mega-investment plans. If human resources were mentioned, it was about the apparent domestic shortage, about the expatriate talent being pulled in, and about incredible salaries. If shopping centres and retail space was studied, it was the phenomenal growth in square footage and the increasing scale of the new malls that was the focus.

                            Suddenly, however, the tide in the press seems to have turned. There’s mention of “slow” growth plans of major retail joint ventures. There’s whisperings and denials about lay-offs, accompanied by some high-visibility exits.

                            It would be tempting to read the signs as evidence that the previous growth was based on hype, which has run out of steam. It would be tempting, and it would also be too simplistic.

                            The fact is that macroeconomic factors are also acting as dampeners in 2008, and the year may be marked in the recent history of India’s modern retail sector for the dawn of realism. Just as the growth of the retail sector was reaching into the not so profitable geographies and beginning to ride on not very efficient structures, economic growth has begun to slow down dramatically. From a 9 per cent-plus growth rate in previous years, a variety of agencies expect GDP to grow between 7.5 and 7.9 per cent in 2008-09. Further, the Prime Minister’s Economic Advisory Council forecasts a GDP growth rate of 6.8 per cent in 2009-10.

                            What’s more, 2006 and 2007 have brought about phenomenal increases in two critical cost heads: real estate and human resource.

                            So on the one hand, retailers are facing dramatically higher operating costs, and on the other hand demand seems to be weaker than they have expected. For businesses that have been launched in the last 5-7 years, such a situation is completely new. Read the rest of this entry »

                            Posted in Apparel, Branding, Consumer, Corporate Social Responsibility, Entrepreneurship, Food & Grocery, Footwear, India, Lifestyle & Fashion, Market Research, Marketing, Retail, Soft Goods, Strategy, Textiles, Uncategorized | No Comments »

                            Are Your Deals Still in the Fridge?

                            October 14th, 2008 by Devangshu Dutta

                            If you’re like me, then at any given point of time you have a vague idea about what is in your refrigerator, but not quite. That must why we end up buying stuff that duplicates what is already in the fridge.

                            Here’s an example of what that translates into for me:

                            • A second bottle of chilly sauce, when the first one is only half-way through
                            • Three semi-consumed jars of jams and preserves, none of which look anywhere near finishing for the next couple of months
                            • Three packs of juice because one came “free” with two others (and all open because the family does not coordinate its consumption of flavours!)

                            At other times, it is the semi-consumed half-loaf of bread that gets trashed half-way through its fossilization process. Or the new flavour of cheese spread, where the price offer may have been tastier than the spread itself.

                            I sure there will be at least some among you who would have similar stories. (I would be shattered if I’m told that I am the only one with these tales of inadvertent consumption!)

                            In the normal course, we would not call ourselves excessive consumers. For the most part, we believe we display rational shopping behaviour. We make our lists before leaving for the market and we generally know which shop or shops we want to stop in at. So, why do we end up doubling or trebling our purchases, when we aren’t actively “consuming” double or triple the amount of food?

                            Well, the lords of marketing spin have mapped their way into our minds. In a strategy that has been proven over centuries, we are offered things ‘free’ or at a significant discount. The very thought of getting something for free, or for less than what it is worth, is so seductive and irresistible.

                            (As an aside, just look at what has happened during the last few years in the real estate market and the stock market – everyone thought that they were getting a good deal because the stuff was “worth actually more” than the amount they were paying. Not!)

                            We believe we are being rational in buying the three packs of juice at the price of two – never mind the fact that juice wasn’t on the shopping list in the first place. The danglers and end-caps jump out and ambush us, as we walk through the aisles. The samplers entice in their small voices: “try me”.

                            You might say that the really traditional kiranawala is the customer’s greatest friend and also a barrier against uncontrolled consumption.

                            By keeping the merchandise behind the counter or in the back-room, he maintains a healthy distance between the addiction source and all us potential shopaholics. In fact, he goes beyond the call of duty, and even prevents us from stepping anywhere near the merchandise by delivering to our homes.

                            The enticing deals and offers that you can’t see won’t hurt you. You won’t call to get that new, exciting BOGO (buy one-get one) offer, because you don’t know that it’s there in the store.

                            Unless, of course, the sneaky brand with its accomplice – the advertising agency – sidesteps him, and puts out the temptation in your morning newspaper.

                            By now, surely, you’re wondering whose side I am on.

                            Well, as a consumer and a customer, I am only on one side – mine!

                            As someone who is intensively involved with the retail sector, I’m also on the side of the brands and the retailers.

                            And believe me, we are all actually sitting on the same side of the table.

                            The years in this decade, after the recovery from the minor blip of dot-com busts, have been like one mega party and most people have forgotten that parties seldom last forever. And the morning after the wild party can start with quite a headache.

                            Retailers and brands have recently acted as if there is no end to multiplier annual growth rates, and consumers have been only to happy to prove them right. Until now.

                            Currently, we are passing through a fairly serious global economic correction which started in 2007. But it has only really hit hard in the last couple of months, as the headlines have increasingly started talking about recessions and depressions. Naturally, there are some people who have really lost money, others may be looking at the possibility of lower income. But even those people who sustain their current incomes are “feeling poor”, just as they were “feeling wealthy” when the markets were booming.

                            Of course, superfluous or discretionary expenditure such as movies in multiplexes, eating out etc. are the first to get hit. But should grocery retailers rest easy – after all, people still have to eat, right?

                            And how about deals, and multi-buy discounts – isn’t this the scenario where “more for less” will be the strategy which will work?

                            Well, I don’t believe it is quite so cut-and-dried, or quite so simple. The grocery shopping lists will not only become tighter, but will also be more tightly adhered to. Anything that looks like it may be a wasteful expense will be unlikely.

                            Remember the deals in the fridge? What you are throwing away now starts looking like money being put into the trash.

                            Pardon the seemingly sexist remark, but men: your wives will not let you get away with driving your trolleys irresponsibly into aisles where you are not supposed to be!

                            So how should retailers and brands respond?

                            Well, a good starting point would be to understand what the real market is. Let us not infinitely extrapolate growth figures on a excel spreadsheet on the basis of the early-years of new businesses. Let us not extrapolate national demand numbers from the consumption patterns of select suburbs of Delhi and Mumbai.

                            When we have the numbers right, let’s look at the business fundamentals at those basic levels of consumption. Is there a viable business model?

                            Is the business full of productive resources, or are we overstaffed with “cheap Indian labour”?

                            Is your modern retail business or your food / FMCG brand really providing value to the Indian consumer? For instance, two very senior people from large retail companies were very vocal this last weekend in stating that the value provided by local business to the value-conscious consumer was grossly underestimated by the industry.

                            I believe that best filter for business plans is the filter of business sustainability. How sustainable is the business over the next few years? What is the real demand? What are the true cost structures, and can these be supported on an inflationary basis year-on-year, or will you be squeezing the vendors for more margin at every stage until the relationship goes into a death spiral?

                            Let’s look at macro-economics. Are you actively looking at generating and spreading wealth and income around, or is your focus only on stuffing that third pack of juice into the fridge for it to go stale? If your strategy is the latter one then, to my mind, that is neither a sustainable economic model nor a sustainable business.

                            There’s more about the current and developing economic scenario, “realistic retailing” and other such issues, elsewhere on the Third Eyesight website and blog, including a presentation made at the CII National Retail Summit in November 2006 (download or read as a PDF). (The article based on that presentation is here.)

                            I really look forward to your thoughts and would welcome a dialogue on how you believe retailers and brands should work through the next few years as we unravel the excesses of the recent past.

                            Posted in COLUMN-Progressive Grocer, Corporate Social Responsibility, Food & Grocery, India, Marketing, Retail, Strategy, Uncategorized | 3 Comments »

                            What do trends mean for your design process? Workshop on Product Development – 24-Oct-08, ITC Sheraton, New Delhi

                            October 11th, 2008 by admin

                            Differentiation is the key to surviving and thriving in tough times. In the lifestyle products sector (apparel, footwear, home, etc.) a big difference is the product design itself.

                            More than ever, it is vital for Indian companies – brands, suppliers as well as retailers – to develop their own design and product development team, in the shortest time. The team, including designers, merchandisers, buyers, sourcing people, textile and apparel manufacturers – must sharpen their skills in reading the market trends and in developing new products that can make their brands or retail stores stand apart in the customer’s eyes.

                            To share its insights and experience, Third Eyesight is organizing an intensive workshop on Product Development and Forecasting (with an insight on Trends for Autumn/Winter 2009/2010).?Click to?REGISTER NOW.

                            The workshop will draw upon live experiences from the area of product development in the lifestyle and fashion sector, and?will cover:

                            • Knowing the business planning process that provides the framework for development of apparel/lifestyle products
                            • Understanding lifestyle product line planning to retain the novelty of fashion merchandise
                            • Exploring concepts within the creative process such as the elements and principles of fashion design
                            • The process of product development in the fashion industry through an understanding of the international forecasting processes
                            • Using trend and color forecasting to initiate style ideas: with a special focus on the A/W 2009/2010 forecast from international sources such as the Premiere Vision Paris

                            Past workshops have included top / senior managers from companies such as:


                            • Benetton
                            • Levi Strauss
                            • Reliance
                            • Aditya Birla Retail
                            • Tarun?Tahiliani Design
                            • Trent (Tata)
                            • Arvind Brands
                            • ColorPlus
                            • Etam
                            • ITC
                            • USI
                            • Numero Uno?
                            • …and several others.

                            Discounted delegate fees start at just over Rs. 9,000.

                            Click to REGISTER NOW. More details?here.

                            Posted in Apparel, EVENTS, Footwear, India, Lifestyle & Fashion, Product Development and Design, Soft Goods, Supply Chain, Textiles | No Comments »

                            Price Parity or Disparity for an International Brand

                            October 10th, 2008 by Tarang Gautam Saxena

                            I recently had the opportunity of window shopping with some friends visiting India and it was interesting to note how visitors to India from different continents react to the retail prices of the products of the international brands available in the Indian market.?

                            Friends from Europe (specifically from the UK, which is a relatively expensive country to live in) were pleasantly surprised to find the prices of some of the products of international brands such as L’Oreal, Tommy Hilfiger, Marks & Spencer and Levi Strauss cheaper and they extended their list of things to buy from India at the cost of paying for the extra baggage on their way home. (Well, it also happened to be the discount season during their visit.)

                            On the other hand, friends from Canada who had arrived a few weeks earlier (before the discount sales started) ?found the products of international brands too expensive by “Indian standards” and decided that they should do their shopping back in their home country during the markdown sales for Halloween or Christmas!! After all, shouldn’t India be cheaper?!

                            Yet again, a case in point, when I visited a “just opened” retail outlet of an international brand at a well known mall in the NCR region, I noticed the Rupee price mentioned on the tag was higher than the converted value of the unit price printed in Euros on the same tag. As a consumer I rationalized that probably the brand was launched in a hurry and one forgot to remove the Euro price stickers, though it may also have been a possibility that since the products were imported, the high import duty structure may have resulted in a higher Indian price!

                            Is it possible for the international brands to follow a common pricing globally? ?Could the international brands integrate the global tariff barriers/ duties, and currency conversions?in their cost structure and have their products priced the same across all international borders?

                            Well, maybe not just yet…although some brands have tried. For now, consumers can only hope for more parity.

                            Come to think of it…..if you went shopping in the UK after the US you may just find that for some products the prices (read digits) appear to be the same ……only the “$” would have been replaced by£”.

                            Posted in Consumer, Customer Relationship, India, Lifestyle & Fashion, Marketing, Retail, Soft Goods, Strategy, Uncategorized | No Comments »

                            If you feel you are going through hell…

                            October 8th, 2008 by Devangshu Dutta

                            The title of this post is from a Winston Churchill quote that I came across a few days ago. I thought this is a must-have on the desk of every entrepreneur in the current times to look at every day, maybe several times each day.

                            But why only entrepreneurs? Any one and everyone who has been touched or fears being touched by the economic downturn needs to keep this thought in mind.

                            A few days ago I heard an impassioned monologue from an entrepreneur, founder of a mid-sized listed brand manufacturer & retailer in India, when the first two of the big investment banks in the USA collapsed. He repeated one theme of despair several times – “How can there be wealth / money available at the closing of the business day, and then suddenly in the morning such a well-established institution is no more – all the wealth seemingly lost overnight? Is nothing certain?”

                            Sometimes an important part of building a great business may just be having the ability to live through a downturn.

                            Here’s another quote from a Forbes article titled – “The Greatest Risks They Ever Took”: …Kit DesLauriers, the first person to ski from all seven summits. Of her descent from the top of Mount Everest, she says: “There were no safety nets, no fixed lines established, freezing winds. We had to spend an unplanned night at 26,000 feet, with very little food and water. The next day, we skied the Lhotse Face, 5,000 feet of blue ice on a 50-degree slope…At one point, we ran out of oxygen. I kept telling myself: “Don’t sit down and die. Just keep going.’ It’s really easy to let your mind get a hold of you, but the journey taught me we are much more than our minds.” (The whole article is available here.)

                            Times like these are mainly about mind-games that we play against ourselves – the daily newspaper, the stock ticker on TV, the conversations in the hallway all contribute to the feeling of helplessness. But the biggest freefall is within us. So, remember Churchill’s thought: “If you feel you’re going through hell…just keep going.”

                            Posted in Entrepreneurship, Leadership, Strategy, Uncategorized | No Comments »

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