News As We Read- 15th May'13

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India:

• Out for Delivery: E-Com Cos’ Exit Orders to Staff: Online retailers are handing out pink slips in large numbers as they shift attention to controlling costs from acquiring customers, several industry executives said. Among the companies sacking staff are Flipkart and Jabong, which are among the biggest in the business, illustrating the growing pain in India’s e-commerce sector. Nearly 250 employees, or about one-tenth of Flipkart’s workforce, are being shown the door, according to at least three people with direct knowledge of the development. At Jabong, too, a similar number of employees have been sacked, but the company employs fewer than 1,000 staff. “People are being let off every month,” said a Flipkart employee who was sacked in April. Most of the layoffs are from the supply chain, logistics and call centre teams. Flipkart did not reply to emails seeking its comments. A spokesman said asking “non-performers,” or the 10% of employees with the lowest ratings, to resign is a general practice during the annual appraisal process. Jabong's co-founder Praveen Sinha, however, admitted to sacking only 20 employees, so far. Both companies said they continue to hire, but industry executives who spoke on condition of anonymity said it is for the first time that e-commerce firms are sacking staff in such numbers. Inkfruit, an apparel portal acquired by web retailer Zovi.com last year, has also asked several employees to leave. The retrenchment in India's online retail sector is a consequence of the drive by companies for acquisition of customers at a breakneck pace. Gross margins at many online retailers are in the negative territory.

• Here’s the Good News: Inflation Loses Its Bite: Headline inflation fell to its lowest level in more than three years in April, raising hopes that despite the massive rise in trade deficit last month, the Reserve Bank of India will cut rates again in mid-June to revive the economy that is growing at its slowest in a decade. Annual inflation based on the wholesale price index (WPI) came in at 4.89% in April, well below the consensus forecast of 5.5% and 5.96% in March, data released on Tuesday showed. This is the first time since November 2009 that wholesale inflation has dropped below the crucial 5% mark, the level RBI says it is comfortable with. The decline triggered a rally in bond and stocks and the rupee strengthened. Inflation for February was revised upwards to 7.3% from 6.8% estimated initially. Data released on Monday had shown a similarly sharp decline in consumer inflation to 9.39%. Core inflation (nonfood inflation), a measure of demand pressure that RBI monitors, dropped to 2.8% in April, the lowest since January 2010, from 3.5% in March. The finance ministry felt the case for a rate cut was now stronger. “I think we need to look at the statement made by the RBI governor during the last policy review, where he had stated that RBI is closely monitoring inflation figures and if there is a dramatic change, then RBI will take that into consideration during its next review,” Department of Economic Affairs Secretary Arvind Mayaram said. “So, we do believe that RBI would look at this figure,” he said. In its May 3 policy review, RBI said there was little room to cut rates further, even as it lowered repo rate by 25 basis points to 7.25%. Abheek Barua, chief economist of HDFC Bank, feels RBI can be a little more aggressive in cutting rates given that core inflation is down sharply.

• Kumar Birla, Family to Invest 525 cr for Retail Ramp-up: Aditya Birla Group chairman Kumar Mangalam Birla plans to invest 525 crore in the group’s retail arm and raise its borrowing limit by 2,500 crore to ramp up its food and grocery business. Aditya Birla Retail (ABRL) has decided to issue optional convertible bonds to RKN Retail, promoted by Birla, his family and some closely held companies of the family, an official said. “To meet the growth plans in its existing formats, ABRL has raised funds from its promoter group company and also passed an enabling resolution to raise debt finance for the same purpose,” Pranab Barua, business director, apparel & retail business, at the Aditya Birla Group, said. The third largest supermarket chain in the country after Future Group and Reliance Retail has decided to increase its borrowing limit to 7,500 crore from 5,000 crore. The firm plans to open 100 supermarkets and 6-8 hypermarkets this fiscal year. RKN Retail, which was incorporated in November last year, acts as a channel of investment in Aditya Birla Retail, which is a subsidiary of Aditya Birla group firm Kanishtha Finance and Investment. RKN Retail is promoted by Kumar Mangalam Birla, his family and the family’s closely held companies ABG Realty and Infrastructure Company, BGFL Corporate Finance and Infocyber India. Aditya Birla Retail has accumulated losses of 2,984 crore since it entered the segment over six years ago. But the firm’s recent strategy of focusing on profitable markets has helped it cut losses, say experts. “Birla’s strategy of shutting down several unviable stores or rightsizing them and focussing only in profitable markets seems to be paying off with losses expected to come down substantially,” said Ruchi Sally, director at Elargir Solutions, a boutique retail consultancy firm. Aditya Birla Retail’s Barua, who came into the company in 2007 after it acquired Trinethra Retail, said the company plans to experiment with store sizes in the supermarket business model. “For FY13-14, we are looking at around 10% like to like growth in overall business,” said Barua, a former Reckitt & Benckiser MD. At present, the firm has more than 500 ‘More’ branded supermarkets and 14 hypermarkets. In the year ended March 2012, it reported sales of 1,966 crore and net loss of 650 crore. Big retailers in India have been accumulating losses, mainly because they have been on an expansion spree. An overall slowdown, rising interest rates, delay in realty projects, cash crunch and debt trap forced several retailers to shut shops and defer expansion since 2009. This made most retailers cut costs aggressively and focus on store-level profitability and supply chain issues. Experts say this has helped many retailers turn profitable at the store level despite the gestation period being long in retail, particularly in food and grocery business.

• M&S May Have to Seek Nod Under Multi-brand Retail Policy: UK clothing chain Marks & Spencer may have to seek approval under the multi-brand retail policy to continue to do business in India as its current business model of selling sub-brands does not seem to meet the country’s single brand retail policy. “There is no legal term as a sub-brand, and hence it is equivalent to multi-brand,” a department of industrial policy and promotion (DIPP) official told ET. The finance ministry has already written to DIPP to clarify if Marks & Spencer’s practice of selling sub-brands was in conformity with the FDI policy, the person said. “If they are selling multi-brands they will have to apply for multi-brand licence.” ET last week reported that Marks & Spencer India, a 51:49 joint venture between the 129-year-old British retailer and Mukesh Ambani-led Reliance Retail, is under scrutiny for FDI policy violation. An M&S spokesperson, however, said the company has not yet heard from the department. “As we have yet to receive any letters from the DIPP, it would be inappropriate for us to comment,” the spokesperson said. M&S has a range of sub-brands like Limited Collection, Autograph, Collezione, North Coast, Blue Harbour, Savile Row Inspired and Indigo Collection apart from the main M&S brand in its stores in the country. M&S entered India in 2008, and since then has opened 29 stores across the country. The current policy says products to be sold should be of a ‘single brand’ only, implying that multiple brands owned by the same firm can neither be sold under one roof nor sold by the same entity. Legal experts say the intent of the policy on sub-brands is clear, but it needs clarity. “Going by the letter of intent, what DIPP is saying is right. Sub-brands are not allowed. But there needs to be clarity on it,” said Diljeet Titus, partner at law firm Titus and Co, who handled Swedish retailer IKEA’s entry into the country. Hardeep Sachdeva, equity partner at AZB & Partners, too said, “The single-brand FDI policy allows single brand and not a single owner of multiple brands, like in the case of M&S.” Abhimanyu Bhandari, managing partner at Axon Partners, however, said that asking M&S to reapply through the multi-brand route will be wrong. “Marks & Spencer is a single brand player, whereas the multibrand route is very onerous, which will deter investors to come to India,” he said. The multi-brand policy imposes many conditions on the retailer, including a certain minimum investment in the back end. Besides, many states have still not opened their doors to multi-brand retailers. M&S had recently told ET that under its single brand licence in India it only sells M&S products including the sub-brands only available to buy at M&S outlets. India has made several changes to the single brand policy after it decided in November 2011 to raise FDI limit to 100% from 51% after retailers keen to invest in India raised objections. The Foreign Investment Promotion Board, the interministerial body that approves FDI proposals in the country, has received 63 proposals from single brand retailers since January 2002, when the sector was first opened.

• LinkedIn Users Base Tops 20 M Mark in India: LinkedIn, the world's largest professional networking site, has over 20 million users in India, within four years of launching its operations in the country. In the past 12 months, the Mountain View, California-based firm has added five million users here. “This is a very significant number. Social for the sake of social is just noise. You need to build a strong user case,” said Nishant Rao, country manager at LinkedIn India. “We want to engage in conversations with our members and target them better.” LinkedIn has launched a series of new products to simplify user experience and stepped on the gas with its premium offerings, which account for a fifth of the firm's sales globally. Like its peers in the social networking space, Rao admits the firm is walking a fine between the breathless hunt for new users and giving them new and improved features to utilise. India already provides the second largest user base for LinkedIn, ahead of markets such as the United Kingdom, Brazil and behind only the US, where the site has around 73 million users. India, with around 100 million internet users is a compelling market for internet networking firms such as LinkedIn, Facebook and Twitter.

• AI’s Dreamliners to fly from today: Grounded since mid-January, the Boeing 787 Dreamliners of Air India will again take to the skies from Wednesday. The US aircraft major has carried out changes in two of the six Dreamliners and AI will deploy them on domestic flights between the hub Delhi to Bangalore and Kolkata. International flights will start from next Wednesday. Making this announcement on Tuesday, aviation minister Ajit Singh said Boeing will rectify all the six Dreamliners in AI fleet by the month-end and the airline will get eight more B-787s by this December on which new flights will be launched. “AI will start flights on the Dreamliner to Birmingham, Sydney and Melbourne in August. In October, it will start flights to Italy (Rome and Milan). And, early next year will see flights to Moscow. These flights will be to and from Delhi,” Singh said. AI will get compensation from Boeing for the B-787s’ January-May grounding. The Dreamliners’ return to the sky has given hope to AI as the airline’s turnaround rests mainly on this fuel-efficient plane. “AI’s performance has improved a lot. Revenue in 2012-13 rose 9.6% to Rs 16,130 crore from previous fiscal. Passenger carriage has gone up. Loss in 2012-13 is down by about Rs 2,261 crore from previous fiscal’s loss of Rs 7,560 crore,” Singh said. The minister projected that AI will cut costs by Rs 2,000 crore in the current fiscal. It aims to raise Rs 1,000 crore this fiscal by monetizing assets in Delhi, Mumbai, Chennai and Coimbatore. A new contract with oil PSUs is expected to lead to a saving of Rs 500 crore annually. “In the fiscal 2013-14, losses will fall from Rs 5,198 crore (past fiscal) to Rs 3,989 crore,” Singh said. The airline will now be a ‘hybrid’ of both low cost and full service carriers. “We will adopt the best practices of both the models. We are yet to decide what all things should we charge for,” CMD of AI Rohit Nandan said.

• BBM coming to Android devices, iPhones soon: BlackBerry on Tuesday announced that BBM (BlackBerry Messenger), one of the most-used features on the company’s phones, would be available on Android devices and iPhones in the coming months. The BBM app for iPhones and Android devices will be available for free. “It’s time to bring BBM to a greater audience no matter what mobile device they carry,” said BlackBerry CEO Thorsten Heins at BlackBerry Live, the company’s event in the US. BBM, one of the key features that helped make BlackBerry phones popular, has lost its charm in the recent years due to its lack of support for iPhones and Androids. Instead, services like WhatsApp and Nimbuzz that run on almost all available smartphone platforms have become more popular. The Canadian company also announced a new BlackBerry Phone — Q5 — at the event. It is powered by BB10, the company’s new operating system, and has a touchscreen along with a physical keyboard. It is a more affordable phone compared to Z10 and Q10 and is primarily intended for developing countries like India. In the initial release, iOS and Android users will be able to use BBM for chats, including multi-person chats, as well as the to share photos and voice notes, and engage in BBM Groups, which allows BBM customers to create groups of up to 30 people. On Android, BBM will be available on all devices running Android 4.0 aka Ice Cream Sandwich or newer version of the OS.

International:

• Australia forecasts budget deficit: The Australian government is forecasting a deficit for its current financial year, despite promising a surplus a year ago. Unveiling his budget, Treasurer Wayne Swan said the deficit would be 19.4bn Australian dollars (£12.6bn; $19.2bn). Much of the shortfall is due to a slowdown in the mining boom, which has sustained the economy in recent years. Mr Swan also announced increased spending on defence and foreign aid. The budget predicted a smaller deficit next year and a return to surplus in 2015. Australia's central bank predicted economic growth of 2.5% for 2013.

• EU probes global oil price rigging: European officials have begun investigating several big oil companies including Shell, BP and Norway's Statoil over suspected attempts to manipulate global oil prices for more than a decade. The European Commission said anti-trust officials had carried out unannounced inspections in three European countries on Tuesday. "The commission has concerns that the companies may have colluded in reporting distorted prices to a price reporting agency to manipulate the published prices for a number of oil and biofuel products," it said in a statement. The probe concerns price reporting at Platts, the market leader in oil benchmarks and a unit of McGraw Hill. The company confirmed it had been visited by European officials and said it was cooperating fully with the review. Oil prices assessed and published by Platts and rival agencies such as Argus Media andReed Elsevier's (ENL) ICIS unit serve as benchmarks for physical oil and derivatives contracts worth billions of dollars. Regulators have been looking ever more closely at financial benchmarks since the Libor scandal in which banks around the world tried to rig interest rates. The G20 commissioned a report last year that found oil prices were vulnerable to Libor-like manipulation. Just last month, the U.S. Commodities and Futures Trading Commission began probing a key index for interest rate swaps, managed by London-based broker ICAP.

• Vertu Names Chief Operating Officer: British luxury mobile phone company Vertu has tapped Jonathan Sinclair as chief operating officer. Sinclair will oversee all company operations, reporting directly to chief executive officer Perry Oosting, who had until recently also been covering the chief operating officer role. “Jonathan is an expert leader and a charismatic personality, who has always obtained extraordinary results with numerous high-end brands,” said Oosting. “His deep experience in the private equity sector combined with his excellent career in luxury make him the ideal candidate for this role.” Sinclair was formerly general director and chief operating officer at Jimmy Choo, and had also worked for Pentland Brands plc and The Boots Company plc. “Over the past ten years, Vertu has seen extraordinary growth,” said Sinclair, adding: “It’s an important moment to join this company, and I’m enthusiastic to have the opportunity to take a leading role in the development and implementation of the company’s strategy.” Vertu phones are available at roughly 500 stores, including 70 Vertu boutiques, in 66 countries worldwide. Significant expansion in Europe, the U.S. and Asia is underway, and by the end of 2013, Vertu will have opened an additional 49 sales points, 26 of them monobrand.

• Tod's Profits, Sales Fall: A strong performance in China and the Americas couldn’t offset a drop in revenues in Italy, driving profits and sales at Tod’s SpA down in the first quarter ended March 31. The luxury goods company said Tuesday that operating profits in the three-month period fell 6.8 percent to 53.4 million euros, or $70.5 million, and earnings before interest, taxes, depreciation and amortization were down 4.6 percent to 63.6 million euros, or $84 million. The group does not release net profit figures on a quarterly basis. Revenues of 253.5 million euros, or $334.6 million, represented a 3.7 percent decrease compared with 263.2 million euros, or $344.8 million, in the same period last year. Dollar amounts have been converted at average exchange rates for the periods to which they refer.

• Nordstrom Online Sales on a Roll: Nordstrom’s online business is booming. It took only 12 years for the e-commerce business of the Seattle-based retailer to exceed $1 billion, a milestone that took the company 84 years to reach, according to Enrique Hernandez Jr., chairman of Nordstrom Inc. That growth is six times the rate of the company’s average growth over the course of its history, Hernandez told attendees at the company’s annual meeting in Seattle on Tuesday. In addition to its full-line stores and the Rack off-price division, Nordstrom’s online presence includes HauteLook, a flash-sale site that it acquired in 2011. Hernandez said that component of the e-commerce business is “a very important part of our future.” Another key component to the company’s future growth is its planned entry into the New York City market, he said. Last June, Nordstrom confirmed that it would open a full-line store in 2017 or 2018 at 225 West 57th Street, between Broadway and Seventh Avenue near Columbus Circle. Hernandez said the 285,000-square-foot, seven-story store will be the first upscale department store to enter the market since the Great Depression. In addition, Nordstrom is also preparing to make its first foray out of the U.S. by entering Canada with a mix of full-line and Rack stores that will “rival the highest presence Canadian stores,” Hernandez said. The plan, he said is to open “a couple dozen stores” in that country. In answer to a shareholder’s question about expanding into other international markets such as Brazil, Blake Nordstrom, president, responded: “Until not long ago, we weren’t entertaining ideas for international growth.” But the proximity of Canada to its home base in Seattle and the fact that the company has 15,000 credit card customers in that country prompted it to take the plunge. “If we do that right, it may open doors to other countries,” he said, adding that if it happens, it will be after New York City opens, around 2020. Hernandez recapped some of the company’s successes this year, noting that men’s wear, cosmetics and direct sales all crossed the $1 billion mark in 2012, while sales at Rack stores and in shoes exceeded $2 billion. Nordstrom’s overall volume in 2012 was $11.8 billion. At the meeting, the retailer singled out two vendors for its Partners in Excellence awards, Sam Edelman and Vince Camuto. Nordstrom will release first-quarter earnings on Thursday.