Daily News Digest- 3rd Jan'14

Thought of the Day:

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Following made the Headlines:

India:

• Vodafone in Talks to Buy Tatas Out of Teleservices: Vodafone is in early talks with the Tata Group to buy its controlling stake in Tata Teleservices to create India’s largest telco by subscribers. “Discussions are at an early stage. It is difficult at this stage to say what the outcome of these talks will be,” said a person aware of the development. The right of first refusal (RoFR) to the Tatas’ 59.45% stake in Tata Teleservices rests with its Japanese partner NTT Do-CoMo, which owns a little over one-fourth of the telecom company. But if the Japanese company refuses to buy out the Tatas, the Indian partner has the right to exercise its ‘drag along’ rights and force NTT DoCoMo to sell its shares to the buyer of its choice, said two persons familiar with the development. According to the shareholders agreement between Tata Sons and NTT DoCoMo, if certain performance parameters and other conditions are not met by March 31, 2014, and the Japanese partner decides to exit, Tata Sons is obligated to find a buyer for its shares. If it fails to find another buyer, Tata Sons would have to acquire NTT DoCoMo’s stake. But it is not clear if the performance parameters built into the agreement between Tatas and the Japanese company have been triggered yet. Both Tata Teleservices and Vodafone declined comment. NTT DoCoMo did not respond to an email.

• Customers Play a New Card for Gifting: In a trend mirroring the West, Indians are increasingly avoiding the tension of hunting for suitable gifts for each occasion, instead opting for gift cards and coupons, significantly boosting such transactions in modern retail this festive season. Retailers such as Shoppers Stop, Spencer’s Retail, Future Group and DLF Brands said transactions through gift cards and coupons increased 50%-80% during October-December, with both individuals and corporates preferring to buy such cards for gifting. “There was a definite jump in the number of gift vouchers during the Diwali festive season when we saw a good uptake and double-digit growth over last year,” Akshay Mehrotra, chief marketing officer at Future Group’s food-and grocery format Big Bazaar, said. Vinay Bhatia, senior vice-president for marketing and loyalty at top lifestyle retail chain Shoppers Stop, said the rise in demand for gift cards and vouchers reflect a change in the psyche of Indian consumers who are now willing to offer such vouchers instead of carrying physical gifts. The gift card culture suits retailers, too, because sales through this medium usually lead to higher billing value than the gift card value and push premium products. The actual spend by a consumer could be anywhere between 50% and 300% more than the voucher value, retailers said. Retailers are now undertaking various initiatives — from added value to aggressive in-store marketing — to promote gift vouchers and cards. Future Group, for instance, has launched a Big Bazaar Profit Club cards for 10,000, which provides shopping benefit of 12,000. According to gift card provider QwikCilver Solutions, which manages gift cards and coupons of chains such as Shoppers Stop, Titan, and Cafe Coffee Day, the number of transactions on gift cards in India has grown to one million a month from just 3,000 five years ago. QwikCilver estimates the Indian gift card market will triple to 9,000 crore by 2017-18. “For some of our clients, transactions through gift cards now account for almost 10%- 12% of their sales as compared to the industry average of 2-3%,” TP Pratap, chief marketing officer at QwikCilver Solutions, said. Dipak Agarwal, chief executive at DLF Brands, said sales through gift vouchers and cards at the outlets of global brands such as Forever 21 and Mothercare that the company markets in India, are growing 35% annually, while sales through cash and credit/ debit card are growing 20%. Spencer’s Retail, which launched its gift card in July last, expects such cards to account for about 3% of its revenues in this fiscal. Apparel and grocery-related gift cards are more in demand on e-commerce sites such as Indiatimes Shopping. Saurabh Malik, head of Indiatimes Shopping, said the overall growth in this category is in direct proportion to the growth of e-commerce.

• Mercedes-Benz India posts 32% growth in 2013: German luxury car maker Mercedes- Benz reported 31.62 per cent increase in its sales in 2013 at 9,003 units. The company's Indian arm Mercedes-Benz India had posted a total sales of 6,840 units in 2012. Commenting on the performance, Mercedes-Benz India Managing Director and CEO Eberhard Kern said: "We are very satisfied with our performance in 2013 which we called it as an 'Year of Offensive'. We are happy that our New A-Class, New E-Class & the SUV portfolio saw a robust demand amidst challenging market conditions." Stating that consumers have "appreciated our initiatives", he said: "We enter 2014 with a clear promise of delivering excellence." In 2013, the company had launched eight new products across categories and added 9 new touch points in cities, including New Delhi, Baroda, Coimbatore, Noida, Gurgaon, Rajkot, New Mumbai, Lucknow and Pune. 

• Exports to global fashion cos may be hit: Supplies from the NCR region to global fashion brands such as GAP, Marks & Spencer, JC Penny, Walmart, H&M and Zara may be hit as textile dyers and printers have called for an indefinite shutdown. Riled by rising input costs that have increased by around 40% over last year, the Federation of NCR Textile Dyers and Printers has called for closure of all units in the region. These businesses serve exporters who ship their merchandise to global chains. “The NCR region alone contributes worth Rs 15,000 crore to garment exports per year. Nearly 100-150 units that directly employ nearly 10,000 workers carry out the dyeing and printing work for garments that are supplied to all major global brands,” says S D Kheterpal, president, Federation of NCR Textile Dyers and Printers. “But due to continuous hike in input costs, most units are running in losses. If we keep doing business like this, we will ruin ourselves. We have no option but to shut shop.” Apart from China where global apparel retailers are facing roadblocks due to steep labour costs and Bangladesh where recent compliance issues and labour unrest have plagued exporters, India is one of the most important low-wage, high-capacity sourcing hubs for international apparel brands along with Cambodia and Vietnam. India’s apparel exports have also been rising over the years. For this financial year, India’s apparel exports stand at $20 billion compared to $14 billion last year, according to official data. The federation said among other things, a sharp rise in minimum wages and colour prices have escalated costs for these units. According to industry estimates, minimum wages at these factories have increased by 59% over last year from Rs 5,100 to Rs 8,100 and the average price of colours has shot up by 83% from Rs 316 last year to Rs 578 this year. In comparison, average realization of dyeing charges has marginally improved from Rs 6.75 per metre in 2001 to Rs 10 per metre this year.

• Flipkart plans to sell white goods, furniture: India's largest e-commerce player, Flipkart, will start selling big-ticket items like furniture, large-sized white goods and electronics products along with introducing a private label for apparel, co-founder Sachin Bansal told TOI during an exclusive chat. The Bangalore-based company, hailed as the poster boy of Indian e-commerce due to its meteoric rise since it began operations in 2007 and billion-dollar valuation, may acquire an existing player to grow its offerings. Flipkart started off as an online bookstore but has diversified into many categories including apparel and baby products, besides many others, mirroring the growth trajectory of the world's largest internet retailer - Amazon. The online market for home furnishing and furniture is competitive in India with the likes of Urban Ladder, Rocket Internet-backed FabFurnish, Pepperfry and Zansaar already in the fray. Bansal told TOI the online retailer wants to create depth in existing categories while introducing newer ones as it targets a billion-dollar turnover by 2015. "Teams are working on the launch and are looking at both the options of growing organically or inorganically. Currently, there are many big-ticket categories including furniture and white goods like refrigerators and washing machines that we do not sell. This year, we are hopefully going to close in on these gaps," said Bansal, who co-founded Flipkart along with Binny Bansal, both IIT-Delhi alumni. The furniture market in India is estimated at $8-10 billion and will see the entry of the Swedish homeware giant IKEA soon. "When Flipkart gets into a category, it means there is a big potential in it. They will move the needle and will help create awareness for furniture-buying online. For us, specifically, since we source most of our products internationally, their entry won't impact us much," said Jawad Ayaz, co-founder of the Bangalore-based Zansaar, which is funded by Accel Partners and Tiger Global. Having introduced apparel a year back, Flipkart is already giving a run for money to Myntra, the biggest fashion e-commerce player in the country. "The difference between the range of products available online and offline is still pretty incremental in India compared to what it is like in China and the US. Therefore, we need to do much more work. Internet is a category in which you make money when you have the scale and a critical mass," Bansal said when asked about when the online retailer would turn around and clock profits. "At present, it's about our ability to scale up as quickly as we can - that is the bigger constraint than the market. We want to be the leader in each of the e-commerce categories," he said. While revenue for Flipkart has grown five times from Rs 281 crore to Rs 1,180 crore for the financial year ended March 2013, losses stood at Rs 281.7 crore compared to Rs.109.9 crore in the previous financial year, according to documents filed by the online retailer with the Registrar of Companies. The e-tailer is also sharpening its mobile strategy. Bansal said almost 20% of Flipkart's sales now come from mobile shopping, which was negligible till last year. In October last year, Flipkart announced it had got on board a new set of investors, including Morgan Stanley, helping it to clinch the largest-ever funding for any internet business in India when it closed a $360-million fund-raise. The deal valued the consumer internet firm at $1.6 billion.

• DTDC forays into retail, e-commerce logistics: DTDC Courier & Cargo, a company associated with blue signboards and express couriers for almost 25 years, is changing fast: it has ventured into newer businesses like retail logistics, e-commerce logistics, supply chain management and freight forwarding in the last couple of years. The privately-held company expects revenues to grow at an annual rate of 25% for the next three to four years on the back of newer businesses and geographies, said the 29-year-old executive director Abhishek Chakraborty. "These new businesses contribute to about 10-12% in revenue. In the next two years, there would be a clear doubling in terms of the total business pie," said Chakraborty, the younger son of founder and chairman, Subhasish Chakraborty. DTDC is known for its wide franchise network, which helped it expand faster and cheaper. While an average industry player takes 5-6 months to launch its product nationwide, DTDC can do it in less than three months. About 65-70% revenue comes from its express logistics business. DTDC is now looking to become an end-to-end logistics service provider. It says that corporates are moving towards partnership-based models from vendor-based ones, where only one company would be taking over all the logistics functions of the client. Corporate share of annual revenue right now is about 150 crore. This is expected to grow at 35-40% every year, according to DTDC. Experts believe that diversification from the core courier business is inevitable due to intense competition in the industry. Vishwas Udgirkar, senior director at Deloitte, says that many companies are looking at cutting their logistics costs and are turning to organised players to manage their supply chains. However, they sound a note of caution. Many courier companies, including First Flight Couriers, have found it tough to diversify into supply chain management and contract logistics.

International:

• Cosmetics major Revlon to exit China, cut over 1,000 jobs over restructuring: Revlon, the maker of cosmetics under its namesake and Almay brands, will cease operations in China and eliminate about 1,100 positions, including 940 beauty advisers, as it restructures its struggling business. China makes up about 2 per cent of Revlon's net sales, and the restructuring will result in about $22 million of pretax charges, the New York-based company said in a filing with the US Securities and Exchange Commission. The changes are expected to reduce costs by about $11 million a year, Revlon said. The company, which posted profit declines in 2011 and 2012, has been making acquisitions and introducing new products as sales in some of its larger brands slow. Earlier last year, it bought Colomer Group, giving it Creative Nail professional and Shellac nail polishes, as well as American Crew men's haircare products. "Revlon was unable to gain scale and relevance in the important Chinese beauty market," Connie Maneaty, an analyst at BMO Capital Markets in New York, wrote in a note. She rates the shares market perform, the equivalent of a hold. Colomer Chief Executive Officer Lorenzo Delpani took over as Revlon's CEO in November, replacing interim chief David Kennedy. The reorganisation isn't related to the acquisition, Revlon said. The addition of Colomer helps Revlon expand sales in the more-profitable salon sector, an aim shared by competitors such as Procter & Gamble and Unilever. China, where skincare products are in particular demand, is an important yet challenging market for many Western beauty companies. In its third-quarter sales release on October 30, L'Oreal called China's market "slowing, although still dynamic" and said sales in the quarter grew 11 per cent there. P&G said in May it's been losing marketshare in skin and oral care in China. Avon Products said in October that possible fines related to foreign bribery probes in China and elsewhere may hurt profit.

• Panama Canal builders threaten halt to expansion: Panama's President Richard Martinelli has threatened to go to Europe to demand a consortium fulfil its contract to expand the canal, which handles 5% of world trade. The cost of the expansion has overrun by $1.6bn (£1bn) and the Spanish-led consortium has threatened to halt work unless the money is paid. The president said: "I will go to Spain and Italy to demand these governments take moral responsibility." Work began on the expansion in 2009. Construction is due to be completed in June 2015, nine months behind schedule with the overall cost of the project now expected to be $5.2bn. Spanish builder Sacyr, the leader of the consortium known as the Grupo Unidos por el Canal (GUPC), has given 21 days' notice to resolve the dispute.

• Fiat shares surge after deal to buy remaining Chrysler stake: Shares in Italian car giant Fiat have jumped more than 15%following the announcement of its plan to buy the remaining 41% of Chrysler it does not own. Fiat has owned a majority stake in the US company since 2009. The agreement ends long negotiations with the current owners, Veba, the healthcare trust affiliated to the United Auto Workers' union (UAW). The move will create the world's seventh-largest car company. Chrysler and Fiat will pay the trust an initial $3.65bn (£2.2bn). Once the deal is signed off, Chrysler will pay Fiat another $700m. Fiat's chief executive, Sergio Marchionne, said that he planned to widen the company's global reach. He was also quoted as saying that the deal was one of life's "defining moments that go down in the history books".

• Snapchat hack affects 4.6 million users: The usernames and phone numbers for 4.6 million Snapchat accounts have been downloaded by hackers, who temporarily posted the data online. A website called SnapchatDB released the data but censored the last two digits of the phone numbers. It has since been taken offline but a cached version is still available. The hack comes days after an Australian firm, Gibson Security, warned of vulnerabilities in Snapchat's app which it said could be exploited by hackers. Gibson Security said it was not involved in the hack: "We know nothing about SnapchatDB, but it was a matter of time till something like that happened," the firm tweeted. The hackers behind the website that published the data said they had exploited the security flaw highlighted by Gibson Security. "We used a modified version of gibsonsec's exploit/method," they were quoted as saying by tech blog, Tech Crunch.

• Great Clips Names New President and COO: Great Clips is making changes to top management for the New Year. Effective Jan. 1, former Great Clips chief operating officer Steve Hockett was named president of the 30-plus-year-old franchise and salon brand. Hockett replaced the company’s president, Charlie Simpson, who will stay on part-time as an executive advisor focusing on executive development and strategic issues. He will also serve on the Great Clips Inc. board. “Steve has played an integral part in our current growth,” said Rhoda Olsen, ceo of Great Clips. “[Steve] believes in the strength of the franchise model and understands that growth can only come by working together to make franchisees profitable.” In his new post, Hockett will concentrate his efforts on developing the senior leadership team, according to the company. Hockett will report to Olsen and will “establish visibility” among Great Clips’ thousands of franchisees across the U.S. and Canada. Rob Goggins, former senior vice president of real estate and development, will replace Hockett in the role of chief operating officer and will oversee business services and operations. Hockett, who told WWD he joined the company in 1988 after unsuccessfully attempting to operate a franchised salon in Minneapolis-St. Paul, said he learned valuable lessons from his experience. “I believe my lack of success as a franchisee motivates me to provide the direction and resources all of our Great Clips franchisees need to be profitable,” said Hockett. Assuming the role of chief operating officer in 2012, Hockett is credited with “driving franchise profitability and growth reaching billion-dollar-brand status. And the milestone of reaching the count of 3,500 salons in the U.S. and Canada,” according to a company statement.

• Macy's Settles With Martha Stewart: Macy's Inc. settled its legal battle with Martha Stewart Omnimedia, but continues to square off with rival J.C. Penney Co. Inc. "Macy's has resolved its breach-of-contract lawsuit against Martha Stewart Living Omnimedia," Macy's said today. "We are pleased to be able to put this matter behind us. The terms of our settlement are confidential, will not be disclosed, and are not deemed to be material to Macy’s." The retailer said the settlement did not impact its outstanding claim against Penney's, which is still subject to a New York court decision. The battle started after Penney's then-chief executive officer Ron Johnson signed a deal to carry home goods designed by Stewart, who already had a deal with Macy's.

• Prada Opens New Store in Florence: Prada will open its second Florentine store during the Pitti Immagine Uomo trade show. Designed by Italian architect Roberto Baciocchi, the 8,180-square-foot boutique unfolds over three levels of an entire building located at the corner of Via Roma and Via de’ Pecori. The store carries all of Prada’s key collections, including leather goods and accessories, women’s and men’s shoes, along with women’s and men’s ready-to-wear.