It's all about filling spaces.
There is this little war being plotted in the confines of some of the country's best board rooms. For some of the top players who are transforming the Indian retailscape, it could be the importance of winning numerous battles before the war is finally won.
At stake is how big and wide is the retail space that one can claim in this subcontinent. At stake is not just the footprint alone. For grabs also is the wallet space of the increasingly shopaholic consumer.
The battlelines have been drawn. The moves are being made, fast and sure in an urban gamble that is steadily making inroads into the two and three tier cities, before finally moving into the rural heartland, or should we call it hinterland that's actually waiting to be taken.
Tentative even is the mindspace of the small and not-so-big garment manufacturers as they eye with a sense of confident trepidation the unfolding market dynamics pummelled by change almost every other day.
I wonder if there is a churn of thought in the designer fashion fraternity – how easily they could remain focused just on design and be part of the boom if they allowed themselves a pret high fashion niche across the rash mushrooming of millions of square feet of selling space.
When talk veers to selling space, the space is not enough and nor does it come cheap when it comes to building a perception among the target audience for the product/brand you wish to sell. A synergised splash across various formats of the media can transform a product into a brand. On offer also is this vital space for products that have reached a certain level of maturity in terms of product lines, infrastructure, supply chain management and other such crucial back end scientific issues.
The last couple of years have seen a sea change in the retailscape of the country. The Indian fashion industry may have reacted a tad slow to the lifting of the quotas in January 2005, but the process of developing sizeable manufacturing bases to cater to the demands of international buyers and also meet the demands of the now shop-savvy domestic consumer, has gained momentum. Nonetheless, there is time yet for a home grown brand to acquire the size and stature of companies in other sectors like fast moving consumer goods or consumer durables. It has taken 10-50 years for 20 of our top apparel companies to attain sales of Rs 150 crore. In the domestic apparel market (where total consumer spending in 2003 was estimated to be Rs 68,000 crore), the combined share of the top six branded clothing companies was less than 3 per cent (about 10 per cent in the branded segemt), with the largest of them, Madura Garments, managing to reach an approximately Rs 393 crore annual turnover. The competition is only going to get tougher.
Indian companies need to strategise better to exploit the existing and emerging opportunities across varied consumer segments, markets and delivery channels. This needs to be seen in the light of non-existence of a global perspective – both on part of the industry and the government/policymaking bodies – on developing global competencies and competitiveness across all links of the value chain, as well as developing Indian/Indowestern fashion on a global scale. Customer decisions on disposable income have to be influenced. The focus must be on results and performance across the economic value chain. One must adapt oneself to customers' social and economic realities, besides making business development an organisational responsibility altogether.
Stakin’ it
The emerging scenario thus does call for consolidation through mergers and acquistions and simultaneously scale up operations to leverage advantages for economies of scale. There are scores of manufacturers in the Rs 20-100 crore turnover bracket. The marketplace demands that at least one leader rise from among the babble to show the way. There are entities that have the funds and the experience to sustain the growth of fashion. India can leverage on its low production costs. And, perhaps looking at these factors there are companies that read the future well and are moving in this direction.
“We are putting $450 million dollars to acquire consumer products companies," says the man of the current retail retell tale, Kishore Biyani. His Pantaloon has stakes in fashion companies like Indus League, Planet Sports among others. Indus League had earlier bought over the womenswear denim brand Jealous. “It is our ability to scale up companies and brands that we believe in. We are looking at 10 million sq ft of retail space and 40 per cent of this will be for fashion,” affirms Biyani.
Not surprisingly he has roped in Sanjiv Gupta, former CEO of Coca-Cola India, to float a new private equity fund, which will invest in the consumer and retail space. Gupta, for the moment, however, has his cards close to his chest as he strategises and prepares for the onslaught.
Spotting the vacuum in the kidswear segment, the Anil Dhirubhai Ambani Enterprise (ADAE) recently took a stake in leading kidswear brand Gini & Jony and the other Ambani group is also reported to be eyeing the retail segment in a big way. Leading corporate groups like the Raheja's, Bombay Dyeing, Piramals, Tata have all evinced keen interest in investing into organised retailing.
Media baron Vineet Jain's Bennet, Coleman and Company Limited (BCCL) has taken a stake in at least 18 companies and is scouting around for more. Pantaloon, Vishal Megamart, Provogue, Indian Terrain and Tuscan Verve are the major names in which it has taken minority stake in an initiative that began less than a year back. While BCCL's move, a largely ads-for-equity gambit, has its Private Treaties deputy director Sivakumar insist these are not "treasury investments but an investment for the future. This is a process of creating co-value with our advertisers. We being the media vehicle believe that in this partnership two plus two is not equal to four but twenty-two.
“We do not want to take a majority stake in any company. Any upcoming company that has the passion to grow needs branding support. We believe that being exporters to the world, most Indian brands meet the hygiene factors of quality and the like. Now with the growing Indian consumer and the increasing size of wallet coupled with retail boom, the movement from disorganised to organised retail, it is time Indian brands made their mark in the global arena. So we build value at various levels such as product and services, the corporate image, and thus help push the brand into the next orbit. The next three-four years belong to India and to grow exponentially we need to create these co-values.”
One of the first clothing brands to have invested in a retail chain in India, the Rs 151 crore Zodiac group has a 2.93 per cent stake in Shoppers' Stop and is now looking at picking up further stakes in more retail chains. “We are waiting for an opportunity to invest in domestic retail chains. If we get a good value we would definitely be interested,” said its managing director Salman Noorani.
The $35 billion Bombay Rayon (BR) is in discussions with Credo Brands, makers of the apparel brand Mufti for a “strategic alliance. We have known BR for almost nine years as their customer. We are still deciding on the business model. We take a long time to plan, but once we roll out, we will take the bull by the horns. We plan to get into retail very aggressively,” says Kamal Khushlani of Mufti. BR managing director Prashant Agarwal reiterates Khushlani's words. Asked whether BR is looking to come out with its own brand, Agarwal answers in the negative. "We see a lot of retail growth coming in. It is still in a nascent stage. So we are focusing our energy on the developed markets. Post-quota there has been an immediate jump in the export market and we are exploiting that.”
Chittranjan Dar, CEO, Wills Lifestyle from the ITC stable, feels mergers and acquisitions are always on the anvil. “We are looking around. This process was bound to happen and it will only lead to a healthy set of players operating in the market, putting in place the right practices. The consolidation will be in the interest of the industry as it will gradually grant a more unified scene to fashion, more so with more and more international brands coming in.”
For Wills Lifestyle, however, he asserts the focus is on “retail expansion, product development, brand building and investments in hardware, software and peopleware.”
India space
The demographics speak for this ongoing consolidation drive. The cynosure of the world, India's 300 million odd middle class, the 'real' consumers, is expected to swell to over 600 million by 2010 – sufficient to establish the country as one of the largest consumer markets. While the total consumer spend in 2004 was estimated to be Rs 18,540 billion, retail sales stood at Rs 10,200 billion, growing over 5 per cent annually. Organised retail at Rs 350 billion was about 3.4 per cent of retail sales but growing at over 30 per cent. Besides, organised retail is set to cross the Rs 1,000 billion mark by 2010, with the top six cities accounting for 66 per cent of total organised retailing.
Forecasts for India retail predict that from the 95 currently operational shopping centres with approximately 22 million sq ft space, there will be 375 shopping centres covering over 90 million sq ft by 2007 end with some 50 hypermarkets, 305 large department stores, 1,500 supermarkets and over 10,000 new outlets under construction. The most important point to be noted here is that fashion will continue to drive organised retail, with fashion and lifestyle expected to contribute over 50 per cent in this growth.
In the recently published AT Kearney’s 2005 Global Retail Development Index, India has moved to the top spot overtaking Russia and China. India not only tops the AT Kearney's list of 30 emerging markets for global retailers to enter, but is also ranked among the top 10 FDI destinations. A country with the largest young population in the world with over 890 million people below 45 years of age, it is the second fastest growing economy in the world. It is set to emerge as the third largest economy in terms of GDP in the next five years, and the fourth largest in PPP terms after the US, China and Japan.
Moreover, according to estimates by investment banker Goldman Sachs, India has the potential to deliver the fastest growth over the next 50 years with an average rate of more than 5 per cent a year for the entire period. India's economic growth could actually exceed that of China by 2015, and its economy is expected to overtake the UK in 2022 and Japan in 2032 to evolve into the third biggest economy in the world after China and the US.
At present, the driving force of India 's GDP is its service sector, and has been so for the past decade. Yet, AT Kearney's Global Retail Development Index (GRDI) and Foreign Direct Investment Confidence Index (FDICI) have shown India to produce favourable results, and in turn point to the possibility of the retail sector being the next powerhouse for the country's GDP.
Today, there are over 22 million people employed in the retail sector. By 2010, Indian organised retail is expected to gather a 9 per cent share of the total retail industry, from the 3 per cent it currently holds. Organised retail trade employs roughly 0.5 million people and unorganised 39.5 million. The fact that about 4 per cent of the population is employed in the unorganised retail trade speaks volumes about how vital this business is to the socio-economic equilibrium in India. Organised retailing in India has the potential of creating over 2 million new (direct) jobs within the next six years, assuming an 8-10 per cent share of organised retailing in the total retail business.
For the retail sector to achieve its potential both as a major contributor to national GDP and as an employment generator, it is important that the spread of organised retailing be given a major thrust through appropriate legal, regulatory and financial reforms.
Claim game
The cry thus is for consolidation. But what are the parameters that make a Pantaloon or BCCL stake claim in a company? “We are looking at entrepreneurs no less than Rs 10 crore in size and of course the passion for business," says Biyani. Adarsh Gupta of Liberty reiterates: “The passion and interest has to come back. The ownership of the company is very important.” BCCL echoes the thought: “We look at the integrity of the promoter and his passion for the brand.”
“Growth is a marriage of funds and solid business ideas. Often it is the funds which stunt great ideas or expansion or business growth. The time factor is also a great leveller, in the sense, that a timely infusion of funds, often makes the difference between a leader and a follower,” says Arup Dutta, director, TCCPL of the brand Khadder.
Union is strength, says Adarsh Gupta of the US $100 million Liberty Shoes Ltd. Following this credo, it recently entered into a joint venture with Pantaloon Retail India Ltd to set up a chain of stores for footwear retailing and other accessories. PRIL will hold 51 per cent and Liberty 49 per cent stake in the new company which will have an authorised capital of Rs 25 crore.
One among the early movers in this direction was Raymond with its 2002 acquisition of Colorplus, the Chennai based premium branded apparels company renowned for introducing new designs in the market for each season and known for innovation in quality, colours and concepts. Realising the vacuum for a high-end, casualwear brand, Raymond took a 74.1 per cent stake in Colorplus as a major growth driver for its ready-to-wear division. This strengthened Raymond's presence in the men's ready-to-wear segment – a thrust area for the company and a vehicle for future growth.
That Colorplus has added to the Raymond bottomlines is a known fact, what is also understood is that the company is scouting around for more brands. “Nothing concrete has come up, but we are looking,” says Shreyas Joshi, president, apparel division, Raymond Ltd.
Madura Garments (MG) and Arvind Brands have been at the forefront, bringing in international brands and marketing them aggressively. Nonetheless they still have a long way to go to acquire the size and scale of a truly global apparel/lifestyle powerhouse. Besides, they do not have home grown brands, rather foreign labels looking for a booming Asian market when they have all but saturated growth levels in the country of their origin. However, each brand be it a Lee or Wrangler from Arvind Brands or Allen Solly or Peter England or Louis Philippe from MG, these brands are today leading players in their business – quietly reiterating the fact that the Indian consumer is in search for quality, and foreign nomen sells better.
What remains to be stressed time and again is that if India is to steal a march over China in the global market, it is imperative that we retain and nurture our traditional art and design forms. Investments have to be made in technology, quality control and training. Resources need not be squandered on glitzy offices; those need to be splurged, if at all, on manufacturing abilities.
Mind space
With clothing companies finding it increasingly difficult to scale up substantially with their current portfolio of brands, those with turnovers in the realm of 20+ crore are willing to go into a partnership that allows them greater financial muscle. The angel investor brings in finance and expert knowledge in terms of supply chain management, finance control, retail knowledge. And if it is a partner like Pantaloon, the opportunity is to get into controlled retailing across its various formats. Says Prem Gupta of Jealous: “Jealous was founded in 1988. But of late it was becoming very difficult to focus on the creative aspect of the product – what with seasons getting shorter and fashion faster, or even getting buyers. Things were not happening the way we wanted. Since the takeover, we are looking into only production and design. The marketing is done jointly.”
Divested thoughts
What is it that brand owners get once they divest a part of their stake to a bigger partner? Many, unlike Prem Gupta, expressed fears that it would be tantamount to giving away a family business to an outsider. The great Indian family saga here at play. However, the gains are aplenty. A point to be borne in mind is that the retail boom is showing all signs of emulating the dotcom boom-bust-boom wherein a whole lot of smaller players could fall by the wayside as they will fail to keep pace with the demands of the market. Yes, retail
space is coming up for all who care to book a few square feet in each mall that is coming up. But are the back end logistics in place? A world that needs fast fashion, is there time and resources enough to provide that season per diminishing season without compromising on quality, design or timelines? This is the thought for professional space that needs to be created in the mind and not a heart governed by filial ties.
Says Ranjiv Ramchandani, founder director of the cult t-shirt brand Tantra, “If the initial passion that made the brand is sustained, then the inflow of finances is a good thing. The brand will actually lose out if the spirit that created that fashion is lost. A brand is all about the value it promises. How far will the new partner go along in sustaining and nurturing that value would be crucial to its development.”
Ajit Lalwani of Romano Apparels of the Little Kangaroos brand feels that a financial boost can help a brand grow five times. “A brand can grow very fast if there can be some capital infusion. We know how to go for a fast and multiple progress path. But I can only dream of achieving an 80 per cent growth.”
Vikas Sharma of Ruff Kids feels that “other than money, an investor cannot be of much help.” Dungar Baheti of Maestro, an ethnicwear brand, laughs off the suggestion. “I am a small brand. And I'd rather grow on my own for the next five years and make it an international brand.” He admits that a financial boost could accrue some advantages but the disadvantages are higher. “We will not be able to develop the brand according to our style. There could be issues of freedom, ego and the like. Too many hassles,” he concludes.
Mind games
KG Rajhagopallan of KG Denim calls for the professional approach and at the same time urges a better understanding of the consumer to reap gains: “Investment has to come from outside. In 3-4 years from now the smaller players will merge with the bigger players. This is a good trend.” However, he warns, India needs to study consumer psyche better. “Indian business is not enterprising. We don't believe in long term perspective. Our entrepreneurs believe in profit and the foreigners in brands. It is the manufacturers who are deciding the price and not the consumers. A global vision is imperative to really scale up. In the post-global era, understanding the emotions of the Indian consumer will be a clinching factor in deciding the success or failure of a brand. Retail, after all, is an undertsanding of consumer psyche.”
What is even more important is to create an organisation that will manage the imminent changes in Indian consumerism. Stimulating demand is a major concern and launching a fashion movement of sorts could be a way forward. “Whether the challenge is one of capturing more consumers in the smaller “affluent” category, or increased investment aimed at better organising the sector and increased penetration into the rural communities, or overcoming the distribution issues, none of this will deter too many retailers. Trends such as the sheer size of the market and the evolving Indian consumers have been sufficient reasons to excite many retailers, both in terms of the products they buy and the way they can be marketed,” says a KPMG report. The main concern thus is how does fashion get to be a major constituent of the new emerging formats?
Retail Inc
And yet if there is one person who is actually tapping into the consumer psyche and coming out with new formats, it is Biyani. For this man on a mission, announcing a new venture virtually every other day, the expansion across various retail formats from hypermarket to mall to fashion stations, the aim is to reach across the multitude of space available in various segments. He had once contended that development of several kinds of retail formats would be a certainty. Pantaloon Industries picked up ICICI Venture Fund's 68 per cent stake in Bangalore-based apparel company Indus League Clothing for Rs
24 crore, adding to the enterprise valuation of Indus League at Rs 35 crore; lower than when ICICI Ventures first invested in the company in 2000.
“We continue to be an independent company. Apart from the various largeformat stores like Piramyd, Lifestyle, etc, our brands get significant floor space in all the Pantaloon managed retail formats and benefit from lower real estate costs that the Pantaloon Group is able to command from the malls,” says Sriram Srinivasan who founded the company in April 1999 with six other industry colleagues.
Indus League will look to doubling its business in the next one year. The scale and critical mass, which it has garnered through this deal, could lead to an increase of Rs 7 crore in monthly revenues. Besides, betting on organic growth of Indigo Nation and Scullers, the company is poised to launch several new brands across the apparel and lifestyle spectrum.
In the tie-up between BCCL and Celebrity Fashions, the Rs 150 crore Chennai-based company sees a perfect fit, in the words of managing director V Rajgopal. Celebrity Fashion, which owns the popular Indian Terrain brand growing at a fast 15 per cent, is set to cross Rs 35 crore in sales in 2004-05, and competes directly with brands like Raymond's Colorplus and Madura Garments' Allen Solly.
Rajgopal said, “This partnership will help us establish Indian Terrain as a brand for the global Indian, and for all the values it stands for, such as style, design and relevance of fashion. If you can't take the brand message across in sufficient velocity, the brand will never get built.”
Says Sumantra Banerjee of RPG, one among the pioneers of organised retail in the country by opening the food stores some eight years ago and thereafter the first hypermarket in the country in Hyderabad. “We are rapidly expanding, especially in the hyper/super segment, where we have three stores operating today and will have nine more stores coming up in the next six months. Our interest in garments is to the extent that it is a major product category for us at our hyper/super markets. Garments as a percentage of total revenue from a hyper market has doubled in the last three months and we are on our way to expand the garment sector further. Our hyper/super markets are
destination value stores and not lifestyle stores. We are rapidly expanding the garment merchandising team and the supply chain for our hypers but do not see ourselves acquiring any fashion.”
Home alone
What do brands that display an ardent passion to grow and have made a mark for themselves have to say about the merger and acquisition game? While many like Dutta felt that money coming in at the right time could fuel better expansion plans, they were not in the mood to divest any share from their companies till they had reached certain levels of growth. Turtle, one of the most promising brands from the eastern region that has found a market for itself rather strongly in various pockets of the country, is one among this lot. Says Sanjay Jhunjhunwala of Turtle, “If you look at the West, the consolidation that is happening here was bound to take place. We are small. It is early yet. We want to touch at least Rs 50-60 crore before making any such move. PWC has already approached us for strategic investment. We are actually at a take off stage and eyeing tremendous growth. We are looking at a 50 per cent growth over the next one year. The focus is on brand building and advertising, high focus on own stores. With nine stores so far, we plan to add on an average one store every month. Trousers have been added to our range of products and ties, cufflinks, belts,wallets, handkerchiefs, socks and other accessories will be added in the next six months.”
HN Shah of denim brand Moustache, Ayush Rungta of Hoffman would also rather have the brand grow on its steam as it is at the take off stage.
Ojas Nishar of kidswear brand Vitamins that has achieved good growth in a few years feels an angel investor would be good once a brand has reached a certain turnover. “As of now our focus is on building the brand with our own strengths and capabilities. After a year or so when our brand is well known we would like to take up such a step.”
We talk of take-off stage and ironically continue to move with not enough ignition power to keep pace with the evolving stages of the retail whirl that grabs the nation. Space there is for all to grow, but the moves must be based on an intrinsic understanding of the market that is India and ensure that the learnings of nations that acquired this growth over decades is just a learning not meant to be replicated blindly. It would be an ideal situation if all concerned – the government, policymaking bodies and the various players – ensured that FDI or not, it is Brand India that must win the war.
