M&S eyes up India a second time

After having its fingers burnt in India a few years ago, Marks and Spencer is targeting the country's retail market once again.

Sir Stuart Rose, the chairman of Marks and Spencer, plans for the retailer to open at least six new stores in the subcontinent.

Marks and Spencer (M&S) could scarcely have given a clearer signal of the exalted place India has in the British retailer's plans. Just one week after announcing on February 1 that he would step down as its chief executive, Sir Stuart Rose flew to Mumbai for a meeting with the chairman of the Indian conglomerate Reliance Industries, Mukesh Ambani, India's richest man and an M&S partner.
"Mark Bolland, our new chief executive, is very keen to grow the overseas market, and India is just top of the list," said Sir Stuart, who remains the chairman of M&S , during the visit. "In fact, I have been discussing with Mr Ambani about the need to get aggressive and both of us are looking to have several more stores."
M&S plans to open six to eight new shops this year in India and aims to have 50 stores there by 2014. In this, M&S is at the forefront of a second wave of international investment in the Indian retail market as global retailers dust themselves off after the downturn and start to look to the world's growth markets once again. Next month will see the London toy shop Hamleys, the Spanish fashion giant Inditex's Zara chain, and Arcadia Group's Top Shop all launch in India. France's Carrefour is expected to announce a tie-up with an Indian partner in the next few months, making it the last of the four big international supermarket chains to enter India alongside Wal-Mart, Tesco and Metro.
"We were very sure that by the end of 2009 we were going to see a lot more interest," says Nangia Saloni, the vice president of the Indian management consultancy Technopak. "By then international retailers would have bottomed out in their own countries, they would be looking at investing in their new markets, and India and China would figure very strongly."
Only a few years ago, M&S was a textbook example of how not to enter India. It allowed its former franchisee in India, Planet Retail, to treat it as an upmarket rather than a mid-market brand, pricing M&S goods even higher than in the UK, and it failed to adapt what it offered to local tastes. In 2008, frustrated that Planet Retail had opened just 10 stores in the seven years since it signed up with M&S, the UK-based supermarket chain ended the relationship and in the same year relaunched in a joint venture with Reliance Industries.
"There's a real difference when you put people on the ground who really understand the brand and what the customer is looking for, and there is a different mindset when you invest your own money," says Mark Ashman, the chief executive of the Reliance joint venture. "India is not a panacea or an easy win. It takes time, and you have to understand that."
Since taking over, Mr Ashman has cut prices as much as 30 per cent by increasing the share of goods made in India from 18 per cent in 2008 to about 55 per cent today. He is aiming to bring the share to 70 per cent by 2014. He has also moved to adapt M&S to Indian tastes, firstly by brightening up the colour schemes of its stores and the clothing it sells.
For instance, men's polo shirts now come in 16 colours in India, compared with just five in the UK. All men's shirts in India now have breast pockets, which Indian men prefer. Women's T-shirts and blouses have higher necklines and lower hems.
"What's become clear to us is that many things that M&S does around the world are applicable to India, but there are also other things that the Indian market requires international retailers to do differently," says Mr Ashman.
David Blair, the south Asia managing director of Fitch, the UK design consultancy that redesigned M&S's stores for India, says the retailer was not alone in getting it wrong when trying to break into India over the past decade.
"I can't think of a straightforward retail brand coming into India and being a success story."
The biggest problem, Mr Blair says, was that many retailers, both Indian and international, rushed their entries. "There was this view that it was all about first-mover advantage, that it was an inconceivably huge market with limited property available, so there was this land grab," he says.
Given the hype around India at the time, that was understandable. In 2005, the global retail consultancy AT Kearney rated India the world's hottest emerging retail market in its Global Retail Development Index. It cited its 300 million-strong middle class, and retail spending tipped to more than double from US$300 billion (Dh1.1 trillion) in 2006 to $640bn by 2015. Technopak estimates that it will hit $435bn this year.
But few international retailers have managed to tap into the market. The US clothing company Levi Strauss's Dockers brand, Italy's GAS and France's Etam, plus the UK catalogue retailer Argos, have all closed down their India operations. Debenhams, owned by the UK's Arcadia group, which had planned 10 stores in India by this year, was forced to close one of its two stores last December because of poor sales. The US giant Wal-Mart took almost three years to open its first cash-and-carry store after signing a partnership deal with Bharti, a leading Indian industrial house, in 2006, and it has yet to open a second one. Its rival, the UK-based superstore chain Tesco, which signed a similar deal with India's Tata Group in 2008, has yet to open a single store.
Two years ago, Vietnam knocked India from AT Kearney's No 1 spot. Part of the reason was the Indian government's reluctance to fully open up foreign investment in retail. Even today, international companies can invest only in "single brand retail", ruling out those that sell multiple brands.
India's tortuous regulations and creaking infrastructure also make life difficult on the ground for foreign retailers.
"Our expectation was always that this wasn't going to be easy and the fundamentals were going to take a lot of hard work to get right," says Harjeet Drubra, the international corporate affairs director at Tesco. "The supply chain, the training, the construction, the quality, and all the rest of it, it is not straightforward."
He admits that even after 18 months' work, Tesco's set-up in India is a far cry from that in the UK. "We're not trying to pretend that this is the same efficient supply chain we have in many of our other countries," Mr Drubra says. "You have to work with what's there."
Not every product, for example, is bar-coded - something that would make Tesco's UK managers blanch. But the underlying infrastructure Tesco has now rolled out with Tata Trent's seven Star Bazaar outlets, with hundreds of suppliers and manufacturers integrated into its system, will give it a huge advantage when it starts to expand. By next Sunday, it hopes to deliver its first consignment of Tesco-branded products from the UK to the Star Bazaar stores, whose supply chain Tesco has agreed to manage. And by the end of this year, it plans to launch its first Tesco cash-and-carry.
"The complete focus will be on getting No 1 set up," says Mr Drubra. "Then we will start thinking about what rapid roll-out looks like."
Wal-Mart already supplies 59 of Bharti's Easy Day supermarkets, and it is poised to launch its second cash-and-carry soon.
However, newer retailers are more cautious. Inditex is planning to open only a handful of Zara stores this year.
Sudhir Pai, the vice president and head of Hamleys Business (India) who is running Reliance's joint venture with the toy store, says he does not want to hurry. "We are in no rush whatsoever. It's all about recreating the Hamleys' magic, and until I get my formula right, we won't roll it out. If you're going to be short-changing the Indian customer, I don't think it's going to succeed."
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