Retailing of Luxury Goods

(Article written for RetailBiz)
Let’s start off with a story, a flash back, in the far end of the 19th century India’s Maharajas discovered a Parisian designer called Louis Vuitton and flooded his small factory with orders for custom made Rolls Royce interiors and leather picnic hampers however post independence when India’s princes lost most of their wealth, the orders dried up. Coming back to recent times, almost 100 years later, Geeta, an IT executive, spends a large amount of her high seven figure annual salary on a range of Louis Vuitton hand bags and Channel cosmetics.
What we are referring over here is that the concept of Luxury is nothing new to the mindset of the Indian consumer. Geeta’s spending on luxury products is not just a one off case. More and more of today’s new generation love shopping and do not mind spending big bucks on luxury items. These are consumers who are not affluent in the traditional sense of originating from wealthy families as the Maharaja’s of yore, but are successful in their chosen profession and bearing the fruits of their hard work have a large disposable income in their hands.
This has led to the evolution of a new generation of luxury consumers, who we would term as the “because I’m worth it generation”. Hence people like Geeta are no longer at a financial distance from luxury and are trading up to meet their current aspirations.
In this article, we would try to explore the current status of the luxury goods market, the key drivers for growth and some of the challenges and the future outlook for retailing of luxury goods.

Luxury Brand
Indians associate luxury with perceptions of not just ‘quality’ and ‘performance’ but with ‘comfort’, ‘beauty’, ‘pleasure’ and ‘style’. Luxury goods in fact evoke strong emotional reactions like feeling ‘I am perfect’ or ‘I am walking on air’.
Today in India, luxury is no longer just about buying western-influenced values and lifestyles. It therefore becomes imperative that the luxury retailers should understand the relevance of the brand not only in global but in local context as well. These brands should construct an identity that amalgamates western influences with local insight.
When compared to an retailing in general, luxury goods' marketing is a different ball game as the type of customers involved fall in a different class altogether. These customers are influenced more by glamour and style and want to stand out in a crowd. They do not bat eyelid when they buy a Vuitton bag costing Rs 50,000 or a Mont Blanc diamond-encrusted pen for Rs 50 lakh, Ermenegildo Zegna's top-of the-line, custom-tailored suit costing Rs 6 lakh or a mid-range Louis Vuitton briefcase priced Rs 1.27 lakh.
As these figures suggest, luxury brands are prestige products characterized by high-involvement decision-making that is strongly related to the person's self-concept. Sensory gratification and social approval are the primary factors in selecting a prestige product. Cutting prices or giving discounts can be detrimental in case of luxury brands. A higher price implies a higher level of quality and also suggests a certain degree of prestige. Similarly, distribution should be restricted. Status-sensitive consumers may reject a particular product if the feeling of exclusivity goes away.

India – the next hub for luxury goods
Turning its back on Nehruvian socialism and Gandhian asceticism India has become a luxury destination ever since Louis Vuitton Moet Hennessey (LVMH), among the biggest luxury players in the global market started the trend in 2002 with the entry of their watches and jewellery line.
A Technopak study puts China's top end luxury market contributing to an estimated 12% of global sales. The report also predicts that China will also account for 30% of luxury goods sold globally by 2014. India, on the other hand, accounts for less than 2% of total market spends on luxury products. Experts however believe that the country has a huge potential in coming years as it develops and stabilizes its retail market further.
With the total number of consumers for luxury goods in India exceeding the adult population of several countries, the Indian luxury retail market is estimated to leap-frog from around US$ 3.5 billion currently to US$ 30 billion by 2015, according to a survey done by AT Kearney. India's luxury market, estimated to be the 12th largest in the world, has been growing at the rate of 25 per cent per annum. Already Indians splurge US$ 2.9 billion on luxury assets, spend another US$ 953 million on luxury services and top it by buying luxury goods worth US$ 377 million. Consequently, a number of foreign brands including French Connection, Sanrio of Hello Kitty fame, Jimmy Choo, La Pearla and Calvin Klein among others are looking forward or have already infused foreign direct investment through the single-brand retail window.
India with the fastest growing high net worth individuals (HNWI) in the Asia-Pacific region, is being perceived now as the next hub of luxury goods consumption. India led the world in HNWI population growth at 22.7 percent, driven by market capitalization growth of 118 percent and real GDP growth of 7.9 percent. Although India’s real GDP growth decelerated from 9.4 percent in 2006, current levels are considered more stable and sustainable.
It is however the emergence of ‘mass affluence’ combined with aspirational mindsets and lifestyles that are helping stimulate consumer demand. The rapid growth of the Indian middle class means that a larger number of consumers are able to afford luxury goods than ever before. McKinsey forecasts that the Indian middle class will increase from approximately 5% to 41% of the population and hence might propel India to become the world’s fifth largest consumer market by 2025.
According to technopak study, in India there are 420 million people under the age of 25, 22 million people who join the ranks of the middle classes every year and 67 million who have an average annual income of $25,000. These young shoppers, who aspire to acquire a lifestyle that is international and the best that the market offers is what is going to take this segment to the next level of growth.
The Changing Consumer DynamicsGovernment has recognized the fact that India’s traditional heritage and inherent strength in craft, design and creativity, especially in textiles and gems industry could be leveraged to corporatize and organize an indigenous lifestyle industry. The government therefore has shown full support to luxury and fashion goods industry to share and integrate the skills of Indian artisans and craftsmen with international expertise to make India a global hub for manufacturing luxury goods.
It is expected that the government will slowly move on to allow 100% FDI in single brand retailing from 51% now. We may also expect government to allow FDI even in multi brand retailing in the future. However, the foreign players should have the respect for corporate social responsibility and government norms to develop a long term and mutually beneficial relationship with the government.

Challenges
As luxury labels descend on India to seize the potential, and the rich Indian responds with wide eyes, the big question mark that dangles is counterfeits. Counterfeiting can severely undermine the brand value of luxury goods, for which everything is in a name.
High import duties(35%) and restrictive FDI rules are some of the other factors that is holding back premium brands from entering and expanding their businesses.
But the biggest challenge for the luxury goods makers is the paucity of quality space. Most luxury brands are currently housed within five-star hotels which is making them comparatively inaccessible. On an average, the space requirement for luxury brands is higher (2,000-3,000 sq. ft.) and only a handful of places fit the bill. Partnering with real estate companies and acting as their anchor tenants might solve some of the problem.

Outlook
Managing luxury brands is as much an art as a science. The challenge is to create a demand for something which is non essential. After all, it looks crazy to spend Rs 50,000 on a handbag or Rs1,27,000 on a briefcase. Creativity plays a key role in creating such a premium image. Many luxury brands achieve legitimacy and fashion authority as a result of the creative talent of their design teams who respect the brand heritage and yet continuously reinvent it.
With a rapidly expanding population of high net worth individuals, India could emerge as the next hub for luxury goods consumption. When all is said and done, the experience of the stores themselves may be the real key to the luxury industry's success.
We think the growth of luxury retailing in India is going to be very exciting, colorful, and vibrant. India will reshape the luxury industry itself in many ways. For now, the question isn't whether India can support such a huge rise in luxury retailing - a strong interest in foreign brands and a growing middle class of about 300 million almost guarantee that it will be a leading luxury market in the future - but whether the country is running out of retail space.

IRF 2008: Day 3

Day 3: India Retail Forum
The next urban Frontier: Twenty Cities to watch By: Roopa Purushothaman, Chief economist, Future capital holdings and R Shukla, Directo, NCAER
Detail discussion about the report….real good report….could not write it up due to huge data bombardment!!

Creating excitement in retail By: Bob Pritchard, International Marketer of the year & Tony Coombs, Market Force One
· The following three should always be present in interactive entertainment that should be provided to children to relieve parents for shopping:
o Education
o Health
o Fitness
· ‘e’ ball
· Track ‘n’ Find

Investments in Retail
- Anchor: Prashant Desai, Future Fund
- Vikram Rao, Business Director (textiles & apparels), ABG
- Srinath Sridharan, Sr. VP &Head, Strategic Alliances, Wadhawan Holdings
- Anjan Chatterjee, CMD, Speciality Restaurants (Mainland China)
- Ashish Kapur, MD, Yo!China
- Pradeep Hirani, Chairman, Kimaya Fashions
- Atul Jain, country head, Jumbo Electronics
- Sanjay Sahni, MD, Rituwears
- Ho Jung Lee, Senior Analyst, KPMG Korea

· Business of Business is to create value / Business of Business is to satisfy customers
· Business value is determined by its market capitalization which depends on
o Performance – (in your control)
o Perception – of the market (can only be affected by business)
· Capital will only come when the market sees growth in business.
· Market loves the following about retail:
o Growth
o Pure India play (not affected directly by global happenings)
o Can be the next big structural story in making
o The benchmarks are available world over to compare the growth
· Market hates the following about retail:
o Few size players – largest player is at $1 bn
o The promise on growth / revenue / profit is not being delivered – poor execution
o Confusing growth – largest player is growing @ 75% while smallest @ 25%
o Continuous need for capital
· Challenges:
o Tough macro environment
o High real estate prices
o Delays in development of mall
o Every store is a new challenge – customers are different in different region
o Evolving market – continuous change
o Cost is increasing
· Opportunities:
o Huge Customer base and rising income
o Rentals are way down
o Increasing entry barriers
o Competitive activities are at its weakest

Real estate and Retail
· Need for both realtors and retailers to understand each other business and then work out the deal.
· Currently both work in isolation
· Mall design should be as per need of location and all mall should not be designed in standard way.
· We can look at the option of taking rent as per the business of retailers. Also need to work out how revenue share model works.
· Developers should size there stores as per requirement of retailers and not just by sizing it in std way
· The high property tax is also a big concern
· The huge cost of finance and rising cost of land is forcing realtors to charge high prices from retailers. How to decide as to how much of total mall revenue should come by revenue sharing mechanism.
· Look at providing entertainment in malls like children theme park, water-park, and aquarium so that foot fall can be increased.
· Is it possible that consumers are ready to pay more for better shopping experience?

IRF 2008: DAY 2

Day 2: India Retail Forum
What do shoppers Really Want? (world view) By: Jonathan Banks, Business Insight Director, The Nielsen Company, UK
· The population world over aging because of which the consuming pattern changes with time. The major reason for this aging population is increasing life expectancy and decreasing population growth rate.
· Skewness in wealth and population distribution.
· Middle class population and there income are increasing
· The changes are happening fast and has huge ramifications
· The trend is with GDP increase – retail spend increases.
· Major online purchases happens in travel, books and electronics goods.
(overall a very general presentation)

Winning Retail Strategy By: D Shivakumar, VP & MD, Nokia India
· Strategy is about doing different things and doing things differently
· The story / growth of organized retail will be much higher then even the telecom which is a huge success story in Inida. The organized retail will grow by 42% to $70 bn by 2011
· With time the share and penetration of various categories of product will change.
· The real estate demand & supply gap is huge.
· The driving factor for relationship between three key players namely consummers, manufacturers and retailers were discussed.
· More than third of the purchase in influenced by word of mouth
· Manufacturers are doing vertical integration – shop-in-shop, own outlet, concession agreement etc – to better understand the customers.
· Retailers are using pvt labels to enhance there margins.
· The need is to have proper partnership between retailers and manufacturer – the era of independent growth is over and new era of dependent growth is happening.
· Surplus labor but short in talent – is the biggest challenge.
· Supply chain, need to understand the consumers and creating brand are the major challenges that retailers face.

Private label trends by: Paul Martin, Global sales Manager, Planet Retail, UK
· Discounters are the champions of pvt labels
· Switzerland has maximum share of pvt labels in retail. World avg share of pvt label is around 20%.
· Factors driving growth of pvt label:
o Consumers:
§ Well informed
§ Trust
§ Long market presence of pvt label
o Retail environment:
§ Highly developed market
§ Highly concentrated market
§ International players
§ Fierce price competition
§ Discounter expansion
o Manufacturer:
§ Over capacity – manufacturers sell there product (unbranded) to retail – thus increasing there sales and using capacity as well.
· As the retailers grow they try to influence entire supply chain using the following powers:
o Choice of supplier – breadth
o Product ingredient – shelf space control
o Certification & quality std – retailers can get there pvt labels certified thus giving confidence to consumers.
o Direct feedback from consumers.
o Quality positioning & target group selection – price positioning.

· History of pvt label (started in 19th century):
o Products were imported and the branded domestically by retailer(current status of china)
o Pvt label used as value alternative (India between this phase and next)
§ The brands are around 30% cheaper than mfg brands
§ It causes credibility problems and confusion in the minds of customer
§ Often connected with low std, low quality, cheap, unsafe
§ Educating the customer is the key
o Pvt label used as Segmentation by price (value/standard/premium) (current status of Australia)
§ Strong regional players drives the growth
o Segmentation by categories, sub-branding (USA/UK) – new categories of products develops
o Segmentation by brand evolution eg ethical brands (Switzerland)
· Future:
o Multiple availability of pvt label – in co-operation with other retailer (two retailers giving same pvt label)
o Channel blurring – difficult to recognize role of mfg & retailer eg. Pvt label of cola
o Co-branding – retailers cooperate with mfg brands to tailor their offer to target consumers

Health & Wellness :
- Girdhar Gyani, Sec Gen, Quality Council of India
- DrRK Shrivastava, Dir Gen, Health services, Ministryof health & family welfare, GOI
- Somnath Das, COO, Manipal cure & care
- Anchor: Anand Rangachary, MD (south Asia & ME), Frost & Sullivian
- Rakesh Pandey, CEO, Kaya clinic
- Peter Baker, CEO, H&B Stores (Dabur)
- Ratan Jalan, CEO, Appollo Health & Lifestyle
- Ashutosh Garg, CMD, Guardian Life Care
- Dr Sanjeev K Chaudhary, CEO, Religare Wellness
- Ashish Kripal Pandit, CEO, VLCC
- Viraj Gandhi, MD, Medicine Shop
- Gautam Thandani, Director, 98.4
· The market is expected to grow to 300% in next 3-5 years
· Challenges:
o Manpower Shortage:
§ Availability & Retention of quality staff – companies want to open there own institute but there is strict requirements from govt – regulations are being amended to change the rules and open institutes in PPP format
§ Shortage of doctors
§ Geographical imbalance in distribution of medical college – mostly located in south
o Creating consumer awareness of the product is important – huge negative bias towards wellness industry – trust needs to be built by providing quality service at affordable cost.
o Duplication of product is a big challenge – organized retail can help check it.
o Fixed MRP, Low margin – makes investing for quality difficult
o Adhering to quality std is a challenge – consumer should be empowered and pharmacists should be enabeled
o Procurement efficiency is a problem – mainly governed by size.
o Practicing traditional Indian medicine system (ayurveda, homeopathy) is challenge because of cost and non-availability of professionals

Collaborative Retail Support (SCM) :
- Anchor: Vikram Bakshi, MD, McDonald’s (north & east) & president restaurants association of India
- Abhijit Malkani, Director, ProLogis India
- Pascal Allix, GM, South Asia, Oracle
- Arun Gupta, CIO, Shoppers stop
- Alok Jayant, Industry Principal, Retail & wholesale, SAP India
- Badal Chaudhry, Head, Apparel & Lifestyle Business, Safexpress
- Anshuman Singh, CEO, Future Logistics & Solutions
- Brian Oravec, CEO & MD, Realterm FCH Logistics
- Peter Robilliard, Solution Director, Asia-Pacific Japan, Torex
- Sanjoy Sahgal, CEO, AXIND software
- Thomas Capune, MD, Consulting Partners, Germany

· Challenges:
o Increasing supply chain risk
o Increasing complexity of pdt & services
o Rising prices of energy
o Talent retention
o Wide geography
o Integrating IT with vendors system
o Creating transparency across SC
o Proper co-ordination between sales & supply chain team
· India has sufficiently well established SCM esp in food. Eg: Amul. Here consumption and demand are well matched – but the problem might come when volumes will further increase.
· Avg SCM cost is around 2 – 30% with varying categories and type of store.
· Amount of money being spent in front end is around 13-15% compared to only 4% in SCM. Is this worth doing?
· SCM could be improved if retailers can share sales data with vendors – this will enhance visibility across supply chain
· Collaboration between retailer, vendor and logistics service provider is the key to efficient SCM

India Retail Forum (IRF) 2008

Here are my running notes of various presentations, lectures & pannel discussions that happened over the three day period at IRF 2008. I would be happy to be of in case you want to anything more on the subject.

Day 1: India Retail Forum
The conference began with anchors Mr Anish Trivedi, Banyan Tree Communications and Mr Jayant Kochar, GoFish Retail Solutions setting the positive tone for the Indian economy. They point to the fact that though Indian economy at the moment is going through inflationary phase with slower predicted economic growth, the economy is still not doing bad when compared with rest of the world. They showed that US, UK and almost all developed economy are facing much bigger trouble compared to India and the long term story of India remains intact. They felt that India is the most rewarding market and the place for retailers to be in.

Inaugural session by Mr V. Vaidyanathan, immediate past chairman of IRF and ED ICICIC Bank

The salient points covered by him were:
· India is not a decoupled economy.
· India story is indeed intact because of following reason:
o The fact that India is now a liberalized economy and country of entrepreneurs. Combine these two fact and it’s a recipe for success coz given a chance, entrepreneurs will find the way out. He gave the example of USA pointing to the fact that USA also is land of entrepreneurs and has been liberalized for last 200 years.
o Trend of globalization, technology, rising consumer income will help these entrepreneurs who will write the Indian story.
o People now are aware and need growth. Even politics is now more oriented towards growth.
· The risk are there and will always be. It is these risk that will keep us awake. Eg: Japanese fish – shark – fight for life.
· Change is the only constant.
The challenge of Managing the change, By: Mr R Subramanian, Founder & MD Subhiksha Retail
· Realism of Indian retail – Indian consumers are the most arbitrage seeking (will go and compare prices at all shops), most savy and are not time starved.
· Promotional day pricing, loss leader pricing etc will not work in India
· India is different in two key parameters:
o The cost structure – Globally cost of people is high and cost of property is low. That is why the big format stores with self service options got developed. But in India this is just opposite. Indians like being serviced and in fact Indians are most over-serviced population. India is the only country where people will have one lakh car and will still have it chauffer driven. Self service format is not for India.
o Impact of MRP – In India prices are governed by MRP and therefore you will not find wide variation in prices of general items. So there is no locational advantage that could be gained. Usually people will go to far distance to get benefit of prices but if there is no price difference, the stores should better be located near the convenient locations. India will probably always remain “small store format” country.
· One big change that has happened is substantial increase in disposable income of the consuming class.
· Currently India is going through excesses and fundamentals have been forgotten. Indian retail is currently in hyper growth mode which will slow down eventually and only those will survive who will have there fundamentals intact.
· The key to manage the retail store is therefore:
o To manage bottomline, topline are much easier to come. This is difficult because competition is with kirana stores who have traditionally survived with very low margin forced on them by big manufacturers like HLL, P&G etc. They survived because they are the true entrepreneurs. They know how to work in adversity. Generally, big retailers try to use scale of economies to manage margin but it is only increasing sales and not the profit.
o Real estate prices – Retailers have the tendency to get hold of any and all real estate since they believe that anyway over time the prices are going to increase and after some period they will be profitable. But retailing is not a real estate business.
· Consumers are highly value conscious and we should strive to increase the value to the consumers.
· Organized retail still has huge opportunity to grow.
· There is large part of untapped demographic dividend (under served geographies) to be tapped.
· Migration is happening to urban cities coz of growth in manufacturing and services.
· The key to make Indian retailers strong is to expose them to brutal competition.
· India is the most competitive market in the world and those retailers who can survive here can survive anywhere in the world. Thus in next 5-10 years one may find that Indian retailers are moving out and setting up shop in other countries.
Perspectives on the Indian Economy and Implication for retailers: 10 things retailers should do in the next 12 months By, Ireena Vittal, Partner, McKinsey & Co.
· Since 1992, Indian economy is the most resilient economy. In spite of various problems in the past like Asian meltdown, 911 etc and current sub-prime crisis, India can still grow at 7%.
· The rate of growth of Indian economy is increasing and at the same time volatility is decreasing. Since India is an emerging market the volatility will be there but at a much reduced level then before.
· The reasons for India showing resilience are:
o Pvt consumption is driving the growth (68% of GDP). Indians are more confident of future and are therefore spending more and saving less. The savings rate has decreased by 33% from past.
o Positive supply side…
· Basically India is at inflexion point. It is where China was 15 years ago.
· Long term story of India seems good but in short term the future seems uncertain. The consumption has tapered down in last 4 quarters but fixed investment is still robust. This indicates that bottom has been reached and there is no downturn from here.
· Inflation is mainly driven by (40%) fuel and food. The fuel prices will move as per global conditions and nothing can be predicted on that front. The food prices were the lowest and the farmers where the major loosers. The food price correction was long due and what we are seeing is the one time correction which was due for long.
· Cost of financing is likely to remain high in near future & the financing firm may see bad time in near term.
· The consuming class is still thriving:
o Salaries of govt employees has increased.
o More budding entrepreneurs.
o Rural economy and Farmers are doing good.
o The effect of NREGA (100 day employment scheme of govt) is showing results.
· Thus long term story is robust, short term is uncertain and consumption pockets are still thriving and growing.
· 10 things that retailers must do:
o Build sale by:
§ Communicating value to consumer – not by advertisement but by doing real thing that consumer values. Like reduced prices etc. The effect of this will take time.
§ Drive traffic to store – shift promotion and marketing to traffic generating vehicle.
§ Never miss a sale – proper replenishment and incentive to shop staff
o Reduce cost:
§ By simplifying merchandising & sourcing
§ Restructure indirect cost
o Find Cash:
§ Manage for cash – look at cash flow
§ Increase investment efficiency & effectiveness (get 4 stores at price of 3)
o Buy in Buyers market:
§ Use the downturn
· Find partners
· Find who have to sell and get it from them at lower cost
§ Build bench strength
· Recruit talent
§ Local market battle plan – involve local community including kirana’s.
· The retailers need to have speed, simplicity and productivity of space – the long term story is intact and retailers should move confidently.

Connecting with young India, Saurabh Dhoot, Director, Videocon retail
Nothing worth writing!!

Q&A with Kishore Biyani
· Only 3% of India gets affected by EMI.
· Success is about discovering Indian way of doing retail
· “Garv se kaho hum kanjoos hain” – to bring about cost sensitivity to people.
· Key learnings over the year:
o Thoroughly understood Indian consumers
o Invest every rupee smartly.
· There is no right format. Execution is the key.
o Central mall – least risky and most profitable
o Big Bazaar, KB fair price – Lowest cost – true retailing
o Pantaloon – consistent income
o Home town bazaar (new format) – door to door sales – exciting
· Retailing is about understanding consumers
· Pvt labels is one of the major growth drivers for success
· Entertainment is the most difficult business coz the biggest source of entertainment of Indians (gossip) comes free of cost. Next is movie which is considerably cheap.

Round table 1: Where is the opportunity?
- Arvind Singhal, Chairman, Technopak
- Anchor: Bijou Kurien, President & CEO, Reliance lifestyle holdings
- Govind Shrikhande, ED & CEO, Shoppers stop
- Mark Ashman, CEO, Marks and Spencers India
- Ambreesh Murty, Country Manager, eBay India
- Thomas Varghese, CEO Aditya Birla Retail
- Roshini Bakshi, Country Head, Walt Disney
- Sonica Malhotra, ED, MBD group
- Soumitra Ghatak, CEO, My Dollar Store
- Asif Adil, MD, Diageo India
- Dhruva Chandrei, COO, Next Retail India
- Arvind Chaudhary, CEO, Aadhar Retail
- Sanjay Dutt, Dy MD, Cushman & Wakefield
- Doug Hargrove, CMO, Torex UK
- Sandeep Kataria, Global Brand Director, Home Care, Uniliver UK

· Economic slowdown is not crippling opportunity – can be seen from the sharp increase in no. of stores across all formats and across all retailers.
· Diversification in format is happening
· Retailers are expanding their reach by diversifying into geographies (cities)
· Reaching to wider strata (class) of consumers
· Modern format is no longer intimidating (to not so well off)
· Modern retail is having impact in sales of various categories of products
· More brands are looking for vertical integration – manufacturers are becoming retailers.
· Strategic alliance with best in the world – tie ups Bharti-walmat, Tata-Tesco,
· Increasing support from pvt equity
· Consolidation is expected
· More global retailers will come in
· It is expected that within 5 yrs:
o Investment of $30 Bn
o Revenue - $100 Bn
o Mall space – 500 million square foot
o Reach – 600+ towns, 5000+ villages.
· Issues in catchment – reducing
· Stagnation of innovation in certain categories.
· Online retailing (growing at 30%) – key:
o Ease of use
o Safety & trust
o Value (in reduced price & increase convenience)
o Major categories – travel, brand new fixed price product (like tech product, some apparel pdt etc), no confirmed price product (like jewellery) where prices are fixed via auction.
· We should try to exploit synergies between online & offline retail:
o Online provides benefit of large catchment area to be targeted.
o Online can address unreachable market
o Ease of selling end of life inventory

Hypermarket: Experience and learning
- Viney Singh, MD, Max Hypermarket
- Andrew Levermore, CEO, Hypercity
- Rakesh Biyani, CEO, Future Group
- Anchor: Hem Chandra Javeri
- Brendan Dorrian, CEO, Patonz Global Retail Network, UK

· Hypermarket & Kirana: major benefit in terms of assortment mix and price to some extent. Hypermarkets tend to increase the assortment variety that people consume. Eg. Sales of Kellogs has gone up significantly due to increase in no. of hypercity. People get exposed to products in hypermarkets. Kirana is mainly about services.
· The worries are cost of energy, real estate, week infrastructure and rising people cost.

· Major people challenge are:
o Lack of experience – because of nascence of business.
o Bringing people from outside or training in house – the two options being explored. Future group has not brought any people from outside.
o Discipline among shop floor employee is a big problem – can be overcome by giving proper motivation.
o Collaborate with institutions to train people. Future group has tied up with around 22 programs in country
· Supply Chain challenges:
o Supply chain is very well developed in India. How else can u justify the fact that over 12 million retail outlets in India are getting their products and surviving. But it is long, complex and involve multiple handlings. Lead time is long. The thing that is supplied by two trailers in US is being supplied by >300 vehicles in India at different time.
o Retailers can hold their own logistics systems.
· Consumers:
o Sales are skewed in weekends and holidays.
o Retailers trying to manage sales over week uniformly
o Loyalty is defined by no. of visits the consumers make per month. Some customers does shopping with whole set of shoppers and are loyal to all.
· Pricing:
o Consumers want 5 quarters in a rupee.
o Country governed by MRP – locational pricing a problem
o Pvt label – the key
o Creat new categories where there is no price comparison – to gain higher margins
· High rentals – developers need to understand the business model of retailers and work along with retailers.
Don’t try to change people habit – it will take more time and will cause more pain
Rather try to create new habit – its easier and faster.
· Concern was shown in safety of woman – collaborate with police, bylaws to have proper covered atriums, toilets etc, multi-level car parking. But anyways, malls are much safer then streets of India.
· Finding a good location is a challenge.
· Finding a mall with right mix of retailers and convenience to shoppers is a challenge.
· Retailers should try to create entrepreneurs in the store who can manage stores to provide better service to customers.

What could be the future concepts
- Anchor: Gagan Singh, MD, Sandalwood Living Retail
- Anchor: Harminder Sahni, MD Technopak
- Kabir Lumba, ED, Lifestyle
- Damodar Mall, CEO, Innovation & Incubation, Future Group
- Arvind Nair, MD, DLF Retail
- Vishal Mirchandani, CEO, Wadhawan Lifestyle
- Subhinder Singh, MD, Reebok India
- Akhil Chaturvedi, Director, Provogue
- K R Suresh Kumar, GM, Retail Sales, Indian Oil
- Rajiv Agarwal, CEO & Director, Essar Telecom Retail
- Ashwin Puri, CEO, Pioneer Property Zone
- Sanjiv Gupta, CEO, GKB Lens
- Nilesh Khalkho, CEO, Sharaf DG, UAE
- Ravi Showan, Head of Retail, Empire Direct, UK

· (Missed some part)
· Innovation in concepts – mobile banking & shopping, virtual payment, elimination of experts to tell about products
· Oil companies - To maintain margins – go closer to consumers and improve the service levels.
o Sell pdt in oil court like mobile recharge, movie ticket etc for which customer don’t like to move out to purchase it specifically.
o Display commodity price for farmers and even provide trading facility at courts for farmers.
· India has the advantage of directly leap forging and find out what works rather than going through painful process of trial and error.
· Innovating concept that can bring local & big retailers together is the key
· Specialty mall like Emporio in New Delhi, Homes in Pune are the next gen formats.Collaborative retail (like two players coming together) to exploit the synergy is also very much possible in Indian scenario.

Supply Chain Practices of Three European Apparel Companies: Zara, H&M and Benetton

Hennes & Mauritz

· Sweden based – founded by Erling Persson
· Though compared to its competitor Zara, H&M took more time to deliver the clothes, the extra time gave the company a cost advantage and clothes were 30-50% cheaper compared to those at Zara.
· Stocks are replenished every day and no item was allowed in shelf for more than a month.
· Clothes were designed by H&M and mfg by 600 suppliers located in 22 countries across the world to be shipped to more than 1300 stores spread in 25 countries across the world.

Design
· All of H&M’s collection are planned and designed centrally by the company’s purchase and design department. The department had over 100 in house designers and cooperation from around 100 buyers and 50 pattern designers.
· The design was based by balancing three parameters namely fashion, quality and price.
· Every year H&M brought out two main collections, one during the spring and one during the autumn season. Within each season, several sub-collections are released.
· H&M also brought out collections in collaboration with renowned designers of the world

Production
· H&M did now own any factories or manufacturing units, and clothes were procured from more than 700 independent suppliers.
· The main responsibilities of production office included identifying new suppliers, placing orders with the right suppliers, negotiating price, ensuring suppliers maintained quality, minimizing transport time etc.
· H&M essentially operated through two supply chains in order to optimize time and cost. The first chain took care of the cost component and the manufacturing was done mainly in Asian countires. The second one termed ‘rapid reaction’ was used for fashion sensitive garments, and was based in Europe.

Distribution
· The production was sent to warehouses which act as transit terminal.
· The merchandise is delivered to store in daily shipments.
· The goods from the Asian countries were shipped by sea in order to minimize costs. When the orders from a particular store were large, the shipment was sent directly to stores. If the garments were in demand only in a particular country, then they were sent directly to the distribution centre in that country.
· All the H&M stores were managed by the company and operated in the best available locations.

Supply Chain Practices of Three European Apparel Companies: Zara, H&M and Benetton

The case details the design, production and distribution practices of following three companies:
Zara: One of the pioneers of fast fashion developed a fully integrated supply chain model. The processes like design, production and distribution were carried in-house and it owned and operated all the stores.
Hennes & Mauritz: Designed & distributed the garments, and owned the stores, while the manufacturing was completely outsourced.
Benetton: designed and manufactured all the garments, but did now own any stores.

ZARA
· Three key success factors – short lead time, more style and low supply of any particular style.
· Zara – the flagship brand of Spain based Inditex group, founded by Amancio Ortega Gaona and opened its first store in 1975.
· 1058 stores located in 69 countries as of March ‘08
· Able to conceptualize the garment, develop, and deliver it to the stores within 2-3 weeks weres the industry average is six months.
· Key to success – integration of design, production, distribution, and retailing
· The model allowed Zara to respond quickly to shifts in consumer tastes and to newly emerging trends.
· The company's instant fashion model, which completely rotated its retail stock every two weeks, also encouraged customers to return often to its stores, with delivery day becoming known as "Z-day" in some markets. The knowledge that clothing items would not be available for very long also encouraged shoppers to make their purchases more quickly.
· In 1988, the company opened its first foreign store in Oporto, Portugal.
· If a design doesn't sell well within a week, it is withdrawn from shops, further orders are cancelled and a new design is pursued. No design stays on the shop floor for more than four weeks, which encourages Zara fans to make repeat visits. An average high-street store in Spain expects customers to visit three times a year. That goes up to 17 times for Zara.
· While most retailers try to forecast the fashion trend and produce accordingly, Zara moves with the customer requirements and does not have to depend on forecast.

Design
· The design centre was located in Spain as well and was divided into three segments for Men, Women and Child wear.
· Team consisted of more than 200 designers who can churn out 60 styles each.
· The store managers and sales staff updated the head office every day about the moving stock and provided inputs regarding the new lines, colors, styles and fabrics that customers are demanding.
· The store specialists provided the designers with an outline of the new style, design and fabric as demanded by the store. The procurement and production managers provided inputs regarding the capacity and manufacturing costs. The designers came out with the design specifications and the technical brief. With all the teams working in tandem, the prototypes were ready within a few hours!!

Production
· Zara procures unprocessed and undyed fabric and colored the product based on the need. Zara sourced undyed fabric from far east, Morocco and India.
· The prototype is made by design team.
· The production facility cuts the fabrics as per the required design using computer layout of sample pieces. The layout was prepared to minimize wastage.
· The cut-pieces were barcoded and marked and were then distributed for sewing to 350 small workshops in Spain and Portugal where almost 60% of production happens. These workshops, which were not owned by Zara, employed about 11,000 workers and were provided with a set of instructions on how to sew the garments. This helps keep cost down. Quality was assured by maintaining proper training and audit.
· Garments are usually ready in a weeks time.
· The stitched garments after coming to the production centers of Zara were checked twice for quality, pressed, tagged, wrapped in plastic bags and sent to the distribution centers.

Distribution
· Distribution centre (5lac sq meter) is located centrally in Spain.
· Zara has its own railway track of 211 km on which the goods moved to the distribution centre.
· Optical reading devices sorts out more than 60,000 items every hour. The distribution centre has two level and was fully automated. On one level, folded apparel was packed into cardboard boxes. The boxes were dropped through a shaft according to their destination. On the lower level, garments – sorted based on their styles – were placed on hangers. There were two belt systems – one for folded and one for hung garments. The garments were then routed using automated routing devices. All the garments were pre-priced and the lots labeled according to their destination.
· The garments were shipped out twice a week.
· Non-european consignments were sent to the airport for further distribution.
· Stores within Europe receives consignment within 24-36 hrs wereas outside Europe received them within two days.
· Zara achieved accuracy of 98.9% in its shipments.
· Once the merchandise reaches the stores, the goods were put on display straight away. With new stocks arriving twice a week, the stores always had something new to offer and the customers waited eagerly for new arrivals.
· The codes on the clothes conveyed to the staff where exactly the items needed to be placed. In the stores, the clothes were organized by color rather than type of garments. This was done in order to encourage customers to spend more time at the stores matching items.
· The stores were mostly located in the prime locations across the world.
· All Zara stores were uniform in outlay, including lighting, fixtures, window display and arrangement of garments.
· Most of the stores were company-owned and in some markets, particularly in Asia, Zara went in for alliance and franchises.
· Zara retained the right to open its own stores in the location and buy out franchised operations in cast the franchise experienced any problems with running the stores.

Zara’s supply chain - advantages and disadvantages:
· Zara was able to react swiftly to the emerging trend in the fashion industry. In contrast, other retailer took between 8 to 12 months to forecast and arrive at a style and send it for production.
· If the style did not sell as expected, the low production quantity ensured that Zara did not lose much, as there was not much stock to be discounted. On an average, Zara sold only 18% of the clothes through discount sales twice a year, as against the industry average of 36% and constant markdowns.
· Though this supply chain of Zara has higher cost but it allowed Zara the advantage of low inventory and higher profit margins. Analysts opined that Zara’s supply chain did not minimize costs, but worked towards maximizing revenues.
· The biggest disadvantage with Zara is that since Zara owned all the channels of supply chain, it was difficult for Zara to expand to far location as it becomes very costly to distribute such products.

(The supply chain practices of H&M and Benetton will follow in my next article…soon!!)

The Bullwhip Effect in Supply Chain

(The article is a summary from the paper written by Hau L. Lee, V. Padmanabhan and Seungjin Whang and taken from sloan management review/spring 1997)

Distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies excessive inventory investment, poor customer service, lost revenues, misguided capacity plans, ineffective transportation, and missed production schedules. The article deals with how do exaggerated order swings occur? What can companies do to mitigate them?

Summary
The bullwhip effect results from rational decision making by members in the supply chain. Companies can effectively conteract the effect by thoroughly understanding its underlying causes. Industry leaders like P&G are implementing innovative strategies that pose new challenges: integrating new information system, defining new organizational relationships, and implementing new incentive and measurement systems. The choice for companies is clear: either let the bullwhip effect paralyze you or find a way out.

What is Bullwhip effect in supply chain?
This effect first came to my knowledge while my professor was of SCM was trying to teach us the reason for extremely high inventory by making us play the ‘Beer Game’. Here each of the four participants are given the role of ‘retailer’, ‘wholesaler’, ‘distributor’ and ‘manufacturer’. The retailer is randomly given a customer demand based on which the retailer try to forecast future demand and gives the order to wholesaler with some built in ‘safety stock’. Now as the process moves upward, from wholesaler to distributor to manufacturer, to my utter surprise, even if all the decision seems perfectly rational the inventory kept on increasing at each level. You will not believe the end result, the retailers fluctuation in demand only varied from some 8 to 16 over a period of 24 turns (that we played) and the total inventory and total backorder in entire supply chain was running in excess of 2000!!!
This is what is called ‘Bullwhip effect’. Here are some of the real life examples of this effect in play. It was observed by executives of P&G that the sales patterns for one of their best-selling products pampers fluctuates in retail stores, but the variabilities were certainly not excessive. However, as they examined the distributor’s orders, the degree of variability increased. When they further looked at P&G’s orders of materials to their suppliers, such as 3M, they discovered that the swings were even greater. This did not make sense. While the consumers, in this case the babies, consumed diapers at a steady rate, the demand order variabilities in the supply chain were amplified as they moved up the supply chain. This effect is called the bullwhip effect / whiplash effect / whipsaw effect.
As per wiki, the bullwhip effect is because customer demand is rarely perfectly stable, businesses must forecast demand in order to properly position inventory and other resources. Forecasts are based on statistics, and they are rarely perfectly accurate. Because forecast errors are a given, companies often carry an inventory buffer called "safety stock". Moving up the supply chain from end-consumer to raw materials supplier, each supply chain participant has greater observed variation in demand and thus greater need for safety stock. In periods of rising demand, down-stream participants will increase their orders. In periods of falling demand, orders will fall or stop in order to reduce inventory. The effect is that variations are amplified as one moves upstream in the supply chain (further from the customer)
In short, Bullwhip effect is the magnification of demand fluctuations, not the magnification of the demand. This could be really costly to any company.

(The beer game could be made available on request. If required, please send a mail to akshat1604@gmail.com with subject line “request for beer game”. The game is also available online…just try to google a bit!!)

Consequence of Bullwhip Effect
· Excessive inventory quantities : Various studies have found that the total supply chain, from when products leave the manufacturers production lines to when they arrive on the retailers shelves, has more than 100 days of inventory supply. Also, various reports estimates a potential $30 billion opportunity from streamlining the inefficiencies of the grocery supply chain.
· Poor customer service
· Lost revenue
· Unsatisfactory quality
Causes of Bullwhip Effect
People generally believe that the amplified order variability is the case cause of players irrationally decision making within the supply chain’s infrastructure. On the contrary, the fact is that bullwhip effect is the consequence of rational behavior of various players involved in the supply chain. This implies that the companies should try to modify the chains infrastructure and related processes rather than the decision makers behavior.
· Demand forecast updating: Forecasting is often based on order history from the company’s immediate customers. When a downstream operation places an order, the upstream manager processes the piece of information as a signal about future demand. Based on this forecast, the upstream manager readjusts his or her demand forecast and, in turn, the order placed with the suppliers of the upstream operation. This demand signal processing is the major contributor to the bullwhip effect. It is intuitive that, when the lead times between the resupply of the items along the supply chain are longer, the fluctuations is even more significant

· Order batching: There are two forms of order batching, a) Periodic ordering and b) Push ordering. Instead of ordering frequently, companies may order weekly, biweekly, or even monthly. The order batching is generally done to minimize the cost of ordering or to use the economies of transportation. This causes sudden increase in demand of the product thereby amplifying variability. For companies, the ordering pattern from their customers is more erratic than the consumption patterns that their customer experience. However, if all customers order cycles were spread out evenly throughout the ordering cycle, the bullwhip effect would be minimal. The periodic surges in demand by some customers would be insignificant because not all would be ordering at the same time. Unfortunately, such an ideal situation rarely exists. Orders are more likely to be overlapping towards let say end of the month or year. As a result, the surge of demand is even more pronounced, and the variability from the bull-whip effect is at its highest.

· Price fluctuations: Manufacturers and distributors periodically have special promotions like price discounts, quantity discounts, rebates etc. All these promotions results in price fluctuations. The result is that customers buy in quantities that do not reflect their immediate needs; they buy in bigger quantities and stock up for the future. The problem is it could be costly if forward buying becomes the norm? When a products price is low (due to offers), a customer buys in bigger quantities then needed. When the products price return to normal, the customer stops buying until it has depleted its inventory. As a result, the customer’s buying pattern does not reflect its consumption pattern, and the variation of the buying quantities is much bigger than the variation in the consumption rate – the bullwhip effect. This practice of giving regular discounts is sometimes called ‘the dumbest marketing ploy ever’.

· Rationing and shortage gaming: When product demand exceeds supply, the manufacturers often ration its product to customers. Generally, the manufacturer allocates the amount in proportion to the amount ordered. Knowing that the manufacturer will ration when the product is in short supply, customers exaggerate their real needs when they order. Later, when demand cools, order will suddenly disappear and cancellation pours in. In short, the customers try to ‘game’ the rationing system adopted by the seller. The effect of ‘gaming’ is that customers orders give the supplier little information on the products real demand, a particularly vexing problem for manufacturers in a products earlier stages.
How to counteract the Bullwhip Effect
Innovative companies in various industries have found that they can control the bullwhip effect and improve their supply chain performance by coordinating information and planning along the supply chain. Understanding the causes of the bullwhip effect can help managers find strategies to mitigate it.
· Avoid multiple demand forecast updates: Ordinarily, every member of a supply chain conducts some sort of forecasting in connection with its planning. Bullwhip effects are created when supply chain members process the demand input from their immediate downstream member in producing their own forecasts. Demand input from the immediate downstream member, of course, results from that member’s forecasting, with input from its own downstream member. Hence the best remedy to this is that to avoid repetitive processing of consumption data in a supply chain and instead to make available the demand data at a downstream site available to the upstream site. Hence, both sides can update their forecasts with the same raw data. In short share the POS data with the manufacturer. Hence, either by having mechanism (EDI) to share data or by bypassing the supply chain can counteract the ‘Bullwhip Effect’

· Back order batches: Since order batching contributes to the bullwhip effect, companies need to devise strategies that lead to smaller batches or more frequent resupply.

· Stabilize Prices: The best way to control bullwhip effect is to reduce both the frequency and the level of wholesale price discounting, establish a uniform wholesale pricing policy.

· Eliminate gaming is shortage situation: When a supplier faces a shortage, instead of allocating products based on orders, it can allocate in proportion to past sales record.

Ten reasons to use global sourcing

(Detail on the subject post will be made available on request via e-mail. Kinldy email with title as the subject to akshat1604@gmail.com)

Ten reason to use global sourcing are:
1.Material is available only from global sources
2.Technology is only available from global sources
3.Lower total cost of goods
4.To meet quality requirements
5.To establish additional sources of supply
6.Anticipation of actual material shortages
7.Support in global markets for domestic products
8.Support to other organizational global operations
9.Global sources can be more reliable
10.Joint ventures

Capturing and Gauging the Impact of In-store Promotion on Consumer Buying Decision

(From the article published in Marketing Mastermind)
The service offerings in most of the modern organized retail outlets do not have much of the required difference as expected by the leading players. Hence, the players would normally depend heavily on high decibel indoor and outdoor promotion strategies. Especially, the in-store promotion would come handy in influencing consumers to make in-store impulse decisions.
The in-store promotion schemes could broadly be classified into two categories:
· Monetary based promotion scheme – price off offers, unit or volume discount offers, combo or bundle offers, etc.
· Non-monetary based scheme – this mainly deals with the product/brand communication to the target consumers. This promotion would normally spread across the store. The location of this type of promotion is very vital to capture the consumer’s attention so as to influence their buying decision.
A non-monetary based promotion are generally sponsored by the manufacturers with the aim of sales promotions and is mostly targeted at those customers who have already decided to buy but are not sure of the brand that they want to buy. On the other hand, the monetary offers will influence even window shoppers or those who have not decided you to make a purchase. However, monetary and non-monetary in-store promotion strategies are very complementary in nature as both are very synergetic to a store’s performance. The primary motto of in-store promotion (monetary and non-monetary) will be to increase footfalls and the effective conversion of the same into sales. The aim of such combined promotional offers is also to get repetition of the footfalls and the enhancement of store or company loyalty among target consumers.
It is vital to have a concrete conceptual framework in order to capture and gauge the impact of in-store promotion in influencing consumer buying decision. A set of key indicators are required to provide a definite cue to the organized retailers to design effective monetary and non-monetary in-store promotion strategies. Some the possible key indicators for capturing and gauging the impact of in-store promotion on consumer buying decisions are:
· Setting an attainable goal – Deciding and quantifying the purpose of promotions
· Selection of target consumers
· Identification of promotion requirements
· Duration of the promotion
· Decide on monetary and non-monetary promotionDesigning, capturing and gauging mechanism

Private Label: An armour of organized retail

(Article written by self and my colleagues and published in RetailBiz)

A popular story within Food Bazaar as told to us by an employee mentions how Food Bazaar came up with the idea of their own Tasty Treat – the ready-to-eat snacks, a private label of Food Bazaar, when Pepsico’s Frito-Lay decided not to sell to Pantaloons Food Bazaar as they disagreed on terms of trade. And now Tasty Treat competes head on with market leaders like ITC’s Bingo and Pepsico’s Lays and Kurkure in a Rs 2000Cr snack market. Today Pantaloon Retail has more than 80 products comprising 350 SKUs with private labels in four main categories. Encouraged by the success of the private labels, the company is planning to launch more brands in various other categories. PRIL aims that, in the long run these brands will enjoy same trust that the best manufacturers brands enjoy today.
We wonder if this is some indication of how large organized retailers are now leveraging their power and position of being the only one, in entire value chain, in direct contact with the end consumers, in dictating their terms with manufacturers. We wonder how the manufactures are going to deal with this rising power and can both the manufacturers brand and private brands co-exist.

According to a Euromonitor study, the global private label market was estimated to be worth $1,411 billion in 2005, and is growing at 6% per annum. Organized retail currently forms only about 3.59% of total retail in India (graph 1), but its share will leap to 28 percent by 2017, according to a study by Technopak Analysis. And a 2007 study by Technopak says that overall, private labels already form 19 percent of the total market share in India

Why private label?
A private label is an industry jargon for the brands sold only by the retailers exclusively through their stores. Today’s private labels represent essence of stores image. It is no longer about few top brands that store carries. Instead it is about offering exclusive products that define the retailer’s image. It helps retailers to create value for consumers by providing them high or comparable quality products at a price lower than the major brand thus filling in the value gaps and thereby gaining customer’s loyalty.

Also, in the current Indian scenario only 20-30% products are branded. This makes it difficult to fill up the shop space. Private labels can accomplish this and may lead to an increase in the footfalls. But at the same time retailers must ensure that private labels have a strategic positioning rather than merely introducing a product.

WEAKNESS
ü High development & innovation cost
ü Inventory risk
ü Dependence on manufacturer of private label
STRENGTHS
ü Decrease reliance on national brands
ü Increased negotiating power
ü Allows differentiation from other retailers
ü Higher profitability and profit margins
ü Flexibility in controlling & managing shelves
ü Helps increase footfalls
ü Increased customer loyalty
ü Full control on pricing

Private labels give the retailers the ability to negotiate better terms with manufacturers. It also gives the retailers an opportunity to earn higher margins as it cuts down on middlemen and other non-value adding costs.

OPPORTUNITIES
ü Huge market potential
THREATS
ü Low hanging fruits is gone – enter more challenging categories
ü Manufacturers partnering with local kirana stores.
ü Negatively affect relationship with national brands.

In the apparels category there are players like Tata groups Trent with their Westside brands, Rajan Raheja-promoted Globus Stores pvt ltd with Globus brand, who have developed a business model purely on private labels. Stores like Hypercity Retail have dominated the apparel segment majorly through its private labels. There are others like Shoppers’ Stop which believe in capping the percentage of private labels in apparel in spite of being one of the pioneers in this concept as they believe that customers need choice of at - least 4-5 exclusive brand options which may not be possible with private labels only stores. The success depends on how the store is going to position themselves and create a value perception in the minds of consumers.

As mentioned in the annual report of Shoppers Stop Ltd, the contribution of the private label has increased to 21% of sales from 19% last year and private label sales have increased by 37%. Revenue of Vishal Retail Ltd grew to 15% in FY’08 from 9.8% in FY’07. The contribution of private label is expected to increase from 15% at present to 25% by FY’10 and 50% by FY’13.
The one major hurdle in using private labeled products is the high associated development and innovation cost. Therefore, before venturing in for private label products, retailers should have a clear long term strategy and should market the product to right customer in the right manner. It is intuitively evident that retailers should enter into that product category that has high profit margin, low entry barrier to labeling, and low switching cost to consumer, which may be either monetary or affective.

Factors affecting success of private labels:
The success of private label in a category is a consequence of differentiation between manufacturers brand and their store counterpart. If consumer perceives little difference in value and quality between the two kinds of offerings they have little incentive to choose the typically more expensive offering.
Trust gap between retailers and manufacturers brand, packaging, and advertising intensity of national brands are the three most crucial factors that cause differentiation in the minds of consumer and hence affects the success of private brands.

Private Label Manufacturers:
For products to be considered for private labels, they must have a large sales potential, because retailers are not usually interested in branding low-demand items. In addition, the manufacturer must be able to assure that the product quality is as good as or better than the leading brands.
The type of manufacturing process involved is another important product-related aspect of private labeling. In general, private labels are most appropriate for products that can be manufactured on a tight schedule while maintaining high quality standards. Private label manufacturers must be able to assure their retail clients of reliable, on-time delivery. In addition, they must be flexible enough to ramp up production quickly to meet increases in demand or to change the product's formulation according to the retailer's wishes.
Price is another important component of successful private label manufacturing. The price must compare favorably to competing name brands while also enabling both the manufacturer and the retailer to make money. In general, private label sales provide high volume but tight margins, so price calculations are crucial. Also the private label goods are usually priced 20 percent or more below the market leader. In addition, the retailer generally expects to see a profit margin on private label goods that is 8 to 10 percent higher than it receives with name brands. When calculating the final sales price for private label items, manufacturers must be sure to consider any costs that are incurred especially for the private label line. These may include tailoring the product to meet retailer specifications, or designing special packaging for each retailer.
The third factor in successful private label manufacturing is a strong marketing program. The marketing program for private label goods consists of two parts: contracting with retailers to become their supplier for a certain product, and assisting the retailer in marketing that product to the final consumer.

Overall, the private label manufacturing can present tremendous opportunities for small businesses, as well as significant challenges.

How national brand’s can fight back?
A knee jerk reaction to the competition from private labels is usually to slash prices which might adversely affect the profitability and the image of the brand.
Manufacturers now need to continuously innovate product and come up with value additions regularly and at affordable cost. For example, Gillete – has always came up with new razors, new blades and has upgraded its product regularly, hence the share of private labels is very low for this category.
Manufacturers now need to fight the selective battle. They need to move out from those categories where they are not the market leaders and focus on those brands which the consumer will definitely demand from retailers.
Last but not the least, manufacturers have to respect the strength of retailers and should start partnering with them to create a win-win situation from each other.

Conclusion:
Private labels are no more considered ‘cheap’ substitutes for branded brands. That they are cheaper and do not compromises on quality attract a lot of consumers. In the last couple of years, private labels have seen unprecedented growth with the entry of retailers such as Future Group, Shopper’s Stop, Reliance Retail, and Vishal Megamart. Worldwide experience shows that as retailers become more powerful, they have increasingly focused on their own brands at the expense of manufacturer brands. Experts believe that private label brands, which occupy less than 5 per cent of the market in India now, are likely to corner 50 per cent of the market as the retail space opens up and matures. The question is not whether this will happen, but when & how?

Bharti Walmart Tie up...

(From the article published in “Marketing Mastermind”, written by Doris Rajakumari John, Team Leader, ICFAI research centre)
About Wal-Mart: (Annexure 1)
1) Largest retailer in the world – net income for $11.2 Bn on sales of $316 bn for FY 2005-06
2) Operates in more than 13 countries & serves more than 176 million customers through more than 6100 stores.
3) Established in 1962 by SamWalton.
4) Customer oriented focus – “Sundown rule” & “ten feet rule”.
5) Everyday low price the USP of wal-mart.
6) Excellent SCM – pioneered the use of barcodes & RFID in retailing.
7) Wal-mart entered different countries through various routes like acquisition, JV, partnerships etc depending on market conditions & the expertise level in working in such market.
8) Wal-mart procures more than $2bn worth of goods from India and more than $18bn from china.

Retail scene in India:A detail report will be mailed on request (akshat1604@gmail.com), subject line: “Akshat’s retail blog: request for report on Indian Retail Industry”
1) Huge potential – total retail industry size of more than $350 Bn.
2) Increasing Organized retailing share in the market
3) Market dominated by unorganized sector
4) Favorable demographics, rising income level (DINK’s) & changing mindsets of Indian consumers – giving boost to consumerism
5) FDI was allowed between 1990 – 96 but due to protest from small retailers it was again restricted in 1997.
6) According to new regulations – “foreign retailers could set up wholly-owned subsidiaries in India for the purpose of trade, but they could only sell to wholesale buyers (ie to domestic retailers) and not to end customers. By definition, the rules described a wholesale buyer as the one who held a sales tax registration number. 100% FDI was thus permitted only in franchissee and/or cash-and-carry wholesale operations”
7) In 2006, the govt announced no. of reform in FDI policy. 51% FDI was allowed in retail trade of “single brand” products

The Deal with Bharti:
1) JV announced on Nov. 27th, 2006.
2) JV will manage procurement, inventories and logistics, while stores would be set up under franchise agreement with wal-mart.
3) The deal size was not disclosed but experts say it amounts to initial investment of $100mn by two firms each and increasing it to $1.46bn
4) The JV will help wal-mart to localize. Wal-mart has to pull back from Germany & south korea mainly because it was unable to cope up with localizations.
5) Areas of synergy (exhibit II)

Challenges:
1) Competition: (Detail report on completion available on request: (akshat1604@gmail.com), subject line: “Akshat’s retail blog: request for report on Indian Retail Industry”)
2) Talent sourcing & retention – According to RAI, while the total requirement for the fron end alone is about 1.25 million, the employee base in organized sector is 1 mn. The requirement is expected to go up to 3.25mn by 2008-09.
3) Poor infrastructure – cold chaisn, warehousing & logistics a big bottleneck
4) High & rising real estate prices – as pwer PwC, the current avg lease rentals across some of the top cities range from Rs 88 per sq ft to as high as Rs 120 per sq ft a month. On an avg, lease rentals take up 7-8% of the revenue and constitute 40-45% of the non-material cost for retailers.
5) Another key challenge will be to decide the kind of format to be used in a particular region.
6) Large no. of intermediaries & loss during transportation, the current wastage level of perishable items is as high as 40%.
7) Image of wal-mart is a problem – stifling policies with suppliers, forcing them to operate on very thin margins. The strategy seems to be like – “buyer wins, customer wins and somebody has to loose”
8) Approach to farm produce procurement – “the seed to shelf approach”
9) Managing diversity of Indian consumer (more than 6000 castes and sub-castes in 28 statees, and every community has its own nuances) – walmart faced huge challenge of localization in Germany, SouthKorea & South America (exhibit IV)

The key success factors in Indian retail industry will be customer loyalty apart from other factors such as location, value-added services, price, and the ability to read shifting trends (forecasting & analytics). How the retailers position themselves and how they are perceived will also be crucial factors for success. The evolution of the Indian retail scene continues to pose challenges to the various market players and it remains to be seen how each of them will grapple with them and who will emerge a winner….my guess is that Bharti-wal-mart will be a great success story creating lot of value for Indian consumers and for the suppliers as well though in short run they may face some problems!!.

Drop Shipping

One form of retailing that has become very popular with the advancement of e-commerce is drop-shipping. The process in which a retailer markets a product, collects payment from the customer and then orders the item from a supplier, to be shipped directly that customer. The retailer's profit is the difference between the amount collected and the amount spent. No inventory is held and the retailer is not involved in the shipping.
The biggest appeal of drop shipping for the retailer is that there is no inventory to stock. This frees up cash as it allows the retailer to collect the money before purchasing the wholesale product. Because it is the supplier's responsibility to ship the merchandise to the customer, the retailer is free from any transport headaches that may occur.
One issue retailers may find in working with a drop shipper is the lack of control. Drop shipping isn't risk free and when problems arise it can become frustrating to simply play middleman. Retailers may still be faced with back-orders, returns and customer refunds. Some drop shippers assess a drop shipping fee or even a membership fee to the orders which may erode profits.

Critical Success Factors for Retailers

1) Maintaining a low cost operations.
2) Investing in appropirate & cost effective technology.
3) Focusing on customer service and loyalty.
4) Building a reliable supplyc chain and logistics systems.
5) Making adequate capital investments.
6) Effective positioning of the retail outlets.
7) Efficient human resource training & retention.
8) Creating & nurturing private lable brands.
9) Reducing shrinkage & pilferage.

More on 3PL

In India, almost every other fleet operators calls themselves a 3PL service provider. This has led to lot of confusion and poor customer satisfaction. 3PL service provider other than providing the standard transportation services also provides necessary supporting services like cross-docking, reverse transportation, warehousing, inventory management, packaging etc. The clients benefits from the extensive experience & knowledge base of 3PL service provider.

The factors that should be considered before outsourcing to 3PL are:

1) Price of 3PL services.

2) Depth of knowledge & experience.

3) Range of available value added services.

4) cultural & strategic fit with 3PL provider.

5) Available information technologies and compatibilities.

Some of the problems being faced by the companies using the services of 3PL's are:

1) Service Level commitments not realized.

2) Lack of continuous, ongoing improvements and achievements in offerings.

3) Cost reduction has not been realized

4) Information technologies capabilities not sufficient.

5) Lack of project management skills.

6) Unsatisfactory transition during implementation stage.

7) Ineffective management of key Performance Indicators (KPI)

8) Lack of global capabilities.

For successful implementation of 3PL services it is imperative to:

1) understnad the goals & objectives.

2) Clear communication between the parties involved.

3) Trust & commitment of top mangement

4) Have shared decision making & ability o reach consensus on matters of importance.

5) Have effective process meassurement & management (KPI)

The contract or agreement with the 3PL provider generally addresses the following issues:

1) Rates & compensation details.

2) Service standards and performance requirement.

3) Process of termination

4) Terms for renewal of agreement

5) Penalties for non-performance.

6) KPI's (like on time delivery, order picking accuracy, on time shippring, loss or damange during in the process etc.) to determine compensation and penalties.

7) Information technologies mandates.

KPI's establish customer's expectations in terms of performance, provide an incentive for the service provider, offers an objective way to assess performance, helps compare peformance vis-a-vis other service provider, identify cause of failure and avoid disputes.

Supply Chain at Marico

The company with 6 factories & about 1000 employeers, currently has 9 brnads, produces 125 SKU's with its 15 subcontracting manufactuers, selling through 3500 distributors to 1.6 million retail outlets. Thus it becomes crucial for the company to have an efficient supply chain management. With the increase in competition & product mix the company faced tremendous challenge in mainting the same service levels which resulted in stock out, rising inventory, inaccurate forecast, delays in response to market requirement causing dissattisfied customers. To overcome this the company implemented my sap SCM across all locations in a big bang way. The implemention started in 1999 and was completed in 2 years time. The result was improved forecasting, reduced forecast cycle from 30 days to 15 days, enhanced decision making, decreased stock outs, reduced lost sales, low inventory and improved customer satisfaction. In future the comany plans to implement my SAP VMI (vendor managed inventory) which will link the distributors to companies system thus further reducing the forecasting cycle to 10 days leading to further boost to Maricos top & bottomline

3PL

3PL
What is 3PL?
Also known as contract logistics, 3PL or 3rd party logistics is the supply chain practice where one or more logistics functions of a firm are outsourced to a 3PL provider. Typical outsourced logistics functions are: inbound freight, customs & freight consolidation, distribution, and management of outbound freight to the client’s customers. Other value added services can be provided, such as: repacking, assembling and return logistics. The 3PL provider manages and executes these particular logistics function using its own assets and resources, on behalf of the client company.
The benefits include lean organization (without owning much assets), focus on core competencies and reduced operational costs.
3PL is gradually evolving into 4PL wherein the supply chain service provider that searches the best logistical solutions for its client, typically without using own assets and resources. Relatively new is the term 5PL or even 7PL, indicating total supply chain management.
Four categories of 3PL provider
Standard 3PL provider: This is the most basic form of a 3PL provider. They would perform activities such as, pick and pack, warehousing, and distribution (business) – the most basic functions of logistics. For a majority of these firms, the 3PL function is not their main activity.
Service developer: This type of 3PL provider will offer their customers advanced value-added services such as: tracking and tracing, cross-docking, specific packaging, or providing a unique security system. A solid IT foundation and a focus on economies of scale and scope will enable this type of 3PL provider to perform these types of tasks.
The customer adapter: This type of 3PL provider comes in at the request of the customer and essentially takes over complete control of the company’s logistics activities. The 3PL provider improves the logistics dramatically, but do not develop a new service. The customer base for this type of 3PL provider is typically quite small.
The customer developer: This is the highest level that a 3PL provider can attain with respect to its processes and activities. This occurs when the 3PL provider integrates itself with the customer and takes over their entire logistics function. These providers will have few customers, but will perform extensive and detailed tasks for them.

Collaboration the key to success:
Supply chain collaboration between a 3PL and a customer occurs when both organizations work toward a common set of goals and objectives, and when there is a meaningful exchange of information relating to planning, management, execution, and performance measurement. Collaborative relationships thrive on the dedication of both parties to share responsibilities of people, process and technology, in order to drive change and improvement in the overall business relationship. To be effective, the collaboration process should involve not only 3PL and their customers, but customers-customers, suppliers and other key stakeholders. In reality, 3PL’s are in a great position to facilitate collaboration between customer organizations and its trading partners.
Benefits of collaboration
1) A seamless, 360 degree view of supply chain (upstream to suppliers and downstream to customers)
2) Access to 3PL’s experience and expertise.
3) Improved customer service at lower cost
4) Reduced inventory and stockouts as a result of collaborative forecasting activities.
In general, the executives believe that benefits of 3PL outweighs cost.

The logistics providers in India includes:
www.neccgroup.com www.ktcgroup.com www.lakshmicargo.com
www.namakkaltransport.com www.omlogistics.co.in www.indiatrans.in
www.nyklogistics.com www.indoarya.com www.exlindia.com
www.dtdc.com www.sgtpl.com www.groupinland.com
www.diliproadlines.com www.psts.in www.tcil.com
www.hexcargo.com www.tvslogisticsservices.com, www.tvslogistics.com
www.vrllogistics.com www.patel-india.com www.afl.co.in
www.reliancelogistics.com www.safeexpress.com www.Aramex.com
www.Bluedart.com www.Capricornlogistics.com www.Kailashshipping.com
www.sical.in www.secl.net www.serl.com www.tll.co.in www.totallogistics.in

My experience at Tata's Croma

It was my first visit to Croma store located near juhu, Mumbai. We were there to do window shopping.

The view of the store from outside was fabulous...anyone would atleast like to go in and chk it out. At the entrance was these words which told the psychi of the store - " Don't hesitate to ask question / Don't let technology confuse you / Don't buy till you are fully convinced / Don't feel bad about saying, I will come back ". These actually helped us a lot...we knew that we may not buy anything from the store and may be we will be wasting the time of store personnel but then after reading the quotes we felt that store will welcome all kinds of shoppers - even like us!!!

The ambience inside was just perfect. We were post impressed by fabulous display of LCD's, mobiles, laptops and the nice & neat way in which price and various offers were displayed. The range of disply and choices offered were amazing and the sales persons were quite co-operative and jolly.

The negatives - we found the prices a bit on the higher side and there was no mechanism of giving customer feedback.

Huge inventory cost and comparable prices across products and standard product offerings...made us wander how they manage their profitability..Guess service shall be the strong point of Croma in future for them to compted & succed!!!!!

Akshat