Daily News Digest- 14th July'14

Thought of the Day:

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Following made the Headlines:

India:

• MNCs Making Stuff Here can Flog it on Net: Foreign companies that have entered India as manufacturers will be allowed to engage in ecommerce even if they source products from third-party producers in the country, allowing brands such as Samsung, LG, Panasonic and Lenovo to sell directly online to customers. But overseas firms that arrived in India as retailers will not be allowed to do so by merely sourcing products within the country. This means Marks & Spencer and furniture maker Ikea, among others, which came in as single brand retailers, will not be allowed to sell online in India. “If an entity has come into the country as a manufacturer, then it can do e-commerce even if it is sourcing from third-party vendors. But traders cannot set up ecommerce platforms,“ a senior finance ministry official told ET. Finance Minister Arun Jaitley said in his budget speech on July 10 that foreign direct investment (FDI) in the manufacturing sector was in the automatic approval list and these units would be allowed to sell their products through retail, including e-commerce platforms, without any additional clearance from the government. Hence, Apple and Sony, which are also interested in a direct retail presence in India, cannot set up their own venture since they source products from China, Thailand and Malaysia. Sony has been exploring the possibility of setting up a manufacturing plant in India. That could get expedited with the budget announcement proposal, a senior industry executive said. For electronics firms that have already invested a few thousand crores of rupees in India such as Lenovo, Samsung and Panasonic, the development is a welcome one. They currently run e-commerce ventures and exclusive retail stores through franchisees in India. “It is an interesting development since at present we are not able to fully utilise the potential of e-commerce,“ said Lenovo India Managing Director Amar Babu. He said the company is studying the proposal at length. “We can showcase our products which are manufactured in India, such as laptops and desktops, with full details,“ he said. Panasonic India Managing Director Manish Sharma also hailed the development. “We are studying the fine print. If the government indeed is providing the flexibility to manufacturers to sell through e-commerce in India, it will open up myriad opportunities and more margin for us to expand further,“ he said.

• India Glued to Rio & Hooked to Deo: Aira Sensual, Men Club, Lady Diana, Dynamite -if you smell something funny in these brand names, you are likely a typical metro resident and therefore a stranger to one aspect of an FMCG revolution. Small-town, low-end brands like Diana, Dynamite and scores of others have joined big city , high-end brands like Axe, Engage, Fogg and their ilk to revolutionise the deodorant business in India. Consider the numbers -a staggering 986 varieties of deos (from 500 brands) are sold across markets, with as many as 103 recent launches. Between 2009 and 2014, the market size of deos jumped from 2,300 crore. The deo 500 crore to ` market is growing at around 18% annually, and the growth in rural markets that account for a tenth of deo sales, is 29%. Sales pitches have changed and 31% of the market is accounted for by women's deodorants. While longer, hotter summers may be a deo-maker's best friend, deo-maker's best friend, the fact is deos used to be a marginal business in India. It's only recently a substantial number of Indians have accepted the marketer's pitch about smelling good. “The smell culture is “The smell culture is evolving. Deodorants are taking the place of talcum powder just the way tooth paste displaced tooth powder a long time ago,“ says brand expert Harish Bijoor. “Low income families are taking to deos as well,“ he added. Little wonder then the deodorant market is seeing brands emerging as if they are being sprayed out of an aerosol can, and the winners are not always predictable. At the higher end, ITC's Engage, available now in 14 variants, have become the second largest player by volume. But the even more smell-good story is that of the largest player, Fogg, marketed by FMCG minnow Vini Cosmetics. FMGC major HUL's popular deo brand Axe was beaten by Fogg last October and then ITC's Engage claimed the second spot. Now Wildstone, a deo from another FMCG minnow, McNROE Cosmetics, is spraying down Axe's neck, having achieved fourth place in the market. Established brands like Park Avenue, Old Spice, Nike's deos aren't the top players. Fogg enjoys a 12.5% market share followed by Engage (8.1%), Axe (6.9%) and Wild Stone (6.9%), as per Nielsen data. Deo-entrepreneurship is even more vibrant at the low end. Littleknown companies are churning out smell-good sprays for customers in smaller towns and rural areas. Here's a representative list: Agarwal Herbal Products sells Aira Sensual in Maharashtra and Gujarat, Aerol Formulations sells Tycoon in the North, Ra Lifecare's Men Club and Nandita Pharma's Dynamite are sold in the West, Monet Mar keting's Passport and Lady Diana are marketed in the North and East. They may lack the marketing sophistication ads and their of high-end brands and their market share may be small, but a total of 986 brands of deodorants obviously mean players like these smell future growth. FMCG majors also agree. A HUL spokesperson says even at the current frenetic level of growth, deodorant consumption in India is still marked by “moderate consumption and low penetration“. While majors like ITC have smelt success by smart brand differentiation ¬ Engage is a men's and women's product ¬ and distribution, low-end players rely on lower pricing and newly curious consumers. As Santosh Desai, MD at Future Brand, says: “Deodorant is a relatively new category with low entry barriers and healthy margins, enough to support new investment. Even new players can gain market share, allowing everyone to take their best shot.“ As the deodorant business starts smelling even better, expect its advertising pitches to get less ‘laddish'. Marketers say the booming category of women's deos and the fact that deos are a broader lifestyle product have forced changes in advertising strategies. One deo tagline reads “Be Interesting“. Another says, “1,000 Sprays“. Nothing `laddish' there, and these taglines almost sum India's ongoing deo revolution.

• Kumar Birla is Thinking E-tail: The $40-billion Aditya Birla Group will soon launch a project to identify opportunities in e-commerce. Prashant Gupta, who heads the chairman's office, has been made leader of a new project to prepare the groundwork for the metals-to-telecom group's foray into ecommerce, reports Sabarinath M from Mumbai.

• ITC Hotels to Get its First Five-Star Property in Goa: ITC Ltd’s hotel division may soon be able to get its first luxury property in Goa, one of India’s top tourism destinations. It’s close to acquiring the Ramada Caravela Beach Resort from Advani Hotels & Resorts at a cost of Rs 700 crore, according to people with direct knowledge of the negotiations. The 199-room, five-star deluxe hotel, which had a third of its rooms renovated in October last year, is managed by US headquartered Wyndham Worldwide. ITC declined to comment. “As a policy we refrain from commenting on speculation related to the future plans of the organization,” a spokesman of ITC said. A senior Advani Hotels executive also declined to comment. The property gives ITC the opportunity to take over a readymade hotel in a state where getting land for new projects hasn’t been easy, according to experts. ITC Hotels currently operates a mid-market facility under the Fortune brand in the state and has been on the hunt for a bigger property for some time now. The Ramada property has substantial scope for expansion and is very close to the sea, making it an ideal choice for a luxury hotel operator, according to those cited above. Located on Varca beach, the resort was built in the 1990s and is one of the prominent hotels in Goa built in the Portuguese architectural style. “The property was built before there were stringent CRZ (coastal regulation zone) norms. So the hotel rooms are closer to the beach than most other hotels in Goa,” said a consultant who did not wish to be named. CRZ regulations don’t allow buildings to come up too close to the sea shore. The hotel has more than 1 lakh sq ft of additional floor space index (FSI) available, according to the FY13 annual report of Advani Hotels. This can be utilised by a potential acquirer to undertake any expansion, adding new services such as a spa or more rooms or villas and conference centres, among others. FSI refers to the ratio that determines how many floors a building can have. Goa is one of the country’s premier leisure destinations, thanks to the number of flights connecting it to various parts of the country. It got nearly 28 lakh tourists in 2013, about 24 lakh of them domestic visitors. The total is expected to cross 31 lakh this year, according to the tourism board.

• SEZ package in works to push exports: Special Economic Zones (SEZs) may have missed out on tax concessions in the Budget but the government is working on a comprehensive package for the enclaves to boost exports, investment and overall economic activity. Top government officials told TOI that the commerce department, which has been pushing for a revival of the zones, is going to make a fresh pitch for doing away with minimum alternate tax and dividend distribution tax. Unlike earlier, the finance ministry too is not rejecting the proposal right away. “It could not be included in the Budget since the government is working on a package of sorts for SEZs. We will take up the issue with the finance ministry,“ said a senior tax department officer, who did not wish to be identified. Commerce department officers said that they are discussing various possibilities with the revenue department to ensure that some of the unused infrastructure, such as schools and hospitals, are used even by those who are not part of the zones so that the investment in the facilities isn't wasted. “The customs authorities had some concerns over the duty benefits flowing out of the zone and we have suggested two-three options. Hopefully, it will be done by the time we present the Foreign Trade Policy,“ said a senior commerce department officer. The BJP government's first FTP is expected to be presented next month. In addition, the department has sought that the benefits of several schemes used by other exporters flow to those ship ping goods from units in SEZs. “After all, they are also exporting from India. So why should we discriminate against them?“ an officer said. The revenue department had in the past blocked any attempt to provide duty concessions and had even impressed upon Pranab Mukherjee to levy MAT and dividend distribution tax despite the government promising the benefits in a law specially meant for SEZs. But with a change of guard, government interest in the zones has returned. In fact, soon after taking charge, Prime Minister Narendra Modi had himself shown interest and wanted to discuss various options with the revenue and commerce secretaries.

• Monte Carlo files for initial public offer: In signs of revival in IPO space, apparel major Monte Carlo has filed its draft offer document with Sebi, becoming the second firm announcing plans to hit the primary market after the new government came to power. Resort town operator Lavasa filed its draft IPO papers with the capital markets regulator earlier this month. It was the first company to approach Sebi with IPO plans after the Narendra Modi government took charge on May 26. Lavasa is planning to raise Rs 750 crore through the initial public offer, but Monte Carlo has not yet disclosed the size of its IPO. Monte Carlo Fashions Ltd plans to sell 25 per cent stake that would comprise of sale of over 54 lakh shares by promoters and other shareholders. "Our company expects that the listing of the equity shares will enhance our visibility and brand image among our existing and potential customers and provide liquidity to the existing shareholders," Monte Carlo said in its draft red herring prospectus. Proceeds from the IPO would go to the selling shareholders. They are Jawahar Lal Oswal, Dinesh Oswal, Kamal Oswal, Kanchi Investments Ltd, Oswal Woollen Mills Ltd, Abhilash Growth Fund Pvt Ltd and Vanaik Investors Ltd. The 'Monte Carlo' brand was launched by Oswal Woollen Mills Ltd (OWML) in 1984. Effective April 2011, OWML's woollen and cotton apparel business under the brand 'Monte Carlo' was demerged into Monte Carlo Fashions Ltd. In the 2013-14 fiscal, the company raked in net profit of Rs 553.80 million on total revenues of Rs 5,188.92 million. "We have been able to increase our total revenue from fiscal 2012 to fiscal 2014 at a compound annual growth rate of 17.57 per cent and our profit after tax has increased at a compound annual growth rate of 6.47 per cent over the same period," the prospectus said. In the recent weeks, there have been sharp rallies in the secondary markets and the landslide victory by the BJP-led NDA in the general elections is widely expected to further boost investor sentiment.

International:

• Adidas to Keep Working with Luis Suarez: German sportswear maker Adidas said on Sunday that it would start using Uruguayan striker Luis Suarez again despite his four-month ban for biting a World Cup rival. “We will continue to work with Luis Suarez,“ Adidas boss Herbert Hainer told the SID sports news agency, an AFP subsidiary. “But we will talk with him and his management about what we expect of him on and off the pitch.“ Hainer called Suarez “one of the best strikers in the world“. “It's not for nothing that FC Barcelona put him under contract,“ he said.

• YouTube Eyes Funding to Boost Premium Content: YouTube has embarked on a new round of discussions with Hollywood and independent producers to fund premium content, two sources with knowledge of the talks told Reuters, a move that could bolster a three-year-old multi-million dollar effort that has had mixed success so far. Over the past two months, YouTube executives have been in talks with Hollywood producers to explore the kinds of support it could offer its content creators and produce more must-see programming, according to the two people. Executives did not lay out exactly how a program would be structured.

• Chinese PE Firm Buys Pizza Express for $1.5 billion: Pizza Express, a UK-based restaurant group with over 60 out lets in Europe, India and the Middle East, has been sold to a Chinese private equity firm for £900 million ($1.53 billion).The UK Gondola Group confirmed the sale to Hony Capital. There are 436 Pizza Express restaurants in the UK along with 68 internationally. In India, the company has four resturants, all in Mumbai. CEO Richard Hodgson said expansion in Asia was a “key part“ of future growth strategy. The sale was a “very positive development at an exciting time for the business“, he was quoted as saying by the BBC.

• Lindt Poised to Acquire US Candy Co Russell Stover: Swiss chocolate-maker Lindt is close to securing a takeover of Russell Stover, the third-largest US candy company by sales, in a deal that would shake up the country's sweettoothed consumer goods market. The two companies are in advanced discussions and could announce a deal as early as next week, according to people familiar with the matter. It is unclear if an exact price has been agreed, but a figure of close $1.4b is being discussed.

• Alibaba Raises Valuation to $130B: Alibaba Group Holding Ltd., the Chinese e-commerce giant, has increased its valuation ahead of its initial public offering. According to a filing with the Securities and Exchange Commission on Friday, the company now values itself at $130 billion, up from $117 billion in late June. Alibaba valued each share at $56, representing a $6 increase over the share price disclosed in its previous filing. The rise in share price is due to the fact that the company is granting stock compensation for its employees. The company also said it would expand its board to 11 directors from nine. Recently, the e-commerce company indicated it would list its shares on the New York Stock Exchange, and according to experts, it could raise about $20 billion in the offering. That would make the IPO one of the largest in history. Despite Friday’s revision, Alibaba’s valuation is still lower than some estimates. Observers believe the IPO could value the company at a range of $175 billion to $200 billion.

• Burberry Shareholders Reject Christopher Bailey's Pay Package: Life under the public shareholders’ microscope might be insufferable for some, but not Christopher Bailey. Shareholders rejected the Burberry chief executive and chief creative officer’s pay packet at the company’s annual general meeting after a week of negative press reports touting the vote — but that didn’t rattle Bailey a bit. “I tried not to let the press reports affect what I was doing, and I do think everything needs to be questioned — and transparent,” an upbeat Bailey told WWD following the AGM, where more than 50 percent of votes were against his new multimillion-pound pay package. The shareholders’ vote, however, was a non-binding one, which means Bailey’s pay — which could reach up to 10.3 million pounds, or $17.6 million, this year — will remain untouched. Not one shareholder complained about his package during the subdued, hour-long meeting. The 21 other resolutions, which are binding, and which include Bailey’s election as ceo and Burberry’s new, three-year remuneration policy, passed with large majorities.

• Calvin Klein Launching Capsule With Mytheresa.com: It's Déjà vu at Calvin Klein Jeans, but with a modern twist. Calvin Klein Inc., a wholly owned subsidiary of PVH Corp., and Mytheresa.com will launch a special-edition, women’s capsule called “Calvin Klein Jeans x Mytheresa.com The Re-Issue Project.” The offering will be sold exclusively on Mytheresa.com starting Wednesday. The capsule features modernized, limited-edition versions of nine of the brand’s most iconic pieces. Designed by Kevin Carrigan, global creative director of Calvin Klein platinum label, Calvin Klein Jeans and Calvin Klein Underwear, the styles have been updated with advanced fabrics and technology and will be offered in multiple colors. “For me, there is one brand which epitomizes clean American sportswear and denim — Calvin Klein Jeans,” said Justin O’Shea, buying director of Mytheresa.com, which is based in Munich. “We at Mytheresa.com have seen a huge resurgence in fashion towards the aesthetic that Calvin Klein Jeans pioneered, which led to us collaborating with the brand.” Mytheresa.com hadn’t carried Calvin Klein Jeans before. Carrigan added, “This Calvin Klein Jeans capsule is all about a nostalgia for the Nineties and that whole look feeling very right again. It now feels like the perfect time to reissue the brand’s iconic hits to a new generation.” The capsule includes logo T-shirts, logo sweatshirts, high-waist and low-rise jeans, overalls, denim shirts, jackets and high-waist shorts. Retail prices range from $106 to $416. To support the collection, the companies have hired Lottie Moss, model and half-sister of longtime Calvin Klein muse Kate Moss, who was photographed by Michael Avedon, wearing key pieces from the line. Avedon is the grandson of Richard Avedon, who shot the 1981 Calvin Klein Jeans campaign featuring Brooke Shields who uttered the famous tag line: “You want to know what comes between me and my Calvins? Nothing.” The 16-year-old Moss is signed with Storm Models. The images will appear exclusively on Mytheresa.com.

• Britain's Channel 4 TV Critical of Net-a-porter: The past few days have not been easy for British-based fashion brands: Last week, Burberry’s shareholders rejected the multimillion-pound pay package of the company’s chief executive and chief creative officer Christopher Bailey — albeit on a non-binding basis — while on Friday evening, Britain’s Channel 4 TV aired a program that criticized the way Net-a-porter Group pays its taxes. While Channel 4 emphasized Net-a-porter’s accounting and tax practices are entirely legal, and that no laws have been broken, it wagged its finger at a share-based payment plan used as remuneration for employees that has been in effect since Compagnie Financière Richemont took control of the online luxury retailer in 2010. The plan effectively creates losses on a balance sheet that can be carried into future years, thereby reducing the amount of tax for which a company is liable. Channel 4 accused Net-a-porter of working within the letter — but not the spirit — of the law, and it also lambasted the British tax authority, Her Majesty’s Revenue and Customs, or HMRC, for not cracking down hard enough on certain corporate tax practices generally. Net-a-porter isn’t the only company that offers a share-based payment plan for its employees, while the balance sheet that Channel 4 examined is only reflective of business done in the U.K. The retailer is a private company, and part of Richemont, which does not break out the accounts of its separate divisions. The group’s ceo, Mark Sebba, told WWD: “The Net-a-porter Group Ltd. notes the media comment regarding its U.K. tax status. Net-a-porter is a successful U.K.-based global business that employs over 1,500 people in the U.K. and a further 800 worldwide, and contributes significantly to the U.K. economy. “The company continues to invest significant sums in expansion, development and innovation. Net-a-porter has every intention of maintaining its U.K. tax domicile for its U.K. operations, and paying all taxes due in line with the law, best practice and HMRC’s policies. Since its foundation in 2000, Net-a-porter has never sought to avoid paying tax in the jurisdictions in which it operates.”

• E-commerce Site Offers Pre-Worn Wedding Gowns: Borrowing Magnolia, a new e-commerce business that launched July 1, offers pre-worn wedding gowns to prospective brides for sale or rental at a fraction of the original prices. The three women behind Borrowing Magnolia, Ashley Steele, Cali Brutz and Stephanie Olvey, saw a hole in the wedding gown market and sought to fill it. They knew the biggest asset of many brides — the wedding gown — is folded away in a box in the attic. At the same time, many young brides-to-be can’t afford to buy their dream dress. “We’ve seen how the modern bride and her needs are really changing,” said Steele. “It’s not so much of an heirloom industry any more. People don’t care about having these things that they’ll look at once every 20 years.” Borrowing Magnolia, a white-glove rental service, gives brides-to-be the opportunity to borrow or buy a pre-owned wedding dress. The site handles all of the details, including shipping, steaming, cleaning and storing the dress. For $99, three dresses are shipped to the future bride to try on at home. The initial try-on fee is applied to the rental or sale price of the dress. Borrowing Magnolia offers a “change-your-mind guarantee,” allowing brides to switch their dress up until two weeks prior to the wedding, at no extra charge. “We have almost 200 dresses in our collection already,” said Steele. “We centrally reached out to our own networks we have established with our preexisting businesses.” Steele and Brutz, who are sisters, in 2005 founded Once Like a Spark photography, a national wedding photography collaborative. Olvey is the founder of Fortique, an online marketplace for creative services.

• US and EU trade talks to resume: Officials from the European Union and the US will spend this week in Brussels trying to make progress negotiating a controversial trade deal. The Trans-Atlantic Trade and Investment Partnership (TTIP) aims to stimulate commerce by reducing barriers such as tariffs and differences in regulation. Critics say the agenda is driven by international business and will be bad for European and American citizens. It is a little over a year since the talks were launched at a G8 summit.