Wednesday, August 08, 2012

Coming out of the woods? Maybe!

while both retail and real estate sectors took a beating during the slowdown, both are expected to perform much better in 2010, says Savreen Gadhoke

The year gone by was one of soul searching for the Indian retail and real estate sectors. The burgeoning organised retail sector, which was poised to grow at a stupendous rate of 30% per annum by the Retailers Association of India (until 2008), instead, demonstrated a snoozy gait, growing by lower-than-expected 8-10% (as per industry estimates) in 2009. The reasons: sky-rocketing land rentals, alarming dip in consumer spendings, irrational expansions on the back of huge debts and therefore extremely low levels of sales, which further lead to long inventory turnover cycles et al. So how did the financial diaries read? Over the last two years (2008-2010), big retailers floundered with their retail ventures. While shutters were pulled down on all of R. Subramaniam’s Subhiksha chain retail, the other brands who had sworn to take the world of retail by storm, like Mukesh Ambani’s Reliance Retail, Kishore Biyani’s Future Retail, RPG Group’s Spencer’s Retail, Birla Group’s More chain of food and grocery retail stores, also saw many anxious moments while battling the economic slowdown. Expectedly, most of them were forced to shut down their non-performing or poorly-performing outlets. But while there are condolences floating around from well-wishers, the truth is that this ‘correction’ was a ‘necessary evil’ for this sunrise sector as even Rajesh Tanwar, Director, Integrated Retail Solutions, accepts to B&E, “The Indian retail sector has been fortunate to have witnessed a slowdown at such an early stage. This will pave way for more efficient retail practices in the country.” Having put forth good tidings in a line, the question remains – will the organised retail sector bounce back in 2010?

This new year is expected to unfold many consolidations. While there will be an increased focus on achieving break-even and profitability at the store level, attention will also be paid to identifying key catchment areas for setting up new stores. Spencer’s Retail, for instance, has already identified 13 catchment areas (after shutting down over 100 stores over last year) in Tier II and Tier III cities to capture the potential offered by such geographies.

One key issue (apart from many others) that the Indian retailers will need to address in 2010 however is their supply chain network, which at present is miles away from being termed ‘world-class’. Centralising warehouses, reducing pilferage, stock rationalisation, enhancing IT infrastructure, improving storage facilities and merging of operations will enable retailers to improve upon their bottomlines. To take a name, Vishal Retail, with the purpose of achieving better grades in terms of quality control management, has initiated work to centralise its 22 warehouses spread across India to just four in North India; mind you, the year 2010 has already begun, and we’re seeing signs of change already!

Along with the need for FDI, better trade deals with FMCG players and concentration on hypermarkets (for the value conscious Indian consumers) are extremely critical for the organised retail sector to bounce back. “2010 will be the year of the survivors to make a serious bid at recovery. Many players will consolidate their operations and rationalise their business models to dovetail with the newly emerged consumer dynamics,” says Anuj Puri, Chairman & Country Head, Jones Lang LaSalle Meghraj (JLLM). Value retail will be the winning ticket, and those players who will make calculated moves in Tier II & III locations will stand to gain the most.

High end retail will also show a stronger hand in 2010, as big brands will receive warm welcome from consumers, with the infusion of buyer confidence in the face of growing macroeconomic stability. The revenue sharing/minimum guarantee model will gain wider acceptance and become the norm rather than the exception. At present, organised retail consists only 5-8% of the total retail industry and is still in its infancy. 2010 will demand some hard work from the retailers, but the outcomes appear fruitful.

As far as the real estate sector is concerned, green shoots of recovery had started to appear soon after the end of the first quarter of 2009. The concept of affordable housing found a strong footing in the market with the developers concentrating on the housing segment to revive the sector.


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Monday, July 30, 2012

Dead by chance

Prisoners, facing Capital Punishment or not, often die in prisons due to inhuman conditions and lengthy delays between trials and executions. Authorities globally need to address this urgently

“The degree of civilization in a society can be judged by entering its prisons,” avowed Fyodor Dostoevsky, a Russian novelist, in the nineteenth century. It may be tough to decide who is worse. From food quality to ventilation, sanitation, water, infrastructure & health care facilities; prisons globally are almost invariably found wanting.

To add to this, most prisons are overcrowded, especially in the developing nations. For instance, Uganda’s Muduuma prison is filled up to 3,200% of its capacity. India’s Tihar Jail is built for 4,000 inmates but currently has 12,000 plus inmates. Moreover, the time spent under trial and before execution of capital punishment has increased considerably. According to the Death Penalty Information Center in US, the average time spent on a death row before execution is close to 14 years (calculated in 2010). In China, the time spent on the death row is astonishingly low at around 449 days, which also explains the high number of executions per year in China (almost 60-80% of capital punishments of the world happen in China).

As per Bureau of Justice Statistics, the total number of prisoners dying in jail was 21,936 (2001-2007) in US out of which 82.9% were due to illness (mainly unhealthy conditions & lack of proper medical facilities). There is also an increased propensity for death row inmates to commit suicides, which in one way, can also be attributed to the environment that a particular prison projects and enforces upon a convict. The rise of the Death Row Phenomenon, wherein inmates die in jails, whether or not they were deemed to be executed, is a truism of the modern era.


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Saturday, July 28, 2012

It’s The small-ticket Strategic Acquisitions that will drive the sector in 2011

FMCG Saw Some Heavy action on the M&A front last year. But, as The Industry matures and valuations rise, It’s The small-ticket Strategic Acquisitions that will drive the sector in 2011

If a recent report by KPMG is to be believed then M&As will intensify in Indian FMCG space in the near term. “However, the lack of large acquisition targets and the number of acquirers looking for opportunities means valuations will continue to be at a premium,’ says the report. In fact, the sector has already seen over a dozen deals in M&As in the first half in 2011 so far, and the momentum is expected to continue going forward. Certainly FMCG sector in India has been experiencing a phenomenal pace of growth since the last decade owing to increasing consumer incomes and rapidly changing consumer tastes and preferences. Further, large scale and low cost production facilities, modern retailing strategies, gives Indian FMCG companies an edge over its western counterparts. “All this certainly makes India an exciting place to be for international FMCG giants which are now looking forward to ramp up their Indian operations or are planning to enter the country soon,” says Oliver Mirza, MD, Dr. Oetkar Funfoods. For instance, Reckitt Benckiser has already acquired Ahmedabad-based Paras Pharma, makers of OTC brands like Moov, D’Cold, Dermicool, Krack, Itch Guard, et al, for a whopping $730 million (in December 2010).

However, going forward the sector is unlikely to see any big ticket acquisition as the local brands have still not scaled up beyond the $20-25 million mark. But then, that’s what they call a market for strategic acquisitions!


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Friday, July 27, 2012

Green Strategy as a Competitive Advantage

In The Aftermath of The Global Financial Meltdown, Corporations are facing unique Challenges. The Future is in Incorporating and Capitalising on a Green Strategy writes Andrew Winston, Co-Author of Green to Gold and author of Green Recovery.

For the past few years, the business world has been swept up in a green wave – a rising tide of interest and concern about environmental issues. Pressures from both natural forces and key stakeholders have made going green somewhat unavoidable. But a lot of business leaders hold on to an outdated view with respect to green, the misconception that environmental practices always cost a lot of money. But green doesn’t raise costs; it lowers them (quite often in the short run, and definitely in the long run).

Although your instinct may be to retreat from green initiatives in hard times, that would be shortsighted and a huge mistake. In tight times, most companies need to focus on their bottom lines, cut costs, and conserve cash – and they need to do it fast. Reducing energy usage and wastage – two pillars of going green, can save a great deal of money.

But as they say, nothing comes for free. Yes, some projects will save money immediately at virtually no expense, but greater rewards often require some commitment. So if corporations want to reduce energy costs, asking people to turn off lights won’t cost anything. But changing lightbulbs and installing motion detectors to get larger savings will clearly take some capital. The ROI will be high and the payoff fast, but it still requires some up-front expense.

So the critical distinction here is between costs and investments. Let me be blunt: if your business is unable to allocate any human or financial capital for investment in R&D, customer relationships, people, process changes, or anything – then no strategy, including a green one, will matter right now. Survival will be the only priority, and that means conserving cash above all. But most companies, even in these contemporary times, are still making decisions about where to put their attention, people, and money every day.

For those companies that are navigating these tricky waters but also want to position themselves for dominance in the future, thinking green can make all the difference. The logic for going green is no different from the logic for pursuing other business strategies. Companies look to drive profitability, innovation, customer loyalty, employee engagement, and so on. But unlike with most other strategies, the external forces driving green strategies make this issue unique and unavoidable.

Most of the forces driving companies to go green have not gone away. Environmental crises such as climate change and water shortages continue to evolve. Mega forces such as technology-driven transparency and the rise of the middle class in India and China – which will force the price of oil and other resources up over time – continue to advance. Back here in America, key stakeholders still demand more of companies than ever, especially corporate customers greening their supply chains. Even your employees and consumers, both of whom are under extreme financial pressure, still want some measure of environmental performance and social responsibility in the companies they work for and buy from.



 
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