To B or Not to B

Just about a decade ago as department stores like Lifestyle and Shoppers’ stop began their expansion to spread across India, they faced a problem - finding the right brands to partner them. The inadequacy and the non-availability of a wide choice of brands in India to retail restricted them from having their own desired brand mix. These multi-brand stores almost housed the same brands save a very few to express each one’s differentiation besides their humbly commissioned in-house brands. Active followers of retailing in India may remember the degree of brazenness a few brands exercised: a particular brand dictated such terms that it would supply to the department stores only on consignment basis at very restricted margins and the choice of SKUs was purely at the brand’s whim. The brand offered a slim extra margin linked to a hefty quantum of sales. Another organization which had the rights to sell a set of men’s brands, fought with a reputed retailer only to part ways for a few years until relationship was restored. In the meantime the retailer considered it a golden opportunity to build own brands – christening one even with a name boisterously sounding Italian! This has become history as retailers have now learnt the trick to excel and brands came into the country soon through whatever route available for them to explore and succeed. Whatever one may call it - retailer power or brand’s desperation, the situation is different now. Alternatives are available so much in the food and grocery sector that many retailers are said to charge a listing fee!

A friend of mine recently threw a poser to me – as FDI in single brand retailing is allowed upto 100%, many brands may explore the opportunity to enter the Indian retail market soon and this may give rise to the establishment of new multi-brand department stores that may house these international brands alone sidelining the natively nurtured ones. A department store may have only global brands. They have also learnt the trick to exist in the Indian market – a UK based retailer operating in India has slashed prices as a strategy to grow here. And the company sources garments from India for their international markets as well. Re-strategizing their business, many brands like this retailer have adapted to the needs of domestic customers. The products sourced from India are sold at almost double the price in the Asian markets, proving that a penetration pricing strategy is adopted in India. The mid segment of customers is quite affluent too and these brands with their adjusted price points have become the mainstay in customers’ wardrobes now! Products like Axe and Pringles in the convenience goods segment are typical examples of adopting a steadily collapsing pricing strategy for India over the last decade and becoming successful. Today’s news scorns the high import duties on imported luxury brands in India citing the example of China, which has been bringing down duties on luxury brands. But China is a manufacturing country and it exports a great deal to other countries. The strategic approach of India is right to the extent that it encourages domestic sourcing and domestic consumption. As customers gain exposure in all the market tiers, brands may assume larger significance and luxury brands may fall within the reach of the common man soon. Yesterday’s luxury brands may become today’s run-of-the-mill ones in India!

The brand mix of multi-brand retailers may soon change in the apparel segment with many more global brands trying to find their way to India. On the other hand one may find very ‘desi’ department stores in the tier two and tier three towns and the same department stores may have an additional brand portfolio for the urban consumers – more like a differential merchandising strategy! Or we may see a different genre of department stores emerging with a global brand mix in India –a version similar to Macy’s or Robinson's!

The other extreme trend in India could be a new 'swadeshi' brand movement, given the high degree of patriotism in India. We have seen in the USA customers boycotting stores like Walmart for importing majority of merchandise it sells. An acquaintance does not wear a garment if it visibly carries any logo. His argument stands on the premise that no brand pays him to carry its logo but instead he pays to carry it! But some need to sport a logo - for their own reasons!

Dr. Gibson G. Vedamani

Bridging the Gap!

Sitting in a restaurant in Raffles Boulevard in Singapore this afternoon, as we took a break from a business meeting, we were exuberantly discussing the standards of retailing in India. Before the batting of an eyelid we appreciated the good job some of our mall developers have done in creating shopping infrastructure of world-class standards. We compared instantly some good malls we have in India with a few of those in Singapore with respect to design, zoning, standards of common area utilization, signage and communication, maintenance and facilities management, etc. and we could find no gaps to conclude that Indian malls are in any way inferior to those in Singapore. We in India have been able to create retailing and shopping infrastructure of great quality. We juxtaposed our thoughts with the hospitality sector in India. Haven’t we come a long way to offer the best standards of hospitality infrastructure and service in India? And the answer was a bold yes. Our rack rates are on par with any developed nation though, we offer world-class standards of rooms, cuisines of international flavors and the best of service. The maintenance of every star hotel in India is meticulously done. Our service standards are far superior to those rendered in developed economies because we bow down to almost every customer in our hotels to serve without even letting a guest touch his own luggage while checking-in or checking-out. Guests are Gods for us. Atithi Devo Bhava! So, in the hospitality sector we have gone even a step ahead of international standards!

But the malls in Singapore seem to be radiantly different. They look better. What makes the difference? We were trying to find answers. The retail stores within the malls make a big difference. Every store in a mall is merchandised right with its planograms intact. We checked a few stores along our way after our discussions when the stores were becoming busy with greater footfalls towards the evening. The stacking of merchandise and the ‘turnaround’ of the shelves back to order are instantaneously done on the floors. Even in a supermarket or a convenience store, the floor staff walks around to organize the merchandise back to its shelved glory. As every hanger goes to the right groove in the display fixture, one rarely finds an additional one jutting out of the browser or one short in the browser’s arm and as every fresh produce in a supermarket is sold, it is replenished during any part of the day! So the stores look well maintained and as all of them uniformly maintain the array of their merchandise in proper order, the whole mall looks magnificent. Retailing partners in a mall make all the difference. Both have to go hand in hand to create the grandeur and greatness of the mall for delighting customers.

It is not impossible to arrive there. All that it needs are following the required discipline and the right attitude. When we can have everything in order in our own homes and hotels, why can’t we do the same thing on our retail floors? Often we give many excuses for running a disorderly store – sometimes we even say that ‘value stores’ could be merchandised any way as customers may want to see the products in bins to have the pleasure of ‘picking up’ bargains! What lame excuses we have been giving, if at all! An airhostess on our flight to Singapore in a relatively new native no-frills airline, which has even bagged many awards recently, told my colleague who bought his lunch, that they serve everything they sell onboard cold and she said that very politely and with a service oriented smile. He was left thinking how one could eat cold parathas and before he could take any offence to the bad service, the way she presented herself politely made no difference to our decision not to fly the same airline again on an international trip! Sometimes service suffers in retailing as well, even if our sales people are trained. It’s time we checked our attitudes and disciplines.

We’ll surely but steadily surpass international standards in retailing in India but a larger share of responsibility reposes with our retailers!

Dr. Gibson G. Vedamani

Budget 2012: No big deal for modern retailing in India!

As part of the economic reforms, the Finance Minister Mr. Pranab Mukherjee said in the budget session this morning that the efforts are on for achieving retail FDI consensus to allow 49% in multi-brand retail with as many as 35 conditions! That’s however a serious message in the budget presentation today to expressly announce the fact that the proposal of FDI in multi-brand retailing is not shelved or forgotten. At the outset the budget speech reverberated with a positive sentiment for FDI in retail.

It is critical for the government to take aggressive efforts to bring down inflation that will have a direct impact on generating the much-needed augmentation of internal demand resulting in increased consumer buying. No adequate efforts have been seen to contain spiraling prices. The standard rate of excise duty has been increased form 10% to 12%, which will result in a general increase in prices. Similarly the increase in the rate of service tax from 10% to 12% also will result in the increase in prices of products and services as retailers now have to shell out more as service tax on the premises they rent for running the retail business. The basic import duty on gold and platinum has been increased to 4% from the earlier 2% and jewellery retailers will pass on the price increase to customers. The increase in the taxable income slab to Rs 2 lakhs a year and the revised taxation of 10% tax from Rs 2 lakhs to 5 lakhs income, 20% from Rs 5lakhs to 10 lakhs and 30% from over Rs. 10 lakhs income per annum will offer some respite for the mid-segment consumer masses with some disposable income to spend at retail.

Implementation of the Direct Taxes Code (Goods and Services Tax - GST) is deferred without any idea on the implementation date yet. The finance minister has not put any timeline on the implementation of GST and he has come under heavy criticism for that. GST will bring a complete taxation discipline in the entire supply chain, which will benefit retailers and consumers. Under the structure of GST, tax will be collected by the states where the goods or services are actually consumed. GST is a part of the proposed tax reforms in India that would evolve an efficient and harmonized consumption tax system in the country. Presently, there are parallel systems of indirect taxation at the central and state levels. Each of the systems needs to be reformed to eventually harmonize them. In the Union Budget for the year 2006-2007, it was proposed that India should move towards national level Goods and Services Tax that should be shared between the Centre and the States. It was proposed that GST will come into effect from April 1, 2010, but the implementation is yet delayed. The good news though, is the approval of the structure of GST network by the state finance ministers, which opens up feasibility of its implementation by perhaps August 2012.

As almost 40% of modern retailing sells readymade garments, the reduction in excise duty in readymade garments may push prices down and this may create more demand. Similarly the demand for processed raw food too may go up with this marginal reduction in excise duty. The waiver of excise duty totally on silver jewellery may help ornamental jewellery retailers gain more momentum to create a very attractive fashion product mix for the youth who may love to sport such jewellery as fashion wear. The excise duty on mobile phones has been retained at 1% and this is a welcome gesture that will keep the mobile market booming even in the rural areas of India.

The budget also announced an infusion of a further Rs. 1000 crores to the National Skill Development Council (NSDC) taking its total corpus to Rs. 2500 crores. This talent development effort will see many vocational training initiatives established to skill millions of people in India and retail training is a major focus area of NSDC.

This budget is no big deal for modern retailing in India!

- Dr. Gibson G. Vedamani

The More The Merrier!

Recently a television show hosted a debate between two groups of people. The subject of debate was, whether men or women as consumers nowadays buy more than what they actually need. The conclusion of the debate came as a no-brainer that everyone in their own ways buys more than one’s needs. During the debate many instances emerged where people buy products they never use or buy products in more quantities than what they actually need. Even when consumers buy food products, they often buy the routine stuff and along with that they also buy the new stuff to try out. Ladies buy sarees and salwars in good numbers often nowadays. Just an attitude to wear varieties as fashion changes or as movies would introduce new trends, may impact the enormity and frequency of purchases! After all, as we do not have a mind in India to throw away old stuff soon, our wardrobes always keep swelling and enlarging! An aunt of mine keeps balancing the number of sarees she has in stock as she gives away an old one for charity for every new one she buys - an exceptional case though!

It has always been a meticulous plan devised to increase consumption in India. Manufacturers have been good at it. Toothpaste used to be used in a miserly manner those days, as the aluminum nozzle of the tubes was so narrow that it would push out paste in less quantity. A little wider now, the nozzles apply more paste on the same length of toothbrush bristles, increasing consumption. The introduction of shampoos in sachets in India introduced the concept of shampooing the hair in our remotest villages as well. Broken into smaller pieces for easier consumption, the effort of innovatively selling every other product in a sachet has increased consumption in every corner of the vast geography of our country. When we talk of consumption, our customers need not face the situation of dearth that they faced a couple of decades ago. As products and services are available in abundance and as quite often the media tells us how to use them, we buy things in abundance. The once used small refrigerators in homes are no longer seen in households and we see only pretty large ones now that can facilitate more storage, proving the point that the more we buy the more we store and consume. Dr. G (as he is popularly known) a kaizen consultant in India recommends knocking off unnecessary storage bins in the production line as components or semi-finished products may pile up in a few sections choking the full throttled manufacturing flow. After knocking off unnecessary storage bins, the continuous manufacturing process needs to go on, in the required pace uninterrupted as nothing can be stored in-between! But that’s only to achieve manufacturing efficiencies. Dr. G may not be a welcome phenomenon in our households please!

Retailers are doing their part to increase consumption. Increased displays, free-access shelving that instantaneously provides an access to every product in store, bundled offers, cross promotions, up-selling (converting a burger order into a value meal), etc. are a few vivid efforts taken to increase consumption on the retail floors. A few retailers regularly announce schemes to turn in the old for new in order to help customers make space for additional items in their wardrobes! Retailers also go ahead with their multichannel efforts to reach out to customers while they try and expand quickly into smaller towns.

As the mid-segment grows in an incredible measure in India, can we expect this year’s budget to announce raising the taxable income slab to say, rupees 5 lakhs per annum?

- Dr. Gibson G. Vedamani

More Power to You!

The example of opening Foreign Direct Investment to transnational retailers in Thailand has mixed learning. When Thailand faced its economic crisis in 1997, retailers found it very difficult to find funds for their expansion. Bank funding became scarce consequent to the economic turmoil the country was in. Once FDI was allowed multinational retailers came in with their investments in Thailand. Retailers like Tesco Lotus, Big C, Makro, 7 Eleven, etc. made inroads into the length and breadth of country with their expansion. Their growth percolated into the upcountry and rural areas of the country as well.

The market that was thus once open to foreign investment freely was later restricted by the military run government in 2007 to protect ‘small and medium’ and ‘mom and pop retailers’. The government’s ire was also ignited by the highhanded behavior of transnational retailers who charged a marketing fee for products from suppliers, which impacted the profitability of domestic traders and manufacturers. This impact in fact added to the economic woe already caused by the global recession to Thailand’s export economy. Large retailers tend to get their commitments from small suppliers by making them pay an ‘engagement fee’ often and even in India we have instances of large retailers charging what they call ‘listing fee’ for every product-line or category. A one time fee though, this adds to the problems of small suppliers and manufacturers. Every time a manufacturer introduces a new product, the listing fee needs to be paid. Large retailers have to tread carefully as they get into the shores of a new country. The positive role played by transnational retailers relates to the increase in consumption they truly enable, while making consumers happy, for sure.

Research shows that the small retailers have been losing their competitive teeth since the time they have been protected. Protection came in the form of restrictive conditions on the expansion of transnational retailers by virtue of controlling their zones of expansion and their hours of operation. There is a respite that has come to small and mom and pop retailers by controlling the growth of multinational retailers, thus providing a competition free environment to them. A researcher observes that the more policies are implemented to restrain the growth of multinational retailers, the weaker local retailers may become, laden with the inability to compete with large retailers at all. Analysts observe that the focus ought to be on making small and mom and pop retailers more competitive by training them and by building management capability in them to analyze business performance professionally and take decisions to improve their business accordingly. They also believe that small retailer transformation and support programmes should be implemented rather than restricting larger retailers who ultimately will have the capability to benefit a country’s economy, increasing consumption with lower prices in the long term.

For all the efforts our Government of India is taking to sustain growth in a consumption economy, we shall give a standing ovation and clap. After all we need both hands to do that!

- Dr. Gibson G. Vedamani