© Third Eyesight, 2012 This document is copyrighted by Third Eyesight, and may not be copied , republished or circulated in part or in entirety without Third Eyesight’s written permission.

Prime Source Forum – Focus on India

Impact of Modern Retail and FDI

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Modern Retail

Two sides to the story

– Modern retail as the benefactor

– Modern retail as a scourge

Has there really been a change? Have there been any significant benefits accrued? How do people in the supply chain feel?

What are the changes taking place?

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1987 1990 1993 1996 1999 2002 2005 2008 2011

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Source: Industry Research by Third Eyesight Note: This chart only includes apparel and accessory brands, and excludes other lifestyle product companies such as fragrance, luggage, home, or other consumer products. The chart is only illustrative, and may exclude brands with a very small market presence, or those that have been withdrawn.

International Fashion Brands in India: Growth in Numbers

Slow, steady increase for ~18 years

Wave builds 2005 onwards

4x growth in 7 years

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1987 1990 1993 1996 1999 2002 2005 2008 2011

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Source: Industry Research by Third Eyesight Note: This chart only includes apparel and accessory brands, and excludes other lifestyle product companies such as fragrance, luggage, home, or other consumer products. The chart is only illustrative, and may exclude brands with a very small market presence, or those that have been withdrawn.

International Fashion Brands in India: Shift in Strategy

LICENSING FRANCHISE JV /

OWN

JV / OWN

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International Brands: FDI & Move towards Control (2011)

Source: Industry Research by Third Eyesight Note: This chart only includes apparel and accessory brands, and excludes other lifestyle product companies such as fragrance, luggage, home, or other consumer products. The chart is only illustrative, and may exclude brands with a very small market presence, or those that have been withdrawn.

100% Subsidiary Or Joint Venture

(incl. minority stakes)

Foreign Direct

Investment

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Pause for a Question…

1987 1990 1993 1996 1999 2002 2005 2008 2011

How suppliers in this room can say that their sales curve looks like this?

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FDI is Not a Panacea – The Implications Vary

Suppliers of raw material (fibre, yarn) and intermediate materials (fabric)

Garment manufacturers

Garment brands

Retailers

…some beneficial impact, but not uniformly

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Opinion on Beneficial Impact

Retailers’ View

Greater Supply Chain efficiency

Reduced lead times

Reduced cost

Fewer transportation legs

Modern Retail is helping Supply chain “gain importance in business”.

Suppliers’ View

Greater efficiency

“Keeps suppliers on toes”

Beneficial from manufacturer’s point-of-view but not from intermediary’s viewpoint

Reporting 10-25% higher sales per square foot as compared to traditional retailing

Source: Third Eyesight research

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Commercial / Structural Changes

Margin differential – Bulk-pricing, discounts

– Consumer-oriented promotion schemes

Changes to standard shipment package sizes

Operating Procedures – Order booking processes

– Replenishment

– Invoicing

Business Divisions dedicated to modern retail

Source: Third Eyesight research

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Technology Being Deployed

Packaging

Bar Coding

ERP – significant upgrade or even first-time installation

…Modest changes, but significant impact.

Source: Third Eyesight research

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Impact

Major changes in operating processes

Inventory & Order Booking

– Better planning

– Better collaborative planning and forecasting

– Changes in replenishment strategies

Transport modes and procedures

Risk management communication systems (both internal and external)

Source: Third Eyesight research

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Complexities and Friction Remaining

Size / scale / sophistication mismatch

Information imbalance / intermediaries

Corporate vs. small business owner

Rural vs. Urban

Regulatory, governance

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The Threatened, and Their Strategies

Large branded suppliers who have so far ruled the market

– Fight for maintaining diversity in the market

– Adapt business structures shifting balance of power

– Maintain product and brand leadership

– Exclusive stores or retail spaces to maintain brand integrity

Smaller retailers who are unable to enhance the value delivered to the consumer

– Maintain and fight for operating cost competitiveness

– Evolve service and product niches for their market

Intermediaries who are being squeezed out of the chain

– Wither, and die OR Evolve - e.g. from adati to packaged atta

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Co

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maj

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kets

Contract Manufacture

Consumer Brand

Trade Reliability Design & Product Intelligence

India (1960s)

India (1970s - )

India (2010-20)

India (2005-10)

India (1980s) India (1990s-2004)

Where is the Value?

Devangshu Dutta, 2005

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This is a Decade of Opportunities and of Waves of Turmoil

International brands: India is a new market where a brand can “live out a whole lifecycle”

Indian companies: Look at moving up the food chain: new launches, acquisitions

Other Asian manufacturers: plug into the Indian consumer supply pipeline

Focus on market-led development

The Choice is: Get rocked around by the waves

OR Use the opportunties to “shape”

the waves in some way?

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