f o r    m a n a g i n g    t o m o r r o w
NOVEMBER 5, 2006
 Cover Story
 BT Special
 Back of the Book

The Building Boom
Is an asset price bubble building up in the real estate market? Flats in posh Mumbai areas sell at the rate of Rs 50,000-70,000 a sq. ft. and housing plots in Gurgaon are going for Rs 1 lakh a sq. yard. This may sound like music to those who have been clinging on to their assets, it portends danger to buyers. The high real estate prices keep the majority out of the housing market and make the dream of owning a house more distant.

The Learning Curve
India's investment in education-as a percentage of GDP-is lower than not just of countries in the West but also some of the emerging economies, including China. The percentage of population in the relevant age group enrolled in higher education too is the lowest among countries with which it must compete. Clearly, there is a need to scale up substantially the physical infrastructure and attract better faculty by offering market wages.
More Net Specials
Business Today,  October 22, 2006
Now, Special Energy Zones
A $2-billion energy city is proposed on the outskirts of Mumbai.
GFH's Janahi: India on his mind

SEZ might soon also stand for special energy zone, if the plans of an East Asian investment bank pan out. Gulf Finance House (GFH), from the Gulf Corporation Countries (GCC), has inked a memorandum of understanding with the Maharashtra government for setting up an integrated energy business district. A first of its kind in India, the proposed project will be called "Energy City India," and will entail an investment of $2 billion (Rs 9,200 crore). To be housed on Mumbai's outskirts over 300 acres, the energy city will provide business infrastructure for oil and gas producers, downstream refiners and also for those in shipping and energy trading. This would be GFH's first project outside the GCC; the first one was unveiled at an investment of $2.6 billion (Rs 11,700 crore) in 2006.

"This is the result of the readiness of India as a market," says Esam Janahi, CEO and Board Member of GFH. As Janahi sees it the Maharashtra Energy City is the just the beginning. "Over the next five years, we should be present in 2-3 states," he adds, which translates into "a project every year." GFH intends to develop two more such hubs in other Asian markets. Reason for kicking off with Maharashtra? "The state enjoys a strategic position in India's energy sector," points out Janahi. For the proposed project, GFH intends creating a holding company with a paid-up equity capital of about $300-500 million (Rs 1,380-2,300 crore), Chief Minister Vilasrao Deshmukh is obviously pleased as punch. "This investment has merely confirmed that. We promise all possible assistance to this project," he beams. With acquisition of land too, one could presume.

Plenty in Store
Retailers have huge hopes hinging on house brands.

The largest selling brand of jeans in the US is not Lee or Levi's but something called Arizona Jeans. If you haven't heard of it, that's because Arizona Jeans is one of the private labels of JC Penney Company, the $18 billion (Rs 82,800 crore) us retail Goliath, unlike Lee or Levi's which are sold pretty much everywhere.

If the Arizona range of denims can give the global brands a run for their money, what's stopping our homegrown retailers from doing something similar with their own private labels. Well that's exactly what a clutch of domestic retail firms, like Trent's Westside Stores, Kishore Biyani's Future Group and Rajan Raheja's Globus is attempting with in-store brands. Biyani's Pantaloon Retail, for instance, in a relatively short span of five years, has created a number of significant private labels such as Bare Jeans, Annabelle, Honey and, Oye. John Miller, a shirt brand is today valued at close to Rs 500 crore. "In the fashion category, our private labels contribute close to 65 per cent of sales," says Kishore Biyani, Chairman, Pantaloon Retail. As a company, 30-40 per cent of Pantaloon's sales come from private label brands covering categories like fashion, food and home. "This figure will go up to 50 per cent by 2006-07," adds Biyani.

If you think that's high, at Trent 95-97 per cent of sales come from private labels. "Westside itself is a big brand. Our whole strategy is to be a mass brand," says Neeti Chopra, Head Marketing, Trent. Other in-store labels that bring in a chunk of sales include SRC, Richmond, Urban Angel and Street Blues. "We are now working on private labels in categories like luggage and footwear," reveals Chopra. Globus, a Rs 100-crore retailer, is currently focussing on two private labels, Globus and F21.

Cleary, sellers of private labels are attempting to cash in on rising footfalls, and shift consumer loyalty from a brand to the store. Once a consumer is addicted to a store, it becomes easy to sell a private label. And making a compelling case for in-store labels is the high-margin nature of the business-20 per cent on the lower side, and as much as 50 per cent at the higher end. Yet, retailers caution against having a portfolio totally biased in favour of private labels. Shoppers' Stop, for instance, has just 18-20 per cent of sales coming from private labels. For Shoppers' the big brands will always be the ones bringing in most of the bacon. "A private label by itself doesn't guarantee success. It has to be pitched or treated on a par with any brand with which it competes," believes Govind Shrikhande, CEO, Shoppers' Stop. Experts also point out that private labels may be just a short-term gambit, and may not work in the long run if quality takes a beating. And that may rub-off on the image of the entire store.

For the moment, though, few customers-and retailers-are complaining. "Currently it is retail nirvana. I foresee a happy co-existence for big brands and store brands," observes Chopra of Trent. Biyani is betting big on private-label growth coming from smaller towns. "We are aiming at a 75 per cent contribution of private labels in the fashion segment. Private labels in food would be around 40 per cent and the home segment will make up 20 per cent going forward," says Biyani. India's answer to Arizona Jeans may be just a few million footfalls away.




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