Issue :   
Happy New Year 2020 to all Readers.          January 2020 Edition of Power Politics is updated.
Issue:Jan' 2020

GLOBAL BRANDS

Retail’s battle for survival

Animesh Ikshit

In the 1980s, the Indian market opened up for global brands. This brought in a slew of companies such as Levi’s, Nike, UCB, Rebok and Adidas. Their first mover advantage in setting up network outlets helped them grab a large market share. And in less than a decade, many turned profitable.
For the foreign brands, the timing could not have been better. The markets in Europe and the U.S. had hit a wall--- s t a g n a t i o n . Looking for new pastures, the i n t e r n a t i o n a l brands shifted their focus to the developing c o u n t r i e s , especially India and China as their growing middle classes offered huge opportunities.
I n d i a n brands, which had operated in a closed market, were induced by this sudden competition from the behemoths to realize that the best way to fight the battle was to join it. No wonder, many domestic players joined forces with the European brands either through joint ventures or outright buyout.
Leading Indian companies like Madura, Raymond’s and Arvind Mills were fabric manufacturers. Today Madura owns Louis Philippe, Van Heusen and other brands. Arvind Mills is running GAP while Raymond’s has Park Avenue under its belt.

In the initial years, the companies were helmed by expat Indians as there was a dearth of home- grown managers. But soon graduates out of Indian business schools and others trained abroad began to take their charge. This helped the foreign brands to assimilate the Indian taste for colour and texture and create a market for couture in this country. Designs and products that had been global started becoming the derivative cousins of successful products of Excel from earlier seasons, rather than innovations from talented, local design teams.

What inspired these designers were the perceived desires of young Indian consumers. Back then the number of Indians travelling abroad was limited. And the exposure of the vast majority of consumers to the international brands was provided by adverts in the media.

Taking the market for granted, the leaders of many of these companies started tinkering with the DNA of the original brands without realizing the consequences.

This led to most branded products starting to look identical. The same prints, similar washes, and similar details and value additions. Products were mostly identical with minor changes in some cases. It happened because the cardinal principle-- that product price is quantitative, while brand value is qualitative--was ignored.

Before the age of malls in India, the retail market was diffused. Shops in the high streets were converted into branded shops. Any trader with a reasonable space and funds became retailers. But as it turned out, the demand for commercial space pushed rentals sky-high, windfall for the landlords.

Some brands like Reebok mapped out a different expansion plan. They went beyond conventional spaces and started locating plots for creating new histreets far from the main business districts. Since a big chunk of the population in what is called a catchment area in marketing parlance was game for big brands, the expansion did make business sense. Once major cities reached saturation point, the focus shifted to the smaller towns.

In fact, this phenomenal demand and skyrocketing rentals came to the notice of real estate developers like DLF, MGF, Unitech and Raheja's which went on a spree to build malls in all major cities. Soon department store chains like Shopper's stop and Lifestyle jumped into the fray. They became an instant magnet for brands. Their signing off was often considered a note of authentication for other brands to sign up in a mall.

Some brands like Reebok mapped out a different expansion plan. They went beyond conventional spaces and started locating plots for creating new hi-streets far from the main business districts. Since a big chunk of the population in what is called a catchment area in marketing parlance was game for big brands, the expansion did make business sense. Once major cities reached saturation point, the focus shifted to the smaller towns.

With fast expanding geographical areas of the market, certain hubris was, no doubt, taking over. Many of the companies went in for the diversification of products. Garment brands great with denim started venturing into top wear, undergarments etc. Menswear-centric brands launched women's sections and, later, kids’ collections as well. Not content with the traditional line of products, many a brand went in for luggage, shoes and accessories as separate categories. Segregation did not only happen at product level but also saw the birth of new business verticals.

But unknown to the strategists of the brands and the real estate developers, a major disruption of the traditional market was in the offing. Very few had the foresight to anticipate the impending turmoil that would overtake the brick and mortar market because of the incipient e-commerce. It took only a few years for the ecommerce companies to emerge as a threat to the business of the branded consumer goods operating from glitzy malls.

For the price-sensitive consumers, massive discounts offered by e-commerce companies were too big an incentive to be ignored. One does not care much about a product unless it carries a label, and if the label means a discount to be taken home, then it is even better. Stocks were made especially for e-commerce to flood the market, with steep onetime discounts of 70%-80%. This turned out to be good for consumers but bad for the brands as their profits plunged.

The moot question then is, who was making money? Definitely, not the brands, for they had shelled out all their profits into expansion in response to the market’s demand for an ever-growing range of products. But despite all the season sales, most brands failed to post the magical figure of 60% business even with mid-season promos offering instant discounts to lure custom.

This means that the balance products were sold at huge discounts or losses.

For survival, the renegotiation of rentals is one option before shops selling branded products. Another is the reduction of their operational costs and a fresh understanding with suppliers and associated partners. It’s also imperative for them to form an alliance with real estate owners so that there is optimization of the rental burden.

Yet most importantly, the companies will have to get back to the drawing board to reduce the range of products, and add depth within the structure of the unique brands. The season-onseason increase in ASP (average selling price) can definitely be avoided. And the original philosophy of the organizations has to be restored. Aping others will certainly not help. They may have suffered a jolt but can still beat their e-commerce competitors with the right strategies.