Funding in Retail: Opportunities and Challenges

The panel discussion on Funding in Retail: Opportunities and Challenges had industry experts discussing on the topic.

Panelists were:

Funding in Retail

Moderator: Ambreesh Baliga, Managing Partner, Edelweiss Financial Services; Paresh Parekh, Partner, EY; Vidya Sarathy, Vice President, Lifestyle International; A Gurudutt, Director – Finance, Levis; C P Toshniwal, Executive Director, Future Lifestyle Fashion

Opening Remarks

Ambreesh Baliga, Managing Partner, Global Wealth Management, Edelweiss Financial Services

Discounting by E-tailers is an area of concern – but capital is still abundant.

  • E- tailing is the ‘new kid on the block’ and this is affecting the Brick and Mortar (B&M) retailer. E-tailing has raised a couple of billion dollars of capital.
  • There is a divide between Brick & Mortar (B&M) retailers and E-tailers; when it comes to the ability to raise money.
  • Is e-tailing a threat or opportunity when it comes to raising capital?
    • B & M  is USD 500 billion dollar business globally, E-tailing is around 12.6 billion dollar – I.e., about 22%. Expect e-tailing to reach 70 to 80 bn by 2020.
  • There is no difference as far as capital raising is concerned.
    • B&M need not be threatened. There is a need to Integrate and not ‘ape’ e-tailers.
  • From an environmental perspective, stable government is required for both types of retailers.


Impact of Predatory pricing / Discounting by e-tailer 

A Gurudutt, Director – Finance, Levi’s India Pvt Ltd

As a strategy, we offer fresh stock through the store and discount ‘old’ fashion.

  • Huge discounts are offered by e –tailers – upto 13 times what brick and mortar retailers can offer.
  • It is a matter of concern. Levis participates in discount only in particular months and that too very cautiously.
  • Levis has tied up with – and we do a balancing between the two channels.
  • As a strategy latest styles are offered in the B&M channel and ‘old’ fashion is offered  on discount.
  • E-tailing should be done in-store to combine best of the two worlds.
  • B&M retailer is loaded with costs – real estate which does not exist for an e-tailer and also the low cost of technology. These two costs enable the e-tailer to discount merchandise.
  • Lost sales in-store (due to lack of range, size) can be covered up by e-tailing.


Entry strategies by Overseas Retailers

C.P. Toshniwal, Executive Director, Future Lifestyle Fashion Limited

To counter the problem of discounting the MRP rule should be abolished.

  • Foreign retailers will not go solo in India as an entry strategy.
  • To get a feel of the nuances of the local market  they will need a local partner. In the absence of this option, they may choose to ‘wait and watch’.
  • No real estate company will succeed as a retail company – the business is operationally very different for real estate.
  • Brick and mortar retail makes it easier for customers to return merchandise; and provide better service.


Issues of Funding

Paresh Parekh, Partner – Tax and Regulatory Services, EY

Currently, (Brick and Mortar) retail is not getting the same kind of valuation from the stock markets, as e-tail is from the VC / PE community.

  •   For the purpose of Funding: multiple ways & investors are available; Franchise route – getting franchising fee; JVs are created for different regions and categories etc
  •    Once global situations improve and global retailers become strong on their home turf, Indian economy will be back in the reckoning.
  •    B&M retailer have not died in countries where E-tailer or ecommerce has matured.
  •    E-tailer in some categories are taking a lead but not in all categories. Retail  is not getting the same valuation from the bourses , they are better with seed capital and private equity. Retail should explore the route of NCD for funding.


Expectations of the future / ‘Wish list’ for Policy

Paresh Parekh, Partner – Tax and Regulatory Services, EY

Need policy intervention to open up the ECB route for Retail.

  •   Future expectations: B&M retailer will still provide some value and hence survive the onslaught of discounting.
  •   Powerful brand will not resort to discounting. Issue in the single brand retail is sourcing criteria only.
  •  Overseas retailers do not have a problem with other conditions.
  •  Policy intervention needed:
    •   ECB should be rationalized for retail sector
    •   Multi brand retail should be a National subject and not left to the state to deal with.


Funding in retail – Lifestyle Retail’s Approach

Vidya Sarathy, VP – Group Accounts, Lifestyle International

Most retailers look at different models of funding from sale or return, leasing, vendor funding to equity options.

  • Follow different models of funding eg. Sale on Returnable basis, reduce cost of rentals, leasing with companies
  • Vendor funding: If sale happens the vendor gets paid or he gets the product returned.
  • Leasing with the vendor (IT, and other services) instead of banks.
  • Completely opting e-tailing is not the right option. B&M retailer will coexist  along with e-tailing.
  • On the question ‘whether a retailer should integrate backwards and become a manufacturer’ – Issues of Excise and service tax has to be visited.

The following two tabs change content below.
Retailers Association of India (RAI) is the unified voice of Indian retailers. RAI is a not for profit organization (registered under section 25 of Companies Act, 1956), works with all the stakeholders for creating the right environment for the growth of the modern retail industry in India. RAI is the body that encourages, develops, facilitates and supports retailers to become modern and adopt best practices that will delight customers. RAI has a three charter aim of Retail Development, Facilitation and Propagation.