Mall Renatls Down + Vacancies Rise

Mall rentals across all the Metros and Cosmos have nosedived in the past 12 months and vacancies have increased by 15%. Retailers are looking forward to different Revenue models - minimum guarantee and revenue sharing.

Ahmadabad Malls have seen the highest fall in rentals after a record run-up of 30-40% YoY in 2006 and 2007. Mall rentals on Sarkhej Gandhinagar highway was down 64% YoY while Kankaria Lake saw a drop of 60%. Poor geographical distribution of Malls in the city is cited as the main reason. Malls should have spread across the city with areas of upper class residential catchment.

Malls in Bangalore have witnessed rental fall between 10-20% while Prime Street Rentals have fallen of the cliff by as much as 50% on 100ft road in Indiranagar, Kormangala and Vittal Mallya Road.

In Chennai, Adyar Main Road saw the highest fall in rental values by as much as 40% followed by Anna Nagar 2nd Avenue - 35% and Cathedral Road - RK Salai 33% YoY.

In Delhi NCR, Greater Kailash I, M Block saw a drop of 55% followed by Basant Lok, Karol Bagh, South Ex all between 40-45% YoY. Gurgaon and West Delhi Malls were hit by fall in rental values of upto 42%. Market outlook is stable over the next 6 months.

Mumbai's Goregaon, Linking Road, Breach Candy and Colaba have witnessed the highest drop of over 55%. Vashi, Lower Parel and Ghatkopar saw a drop of over 30% in rental values.

In Hyderabad, Banjara Hills and Himayathnagar retail rentals were down 40% and in Kolkata, Rajarhat witnessed a similar drop while South Kolkata and Elgin Road saw a drop of 25%.

We will publish a more detailed study from each individual cities soon.

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Top Performing Brands in Organized / Modern Retail

Analysts on the street are always on the hunt for the Best Brands and companies. Recent sales data obtained from Food Bazaar - Supermarket chain of 158+ stores, Morgan Stanley has analyzed the top performing brands. Here is an excerpt from the study.
The winners and Losers are decided by Top Sales Data.

Top 5 Food Brands in Food Bazaar are,
Britannia
Maggi - Nestle
Parle
Kellogs
Horlicks - Glaxo Smithkline
Red Label was the biggest gainer, and Cadbury's chocolate was the biggest loser in the top 15 Food Brands over last year.

Top 5 Non-Food Brands are,
Surf
Tide
Rin
Colgate
Dove
HUL's Pears was the biggest gainer, and P&G's Whisper was the biggest loser in top 15 Food Brands over last year.

Top 5 Gainers w.r.t their performance in previous year,
Godrej Tea
Nilons
Quaker
Lalaji - Bikanear Namkeen
Lehar
Interestingly, five of the 15 biggest up movers in food brands doing well were beverage brands, with Coca Cola being the biggest beneficiary.

Top 5 Losers are,
Dukes
Appy Fizz
Safal
Top Ramen
FreshGold
ITC's Bingo, which was one largest gainers in food last year, surprisingly was one of the biggest losers in this year's MT, slipping seven ranks.

Where are the Private Labels ?
All the retailers were confident of achieving success on the private labels front but they don't make it to the list yet. What's wrong ? 24 months was enough time to have atleast one entry in the list :-)

Kindly note that this data is from Food Bazaar [most successful supermarket chain across India] only. Sales also depends on factors such as promotions, in-store stocking, etc. So entrepreneurs looking forward to establish brand names don't be disheartened, you can be the next Karsanbhai Patel of Nirma.

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Future Logistics Valued at $116 Million - Li & Fung Invests

The logistics arm of Pantaloon Retail Group - Future Logistics [a.k.a Fuure Supply Chain Solutions] has been valued by investment bankers at $116 mn and the company has roped in International Logistics major Li & Fung of Hong Kong by selling 26% stake. The funds will be used to setup more warehouses and building a nationwide transportation network.

Li & Fung is a major sourcing and distribution partner from Asia for many multinationals including Wal-Mart, Tesco, Nike etc. One should note that, in India Wal-Mart has joined hands with Bharti group and we feel Mr. Biyani made a smart move by roping in Li & Fung for Future growth of the company in an extremely competitive environment.

Mr. Biyani said,

We want to capture a dominant share in this segment as a third party logistics (3PL) service provider.

Currently Future Supply Chain Solutions has a warehousing sprad of over 3 mn sft servicing 1,100 retail outlets by a fleet of over 500 vehicles.

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Post-Mortem Analysis - What went wrong with Organized Retail

A sluggish economy coupled with a slowdown in consumer discretionary spending has resulted in muting retail industry growth. [Not all have turned around like Biyani's Future Group]Retail cost structures and business models are going through the scanner. Some of the critical areas under purview are as follows.

Flaws in Business Model: Business Models for Modern Trade are weak being skewed towards low margin / high working capital which translates into their ROE's being marginally above their cost of capital in good times and below their cost of capital in bad times. Retailers have incurred high expansion costs with highly optimistic projections of growth on the back of projected consumer off-take, which has seen a reversal. Malls are increasingly seen to be cost-inefficient and retailers now negotiating for rentals based on sales or moving out to other areas.

Expansion Plans: Retailing in India was personified by aggressive store expansions as well as entry of new players in the industry. This resulted in over-optimistic projections of an industry in its nascent stage of growth ensuing in increasing levels of leverage and progressively resulting in funding crisis.

Consumer Purchasing Power Buoyancy: Retailers have mis-judged the Indian consumer psyche with the preconceived notion that the Indian consumer like his western counterpart would expend a significant proportion of his income on discretionary spending. The first drop in consumer spending was in the post Diwali period when there was a lack of willingness on the part of consumers to spend whilst the next drop will most likely be in the Apr-Jun quarter wherein the reduction in income effect will set in.

Funding requirements: Organised retailers are currently hit by a liquidity crunch with equity funding drying up and debt funding becoming extremely difficult to service. Moreover most retailers are already highly leveraged and have difficulties servicing their existing debt. Their interest cost has increased affecting the net margins, primarily due to two reasons higher levels of borrowing to fund expansions.

Asymmetrical product portfolio: Certain categories have developed very well (apparels) whilst others still have some way to go. Apparels were 9.3% of total retail and 18.5% of organised retail. Food and Grocery was 59.6% of total retail and only 0.7% of organised retail.

Supply chain issues: Logistics and an effective supply chain infrastructure are indispensable for seamless and cost efficient operation in the current volatile times. Economies of scale by way of warehouses, distribution centers and transportation efficiency will be necessary for survival

Personnel: The cost of retail sector employees has been high with people recruited at extremely high salaries in the past.

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Big Bazaar in Top 10 Most Trusted Brands

Pantaloon Retail India's Hypermart format Big Bazaar is rated amongst the Top 10 Most trusted brands in services sector in India competing with others like HDFC etc. Big Bazaar now boast of 116 stores across India making it the largest hypermarket chain in India.

We are in receipt of sales figure from Future Group across various retail stores. There is a turnaround in sales in Value Retail [645 cr +25% MoM] and Lifestyle [154 Cr + 19% MoM] while Home Retail [67 Cr - 23%] is still struggling. One of the main reasons for poor performance in Home Retail chain is the subdued Realty market in India operating as a Lobby and the government being mere spectator.

PRIL also launched 158th Food Bazaar store along with a new private label - Tasty Treat Hot & Sour Soup.

Our Congratulations to Mr. Kishore Biyani and the team for achieving this milestone while rest of the retailers must wake up and try to compete hard.

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Bharti - Wal-Mart - Money is no constraint

World's leading retailer - Wal_Mart is extremely serious about Indian venture as the company has clear directions to International Operations head - Doug McMillon that their will be no dearth of funds for expansion in India, the next Trillion Dollar Economy in the Making.

Wal-mart ins association with Bhati group have managed to open only one store in India as they quickly admit they are studying the scalable business model that will suit the macro business environment in India.

Doug is lobbying in the power corridors with Industry and Agriculture minister for smooth sailing across India. Doug is well known for handling the best supply chain and sourcing contracts in the Retail World said,

We will have anyone as our supplier as long as they deliver quality and offer a reasonable price. In my career as merchandise buyer, I have seen that several small suppliers too have benefited from us. And you look at the margins of suppliers and Wal-Mart margins and you would know that they fare much better than us. Also, we encourage small suppliers not to be overtly dependent on us.

Folks at Reliance better wake up to the competition as this time their lobbying in Power corridors to KILL business houses like the Wadias in 80s won't work, or who knows they may completely perish themselves in the retail war if it gets dirty :-)

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Koutons enhancing Product portfolio

Koutons Retail introduced accessories and shoes in its stores during FY09. Accessories are available in all stores while shoes are available in approximately 200 stores. The share of Les Femme (i.e. ladies wear) and Kids Junior (i.e. kids wear) increased during the year to 12% collectively against 2% share in FY08. These products yield better margins than menswear and would cushion the profitability during difficult periods.

To capitalize on the brand popularity, the company is now focusing on family stores. These stores are bigger in size with an approximate size of 2500-3000 sq ft per store. All the brands, namely, Koutons, Charlie Outlaw, Les Femme and Kids Junior are available in these family stores. At the end of FY09, the company operates 182 family stores.

Our Analyst has compiled the Revenue Breakup Chart of Various Brands of Koutons Retail for FY 2009.

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Tata Croma to expand its product portfolio

Tata Croma, owned a by Infiniti Retail and a 100% subsidiary of Tata Sons, intends to augment its product portfolio under the private label category to 100 in the present fiscal. Presently, this electronics retain chain has portfolio of 46 products.

The company will introduce private label brand called Handpicked by Croma' that would be launched in festive season of Diwali. Croma plans to introduce niche personal care products in the categories such as jewellery cleaner and wine cooler, which needs lesser R&D.

The company plans to unveil 12 Croma Zip stores with a capital outlay of Rs 24 crore. Coma Zip is a smaller format store that is spread on land area of 2,500 sq ft to 6,500 sq ft. Presently 3 such stores are being operated in India.

While the small-format stores require a capital of Rs 2 crore, the large format of Croma which is spread over on land area of 10,000 to 15,000 square feet requires an investment of Rs 3 crore an aove. Beside Croma ZIP, the company will also set up over 11 Croma stores.

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Future Group's Kshitij into Mall + Realty Venture

Kishore Biyani was doing an excellent job [in our opinion] by taking the best advantage of first mover into the nascent organized retail sector and completely focusing on Retailing. However, the group now wants to enter Retail and Mall management and dveleopment through Kshitij Retail Systems..

The goal of Kshitij Retail Systems will be to be a Mall development and management company - from procurement and maintenance of equipment, leasing out shops and advertising space to interested parties, security, accounts, common area maintenance and marketing.

Future Group will launder some of its retail properties such as Pantaloon stores, CR2 or Sobo Central and some retail assets owned by its real estate domestic fund, Kshitij, to the new entity. The new entity will also acquire malls from real estate developers. The company will focus on centers located in prime trade areas. Cross holding among various group companies is another area of concern as transparency is an issue.

The Balance sheet of Pantaloon Retail is already strained and moving into Retail Management is fine but Retail Realty will dig a deep hole into their pocket and may affect other flourishing retail businesses of the group.

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Gitanjali Gems acquire MobileNXT - Hoop is New Brand

Gitanjali Gems has announced that it is going to acquire 70% stake in Bangalore-based mobile retail chain operator MobileNXT through its wholly-owned subsidiary, Gitanjali Lifestyle (GLL).

GLL has entered into an investment cum shareholder's agreement with MobileNXT for the same.

MobileNXT is present across 21 stores in southern parts of the country and in tier 2 and 3 cities and its stores are a one-stop shop-offering host of telecom related products and services.

However, as per the terms of agreement all the MobileNXT stores will be reinstated as "Hoop" stores and will display "personal fashion accessory" that offers a wide range of fashion jewellery, watches, eyewear and the latest as well as trendy mobile phones and accessories at affordable prices. The products would be targeted at the youth and young adult both female and male.

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