India’s Bazaar going Bizarre?

By Priya Nigam

I keep reading about the high inflation rate India is reeling under. Does that really stop us from some well deserved “retail therapy”? No, not really.

Over the past decade, India has pulled up its socks and decided to make its presence felt in the global economy. This is not only in terms of outsourcing and exports, but also consumption. We have certainly taken steps in the right direction over the last ten years and the resultant high economic growth rates have boosted the middle class and our spending power. Income has more than doubled in the last 20 years. With that, India has become the retailer’s dream come true! India is a huge and lucrative market. Around 72 million cell phones and 10 million automobiles are estimated to have been sold in the country last year. Now there is talk of the iPhone (8GB version) being launched at a price of up to Rs28,000. If you consider that too high for the Indian market, think again. We are already buying the much-hyped, touch screen device from the gray market for around that price!

According to DNA Money, an industry survey indicates that India’s retail business would continue to grow over the next five years, despite the global consumer slowdown. In fact, the survey conducted by retail consultancy firm Technopak shows that the Indian retail sector could attract an investment of $30 billion over the next five years, with about 50% of this going into the top eight cities of the country. And this figure does not include investments in malls and other ancillary industries. This investment could come from both foreign direct investments (FDIs) and investments from domestic majors.

UK-based Marks and Spencer has entered into a 51:49 joint venture with Reliance Retail, headed by Mukesh Ambani. The British chain store plans to invest £29 million to set up 50 or more stores across India over the next five years. The Wall Street Journal’s Mint quoted Marks and Spencer CEO Stuart Rose as saying that “the biggest opportunities we see are in India.” Meanwhile, Bharti Enterprises plans to spend up to $2.5 billion on its retail venture by 2015. Earlier this week, the company, which is a wholly-owned subsidiary of the Bharti Group, launched its first food and grocery store (called Easy Day) in Ludhiana.

Earlier this month, Aditya Birla’s retail arm, Aditya Birla Retail Ltd (ABRL), unveiled its plans to add around ten hypermarkets across India this year. This expansion plan involves an investment of Rs250 crore. The company also aims at launching several superstores under the “More” brand name.

In AT Kearney's annual Global Retail Development Index (GRDI), India has maintained its position as the most attractive market for retail investment for the third consecutive year. So, we are sure to hear about more investments pouring into the retail sector in the near future.

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India FDI in Retail to Open Soon according to Mr. Chidambaram

By Vipin Agnihotri

In my opinion, it’s a great irony that on one hand Finance minister of India P Chidambaram is pretty confident that FDI in retail is only a matter of time, while on the other the government assures that the retail sector, valuing more than $300 billion, will be opened for FDI only after the mom-pop stores are convinced that it will not pose any sort of danger to them.

But if experts are to be believed, going by the present crisis, this dream will not come true in years to come. It is worth mentioning in this regard that the protests by the small retailers have taken such a toll that they are not even sparing the Indian players.

Generally speaking, Reliance Fresh is facing the brunt of the small retailers’ assault especially in Uttar Pradesh, West Bengal and Kerala. Indications are that Mayawati’s government and Kolkata Trade Union don’t want to rely in any freshness in retailing sector as they spoil Reliance Fresh’s party in their terrain.

Taking this into account, the question now arises: What is the upshot of all this fiasco? Well, according to sources, plans of Reliance Retail starting 130 Reliance Fresh stores across Delhi, Uttar Pradesh and Uttarakhand have taken a back seat for the moment.

It has come into the notice of The India Street that the company has laid-off more than 800 workers from its workforce in Uttar Pradesh. It’s a real shocker to me that that in Uttar Pradesh only Reliance Retail is facing the agony while other identical stores such as Big Bazaar, Spencer and Subhiksha continue to cater their customers without much ado.

Now one can pretty much imagine the sort of calamities, international players will face when they open their shops in India. The pivotal factor here is that after all this redundant bureaucracy will they be really interested? The answer of this question is a bit tricky but the sheer size of the industry will lure some of them if not all.

Chidambaram’s word might also come true and all the retaliation will become a thing of the past, but it looks highly unlikely.

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$30 Billion - India Luxury going to be a Huge Industry by 2015

Imagine a luxury avenue like New Bond St in London or 5^th Ave in New York in the middle of Bombay or Delhi. Believe me, some savvy real estate developers are thinking of such a concept today.

According to a survey done by AT Kearney for The Economic Times, Indians spend $2.9 billion on luxury products and services (private jets, luxury homes, cars, yachts and art), and spend another $953 million on luxury services and top it by buying luxury goods worth $377 million. The survey was revealed at the Economic Times first-ever luxury conference “Dialogue on Luxury”.

Now if you believe such reports as prepared by McKinsey or AT Kearney, the luxury market is well on its way to becoming a huge market for foreign retailers and indigenous India retailers. I caution you however, these reports are typically made to suit the interests of the report payee. I do agree with its conclusion, India luxury goods and services will be a tremendous growth opportunity in the future.

The survey revealed that the typical luxury brand consumer is 25-34 and usually an industrialist. Most remarkably, according to Neelesh Hundekari of AT Kearney, there is no guilt feeling associated with spending on luxury. The survey also revealed that the Indian consumer wants to be first to get luxury items, is a tough negotiator for the same goods, and likes the recognition and respect of “making it”.

We have covered the HNW individual, luxury goods and luxury services for some time. While it may seem a bit strange at this point to see luxury and India in the same sentence, it’s coming to India like it or not. We like it - it means the country is creating wealth. Yes, some will get ultra-wealthy and ostentatious, but a rising tide floats all boats, so India’s poor will also benefit.

“The high net worth Indians have a catchment area of $500 million which is growing rapidly. So we must look forward to the emergence of new rich category that may immediately translate into spending in the market,” said Ficci secretary-general Dr Amit Mitra.

BBC Video on Luxury in India

Still there are challenges for foreign luxury retailers that need to be overcome. First, customs duty for watches are 65%, and some watch dealers don’t like operating in India because of the low profit margins. Another issue is the fake luxury good market. Mahesh Mehta, manager business planning and merchandiser, Priority Marketing, which distributes brands Emporio Armani, Fossil, DKNY, Kenneth Cole Reaction, Aspen, Levis, and others, says: “The biggest challenge in the luxury watch market is that the volumes are low and the valuation is very high. Also, India has a blooming grey market, which nestles fake watches of almost every brand.”

Need a Luxury Model – Follow Singapore

So despite the challenges (mainly again infrastructure) the luxury market is well on track to reaching $30 billion by 2015. India’s new airports are a good start while only the tip of the proverbial iceberg. Examining Singapore’s 3^rd world to 1^st world model, they built a world class airport, then world class avenues from the airport to the center of the city, then started demolishing and rebuilding Class A buildings in the city center.

Hence, picture a wealthy international visitor or businessman entering Singapore for the first time back then. All they saw from airport to downtown office or shopping areas were world-class infrastructure that they were accustomed to at home. They felt comfortable, so the businessman invested in Singapore, while the wealthy visitor spent money on Singapore goods. When businessman and luxury traveler returned home both reported to their circle of influence of the need to invest or visit Singapore.

India needs a similar “user experience” for first time and returning foreign travelers. While “old India” still provokes blissful memories for some, today’s India youth want a better life with better infrastructure to support their growing affluence. Thus $30 billion by 2015 is not only good for the high net worth (HNW) individual and luxury retailer; it’s good for all of India because the top of the income pyramid will trickle down to the poorest.

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A Call to Action: Support Reliance Fresh

One of the many blogs we read here is India Retail Biz and while I don’t know the team that runs the site, their news analysis is solid and specific to India retail. When I read their article titled Reliance faces another storm; this time it is Uttrakhand! I was struck by the alarming pattern of anti-free trade practices by a select group of traders. I want to urge our readers to support Reliance (even if you don’t like the company) and notify your government leaders to support free trade in retail. India simply can’t have these incidents take place without a strong reaction from the government. Both farmer and business are aligned in this fight against the anti-free-traders which clearly tells me the fight is just.

According to India Retail Biz: “Earlier in the face of traders’ protests in Uttar Pradesh, the state government had ordered closure of all standalone food and grocery stores run by corporate houses.”

That illustrates the anti-free-trade crowd is not limited in geography because it appeared now in two different areas. Therefore, if the government does not act strongly against them, the message sent to Retailers in and outside of India is stay away because we can’t protect your rights. I was pleased to see a group of farmer’s protesting the anti-free-traders putting pressure on them to stop their violent tactics. Hopefully more farmers will take up the call and stop the ridiculous practice of having farmer’s wait as long as 7 days to sell their food supply to an intermediary. As for the fight, we’ll see if the government ends up being a lion or a mouse.

If you were a farmer, business or consumer which scenario picture would you prefer?

Unorganized markets	Organized Markets
Farmers in the queue at an unorganized government run market	Organized retail brings more product to market faster with lower prices – Business, farmer and consumer win.

- The Editor

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Vishal Mega Mart Walks the Plank

By Vipin Agnihotri

Everyone in India is talking of ‘Retail’ being the next sunrise sector but there is a real danger that one mega player is approaching sunset unless, it alters course. Yes you guess it right! We are talking about the Vishal Mega Mart, who has captured imaginations of wannabe entrepreneurs.

At this moment of time, Vishal Retail boasts of 53 showrooms in 41 cities splattered across 18 states on the Indian map. Generally speaking, company is more into the tier II and tier III cities. You may ask: Why? There are two reasons behind this strategy. First and foremost, the lower real estate and infrastructural costs in these cities. Secondly, the virgin markets in such places make the markets conducive for players like Vishal Mega Mart.

In terms of statistics, company recorded a turnover of Rs 6.03 billion during financial year 2006-07 with an aggressive CAGR of 86 percent. What’s more, company profit figures during the same period also shot past the Rs 250 million mark. You may think that these figures are absolutely stunning but when you compare these figures with the prime competitor of Vishal you will realize why there is tough road ahead for Vishal Retail.

Pantaloons Retail last year managed a sales turnover figure of Rs 19.0 billion, clearly outshining Vishal. If experts are to be believed, down market and low profile cloud surrounding Vishal stores is the main reason behind all this. Furthermore, with Indian middle class going truly urban, Vishal may just soon question its present strategy of risking too much on its value for money offering.

In my opinion, the young adults of India are ambitious and have money to spend on their lifestyle. It is worth mentioning in this regard that they are also brand conscious and internationally aware of what their counterparts in the west are wearing. This is a danger sign for Vishal.

With names such as Reliance, Bharti-Walmart and Bombay Dyeing eyeing the fertile Indian retail space, the going will only get tougher for Vishal. Creating sub-brands can do the trick for Vishal. In addition, Vishal should diversify into the food retailing business, which is clearly making waves around the country.

Making matter worse for Vishal is the politicians of India who just because of some votes are opposing the entry of big business houses in the retail sector. It is worthwhile pointing that UP government has already banned Reliance Fresh from the state and some other states are also thinking to do the same. Clearly, tough time ahead for Vishal Mega Mart and other big business houses who are interested in investing in the retail sector of India.

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Raymond to double number of retail outlets in Uttar Pradesh

By Vipin Agnihotri

Raymond limited is all set to double its retail presence in the most populous state of the country, Uttar Pradesh by targeting customers in tier III and tier IV cities. In an exclusive interview with The India Street, Aniruddha Deshmukh, president retail, Raymond limited said that expansion potential is limited in Lucknow so the company is scouting for unexplored markets outside the city.

“From the current 28 stores we will be opening up at least 56 stores by 2009,” pointed out Deshmukh. It has come into the notice of The India Street that for 85 percent of Raymond stores, they will be taking the franchisee route to further penetrate the market.

“It is the class III, with five lakh to one lakh population and class IV cities, with 50,000 population which has immense unexplored potential. We are aiming at these locations with scaled down version of our stores at present in bigger cities.” Deshmukh added.

All the Raymond stores are custom designed with visual merchandizing concepts by Blocher and Blocher from Germany. Places like Badaun, Muzzafarnagar, Shamli, Gajraula, Dhampur, Nazirbagh, Hapur, Sitapur, Farukhabad, Mainpuri and Etawah among others have unexplored potential.

“We would be spending Rs two to three crore on advertising and promotion in UP,” said Deshmukh adding that expansion also means requirement of staff as selling fabric is not every man’s cake. “You need skill sets, knowledge to sell well at front end. Trained staff is a scarce commodity, as attrition rate is 100 percent within a year,” he said.

Theoretically speaking, Raymond principal activities are carried out through six segments, namely, Textiles, Garment, Denim, Files and Other. It is worthwhile pointing that textile segment manufactures and sells fabric, rugs, blankets, shawls and furnishing fabric. On the other hand, garment segment manufactures and sells readymade garments and designer wear. In addition, garment segment includes files and rasps, H.S.S. twist drills and bars and rods.

Talking about denim segment, denim segment manufactures and sells denim fabric and cotton yarn. The Files and Tools segment of Raymond is engaged in the manufacture and marketing of Steel Files and HSS Cutting Tools, comprising mainly of drills. Last but not the least is the other segment that includes aviation and consumer durables.

With a turnover of around US $500 million, Raymond at present are one of the biggest players in fabrics, designer wear, denim, cosmetics & toiletries, engineering files & tools, prophylactics and air charter services in national and international markets. All the plants of Raymond are ISO certified, leveraging on top-notch technology that satisfy highest quality parameters while also being environment friendly.

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Chennai Real Estate to Appreciate by 10% over the next 12 months

Chennai is a blend of historic and modern, traditional and advanced urban elements co-mingled in a unique way. The growth of Chennai into one of the major cities in India is attributed to its exceptional geographical location at the seaboard of the palar delta. The main factors, which account for its growth, are the extent of its surrounding area, its easy accessibility from the sea route along with far-reaching railways. Chennai has developed as the largest commercial and industrial center in South India, with an extensive network of transportation facilities including the largest seaport in South India, an international airport (soon to have South Asia’s largest), some well-laid roads and rail facilities.

Let us first discuss The Commercial Office Market in Chennai

According to experts, Chennai is expected to witness a supply of approximately 12 million sq.ft in 2007 - subject to scheduled completion of projects under construction. Of this, nearly 10 million sq.ft. is expected to enter the market in the Chennai suburban and Chennai peripheral locations. 9 million sq ft is expected to be taken up by IT or IT related companies, while the rest is spread amongst the various Chennai industries.

Of the 12 million in supply, the India Street expects 80% of that supply will be claimed before the projects are complete. The remainder will be leased within 6 months of the structures being complete. The India Street sees no let up in Multi National Corporation demand for IT space especially along the OMR IT corridor.

So for our 12 Month Office Market Outlook

The India Street further predicts that all major office related real estate zones around Chennai will increase in value between 5 and 10% but not at the 2006 levels witness last year.

Now let’s turn to the Chennai Residential Market

Let me mention an article I have written on the subject located at our Indiastreet blog that discusses the India bubble hype. Please review that article so that I need not summarize it here.

Unlike some of the other major cities in India, Chennai’s residential market still has legs. Home prices are still increasing in the CBD, while new projects on the OMR are selling out quickly. Moreover, a proposed new Floor Space Index (or FSI) along the OMR from 1.5 to 2.5 will allow even greater density which means more profit for developers.

In the high-end market, residential prices in Chennai are creating new benchmarks. The prices of premium properties have increased over 200% in parts of central and south Chennai during the past 15 - 18 months.

There is still a lot of nervousness for high end residential properties outside of Chennai including the OMR due to a lack of temples, quality schools and transportation. The India Street believes a purchase along the OMR is smart given that most of the foreign corporations are located there and there is a strong need for quality housing in the area. Moreover, once the new airport is built, TIS predicts the residential market appreciation areas will shift out of the CBD to the OMR and new Airport regions.

Finally, let’s discuss the retail market in Chennai

Like everywhere in India, quality retail establishments are hard to find. Yes, there are malls and yes there are singular cases of quality retail, but until the market is opened up to multi-brand foreign retail establishments, retail in India is substandard and weak. Yes, you’ll hear from pundits that the market for retail is strong, but only because the only suppliers are Indian. Given a choice, Indians will opt for foreign retail brands because they are better (due to being in a competitive landscape) and we know that Non-Resident Indians prefer them over similar India brands. Please understand we are generalizing here, but we know from experience that this is true.

Due to the lack of mall space in Chennai, malls under construction are witnessing high pre-leasing activity. It’s likely to be a landlord market through 2008. The High Streets of Chennai continue to be the choice for organized retail as there are only 3 malls operating in the City.

TIS predicts a 10-15% increase in retail lease value growth during the next 12 months. The new malls are expected to witness high absorption and low vacancy levels through 2008. Currently demand is driven by local retail establishments like the Future Group and Reliance. However, if multi-brand foreign retail is allowed, TIS predicts the rental values will increase by 50% instead of the still robust 10-15% without multi-brand foreign retail.

In summary Chennai is a better place to invest today than most of the other top cities in India. That may change in the future, but investing in Chennai is currently a good bet. Remember however, the Indian real estate market is not a mature market. It is still in a fledgling stage, in terms of regulations. The markets abroad are much more developed and structured due to their stringent real estate laws. In places like the US and Europe, no agent can deal in property unless or until he or she has a real estate licence. The Indian market is totally unstructured in that sense. Anybody can deal in property, there is no licencing system so beware of those you partner or work with. Research them thoroughly and ask the tough questions. India is not transparent, and therefore due diligence is a must.

- The Editor

The India Street

India is Still Number 1 Retail Investment Hot Spot

Source: The Economic Times New Delhi: As consumer tastes veer towards western-style luxury goods and retail concepts, three nations — India, China and Russia — have emerged as the most attractive markets for retail investment. Furthermore, retailers are now marching into smaller cities after testing the larger ones, as per global consulting firm AT Kearney’s annual Global Retail Development Index (GRDI), a study of retail investment attractiveness among 30 emerging markets. India and Russia continue to occupy the top two slots of this retail development through 2007 as they have since the last three years. “India, being at the top of retail development, validates the level of activity and enthusiasm we have seen in the marketplace. We anticipate seeing another year of major investments and new retail concepts changing the rapidly evolving organised retail landscape in India, projecting deeper penetration in the Tier 2 and 3 cities,” says Hemant Kalbag, principal, consumer industries and retail practice, AT Kearney India. This was revealed by the findings of the sixth annual GRDI. The GRDI focuses on opportunities for mass merchant and food retailers, which are typically the bellwether for modern retailing concepts in a country. According to the study, modern retail formats have grown by 25%-30% in India and by 13% in both China and Russia over the last year. Until recently, such rapid growth was confined to the largest cities in each country. However, increased competition within those cities is forcing domestic and global retailers to expand into smaller second and third-tier cities. Take the case of Prozone, a shopping centre developer. Now Prozone is eyeing the semi-suburban pie in anticipation of growing demand there. Experts say that building a presence in these markets ahead of the competition remains the key to long-term survival. According to them, smaller cities can be a window of opportunity for retailers, if the latter find skilled labour in place. Based on a set of 25 variables, including economic and political risk, retail market attractiveness, retail saturation levels, and the difference between gross domestic product growth and retail growth, GRDI helps retailers prioritise their global development strategies. See our other India Retail Stories

Cashing in on India’s retail sector

By Dr Suvrokamal Dutta

While there is no doubt that investment in Indian retail sector is not for everyone but there are ways for investors to cash in. Theoretically speaking, a budget of between Rs 30-50 lakh buys you into the rampaging retail roller coaster.

If experts are to be believed, malls are the formats that grab all the headlines- and earn the highest ROI- but you can safely forget about getting a piece of the action if you do not have a disposable nest egg of at least a crore to play with. Moreover, it is worthwhile pointing that large chunk of mall developers prefer to lease out rather than sell space within their malls.

“High-street shop space in the city centre is out too, since capital rates in Mumbai’s retail intense localities like Linking Road, Breach Candy, Churchgate and Mahalaxmi range between Rs 25,000-80,000 per square foot,” pointed out Rahil Nandan, retail expert.

Though, when you take into consideration the fact that the space ATMs occupy in flourishing market areas like Linking Road, Colaba Causeway, Bandra and Lower Parel technically qualify as retail space. While ATMs see a plenty of activity in almost any residential or business area, people need ready cash most often in retail-intense areas.

In my opinion, investing in space large enough to warrant the presence of a major bank’s ATM in such a locality is an economical option within the above-stated budget. In general, ATM occupies around 174-250 square feet. Since ATMs are small spaces, they also give rents higher than the average high street store. “Any bank that leases such a space to locate an ATM in will pay the usual interest free security deposit for 6 to 12 months,” pointed out Kadam Ali, noted business journalist based at India.

The pivotal factor here is that this money will earn you interest in the bank in addition to your future rental earnings. Once such a space has been obtained, one can approach major banks with an ATM-specific lease proposal.

In case if one’s option in South Mumbai are limited to 100 square feet or thereabouts, the scope enhances vastly if one considers the suburbs or Tier II/III markets. You may not believe at first but in a budget of Rs 40-50 lakh, one can purchase a retail space of up to 700-1000 square feet there. In my opinion, this can turn out to be extremely lucrative in both the short and long terms, since there is a definite scope for appreciation.

As is the case in any property investment, make sure that the property has a clear title and is free of encumbrances. A lawyer’s services are highly advisable in this regard.