News As We Read- 16th May'13

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Following made the Headlines:

India:

• Empty Malls Reflect the Hollowness of India Story: Malls were supposed to be the symbols of prosperity in India’s ‘boomtowns’. Instead they have turned out to be edifices of gloom. Notwithstanding their bright facade, these half-empty buildings in smaller towns reveal the other side of the India story, as vacancy levels rise and consumption remains low. “The bubble has burst,” says economist Bibek Debroy. “There has been excess capacity in smaller towns and not so much demand. These boomtowns haven't seen a huge consumption story yet and salary levels too haven’t increased the way they were expected to,” he says. Vacancy levels in malls across the country are growing at an alarming rate, says property consultancy Jones Lang LaSalle. In smaller towns, over a third of the space is unoccupied, as against just 7% in 2007. Supply of retail space has increased dramatically, but demand from retailers and overall consumption have dropped. “Many developers overestimated the appetite for retail in these small towns. They did not realise that the consumption threshold here was low,” says Ashutosh Limaye, head of research at Jones Lang LaSalle. The slowdown in the economy and lack of disposable income in the hands of the youth of these smaller urban centres have taken their toll. Take the case of Amravati in Maharashtra’s Vidarbha area, where every evening the town’s youngsters gather around a couple of glitzy malls. But, says Saurabh Keshwani, the owner of Amrawati’s J&D Mall: “They just do not spend …like the folks in big cities.” Nearly 40% of the space in his mall lies vacant and he is considering leasing space to offices and banks. “It isn’t easy closing leasing deals with retailers these days. The retail boom did not happen the way we expected,” he adds. Some 350 km away, in Aurangabad, the story is no different. The Prozone CSC mall has been in operation for over two years but a fourth of it still lies unoccupied, even though Jaguar Land Rover recently opened a showroom there. “International brands are still being cautious about coming to tier II and III cities,” says Monil Gheewala, general manager, business development, at Prozone Enterprises. According to Rajesh Shukla, founder director of NCAER Centre for Macro Consumer Research, the youth account for 60% of mall consumption.

• He’s a Model CEO for AirAsia: Doing the Catwalk to Corner Room: To those who don’t know him, Mittu Chandilya is a young rookie plucked out of thin air by Tony Fernandes to pilot AirAsia in India. But those familiar with the 32-year-old say the Malaysian entrepreneur of Indian origin is placing his trust in a confident and surefooted young man. Chandilya, who has MBA degrees from INSEAD in France and Singapore and from Tsinghua University in Beijing, went to school in India but has never worked in the country or with any airline before. A part-time model, he was most recently the head of services practice for Asia-Pacific at executive search firm Egon Zehnder. His previous work experience has included a stint at Ingersoll and a startup that he founded. He takes over as CEO on June 1. However, his friends at Rishi Valley school in Andhra Pradesh — he studied there till Class X and was a year junior to BJP leader Varun Gandhi — are convinced that his inexperience in the sector will not hold him back. “He is very focussed when he is sure about what he wants to achieve,” said Aditya Challa, director at Jungle Beer in Singapore, who was Chandilya’s roommate at Rishi Valley’s ‘Neem’ hostel and still meets him regularly. “Another thing about him is that he is extremely professional.” His Rishi Valley friends recall Chandilya contributing poems to a singlepage dormitory newspaper.

• We are Ready to Wait for Years for Perfect Locations: IKEA India CEO: After patiently waiting for almost a year for the government to clear its application to open stores in India, Swedish retail giant IKEA Group now says it is prepared to wait for years altogether to find the right locations — with metro connectivity and highway as preconditions — to roll out its global standard stores here. “An Ideal location for us would be 10 acres space (it could be between 5-15 acres), close to a highway with good visibility so it is not three kilometers inside and with public transport infrastructure,” Juvencio Maeztu, IKEA’s India chief executive, tells ET. “When I talk of public transport, in India it has to be metro connectivity because you can have a bus stop and if you are struck in the traffic for two hours then you are not properly accessible,” he adds. “We are looking to cater to the real middle class in India.” Analysts say it would be easier said than done for IKEA to find locations with those parameters. “Clearly real estate is the biggest difficulty for any retailer in India, and with the stringent conditions laid by IKEA it becomes even more difficult,” Shubhranshu Pani, managing director for retail at consultancy firm Jones Lang LaSalle, says. But IKEA is prepared to wait for a longer haul in its pursuit for the right space, Maeztu says. “We will never compromise on a good location. So even if it takes five years to locate a place it is no problem. The future is much more important for us than 1-2 years,” he says. IKEA has already outlined its long-term approach in India by proposing to open 10 stores in the country in the next 10 years of operation followed by 15 additional outlets in the second phase with a total investment of 10,500 crore, according to its application with the Foreign Investment Promotion Board (FIPB). Maeztu says the company would make the whole investments in India from its internal accruals and, therefore, is not answerable to investors and banks. “My job or my salary does not depend on how quickly I open stores. We try to do it right on a long-term basis. We don’t depend on banks or on investors and we don’t need to show (quick results) to our investors or banks.” IKEA plans to talk with different authorities in different states to secure the ideal land for its stores, he says. Pani of Jones Lang LaSalle says IKEA can “leverage” its access with the government because the Centre is keen to promote FDI in retail.

• Bharti Loses to Voda, Idea in Customer Nos: Vodafone and Idea Cellular added more customers in April relegating Bharti Airtel, India’s leading mobile phone company by revenue and customers, to the third spot, according to the latest subscriber growth numbers by the Cellular Operators Association of India, the industry body representing GSM operators. Vodafone’s Indian unit added over 1.4 million customers last month, more than double the 0.6 million that Airtel mustered. Idea also stole a march over the Sunil Mittal-promoted telco, adding over 1.3 million subscribers last month. Bulk of the GSM market expansion took place in category B & C circles. Bharti Airtel did not reply to ET’s specific query on why the company lost out to Vodafone India and Idea in terms of net customer addition last month.  Vodafone recently overtook Bharti to become India’s leading mobile phone company in rural India, having added 4.9 million rural customers in February and March, compared with 2.6 million added by Airtel in the same period. Executives at Vodafone India recently attributed its successful rural expansion strategy to a customised distribution model aimed at shoring up sales in rural pockets. Like Vodafone, Idea too has maximised customer growth in rural and semi-urban zones across category B & C circles. Company executives in fact, claimed that two out of every three new customers come from rural India, which had induced the telco to push 3G data services in the agricultural heartlands villages. Idea, in fact, has over 22 million data users, a majority of whom reside in rural and semiurban pockets. Though Bharti Airtel remains India’s biggest mobile operator, its market share has shrunk marginally from 28.5% in March 2013 to 28.4% in April. Vodafone and Idea, on the contrary, have increased market share, buoyed by last month’s customer additions. Vodafone, Bharti Airtel and Idea Cellular that account for nearly 67% of the telecom sector’s revenues, collectively added 3.3 million customers last month. But latest COAI data reveals GSM operators across India added 3.5 million customers in April, which is a tad below the 5.4 million additions in March. COAI director general Rajan Mathews attributed the phenomenon to the fact that “bulk of the new GSM activations transpired in category B & C circles, which are typically harder to penetrate”.

• Eureka Forbes to acquire Swiss co: Eureka Forbes, a Shapoorji Pallonji Group company, is acquiring Lux International, a Switzerland-based home appliance firm with a 100-year history, marking the group’s first overseas acquisition. This comes within a short period of the construction conglomerate seeing a leadership change with Shapoor Mistry becoming the chairman. On Wednesday, the $2.5 billion group’s consumer durable arm, without disclosing any financial details, said that it would acquire the $200 million Lux, which developed the world’s first household canister vacuum cleaner, by buying a majority stake in the company. The deal has the potential to make Eureka Forbes the world’s largest home products direct sales company. Even though the group has built its business outside India—construction in Middle East and an agri business in Ethiopia—this is perhaps the first time it is acquiring an overseas asset. The transaction in Lux will give Eureka Forbes a premium product portfolio, access to Europe, Africa and Latin American markets and also boost its revenues. Along with Lux, it would operate in about 40 countries through over 25,000 employees.  Sources said that there are two layers to the deal. The SP Group will immediately take a 100% stake in Lux and after that its plans to consolidate the Indian and Switzerland direct selling businesses under one entity. The group will have a controlling interest in the holding company with Lux’s promoter family holding a minority stake. The legalities of the structure are currently being worked out, they added. The Indian enterprise is being advised by KPMG while law firm Blum & Partner of Switzerland is aiding Lux. Eureka Forbes, the makers of Aquaguard water purifier and Euroclean vacuum cleaner, isn’t new to Lux. Mistry and the Swiss firm’s main promoter, Reinhard von der Becke, has been sharing a business relationship for seven years. Eureka Forbes floated an equal joint venture with Lux in 2006 to cater to the Asian (excluding India) and Middle East countries. Both the businessmen also have another interesting facet that connects the two: in 1999, Reinhard bought Lux from Electrolux, and Mistry acquired Eureka Forbes from the Swedish multinational in 2002. “We share a close partnership with Lux International and the von der Becke family, and have similar values and a long relationship of many years. Thus, both companies should enjoy significant synergies from this proposed transaction,” said Mistry, who succeeded his father Pallonji Mistry as the chairman of the 148-year-old SP Group. Mistry’s younger brother, Cyrus, heads the $100-billion Tata Group, in which he also has a stake. Tata Group is a competitor to Eureka Forbes in the water purifier business. “Joining forces with Eureka Forbes was a carefully considered decision,” said Lux International chairman Reinhard von der Becke. “Having worked together for close to a decade, it is a tried, tested and trusted relationship. So we are very positive and full of expectation for the future,” he said. The Eureka Forbes-Lux deal is part of Mistry’s strategy to focus on new-age businesses to increase revenues for the group, which currently earns over 60% from construction and real estate businesses.

• Honda plans single- brand retail stores to sell all its products under one roof: Two- wheeler major Honda Motorcycle & Scooter India (HMSI), a 100 per cent subsidiary of Japan’s Honda Motor Company, looks set to spark a new trend among auto firms by opening its own exclusive retail stores to sell its products. It has sought the permission of the Foreign Investment Promotion Board (FIPB) to start single- brand retail outlets. The products to be sold at these outlets would range from high- end imported motorcycles and all- terrain vehicles ( ATVs) to specialised side- by- side vehicles ( small ones designed for off- road use), spare parts, accessories and even Honda branded merchandise. At present, the industry practice is that foreign automobile companies sell their vehicles, as well as spare parts, through franchises. However, HMSI, justifying its strategy to roll out company- owned singlebrand retail outlets, has said in its application that it would give “better visibility to our brand Honda in India which will help ensure access to the advantages of cutting- edge technology, world- class products and services to the Indian two- wheeler industry, resulting in competitive pricing for products and services”. The firm has identified the products it wants to bring through these stores. For instance, it wants to introduce two all- terrain vehicles — TRX 250 TE (priced between ₹ 2 lakh and ₹ 2.5 lakh) and TRX 420 FA. Besides, two side- by- side vehicles — Pioneer 700 and MUV 700 — could also be introduced in the Indian market. HMSI has also sought permission to sell over 28 categories of Honda- branded merchandise. These include mugs, pen drives, key chains, t- shirts, wall clocks, wallets, riding boots and body protectors. These sales outlets would also purchase and sell spare parts and accessories for its entire range of vehicles. The spare parts and accessories for two- wheelers manufactured in India would be procured from Indian suppliers, while those for imported products would be sourced from overseas facilities. Since the value of spare parts, accessories, apparel and merchandise sourced from domestic vendors would be significant, the mandatory local sourcing condition in trading of spares, accessories and merchandise would also be met, the company said in its proposal. Under the existing FDI policy, a single- brand retail company with foreign investment must source 30 per cent goods from India, preferable from micro, small & medium enterprises. Honda has sought a waiver on this, saying it would not be possible to procure high- end technology from Indian suppliers for ATVs, high- end bikes and side- by side vehicles. The company is likely to get the permission, since the turnover of these vehicles is likely to be less than one per cent of HMSI’s total manufacturing turnover.

• Heineken UK picks up 3.21% stake in United Breweries: Vijay Mallya-led United Breweries today said Heineken UK Ltd has acquired a 3.21 per cent stake in the company. United Breweries allotted over 84.89 lakh shares, representing 3.21 per cent, to Heineken UK Ltd — a shareholder of Scottish & Newcastle India Pvt Ltd (SNIPL), according to a regulatory filing to the BSE. The acquisition is pursuant to the amalgamation of Scottish & Newcastle India with United Breweries, whereby SNIPL would cease to exist. According to the scheme of amalgamation which came into effect from April 18, SNIPL ceased to hold 3.21 per cent in United Breweries. Specific financial details were not disclosed. These shares were allotted on May 13 and based on that day’s closing price of Rs 748.10 per share, the 3.21 per cent stake would be worth about Rs 635 crore. Heineken UK is part of global liquor maker Heineken. Shares of United Breweries jumped 3.62 per cent to Rs 768 in late afternoon trading on BSE.

International:

• Eurozone recession continues into sixth quarter: The recession across the 17-nation eurozone has continued into a sixth quarter, figures show. The bloc's economy shrank by 0.2% between January and March, according to official figures. That left the region's economy 1% smaller for the period compared with a year ago. Individual data for member countries showed nine were in recession, although Germany recorded weak growth of 0.1% in the period. The figure marks the longest recession since the euro was launched in 1999. It was worse than the 0.1% fall expected by economists, although gross domestic product (GDP) numbers, like other economic statistics, are subject to revisions.

• Amazon UK paid £2.4m tax on £4bn sales last year: Amazon's UK subsidiary paid £2.4m in corporate taxes last year on sales of £4.3bn - a rate of less than 0.1% - the online retailer's accounts show. The tax bill was almost as much as the £2.5m in government grants Amazon received over the same period, according to a Companies House filing. The taxes are relatively low compared to sales because the company earns its profits in Luxembourg. Labour MP Nick Smith described Amazon's tax contribution as "pathetic". But Amazon has always insisted that it pays all required taxes in every jurisdiction that it operates in. Revelations about the tax arrangements of companies including Amazon, Google and Starbucks have sparked a debate about tax avoidance in the UK. Matt Brittin, head of Google's northern European operations, is expected to be questioned by MPs later on Thursday over the company's tax affairs.

• Walmart outlines own Bangladesh safety plans: Walmart, the world's largest retailer, will conduct its own safety inspections at its Bangladesh factories instead of joining an accord with other retailers. More than 1,100 people died when the nine-storey Rana Plaza building in Bangladesh collapsed on 24 April. Labour groups have since drawn up an industry-wide pact to improve fire and building safety conditions. But Walmart, along with several other US retailers, said it would not participate. Walmart plans to perform its own inspections at its 279 factories, saying that will yield faster results. The company also said every worker would be provided with fire safety training. More than a dozen European companies, including discount clothing company Primark and UK supermarket chain Tesco, have signed up to the legally binding "Accord on Fire and Building Safety in Bangladesh". European non-governmental organisations IndustriALL and UNI Global Union, which had drafted the agreement, had set a deadline of 15 May.

• US Retail Stocks, E-commerce Gain Ground: Retail stocks and e-commerce sales are continuing to set new records. Shares of retailers pressed on to new highs on Wall Street today as the market rally rolled on. And the Commerce Department said e-commerce made up 5.5 percent of all U.S. retail sales in the first quarter, a record and up from a 5.4 percent share in the fourth quarter. Seasonally adjusted e-commerce sales increased 15.2 percent to $61.17 billion versus a year earlier, while total retail sales, including e-commerce, inched up just 3.7 percent to $1.12 trillion. “E-commerce retail sales continue to gain share and seem relatively impervious to the recent ups and downs of brick-and-mortar sales and consumer mood,” said Chris Christopher, director of consumer economics at IHS Global Insight. “The two main retail shopping seasons — holiday and back-to-school season — are increasingly being influenced by cyber space. We expect e-commerce retail sales to increase around 15 percent in 2013, and continue to make significant inroads in the traditional retail business model.” Retailers are acutely aware of the importance of e-commerce and are trying to integrate clicks into their brick and mortar businesses with an omni-channel approach. The emphasis on the Web is providing crucial growth for many retailers, which stores in turn point to while trying to draw investors. With some signs of life in the employment market and low interest hurting bond returns, investors are looking for somewhere to put their money and driving up retail and other stocks. The S&P 500 Retailing Industry Group rose 0.8 percent, or 5.94 points, to 794.20, today as the Dow Jones Industrial Average increased 0.4 percent, or 60.44 points, to 15,275.69. Both indices closed at record highs. The day’s fashion industry gainers included Aéropostale Inc., up 4.2 percent to $16.02; Quiksilver Inc., up 3.8 percent to $7.69, and Macy's Inc., which gained 2.5 percent to $48.57after the company posted gains in first-quarter sales and earnings.

• E-commerce Site Cavan.com Launches: Cavan Mahony, who owns the franchise for Missoni in the U.K. and Spain, has launched Cavan.com, an e-commerce site with an exclusive offer, a personal styling service, and an editorial feel. The target customer is the sophisticated woman, over 30, who wants her current wardrobe to workharder for her, and the emphasis is on style rather than on the latest trends. “She’s not necessarily trend-driven, but she wants to look stylish,” said Mahony. “We offer a boutique experience with exclusive — or not widely — distributed products, a high level of service and a personal touch.” There is plenty of Missoni clothing on the site, alongside labels such as Vicedomini, Melissa Odabash, Paige Denim, Bella Freud, and Andrew Gn. Jewelry, accessories, and footwear brands include Aamaya by Priyanka, Dinny Hall, Jenny Packham, a Piedi, and By Larin. There is also a“Style Me” service where a user can upload a photo of an item of clothing and Cavan.com’s team will recommend ways to wear it, and suggest items from the Web site that will work with the piece. “We’ve found that people are so busy with their millions of activities: Dropping kids at school, travelling to hot or cold climates. They want to look like themselves and look appropriate,” Mahony said. “We want to instill confidence by having as much close communications as possible, and encourage people to tell us what they need.” Mahoney said there is a need for a multibrand Web site that can put clothing and accessories into context and offer guidance to women who are not necessarily thinking about fashion 24 hours a day, but who still want to look good.