L Capital Asia's Bijou Kurien

NEW DELHI — The $600 billion retail market in India has been like a race horse, running unfettered over the last decade.

And there are no signs of the market slowing its pace. A.T. Kearney’s Global Retail Development Index earlier this month named India as the top developing country for retail investment, followed by China, giving global investors an added reason to take another look at the country.

Bijou Kurien has worked in retail for over three decades. He led the lifestyle business at Reliance Retail for more than seven years, in one of the most transformative periods for the sector. He is now a strategic adviser and board member at private equity firm L Capital, the private equity arm of French luxury giant LVMH Moët Hennessy Louis Vuitton.

Here, Kurien speaks with WWD about some of the major bumps on the retail road over the last decade, as well as how he sees markets opening up better for global players.

WWD: This year there appears to be another shift in the Indian retail scenario, as bricks-and-mortar makes a surprising comeback.

Bijou Kurien: Yes, we are seeing another shift over the last year. What you’re seeing today is that bricks-and-mortar retail, which stagnated a bit between 2012 and 2014 because of e-commerce, is making a comeback.

While there was an initial growth spurt for e-commerce over the first three to four years, e-commerce players realized it is going to be tough to sustain an unprofitable business over too long, that losing money was not a sustainable business model. More questions started being asked about when profits were likely to happen. Then a lot of e-commerce companies started cutting the discounts. The moment you start cutting discounts, especially in electronics, the consumer starts saying, “Why should I buy from here, when I can buy from a store nearby where I can get instant delivery and gratification, where the prices are very similar?” That’s what actually happened.

WWD: Do you see this return of bricks-and-mortar retail being just another brief blip in the retail story?

B.K.: I think it is a part of the balancing of the markets. In 2014-15, bricks-and-mortar retailers were adding new stores and were struggling to protect profits as same-store sales flattened. But now with the better parity in pricing between offline and online, customers are beginning to come back. What you are seeing today is a more balanced market environment. You are seeing online retailers with saner prices, and offline retailers feeling a little more resurgent because of the uptick they have seen over the last six months.

WWD: Are global retailers looking at their stores in India in a new light?

B.K.: When you look at global retailers — and I am looking at two categories — if you look at apparel and beauty, it has really been about deep discounters, department stores and brand stores. Although brand stores continue to perform well, the role of the store is increasingly coming under question, especially in view of a multichannel environment. When you have online, offline, click-and-collect, click and get the goods delivered home the role of a store is being questioned all over again.

Second, in the face of international online competition, the question of the size of a physical store has become more important and how large it should really be.

Third, the question of what products should be kept in the store, and how much of it should be maintained online so that products can be delivered immediately from any store, needs to be answered.

Fourth, what role should salespeople play — should they be sellers, or advisers? A lot of people are coming to the store to understand products and brands better, and there is some confusion now about how the sales force should react.

Fifth, where should the store be located?

All these questions are coming up in a new light at this time.

WWD: So is the market readier for global brands now in some ways?

B.K.: There is a certain novelty factor with all international brands.

When you initially launch a brand, or when you initially launch in a city there is a huge upsurge in sales. Then, over time, what you discover is that sales start petering off and then it starts falling to a different level from the past. Some of the newer stores don’t have the same performance as the older stores and that is the reality of any international brand. There is an uptick because there are certain brand aficionados who worship the brand, and others who are looking at buying the brand when it first comes in. But there is a saturation level while the brand needs to see more sustained buying, like Zara, which was off to a roaring start at the beginning. This is always lower after the initial phase has passed. That is the reality here.

Many of the international stores have not come here yet, but the ones who have, such as Zara, Gap, H&M, Forever 21 — at different price points — a lot of them came in not just with an international portfolio. They have understood some of the Indian sensibilities, and adapted their product portfolio for the Indian market.

WWD: But if you look at how Forever 21 changed hands so many times, as did Sephora; Debenhams completely failed. Is the Indian market particularly difficult?

B.K.: No, not really. Sephora for example, needed a good partner and if you look at the performance of Sephora today, it is outstanding compared to what it was a year back. It’s much better merchandised, it has a far more motivated sales force and much higher sales per store than earlier. It has expanded its network — so a brand needs the right partner. Because of which you are seeing a much more vibrant Sephora than what you saw earlier.

In terms of beauty, you are looking at some forays into the online market, still very small, but they are all growing.

So, if you ask me, categories such as fashion and beauty and to some extent accessories are still underpenetrated categories.

WWD: That is changing fast, is it not?

B.K.: When I say underpenetrated, it means that we have to understand how often people make purchases. The frequency of purchase of fashion in India is still quite low, largely because fashion tends to be expensive.

Now with H&M having come in, and Future Lifestyle has introduced a new brand called Cover Story, all of this is fast fashion at very affordable prices. Whether it is in terms of colors, cuts, design, or in terms of prices, fashion is becoming much more relevant to the Indian market.

That is what is making a big difference in fast fashion because India has the potential to grow like China. The apparel market today in China is eight times that of India, and many of the apparel brands are billion-dollar brands in China. We don’t have a billion-dollar brand, not even one in this country, but it is just a question of doing all the right things.

We are much poorer than China in terms of income, but over the next four to five years we expect much higher consumption rates.

WWD: Does an emerging market need far more adjustment of plans and timelines by retailers, as Reliance has done in past years?

B.K.: When Reliance came into retail, it was by creating a much larger umbrella for the company to operate from, with many very specific formats. Because we started with 20 different things, some worked and some didn’t, many had to be reviewed, and we had to wind down some. These included the health and wellness formats, and the Time Out — which was primarily the books and music concept. The technology trends that were beginning to emerge in 2010-11 made online books and music far more competitive. But there were others, such as toys which didn’t have much competition from online, and Reliance then entered into a partnership with Hamleys. There was a lot of different learnings and we were changing the course as needed. That is a requirement in any emerging market.

When you start many new concepts, you have to learn, and apply your learning — you have to be flexible enough to change the model in case there is a need. And that is what happened.

WWD: What were some of your own learnings about retail working for Reliance?

B.K.: It was a great experience working for Reliance because there are very few countries in the world that will actually attempt to undertake a project on the scale that Reliance undertook and being involved in that project and being part of it was a very great experience.

Secondly, Reliance demonstrated that even if you don’t know anything, don’t have that competitive advantage and have the classical — you know, business strategy concept in terms of understanding, learning core competencies and stuff like that — you can actually venture into new businesses without fear, as long as you understand what you are doing. It was great experience for me, in terms of being a part of such a mammoth exercise, and an attempt to do things on a scale never attempted before.

When I left in October 2013, there were approximately 1,600 or 1,700 stores and the revenue was close to 150 billion rupees, or $2.25 billion.

WWD: And in that time, when you were working with Reliance, was the apparel market also transforming?

B.K.: To some extent. I think a lot of experience in the apparel market was in terms of brands — product brands. In Reliance, we were actually attempting to build product brands at a store level. So, instead of building Louis Philippe, Van Heusen, Allen Solly, we were actually building Reliance Trends as the most desirable place to buy apparel. And within Reliance Trends itself there was a larger portfolio of brands.

WWD: Meanwhile the online players have taken a foothold in the last four years, and apparel has become a major area of focus.

B.K.: It’s only in the last four to five years that we are actually beginning to see online commerce emerge more rapidly. It started off initially in the classic online categories — books and music — then went on to adjacent categories like electronics. These were mostly mobile phones and electronic accessories. At one point, electronics used to be two-thirds of the online retailer’s business with books and music winding down. But actually, the proportion of their total business started declining once they introduced the electronics category and a lot of them realized that electronics was a dumb game. A lot of people were buying because of the price. But there is a limit to how much you can reduce margins. At the end of it you are getting revenues but you’re running unprofitable businesses. Then a lot of them decided to get into the fashion category because there the margins apparently looked much better than electronics. So, the focus changed a lot.

WWD: Each of the online retailers appears to have chosen dramatically different business models in India to work their way in the apparel segment.

B.K.: Yes, online retailers moved into fashion and apparel in very different ways. Flipkart, which was one of the leading online retailers, moved into the fashion category by acquiring Myntra. Amazon decided it would build something on its own. Jabong decided they would focus fully on fashion and not do electronics. Snapdeal started with a very different model, but then pivoted itself to be like Flipkart. So, a lot of them actually moved into the electronics and fashion model. Today, electronics and fashion contribute 75 percent of an online retailer’s revenues.

WWD: Looking ahead, is the market for apparel going to transform for global retailers?

B.K.: I visualize a scenario where restrictions for foreign brands coming into the country will be almost negligible so that most brands can be in the country if they wanted. I would think that given the increasing pressure that most multibrand retailers are having in their domestic markets and other emerging markets, they will want to make a beeline for India. I also see that given the increasing availability of brands, both offline and online, the desire of the consumer will increase, and so consumption will grow. This will be especially so in terms of the younger customers — half of India’s population is less than 25 years of age. The age group of 18-to-25 is in the region of 175 million people and they will come into the working age population. And when 175 million people come into the working group, they will carry with them attitudes from the current 18-to-25 groups.

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