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The retailerJuly 2011
2 The retailer
ForewordDear reader,
We are delighted to present the July 2011 edition of “The retailer”.
Globally, as companies are looking to reduce dependence on the supply of raw material, the consumer products (CP) industry is witnessing several trends such as collaborating procurement functions across plants. India’s CP companies are also facing similar supply side challenges related to the supply of raw material in terms of risk management and input volatility. These challenges have compelled CP companies to re-think their supply-side strategies and streamline the supply of key raw material. The retailer explores the different strategies currently being used in the industry.
As far as organized retail goes, eastern India remains relatively under penetrated. It is both a land of challenges and opportunities for the retail industry. The Retailer explores the key growth drivers, challenges and strategies for developing organized retail in this part of the country.
Valued at more than US$400 billion, retail is among the fastest growing sectors in the Indian economy. Several Indian companies have ventured into retailing and are currently in the process of optimizing their operations. Store operations are the last mile and
cashier and the store manager and explores the responsibilities and challenges faced by them.
In our interview feature, Amrish Shah, Partner and National leader, Transaction Tax, Ernst & Young shares his views on the transaction landscape from a tax perspective in the Indian retail and consumer products sector.
Finally, we continue our featured section, the “Retail innovation board”, where we attempt to present to you snapshots of recent innovations, which have emerged in the retail industry.
We hope you enjoy reading this issue of The retailer and look forward to your valuable comments and feedback.
Pinakiranjan Mishra
Partner and National leader, Retail and consumer products Ernst & Young, India
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Contents
3
Involve yourself:
We look forward to hearing your feedback and suggestions.To contribute to editorial content, please contact Ashish KakwaniT: +91 22 61920423E: [email protected]
Rethinking supply-side strategy in the consumer products sector 4
Cashiers and store managers: backbone of store operations 7
Retailing in Eastern India: perspective 11
Special feature: Innovation Board 16
Interview with Amrish Shah, Partner and National leader, Transaction Tax, EY 18
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Rethinking supply-side strategy in the consumer products sector
1
Globally, rising input costs and narrowing margins are deterring the growth potential of most consumer product (CP) companies. As companies seek to reduce their dependence on the supply of raw material, the industry is witnessing several trends such as collaborating procurement functions across plants. These trends also indicate that companies view procurement in terms of risk
price volatility. Recently, several global CP players have been focusing on operational improvements, which aim to reduce their long-term reliance on the supply of raw materials. Nestle’s four-point strategy best corroborates this. The strategy is based on trend predictions, engaging up the chain, replacing certain expensive ingredients and driving down waste.
The globalization of businesses and changing macroeconomic environment implies that India’s CP companies are also facing similar challenges related to the supply of raw material. These supply-side issues are becoming increasingly important due to challenges such as limited availability of input, demand for high quality raw material and rapidly rising commodity prices.
The challenges highlighted above have compelled CP companies to re-think their supply-side strategies and streamline the supply of key raw material. As Milind Sarwate, Chief, HR, Finance and Strategy, Marico Ltd., has highlighted, “Rather than hike prices,
tackle the rising costs of raw material and other inputs.”
With companies gearing to respond to challenges surfacing as a result of a volatile and uncertain supply environment, the industry is witnessing a new spate of trends. These trends range from securing the supply by partnering with producers, innovations in procurement strategy, developing organizational capabilities for smart sourcing and integrating the value chain to
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The trend of leveraging contract farming arrangements is mainly aimed at ensuring the supply of key commodities with the right quality to conform to global standards. The Government of India’s (GoI’s) new agricultural policy has also endorsed private sector participation through contract farming and land leasing agreements. This has led Indian corporate entities and farmers to collaborate through vertical co-ordination. The new structure is an endeavor to move away from deals to relationship.
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PepsiCo, ITC, and an increasing number of other companies are involved in contract farming. Frito Lays (PepsiCo) has contract farming agreements with farmers in around eight states of India and is contemplating foraying into similar tie-ups in two more states. The company plans to build a win-win self-sustaining contract farming model and increase contract farming of potatoes by almost four-fold over the next three years. Currently, there are 15,000 farmers who have undertaken contract farming of potatoes for the company, while is the company sources the commodity from 40,000 farmers.
Innovations in procurement have become critical to address the risk of limited supply of raw material. These innovations range from cultivating innovation-driven models within the company to partnering with end producers.
Company Initiative Details
NDDB Collaboration with milk pourers
Electronic transfer of information on quality and quantity of milk tested to a central billing unit in the dairy
Biometric cards to members through which payment is made to individual pourer member
and veterinary services
Tata Coffee Non-binding MoU with Starbucks
Explore collaboration for sourcing and roasting premium coffee beans in India
Train local farmers, technicians and agronomists to improve their coffee-growing and milling skills
ITC Paper Wealth-out-of-waste (WoW)
Aimed to double domestic waste collection to 10,000 tonnes per month in the next three years
Succeeded in separating paper from waste and recycling it into paper pulp — the raw material to manufacture paper
material and reduce its dependence on imported pulp or green pulp
ITC Paper Plant clones of eucalyptus
Persuades farmers to plant clones of eucalyptus, subabul and casuarina developed by the company
Supplies the soil tested plant to farmers at a cost of INR6 each
Purchases plant clones from farmers once they reach the felling stage
Marico Working with farmers through technology route
Sources directly and dis-intermediates the supply chain by opening collection centers
Obtains its supplies at better rates as farmers deal correctly with the company
Facilitates farmers in improving their productivity by giving inputs and fertilizers and pesticides
The trend of developing capabilities in commodity purchase trading and hedging is also on the rise. This capability equips CP companies to counter rising and volatile prices of commodities. Companies such as Dabur and ITC are hedging aggressively in the commodities exchanges for their raw material supply to protect their bottom line. Most consumer products players have been using the platform of two national commodities exchanges — MCX and NCDEX — to hedge their supplies of raw material. Dabur hedges commodities such as jeera, pepper, edible oils and sugar, while ITC hedges soybeans along with coffee and spices such as black pepper and chillies.
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Sanjesh Thakur has more than 13 years of experience with diverse set of clients across various industries in risk-related services such as internal audit, Sarbanes-Oxley compliance, standard operating procedures and other enterprise-wide governance initiatives. In his
professional career, he has led more than 40 projects on
Internal Auditors (IIA).
T: 91 124 464 4428E: [email protected]
Certain companies have developed an internal team of buyers, who accurately predict the commodity price movement and take optimal positions in the physical and futures markets. S Sivakumar, CEO, Agri-business Division, ITC says, “Our preference is to hedge as far forward as the futures contracts provide the liquidity because our objective is price risk management for the year-long usage of raw material.”
Over the years, India has been a net importer of edible oils due to factors such as limited land resources and low yield of Indian crops. The Indian sugar industry also faced periodic shortages of sugarcane due to similar factors. Therefore, backward integration through the inorganic route is gaining momentum as Indian consumer products players grow in size and scale. This trend is helping companies to gain a competitive edge by fortifying their procurement and addressing the lack of raw material availability.
acquiring palm oil plantation in Indonesia. With the current
its key raw material and supply crude palm oil for its Haldia
Brazil’s Equipav, enabling it to secure key raw material and giving it access to the world’s largest sugar producer.
In terms of leveraging emerging trends effectively, ITC’s e-Choupal remains the most comprehensive strategy. This strategy is bringing a lot of synergies by sourcing commodities
system. ITC can now save INR400 on every tonne of wheat procured. The company is buying INR36.31 billion worth of agri-products from millions of farmers using its network of 6,500 Choupals across nine states.
The new economics requires consumer products companies to think out of the box and develop a robust and sustainable response to the supply challenges through new collaborative
tuning existing procurement processes, developing advanced sourcing capabilities for better visibility of input, setting up new internal purchase functions and creating a strategic blue-print for sourcing in the years to come. Players who aspire to establish themselves as leaders in the Indian consumer products market need to maximize the value that can be driven through these opportunities as the market continues to evolve.
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Cashiers and store managers: backbone of store operations
2
Retail is among the fastest-growing sectors in the Indian economy, valued at more than US$400 billion. Several Indian companies have ventured into retailing and are currently in the process of optimizing their operations. This article focuses on
manager and explores the responsibilities and challenges faced by them.
Cashier
Maintaining cash is an entry-level job in the retail sector, which
A cashier scans the merchandise to be sold, totals the bills, processes payments, accepts collection, provides change and issues receipts to customers. The role of a cashier is very stressful as no company allows for error in handling money. It also results in fatigue as cashiers have to work on their feet during their shifts.
Cashiers deal directly with customers and have to maintain professionalism, eye contact, business etiquettes, and willingness to respond to customer queries. Every action is monitored by the management to ensure that they are working according to the guidelines set by the organization.
A good cashier will ensure that customers leaving the store are content with their purchase. Accuracy is a desired skill all
When a cashier arrives at work, he/she is assigned a register and it is their responsibility to ensure correct and adequate amount of cash is available in the register from the time the store opens to the end of the day’s shift.
Key challenges faced by cashiers
From a survey conducted, we noted that cashiers are facing many issues across several retail chains.
System related issues: To optimize store operations, several retailers implement the latest ERP tools. Cashiers have to keep unlearning and learning the new tools, which may result in transactional errors.
Price mismatch:MRP of merchandise and system-scanned price, customers vent their disappointment on cashiers.
Multitasking: Product-related queries, price-check requests, discounts and coordinating delivery requests distract
cashiers. Such instances lead to errors as some products go un-scanned.
Up selling: Inability to up-sell loyalty-cards or co-branded cards during peak hour sales affects the targets set by the management.
Soft tags: During peak hour sales cashiers miss out on removing soft tags from merchandise causing embarrassment to customers when sensor at exits sets-off. In some cases customers turn abusive and let out their frustration on the cashier
Temporary sales staff: During a sale-period the temporary staff hired may not be competent enough and seek help of the regular store staff. This leads to several problems as the store staff will have additional responsibility of attending to his customers as well as temporary staff’s customers.
Fluctuating service levels: Irrespective of customer footfall, service levels have to be consistent throughout.
In-depth product/service knowledge: Cashiers have to keep themselves updated with the products available in stores.
POS cleanliness: Due to condensation or spillage sometimes the POS area gets untidy. Cashiers have to ensure that the POS area is clean and dry for the next customer.
Cash security: Cashiers are responsible for the money in the cash register from the beginning till the end of their shift.
Cancelling transactions/transaction voids: Time is wasted in waiting for a supervisor to make a transaction void if the cashier is not authorized to cancel transactions.
The cashier has to identify counterfeit currency, fake cheques and tally signature and verify photograph on credit cards.
Few years back, the cashier’s position was given to candidates seeking employment post completion of their Higher Secondary Education (HSC). Today, preference is given to graduates (or pursuing further education) as basic accounting
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knowledge minimizes mistakes often made by cashiers at various stages of the transaction.
Store manager
A store manager is responsible for the successful operation of the store by meeting targets every month. Store managers wear many hats as they have numerous duties, which include overseeing various departments within the store, managing inventory levels, hiring and training, preventing loss and ensuring customer satisfaction, The store manager’s day begins
have to be implemented in the store. The walk is followed by a
which include exceptional communication skills, good listening skills and maintaining a level of professionalism. Since store managers work with a team, they are required to possess good
times as the role demands multitasking.
To become a store manager, an individual will require a bachelor’s degree, degree in business management and good records in their previous jobs.
Key challenges faced by store managers
From a survey conducted, we noted some issues store managers face.
The role of implementing IT processes and frameworks such as BS 10012, BS2 5999, ITIL, ISO 27001 or COBIT is paramount to ensure that IT can be leveraged appropriately to drive performance improvement.
Balancing operational tasks and customer service: Often store managers need to strike a balance between the shop
Handling unhappy/abusive customers: Instances when the customer is unhappy with the purchase or service received, the store manager has to patiently listen to the customer and provide a solution on the spot.
Social menace: Store loiterers can often be a menace as they crowd the store resulting in genuine customers being “turned-off” by the crowd.
Security: Store security and safety of employees should be of highest concern.
Handling theft: One of the biggest challenges faced is handling theft by minors. To avoid legal complications, store managers have to take decisions on the spot to tackle the situation where they might ask the minor to pay for the product or call their parents.
Inventory management: Ensuring timely availability of stocks according to customer preferences is another challenge faced by store managers where he requires support from
how to handle spoiled/damaged products.
Managing temporary staff: During sale-period, the store manager has the added responsibility to monitor the
operations in the store.
Responsibility of the team: When incompetent/new employees make mistakes, it is the store manager’s responsibility to correct them and train them. Customer complaints against store employees will also have to be dealt with by the store manager.
Store attrition:the retail sector is recording an attrition rate of almost 40% according to a recent study. Of the 40% attrition, the attrition of front-end staff is highest at almost 80%.
Municipal corporations, Weights and Measures Department and Labor Inspectors need to be handled by store managers.
Store managers have to ensure that even if they do not achieve the top-line sales targets, they have to
Marketing: Store managers have to develop local marketing plans in order to increase business and meet their sales and
Optimizing scheduling/rostering: Store managers have to be aware of the availability of store employees in order to schedule them in an effective manner.
Handling fraud: If counterfeit notes are found in the store, the store manager will have to carefully dispose the notes and also write-off the sales (as per the organization’s policy) to ensure it does not change hands any further.
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Reducing business expenses and using green practices such as turning off and unplugging appliances and devices.
Sale periods: Store managers need to be prepared for peak sales periods.
Contingency planning: Store managers need to have contingency plans against power failure, vandalism, burglary/ theft, etc.
Competitors: Store managers will have to ensure that healthy competition exists between their store and their competing store and avoid any unethical tactics to challenge their competitor.
Receiving from vendors: Deliveries made by vendors will have to be inspected by the Store manager to ensure that the stock quality and quantity is according to the Purchase Order.
Strategies
There is no formula for success; however, adopting a successful strategy and implementing it will help individuals achieve their potential
Cashiers
Behavioral Count cash in the register at beginning of the shift and alert store manager of discrepancies
Smile and be polite to customers no matter how long the shift is
Stay focused even if the customer tries to confuse by offering different denominations or modes of payment
Management Check all large denomination notes received to avoid counterfeit currency
Announce loudly the money given by and change returned to the customers
Double check the change before handing it over to the customers
Never let anyone use the cash register assigned self
Always announce the type of card given by the customer for payment, e.g. “Paying by your VISA Credit/ Debit Card…”
Store managers
Behavior Keep up with technology and brush up computer skills
Carry a positive attitude at work
Learn how to prioritize tasks as it will help resolve issues in an
Learn stress management techniques to help in keeping calm during crisis situations
Customer Service Spot customers who need help or support during their shopping
Learn to accept that not all customers who walk into the store are happy customers.
Self discipline Maintain the organization’s standards of store presentation and customer service
Being people oriented will help store managers enjoy their work with customers and their teams
Employee Management
Praise store employees on achieving set goals; appreciating hard work has a lasting effect on the level of service provided
Learn to assess the team;through good coaching and delegation; the Store manager can uncover the team’s potential.
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by implementing simple yet effective techniques. Some of them may include:
Increase sales by providing a good assortment of products
Increase current customer segmentation
Manage overhead costs such as labor, stationery etc.
Visit consumer forum websites to identify the product/service short coming of the organization
Run occasional sales in store to attract customer on odd days
Implement effective pricing strategy (subject to variation depending on organizations)
Monitor competitor’s activities
Implement incentive policies for employees who up sell/over achieve targets
Provide incentives (cash/ gifts) to customers on bulk purchases
Bundle products/services and offer discounts
Promote store loyalty programs
Implement a buy-back policy for customers to upgrade their purchases
Abhay Patil is a Senior Manager in the Advisory Services practice of Ernst & Young in India. He has worked extensively on process improvements, internal audits, cost reduction projects, etc. in the retail sector. He has more than ten years
of experience across industries (retail, apparel, textiles, cement, steel, chemicals, etc.) as a team leader. He leads a team of retail and consumer product analysts in Ernst &
T: +91 22 6192 0113
Outlook
The immense growth in the industry has witnessed changes in
that cannot be overlooked by any organization.
In conclusion, as the retail sector continues to grow at astounding substantial rate, store managers must learn how
that their contribution is most important to the growth of their organization and the retail sector as a whole.
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Retailing in Eastern India: perspective3
India is more than a trillion dollar economy and has been the second-fastest growing economy with a CAGR of 8.5% over the last 5 years. One of the key factors in India’s remarkable growth story is the emergence of the middle class as the largest consuming segment and propelling domestic consumption.
With the economy opening up, new avenues of earning higher levels of income have opened up for the educated and young middle class. This has led to having higher levels of disposable income and purchasing parity for this key consumer segment. This altered buying behavior was nurtured further by the increasing prominence gained by organized retail transformation beginning in the late nineties.
Overview of the retail sector and the scenario in Eastern India
With a market size of around US$400 billion, India is among the top 10 retail markets in the world predominantly comprising independent stores, estimated at a staggering 13 million in number. Out of this, modern retail comprises US$225 billion, which includes formats such as the Big Bazaars and Spencer’s of the world.
Some of the key trends that have led the retail sector to such phenomenal growth levels, over the last few years are:
A burgeoning middle class driving consumption and increasingly demanding a variety of options at lower prices
Rural India also awakening to the growth story
Youth of the country (comprising approximately 50% of the population) is more aware and looking for convenience shopping and thus preferring retailing formats over traditional formats
Indian women are key decision makers and are extremely conscious of quality and value for money besides looking for convenience and more product choices while shopping
The opportunity for the sector is bullish. Industry analysts have pegged the growth of the sector to reach US$600 billion by 2014, out of which modern retail could grow to US$60 billion.
While the estimated size of the Indian retail sector and its growth prospects is impressive, it has been noticed that the contribution to the great Indian retail movement has been lopsided with northern and western India largely contributing to the growth.
Eastern India comprising the states of Bihar, Jharkhand, Orissa, West Bengal and the North Eastern states contribute just around 22% to the overall retail market in India. When the organized market is considered, this contribution is even lower and is around 9% only.
This despite the fact, that the father of Indian retail movement, Mr. Kishore Biyani’s Future Group, started its business in Eastern India. Both Pantaloons and Big Bazaar made their
Eastern India has clearly not been able to sustain the early mover advantage and the region needs to introspect the critical hurdles that prevented the expected growth trajectory, which was realized in other parts of the country.
Key growth drivers of retailing in Eastern India
There are several factors that can potentially drive growth of retailing in Eastern India.
Kolkata and resurgent Bengal
Till now, Kolkata remains the main economic hub in the Eastern region. Despite the slow pace of growth and development, the city and the state is buoyant on a wave on optimism with a newly formed government, which has promised to drive change, achieve economic prosperity and inclusive development for its people.
With such an outlook, consumption patterns are likely to tend to increase and large retail chains across the country
Achieving integration of the food processing infrastructure from farm to market
Eastern states on the cusp of growth
While Bengal remains the cornerstone of eastern India, states such as Bihar, Orissa and the newly formed state of Jharkhand are aspiring to reach new heights of development. Bihar’s destiny is being charted out by a visionary government and has shown remarkable development on various fronts — industrialization, infrastructure development and education. Orissa and Jharkhand are betting big on
investments in the recent past.
These states are keen to join the wave of urbanization and will be keen to expand the existing retail footprint.
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Renewed focus on “Seven Sisters”
The North-Eastern states have for long been considered under-developed and there has been a general trend of the population migrating to other parts of the country to
plan, the Planning Commission of India has given special focus to these states and the region is expected to attract investments.
The consumer base of these states is set to grow and the retail industry can explore ways to mine the so-far largely untapped potential.
Key market and operational challenges
The challenges faced by the organized retail sector in Eastern India are several and these are hindering the sector in this region from reaching its full potential.
Acceptance of organized retail: There exists the challenge for traditional retailers, who operate kirana stores, to accept the co-existence of modern retail in the ecosystem and such opposition has also taken political overtones in eastern India with support from local trade unions and political parties. A case in point was the issues faced by retailers such as Reliance and Spencer’s in opening their stores in West Bengal. Also, traditional retailers exerted their political
opening a Cash and Carry store in West Bengal.
Poor infrastructure: Sub-optimal supply chains, lack of adequate cold chains, poor warehousing facilities, bad roads
etc., have contributed to increased logistics costs and thus deterred the growth of retail in eastern India.
Political and social unrest: Sustained incidents of violence due to various issues ranging from insurgencies in north eastern states, Jharkhand, Orissa and West Bengal to land acquisition-led political skirmishes have severely hampered retail growth in eastern India.
Lack of retail space: Most of the cities in eastern India are not planned in the same manner as Gurgaon and Chandigarh, which has created a dearth of appropriate retail space. With real estate prices escalating due to increase in demand from the sector, it is posing a challenge to its growth. With retailers having to shell out more for retail space it is
Absence of skilled manpower: Trained manpower shortage is a challenge facing the organized retail sector in eastern
and also have to pay more in order to retain them. This again
Also, a less evolved nature of the consumer base in eastern India poses challenges for retail growth
The economy of Eastern India is concentrated primarily in Kolkata and a few other cities
Willingness of consumers to purchase brands is relatively lower
Consumers prefer “value for money” outlets
Discount stores are attractive destinations for shopping
Buying volumes peak largely during local festivals
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Strategies for developing organized retail in eastern India
The growth strategies for retailing in eastern India are very different from the rest of the country given the unique characteristics of the region, the diversity of its population and varying backgrounds.
The retail industry needs to acknowledge the need for differentiation to succeed in this region and therefore, tailor
Align products/service offerings/promotions to cater to local preferences: Retailers need to be more sensitive to customer needs, consuming behavior and localized practices (social events, festivals etc.) and make continuous
Introduce innovarive formats to expand
reach-leverage local buying habits Develop private
labels to create value perception
catering to different customer segments
Develop an inclusiveecosystem withtraditional retail
stakeholdersFocus on building
capacity for training/skill development of
manpower
Align products/service/promotions
to cater to localpreferences
Tap emergingopportunities.
Pentrate Teir II, Teir III towns,
rural areas Strategies for developing organized
retail in eastern India
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investments in consumer research, CRM and consumer research analytics. For example, Big Bazaar has set up customer advisory boards to receive and evaluate customer feedback and responds to local festivities such as promotions for ”Jamai Shosthi” — celebrated only in Bengal.
Tap emerging opportunities — penetrate tier-II, tier-III towns and rural areas:expansion in areas such as food, apparel, jewelry etc. exist in the tier-II/tier-III towns of eastern India, which have so far largely been untapped. Expansion in rural retailing using a “farm-to-fork” model will reduce sourcing risks and ensure sustainability.
Introduce innovative formats to expand reach — leverage local buying habits: The habit of buying from local markets/kirana shops is largely ingrained in the consumers of eastern India characterized by small purchase ticket size and more
number of purchases. Consumers typically prefer to buy from their localities than travel to an organized retail store, even if the price at the local stores may be marginally high. Thus innovative retailing formats with depth of reach should attempt to leverage this buyer behavior.
Leverage private labels to create value perception: Retailers should develop a portfolio of brands with distinct positioning for each brand and price point to meet the aspirations of the value conscious consumers. Further, these should be differentiated and targeted to multiple customer segments.
Develop an inclusive ecosystem with traditional retail stakeholders: Strive to develop an inclusive ecosystem with impacted traditional retail stakeholders to reduce opposition to expansion plans as seen in the past, e.g., the cases of Metro C&C and Reliance Fresh.Outsourcing of sourcing and
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Vivette D’Cruz is with Ernst & Young’s Performance Improvement practice and has more than six years of professional
and advisory services. She has
strategy for various retail and consumer product clients across India, the UK and the Middle East.
T: +91 22 61922252
Inputs from Rajib Maitra and Subhajit Mazumder
retailing of some of the products to third-party vendors comprising unorganized retailers and hawkers are likely to help reduce dissonance from traditional retail.
Focus on building capacity for training/skill development of manpower: Opportunities for retail expansion in areas such
relevant in eastern India where manpower is easily available but there is shortage of skills and appropriate grooming to ensure expected store experience.
Conclusion
Eastern India is thus a land of challenges and opportunities for the retail industry. Companies that adopt some of the right strategies can expect substantial
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1
Special feature: Innovation Board4
Branded mobile food trucks:
Over the past few years, mobile food trucks have exterminated their “roach coach” moniker and moved into high-quality burgers, baked goods, and specialty cuisine. Many portable restaurants use social media sites such as Twitter and Facebook to market themselves and update diners on their ever-changing whereabouts of these vehicles. Media companies have taken this concept to the next level.
ESPN used food trucks to take the US Open to New York and
screens, putting greens and other golf-related accessories at local bars. ESPN approached the folks behind Kogi BBQ (who kick-started LA’s food truck trend a couple years ago) with the idea of creating a food truck that will not only promote ESPN’s coverage of World Cup 2010, but actually give soccer fans a place to watch the games live, on a large, hi-def LCD screen mounted above the truck’s order/pickup windows. The truck is decorated with the familiar mural-style graphics ESPN has been using to promote the World Cup. There were a crew of Kogi veterans on the trucks, and ESPN had their own representatives on-site to hand out World Cup match schedules and brochures, and answer customers’ questions. Because many matches air live early in the morning, the trucks will get an early start with items on the breakfast menu.
This allowed the company to attract several thousand people in one day and several others noticing them due to the branding. They can also be located anywhere in the city allowing
Source: http://www.esquire.com/blogs/food-for-men/espn-match-trucks-061410clothing-size-mishaps/15791/)
2The advent of the internet and shift of consumers to sales online begs the question — how can conventional clothing retailers compete against a global electronic space? Until now, high-touch physical immediacy has been a saving grace as no matter how appealing clothes are, the images on screen are inherently limited. Thus face-to-face retail has had its advantages in terms of tactile experience and physical relationship between products
simulation of trying on clothes — similar to a video game version of a dressing room, but with a possible purchase of real clothing at the end.
Several retailers such as Macy’s Inc. and the J.C. Penney
within their retail network . They use a variety of components, including miniature cameras, apps, and Facebook logins. One of
simulation, which has been adopted by the European apparel retail chains Otto and Hawes & Curtis, among others.
Fits.me’s approach is built on a data bank of human body metrics that an individual enters into an online system. These are used to create a representation of that person’s physical form, or as Women’s Wear Daily called it, a “robotic mannequin.” The tool can be used either at a bricks-and-mortar retail store, to select a garment off the rack without having to try it on physically, or
experience. As a customer, you see a simulated mannequin onscreen with a shape resembling your body. The system shows
will appear when you wear it. If buttons are popping with size small, you can shift to medium or large by using a slider. If you
your body’s actual dimensions when it arrives.
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3 4Maintaining zero inventory levels:
Lush
Managing inventory effectively is an issue faced by retailers everywhere. It is the key to balancing working capital with the ability to satisfy customers and make sales. However, apparel retailers are now trying to do away with this problem. ZeroStock is a retail start-up that is attempting to make a supply chain breakthrough.
ZeroStock stores do not have any readymade apparel available, i.e., it follows a zero inventory model. Customers need to walk-in
They have sequential sizes from 29 to 46. After this, the design and material of the shirt gets selected. Once the transaction is done, the shirt will be dispatched to the customer within a matter of 24 hours to 48 hours from their centralized inventory at no additional cost. Thus, ZeroStock are trying to improve
maintaining inventory in stores and maintaining the inventory centrally instead, they are able to keep their costs low.
ZeroStock plans to have 300 shops under the brand of Cornerstone soon.
.
In a world where choice is plenty and customer loyalty is hard to maintain, companies are looking to differentiate themselves. Lush, a brand of cosmetics has done just that. Primarily a hand-made product company, lush makes products out of fresh fruit
Products sold by Lush include Bathing Bars, Shampoo Bars, Liquid shampoos, perfume bars and showers jellies.
All products at Lush, are handmade. Ballistics and Bars are individually hand moulded, the soaps are hand poured into moulds and hand cut. The fruit is freshly juiced. Bottles are
ingredients are combined in a way to maximize shelf life.
Thus, Lush is able to cater to consumers who are looking for quality products and at the same time looking for products to be environmentally friendly.
Source: http://www.pluggd.in/indian-startups/zerostock-retail-innovation-supply-chain-wharton-mbas-zero-inventory-model-1581
Source: http://lushindia.com/http://www.designboom.com/weblog/cat/16/view/15557/tesco-virtual-supermarket-in-a-subway-station.html
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Amrish Shah is a Partner and National Leader at the Transaction Tax practice at Ernst & Young. A Chartered Accountant by profession, Amrish has more than 19 years of experience in advising clients in the domains of acquisitions, divestments, mergers, demergers,
corporate restructuring, reorganizations, foreign investment consulting/establishment of joint ventures, international/corporate tax and business re-organization.
Interview with Amrish Shah, Partner and National leader, Transaction Tax, EY
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1. What are your views on the potential of the Indian retail
market?
Currently, the Indian economy is described as the “growth” economy and the consistent robust economic growth is resulting in high disposable income with the end consumer. This, coupled with the large size of the population, wherein there is a constant rise in the middle and upper class consumer base the consumption demand for various goods is likely to constantly provide fuel for the growth of the retail sector.
Stastically speaking, the Indian retail sector, which accounted for US$400 billion in 2010 is estimated to reach a size of US$600 billion by 2014.
Various study reports seem to suggest that India is presently considered among the top three most attractive retail market for global retailers among the 30-largest emerging markets. With several positive factors contributing towards an increasing trend for private consumption, there is
immense potential for the retail sector to maintain its growth trajectory.
Having said that, the fact remains that the Indian retail sector is highly fragmented and primarily dominated by family-owned small shops/stores and the penetration for organized retail is approximately 5%, the lowest among the BRIC countries. Thus, there is immense potential available to tap this opportunity in the organized retail segment and the organized retailing revenues are expected to grow at a CAGR of 20%, going forward. Also, it is interesting to note that there has been a considerable shift in the spend toward discretionary categories such as personal care, apparel, consumer durables, wellness, processed food, beverages, etc. With this change happening in the entire retail pie, there are also opportunities available to penetrate across various value segments (i.e., books/jewelry, music retail, etc).
These economic factors also determine the action happening in the deal space for this sector. The recent scenario is characterized by a fair mix of deals in the single brand retail segment especially for apparel, accessories and related products. Further, recently there has been a rise
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in the deals happening in the e-retailing format. Action is also being witnessed in areas where the focus is to revive the business by stabilizing the operations of the existing Indian retail players who went bust (because of economic slowdown and rampant expansion). Various partnerships/alliances/investments have been undertaken in the quick service restaurants and it is likely that this trend will continue to grow.
To sum it up, the growth potential has clearly brought India in focus with a host of retail giants/PE funds.
2. Do you think that the opening up of FDI in multi-brand retail will change this?
FDI in multi-brand retail will provide further opportunities for foreign retailers/funds to be invested in the Indian retail sector, which can further provide an impetus for growth of this sector. However, the quantum or extent to which the
the way the policy is worded and the attached conditions.
aspects (i.e., minimum investment limit, mandatory back-end investments, etc.) to evaluate the precise impact.
The potential change could thus be two-fold: one will be in terms of the focus on the type of segment and the second will be on the number and pace of the deals. Currently, the single brand retail, manufacturing and the pure wholesale/cash-and-carry business are the typical routes adopted by various players to enter India. However, with the opening of FDI, even the multi-brand retail segment will form the entry point for foreign retail investors. Also, a clear change will be in the number of deals and the pace of these deals as it is likely that the PE investors and huge retail giants is likely to further sharpen their India focus and will likely want to enjoy
existing organized retailers in India.
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3. or/and listed) avail during fund raising?
Generally, funds raised through loans will provide a tax break on the interest element, if they are used for business purposes. If, funds raised by the domestic retail company can be invested in creating an integrated value chain (i.e., setting-up and operating cold chain facilities, processing of fruits and vegetables, undertaking manufacturing in
holidays.
4. What are some of the suitable structures for acquisition by a foreign company in the retail sector?
The starting point while devising a structure for acquisition by a foreign company will be to ensure that the same is aligned with the prevalent FDI regulations. While there are restrictions on FDI in Indian retail, the most common channels for entry of foreign retailers are through strategic business licence agreements; single-brand retail joint venture companies; business partnering, distribution arrangements with Indian promoter-owned companies, franchising and cash-and-carry wholesale trading. Also, with the FDI in limited liability partnership (LLP) opening up recently, the LLP model can be looked into by the foreign companies.
Also, the foreign companies can look to set up wholly owned subsidiary companies to invest in allied retail segments, which are more in the form of retail enablers such as logistics, warehousing, etc.
5. What are drivers or inhibitors or a deal from the regulatory perspective in the retail and consumer products sector?
commercial/economic factors. The India growth story and
retail segment, the ever increasing need for investments in the back-end value chain for the retail companies, inherent need of the Indian organized retail players to expand their pan-India footprint and the fact that foreign companies
products/value segment form the top drivers.
Further, a mix of various regulatory requirements and the compliances involved in the investment process can be considered as inhibitors. These will inter-alia include the restrictions on the limit of FDI, valuation requirements according to Indian exchange control regulations, SEBI requirements (in case of listed companies), available exit routes, state level policies, etc.
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6. Is externalization a common phenomenon in the retail sector? In the long term, what are the potential risks associated with this?
With the potential to grow in the Indian market being sizeable, externalization is still not a common phenomenon in the retail sector (since focus still continues to be on Indian expansion, stabilization, fund raising, etc). However, there are numerous examples of licensing/distribution arrangements entered by Indian promoter-owned companies based out of countries such as Dubai, which had historically acquired the distribution rights for the Indian territory with respect to several big brands. Thus, these companies continue to build value for these now-established brands in light of India’s growth story. Hence it may be worthwhile for Indian retail companies’ promoters to start exploring externalization options at an early stage itself in the business cycle. While doing so, appropriate consideration will be required to be given to Indian tax residence/permanent establishment risks, etc.
7. Do you see the possibility of outbound deals in the retail and consumer products sector?
There is an increasing trend among India-bred consumer product companies to establish presence in other global
the FMCG and personal care segment and the typical target
markets for such companies are East Asia, Africa, Latin America and the Indian sub-continent.
On the other hand, as far as retail is concerned, there is sharp focus on tapping the domestic growth potential. Thus,
the Indian players also looking at expanding their pan-India footprint (given the India potential).
8. What in your opinion are some of the key drivers of deals from the transaction tax perspective in the retail sector?
The underlying drivers of a deal in this sector are primarily commercial in nature. However, some of the drivers, from an Indian transaction tax perspective, will be the underlying valuations, promoters value, entry structuring
holding structure, desired operational structure, timelines, exit strategy (for private equity investors), taxation in the hands of the company, availability of losses to be carried forward, etc. Further, the impact of indirect taxes plays an equally important part with the service tax on rentals/leased
impacting the margins of the retailers. Additionally, stamp duty cost is an important factor depending on the asset mix.
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Artwork by PaD
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