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The retailerEY’s publication in consumer products and retail sector
July-September 2014
2 | The retailer
ForewordDear reader,
We are delighted to present the July–September 2014 edition of The retailer, our quarterly publication in the consumer products and retail sector. In this edition, we have primarily focused on the luxury market covering the evolution of the Indian consumer, story of an Indian luxury jewelry brand and some innovations in the Indian and global luxury market.
In the first article we have provided an overview of the Indian luxury consumer, focusing on consumers in non-metro cities. We have also highlighted on how leading luxury brands in India are addressing this potential in small/non-metro cities and its positive impact on their business.
High levels of shrinkage have been plaguing the performance of organised retailers in India. In the second article, we have highlighted some of the leading practices of “monitoring shrinkage” and “loss prevention.”
In our interview feature, Mr. Nirav Modi, Founder & Creative Director, NIRAV MODI, shares his views on the Indian luxury jewelry market, including on how he expects the consumer and the market to evolve in the future.
Finally, we continue our featured section, the “Innovation board”, where we attempt to present to you snapshots of recent innovations, which have emerged in the Indian and global luxury market.
We hope you enjoy reading this issue of the retailer and look forward to your valuable comments and feedback..
Pinakiranjan Mishra
Partner and National Leader, Retail and Consumer Products EY, India
Celebrating six years of The retailer
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Contents
Involve yourself:
We look forward to hearing your feedback and suggestions.To contribute to editorial content, please contact Ashish KakwaniT: +91 22 6192 0423 E: [email protected]
Nouveau riche from the hinterland: new catalysts for “luxeplosion” in India 4
Loss Prevention (LP): turning risk into results 10
Interview with Mr.Nirav Modi, Founder & Creative Director, NIRAV MODI 17
Innovation board 18
4 | The retailer
Nouveau riche from the hinterland: new catalysts for “luxeplosion” in India
1
Indian luxury market calling the shots on the rampDespite the economic slowdown, the growth story in the Indian luxury market remained intact, as the crème de la crème refused to compromise on the “luxe” life. The luxury market grew by 42% in 2013 to reach INR510
1 billion. This growth is being catapulted
by an increasing base of ultra-high-net worth households (UHNHs)
2, which grew at a CAGR of 24% in the last 4 years
1 (and
are expected to treble to 343,0001 by 2018–19). The young
aspirational population, increasing global integration and the revival of western economies are also fuelling this growth.
Although India currently constitutes only 1%–2%3 of the global
luxury market, it is forecasted to continue its growth trajectory and witness growth at a CAGR of approximately18% between 2013 and 2016. This is going to position it much ahead of the global growth (6%), as well as other emerging economies, China (14%), Brazil (11%) and Russia (12%)
4.
Evolution of luxury consumers: India embarking on the journey
Prerogative of the privileged
Experiment with the ‘new money’
Accumulate luxury
Become `elite’Live and breathe luxury
India
China
South Korea, Brazil
Singapore, Hongkong
US, France
India has one of the youngest luxury consumer classes in the world. On the back of their increased interaction with marquee brands and luxury players investing more in awareness and experience, the Indian market is set to start mirroring mature luxury markets better. The country is likely to follow a trajectory similar to that of China, where luxury is moving beyond experimenting or flaunting wealth to simply a way of living for the wider sections of the society.
Understanding the protagonist: “the luxury consumer”Luxury in India has different meanings for different sets of consumers — it’s a way of life for few, a symbol of status to some
and an indulgence to others. The luxury industry has segmented the consumer class based on their past wealth, current lifestyle, value consciousness, aspirations and behaviors. These classes can be better understood as:
• Usual suspects: This class contains traditionally wealthy people including family wealth inheritors, industrialists, film stars and politicians. Luxury is a way of life for these consumers. In their reference, Darshan Mehta, CEO, Reliance Brands says, “They don’t need to be sold luxury”
5.
This class of people is on a constant look out for the latest super-premium/unique luxury products to distinguish themselves. They have traditionally shopped abroad, and value for money is a secondary consideration.
1 Source: Kotak: Top of the Pyramid 2014 report2 Minimum net worth of INR250 million, mapped over 10 years3 “Luxury Brands Gaining Ground In India,” Business Insider, http://www.businessinsider.in/LuxuryBrands-Gaining-Ground-In-India/
articleshow/33494855.cms, accessed 19 August 2014 4 Euromonitor5 “Despite Slowdown, Aspirations Propel Luxe in India,” Forbes India, http://forbesindia.com/printcontent/36287, accessed 19 August 2014
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• God-send wonders: This class contains consumers who have gained wealth through one-time events, e.g., farmers who have sold their land to developers, reality show contestants who have won significant amounts. Sudden gains may result in one or few aspirational shopping instances in categories such as cars, fashion and electronics. Purchases are mostly made only in cash and are strongly influenced by word-of-mouth. Brands have to learn the art of dealing with such customers, as this group lacks accessibility and awareness.
• New affluents: This refers to an emerging moneyed class constituting senior corporate executives and new or first generation entrepreneurs who have recently acquired wealth to become ultra-high net worth individuals (UHNIs). This rapidly growing segment, which probably offers the maximum growth potential, can also be complex to address because of the diversity it entails. For instance, on the one hand, it consists of a well-travelled brand aware professional, while on the other there is an ultra-rich small town businessman who lacks appreciation for fine luxury. This is a value-conscious group mostly consisting of “first time users” of luxury.
6 Households earning >INR2.2 million per annum; Source: BCG: The tiger roars report; Exchange rate: 1US$ = INR607 “Luxury Resurfaces in India, Cutting a Wider Swathe,” Wharton, http://knowledge.wharton.upenn.edu/article/luxury-resurfaces-in-india-cutting-
a-wider-swathe/, accessed 19 August 20148 “Mercedes sells 125 S-Class cars in 16 days,” The Hindu, http://www.thehindu.com/business/Industry/mercedes-sells-125-sclass-cars-in-16-
days/article5554341.ece , accessed 20 August 2014
However, this segmentation is insufficient to help us understand fundamental drivers that could possibly shape the future and just gives an outline of Indian luxury consumers. There is a large consumer class that has been excluded. These individuals may not qualify as UHNIs on the basis of income but are consumers of luxury nonetheless. They are:
• Eager beavers: This group contains the near-rich class,6
who are fervently aspiring to climb the “consumption ladder” — their desire to do so can even be stronger than the ultra-rich. They shop for prominent brands (even counterfeits) to achieve the desired social status. They are typically value-conscious, bargain hunters of luxury who are on constant lookout for deals/end of season sales. Brands have a love-hate relationship with them, as they can distort a painstakingly-built upscale positioning with their shopping bags prominently marked “sale” or “half-price”. However, they have the potential to be luxury consumers of tomorrow. In this respect, Vispi Patel, Group Director, LVMH India, says, “The new, young, upper middle class who will spend rather than save will be new-generation, first-time customers for luxury products. They will fuel growth
7.” Joe
King, MD, Audi India, concurs, “The growing upper middle class is the driver of the luxury car segment, in general, and for us as well. So, while the upper-middle class continues to grow, the luxury market will also grow substantially
8.”
Massive untapped potential which is expected to double by 2020
5.4 million (2013)
2 X
11 million (2020)
Eager beavers
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The luxury landscape that was once defined by and limited to “usual suspects” is now witnessing a notable change. Usual suspects have reached a maturity stage, giving way to new affluent and eager beavers who are now likely to drive the Indian luxury growth story. An increasing proportion of luxury demand is likely to come from these two consumer sets, as they are likely to experience the highest income increase.
Luxury has a new address in India: beyond metrosThe location of these emerging luxury consumer classes is another significant characteristic that may well define the future of luxury. Remarkably, almost half of India’s in-demand UHNIs come from non-metros, and this number continues to rise.
Non-metros match the growth trajectory of metros…
…driven by the phenomenonal growth in the top 6* cities beyond metros
21%19%
Metro
*Top 6 cities include Bengaluru, Ahmedabad, Pune, Nagpur, Hyderabad, LudhianaSource: Kotak: Top of the Pyramid 2014, 2013 and 2012 reports; EY Analysis
Non-metros 2011-12 2013-142012-13
CAGR - 34%
Growth in no. of UHNHs residing (CAGR 2011-13) Number of UHNHs residing in top 6 cities beyond metros
10,449 13,17718,720
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Increased spending power and the “aspiration to experience” are making small town consumers splurge in luxury. In the last few years, the top 11—20 cities such as Surat, Jaipur, Lucknow, Kanpur and Coimbatore have witnessed prominent growth in income distribution. Companies are already reporting a shift in their sales away from metros. As these new markets swell, non-metro regions will offer more lucrative growth opportunities for luxury players. This is evident from:
• Lela Katsune, President, Judith Leiber Couture, New York, says “In the last few years, we’ve seen an upward trend in newer clients from tier II and tier III cities. We have had 70% new customer acquisition (from tier II and tier III cities)
9.”
• According to Eberhard Kern, MD & CEO, Mercedes-Benz India, “Smaller cities and towns are now very much part of the mainstream markets. We now have full-fledged dealerships in cities like Karnal, Coimbatore, Bhopal, Lucknow, Rajkot, Indore, Mohali, Baroda, Bhuvaneshwar, Raipur etc…these are potential growth engines for us in the long term…the contribution of smaller markets now matches that of metros with as much as 55% sales contribution coming from (these) markets
10.”
• Small towns contributed 25%–30% of Thomas Cook’s luxury customer base in the past few months. Small-town consumers are spending INR ~8 lakh per person for a 7-day cruise to Antarctica
11.
Infrastructure and limited knowledge of local preferences remain challenging for players operating in non-metro markets. Nevertheless, players with long-term vision are already overcoming this through investment in consumer insights, innovative operating models and local tie-ups. For example, without depending on store-based expansion, Judith Lieber is reaching out to tier-II consumers through local partners and exhibitors to build awareness and to induce consumer trial. It conducted an exclusive “trunk show” in Indore. Sales from the
single event equalled 10% of the previous year’s total12
. Players are also using other channels to educate potential consumers about luxury and, thereby, position their brand as relevant for them.
Emergent consumers + ascent of non-metros = rise in “bridge-to-luxury”How does increasing importance of new affluent and eager beavers, many of whom are based in non-metros, reflect on the luxury market? Since these consumers are not born wealthy, and luxury is not a way of life for them yet, a lot of times they are just experimenting with luxury. Many of these buyers still have a “middle class mindset” — they will not pick up a Louis Vuitton because it is Louis Vuitton — they examine and compare it with other brands.
Discerning luxury brands are, therefore, targeting these emerging consumers by introducing “bridge-to-luxury” or “affordable luxury” products. These act as a bridge between premium and luxury products in terms of both pricing and perception. This strategy helps them satisfy customers’ need to buy brands, while addressing their constraints of limited budget and inherent reluctance to spend.
In apparel and accessories, affordable luxury brands are becoming popular among consumers who are looking to move up from premium brands but are unable to afford high-end luxury brands. Indian lifestyle retailers are also focusing on the bridge-to-luxury products. For instance, Genesis has tied up with Vince Comuto, Sephora, Furla and Armani, while Arvind Lifestyle is investing INR250 million in the retail expansion of its bridge-to-luxury brands
13.
9 “Betting On India,” Business Outlook, http://www.outlookbusiness.com/printarticle.aspx?288331, accessed 20 August 201410 “How Mercedes-Benz India MD plans to get back the No 1 luxury brand position,” Firstbiz, http://m.firstbiz.firstpost.com/brands/how-mercedes-
benz-india-md-plans-to-get-back-the-no-1-luxury-brand-position-92300.html, accessed 20 August 201411 “Booking from small cities like Mathura, Muzaffarpur, Ludhiana driving luxury travel boom,” Economic Times, http://articles.economictimes.
indiatimes.com/2014-05-06/news/49661518_1_tui-india-kuoni-india-non-metros, accessed 21 August 201412 “Betting On India,” Business Outlook, http://www.outlookbusiness.com/printarticle.aspx?288331, accessed 21 August 2014; “Luxury in India
- Market Entry Strategy and Insights,” Linked in, https://www.linkedin.com/today/post/article/20140701103737-63481917-luxury-in-india-market-entry-strategy-and-insights, accessed 21 August 2014
13 “Bridge-to-luxury brands gain momentum in India,” Fashion United, http://www.fashionunited.in/news/fashion/bridge-to-luxury-brands-gain-momentum-in-india-270220135026, accessed 21 August 2014
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Another reason for players to be bullish on such brands is that they break-even faster because they cater to a much larger customer base. According to Sanjay Kapoor, MD, Genesis, ”While the average cost of setting up a store is the same for a bridge-to-luxury brand and a luxury brand at around 1 crore, the former can break even within the first year of operation while a luxury label takes a minimum of two years
14.”
In the automotive segment, Audi recently launched an entry-level luxury sedan priced similar to the hatchback of BMW and
Mercedes to woo young consumers. According to Joe King, MD, Audi India, “The Indian customer is looking for a value proposition.” Entry-level luxury car models already account for 20%–25% of overall sales and carmakers expect this to go up even further
15.
Luxury players also believe that targeting young affluent customers provides them long-term leverage. In this context, Eberhard Kern, MD & CEO, Mercedes-Benz India, revealed, “Getting young customers introduced to the brand at an early stage is beneficial, as these customers stay with the brand as
14 “Bridge-to-luxury: Luxury retailers like Reliance Retail, Genesis Group turn to lesser brands in India,” The Economic Times, http://articles.economictimes.indiatimes.com/2012-12-08/news/35689113_1_reliance-brands-paul-shark-arvind-brands, accessed 21 August 2014
15 “Audi to launch entry-level sedan in Rs 22-27 lakh price range to woo young consumers,” The Economic Times, http://articles.economictimes.indiatimes.com/2014-08-07/news/52556300_1_audi-india-mercedes-benz-india-eberhard-kern, accessed 21 August 2014
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they progress in their careers... a young buyer of an A-class Mercedes is most likely to purchase a C-class and an E-class/Ml-class and ultimately the S-Class
15.”
To sum up all of this, Indian luxury consumers are evolving dramatically. With new consumers joining the luxury bandwagon or becoming “addressable”, players will be required to have a keen insight into who these consumers are and where do they come from. How luxury players tap first-time luxury buyers holds the key to the democratisation of luxury in India. Moreover, as metro cities reach a saturation level, mastering innovative cost-effective models will be pivotal to success. Luxury players now just need to commit to the burgeoning Indian market and adopt a tailored approach to master it.
Chinmay Ojha Assistant Director, Strategic Market Intelligence (SMI), EY
Chinmay has more than 10 years of experience across consulting, project management, business development and research and analysis with professional services firms including EY. He has worked on a range of projects involving growth
strategy, marketing & sales strategy, market entry and assessment, and business plan analysis for the leading global and Indian consumer products and retail clients. Chinmay leads the CP/Retail SMI team in India and also helps in driving the thought leadership agenda of the CP/Retail sector
E: [email protected] P: +91 124 470 1155
Inputs from Eksha Awasthi, Senior Analyst
10 | The retailer
Loss Prevention (LP): turning risk into results
2
Retail sector in IndiaGlobally, India is among the top-10 retail markets. In 2013, the Indian retail sector was estimated at US$520 billion and was among the largest employers in the country. By 2018, the Indian retail sector is likely to grow at a CAGR of 13% to a size of US$950 billion .
The retail industry is broadly divided into the organised sector and the unorganised sector. More than 12 million outlets operate in the country, of which only 4% are larger than 500 sq.ft. in size. Organised retail constitutes about 7% of total retail sales in India
16. Leading analysis of economic indicators reveal
that the average Indian household income will increase threefold by 2025 while private consumption is expected to increase four-fold by 2025.
16 EY& RAI Report “Pulse of the Indian retail market”
With increasing purchasing power, the industry is expecting unprecedented growth. However, this has brought with it many challenges such as counterfeiting, supply chain leakage, grey market supplies, inventory shrinkage and employee theft.
The drive for loss preventionRecent global research has revealed that shrinkage is an important issue for retailers. This is mainly because shrinkage is a significant cost to the sector. The performance of loss prevention departments is usually assessed in terms of “shrinkage”. Shrinkage losses are caused by theft and fraud as well as procedural failures and accounting errors. Shrinkage has a major impact on profitability in this relatively low-margin business. Efforts to address shrinkage are hampered by the ease with which it can be viewed incorrectly.
What are executives asking?
“Is my loss prevention function proactively helping to reduce inventory shrink?”
“Do we have the right governance in place with the right level of accountability?”
“Are the loss prevention functions and activities integrated or do they work in silos?”
“Can IT help loss prevention do a better job?”
“Am I getting the right return on investment from my loss prevention function”
“How do I know I am getting value and does it help improve the business?”
“Do we have the right processes and controls to effectively manage and reduce shrink?” “What impact, if any, does
LP make in reducing worker compensation and general liability claims?”
Source: EY Research
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17 Global Retail Theft Barometer Study , 2011, http://www.retailresearch.org/grtb_currentsurvey.php
In a nutshell, loss prevention functions are challenged to do more with the same or less resources:
• Help maintain or reduce inventory shrinkage by being more anticipating and risk focused
• Be more cost effective in conducting distribution center and store audits
• Add value to the business through insights and recommendations
Shrinkage, a global menace17
In 2011, an industry study conducted by the Centre for Retail Research in Nottingham, UK and supported by Checkpoint Systems estimated that the world’s retailers suffer shrinkage losses of US$119 billion. Shrinkage losses expressed as a percentage of retail sales (at retail prices) were 1.45% as compared to the previous year when shrinkage was 1.36%.
India had the highest loss of stocks to theft in the world with a shrinkage rate of 2.38% in 2011, making India the nation with the highest retail shrinkage in the world for the fifth consecutive year
17.
In India the figures stood at a whopping US$833 million (in 2011) with a rate of 2.38% as a percentage of organised retail sales.
• India accounted for the highest retail shrinkage caused by suppliers and vendors. The percentage source of retail shrinkage by suppliers/vendors in India stood at 8.4%
• Furthermore, in terms of category, apparel recorded the highest level of shrinkage in India.
Sources of shrinkage17
Globally, the main sources of retail shrinkage are — shoplifting (theft by customers); theft by employees; theft and fraud by vendors and suppliers; and process failures and accounting/procedural error, such as incorrect pricing and invoice pricing and invoice problems.
In India, however, employee thefts and process failures account for most of the shrinkage, with customer thefts being much lower than the global average.
Shoplifters, 47.60%
Employees, 25.50%
Suppliers, 8.40%
Internal error, 18.50%
Sources of Shrinkage in India (2011)
Sources of retail shrinkages include admin errors such as pricing, promotion, good receipts, short picking, misdelivery, variable lead-time, proof of delivery compliance, stock-taking, cross ringing and refunds.
Other sources may include physical unit shrinkages, which are caused due to supplier, warehouse staff, 3PL staff, drivers, couriers, in post, stock-room staff, store staff, staff/customer collusion and shoplifting.
To control Shrinkage, we have a two pronged approach i.e. Data accuracy and Theft. Through scanning we are able to detect anomalies early in the supply chain. Frequent stock counts, focus on Negative inventory and tracking of Stock-in-transit enable us to have high level of data accuracy. For controlling theft, the biggest deterrent is zero tolerance policy along with staff incentive for reduced shrinkage. Doing the basics right like manning trial rooms, tagging merchandise, security at exit, staff rotation contributes to limiting theft and thereby reducing shrinkage.
“
“Ratul Neogi, Head - Internal Audit ,Trent Ltd
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Measuring shrinkagesThere are two methods of evaluating shrinkage measurement: (a) Accounting centricity and (b) Performance centricity. These methods are at the two ends of the spectrum and differ radically in their approach to measure shrinkage.
The former looks at shrinkage as a cost, reports it at the cost price of inventory and controls this cost, which is generally represented as a profit opportunity. The latter looks at shrinkage as a lost opportunity, reports it at the retail price of goods and focuses on improving performance to maximise returns.
Leading practices in measuring shrinkage
► Shrinkage should be measured throughout the supply chain, i.e., from the distribution network to store levels.
► Shrinkage should be recorded by stock keeping units (SKU) and the individual location/store/distribution center/transport route. This will help in identifying hot products/locations.
► Shrinkage should be reported at cost price for accounting and at retail price to highlight its importance and to motivate collaborative performance improvement.
► Count inventory as often as possible, at least twice a year and once a month for products with exceptional levels of shrinkage.
► Share shrinkage results; data on shrinkage should be gathered and reported throughout the organisation and its suppliers.
► Business analytics can be leveraged in multiple ways to help an organisation combat the challenge of shrinkage. One such application is the use of analytics to predict shrinkage, which can be used in a versatile manner to address and control shrinkage. Parameters that can be considered to measure shrinkage in a retail business include the following:
► Internal theft being one of the biggest contributors to shrinkage in a retail business. Some of the parameters used to monitor employee theft include the availability of a loss prevention manager, the average tenure of an employee and store manager/supervisors (indicating increased control over processes) and proximity to other
stores and location within a mall/shopping center (which indicates degree of effective security).
► Customer theft, which occurs through the concealment, alteration or swapping of price tags, or their transfer from one container to another should also be measured.
► Physical characteristics of stores — the number of entrances and exits, checkout lanes, and shelves, as well as crime information/statistics of store locations — impacts shrinkage and should be collected as supporting information
Our survey of leading Indian retailers18
Our survey, conducted with leading retailers in India, indicated the following points:
► 70% of retailers believe that managing shrinkage is their primary expectation of the loss prevention/internal audit function
► 70% of organisations do not use data analytics for loss prevention or internal audit functions
► 50% of retailers state that loss prevention is a critical activity in their respective organisation
► Only 30% of retailers have an established whistle-blower policy, however, 100% of retailers do not have a hotline to enable reporting malpractice to the management
► Only 30% of retailers have an incentive system for their store employees to demonstrate shrinkage control
18 EY Research
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Retailers can use “Maturity Model” to assess the readiness to counter loss prevention
Focus area Key activities Basic Established Leading
Stakeholder expectations
The loss prevention mandate and scope is aligned with stakeholder expectations
l l l l lStakeholders believe loss prevention is providing an appropriate ROI l l l l l
CultureThere is a strong tone from the top l l l l lAccountability for loss prevention exists l l l l l
Risk assessment
Predictive modeling is used to develop risk assessment and is refreshed throughout the year
l l l l lThe risk assessment focuses loss prevention resources on highest risk areas and reduces efforts elsewhere
l l l l l
Loss preention activities
The loss prevention function has the right skills, competencies and function is staffed at the right level
l l l l lLoss prevention auditors are productive and efficient and utilizes leading methods, tools and knowledge management
l l l l lDeter, detect, defend and monitor activities are fully integrated l l l l l
Embed in business
Store managers are trained and accountable with a linkage to measurement and reward
l l l l lManagement reporting is comprehensive and timely l l l l l
Leading LP practices LP has become wider in scope. There is a wide variety of targets for crime and fraud in retail businesses, new practices are being developed all the time by criminals. Therefore, loss prevention has to work on inhibiting theft in multiple different areas, rather than focusing on only a few crime problems. They need to take a strategic view and do many things right rather than a few things well.
Investment in loss prevention can play a major part on reducing shrinkage, however, some retailers feel that that cannot prove the ROI or implement well. Good analytical tools and improved project management skills are as essential to LP as to any other part of the business.
Loss prevention partnerships with other retailers is a necessary part of learning more about crime and LP trends in a region, exchanging information and smoothing the process of working together to combat loss.
Based on EY’s extensive knowledge of risks and challenges that retailer’s face during inventory handling, some of the possible
solutions we propose to tackle shrinkages in a retail business includes measures such as:
► Establishing senior management commitment to prevent losses; ensuring organisational ownership of shrinkage control and having embedded loss prevention throughout the organisation
► Establishing a strong mechanism for the end-use monitoring of third-party (3P) vendors and second-party (2P) units
► Adopting robust internal controls, backed by strong data analytics; as mentioned before, business analytics as a tool may be used as a possible solution to reduce shrinkages and help in loss prevention. One of the ways is to use predictive analytics, which simply put, refers to the statistical analysis of past data to identify behavior patterns and trends to predict future outcome. This can be applied in case of shrinkages as retailers will intuitively know various parameters that are expected to impact shrinkages
► Development of strong processes (standard operating procedures) to identify leakages at across the supply chain.
14 | The retailer
► Enterprises must ensure process and procedural compliance and empower the store staff to take responsibility for shrinkages.
► Establishment of a whistle-blower policy or an ethics hotline that enables employees, customers, vendors to report malpractices directly to the management.
► Source tagging can be cheaper and more effective than tagging in-store and enables tags to be placed covertly on articles. CCTV and other tools can play a major part in reducing shrinkage.
► Radio-frequency identification devices (RFID) are electronic tags capable of carrying more data that have a wide potential range of applications in the retail sector, including
loss prevention. RFID is very effective to monitor combat theft by shoplifters and employees, as well as reducing theft, as products move through the supply chain.
► Store and depot audits to assess the extent to which every unit adheres to company loss prevention/operational policy and procedures.
► Develop incentive schemes for store employees who demonstrate low shrinkage.
► Integration with Enterprise Risk Management (ERM) and internal audit plan.
► LP Dashboard and Management Information System (MIS).
The framework given below provides a snapshot of how today’s retailers need to develop a credible organisational framework that starts from the top and creates an environment in which operational managers can take responsibility for day-to-day monitoring and shrinkage control.
Invest in and integrate right mix of:► Deterrence - hiring, training,
alarms, signs► Detection - data mining, CCTV,
electronic tags, store detectives► Defense - physical controls -
locks, chains, secure displays, armored car pickup
► Loss prevention function
► Right, qualitative, quantitative and industry inputs
► Use of predictive modeling analytics
► LP activities focused on highest risk areas across the enterprise
► Tone from the top
► Employee awareness
► Organizational accountability
► Store manager hiring/training
► Linked to measurement and reward
► Timely management reporting
Risk Assessment
Areas of focus
Cultu
re
Embed in business
Losspreventionstrategy
► Employee theft► Shop lifting/organized crime► Process/administrative errors
Source of retail shrinkage
Loss preventio
n act
iviti
es
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Nitesh Mehrotra Associate Director, Retail & Consumer Products, EY
Nitesh is an Associate Director with the EY’s Advisory Practice focusing on Retail & Consumer Products. He has more than 13 years of work experience advising clients on key business processes, Enterprise Risk Management (ERM), Governance Risk
& Compliance (GRC) and data analytics. He joined EY in 2003 and is currently based out of Mumbai.
Nitesh has assisted leading companies across Retail & Consumer Product (RCP) sector in India, South Africa, China, Russia, the UK and the US in designing their governance, risk and change management frameworks. He leads several internal audit & process design assignments for EY in RCP sector.
Nitesh has been working on enhancing Loss Prevention (LP) framework encapsulating Standard Operating Procedures (SOPs) for LP, integrating LP with ERM & Internal audit function and leveraging data analytics for continuous monitoring.
E: [email protected] P: + 91 22 6192 3787
Kartikeya Chaturvedi Manager, Retail & Consumer Products, EY
Kartikeya is a Manager in Retail & Consumer Products practice of EY and is based out of Mumbai. He leads several teams for process reviews and risk-based internal audit engagements for leading companies in the retail & consumer
products sector. He has actively assisted leading retailers in India on their “loss prevention” agenda.
He has more than six years’ experience in risk and controls review, process reviews, internal audit review/SOP preparations, SOP manual and analytics.
E: [email protected] P: + 91 22 6192 0959
Retailers in India need to invest in developing and monitoring relevant loss prevention processes to control and minimise shrinkage. Furthermore, retailers need to conduct predictive analytics to monitor shrinkage and required necessary process changes. These processes and analytics need to be complimented by trainings “MIS and Dashboards” and ”programs and workshops” for stakeholders and employees, respectively, affected by the initiative.
Conclusion
16 | The retailer
Interview with Mr. Nirav Modi, Founder and Creative Director, NIRAV MODI
3
Could you take us through the journey of building the brand “NIRAV MODI”, highlighting some of the key milestones achieved?
The story of the NIRAV MODI brand begins with my family. I am a third-generation diamantaire from Antwerp where my father still runs a diamond business. I started Firestar Diamond in 1990, which is present across the value chain from the sourcing and manufacturing of rough diamonds as well as cutting and polishing of diamonds to the designing and manufacturing of fine jewellery. Firestar provided me the expertise to create the brand “NIRAV MODI.”
The brand NIRAV MODI came into existence when a friend asked me to design a pair of earrings for her. Initially I was reluctant but I decided to design a beautiful jewelry for her and set to source diamonds for it. I saw all the compromises in diamond sparkle and jewelry craftsmanship in the market, and ensured that this piece will be exceptional. I will say that seeing my friend’s delight upon receiving the jewel was a turning point for me. I saw how happy it made her and decided I wanted to create precious diamond jewels for as many women as I could.
A major milestone was when Christies decided to put one of our creations, the Golconda Lotus Necklace, featuring a spectacular
Nirav Modi was born into a family with three generations of history in diamonds and brought up in Antwerp, the diamond capital of the world.
His journey to the NIRAV MODI brand can best be described as serendipitous. Although involved in the diamond business for several years, he had a chance encounter with jewelry design, when he created his first piece for a friend upon her insistence. This proved to be Nirav’s tryst with destiny. As his inclination grew, his passion for sourcing the finest and rarest diamonds increased.
He crafts his pieces focusing solely on the woman who will wear it – her desires, the fluidity of the jewels with her movement, the way light will reflect on the jewel. With
a penchant marrying traditional and modern methods of design and craftsmanship, the brand’s ethos is derived from rarity and innovation. He has been instrumental in successfully taking these creations to leading auctions and making it available to customers through boutiques
more than 12ct Golconda diamond, pink diamonds and our globally patented Ainra CutTM diamonds on the cover of their auction catalogue. This made us the only Indian brand to be placed in the company of Harry Winston, Van Cleef and Arpels and Cartier to name a few. Since then, NIRAV MODI jewels have been featuring in auctions by Sotheby’s and Christie’s.
NIRAV MODI is now expanding to new markets. In addition to the salon in Mumbai, we now have a boutique at Defence Colony, New Delhi, and are soon launching one at Kala Ghoda, Mumbai. Later along the timeline we are looking at global expansion with a store on Madison Avenue, New York and Hong Kong in 2015.
What were the key challenges in building a luxury jewellery brand in the Indian market and how did you overcome them?
Though Indians are not strangers to jewellery, we found that there was not a complete understanding of diamond qualities, certification and even the investment potential of diamonds. Many customers thought they were getting a certain quality or a certain type of certification, which in reality, did not match up. A significant challenge has been to make potential customers aware of the quality they deserve.
17The retailer |
What differentiates NIRAV MODI jewellery from leading jewellers in India?
Our diamonds have the best sparkle. We only work with the highest colors and clarities; we have special, proprietary diamond cutting and polishing techniques and our signature minimal metal craftsmanship all ensure that a NIRAV MODI jewel has the highest shine. The same qualities and techniques are used for a INR50 Crore auction piece and a INR5 lakh jewel.
We are the only Indian jeweller to have a special partnership with Russian diamond mines, which give us access to some of the finest white diamonds and the Argyle pink diamond mine in Australia, which produce the world’s pink diamonds. And we are also the only jeweller to have patented diamond cuts such as the AinraTM Cut, MughalTM Cut and EndlessTM Cuts and jewellery techniques such as the Embrace bangles, which put together more than 700 moving parts to allow the bangle to stretch to fit any wrist.
A vertically integrated structure allows us to source top-quality raw material, control processes, place stringent quality checks and significantly reduce costs.
Could you take us through the strategic thinking behind the retail expansion (India and global)?
Given that we are vertically integrated and take care of the entire value chain from sourcing to cutting and polishing diamonds and designing and crafting fine jewellery, we have a major advantage over most international and domestic jewellers, who outsource diamond cutting and jewelry manufacturing. Moreover, given the presence we have established internationally with Sotheby’s and Christie’s, and our private clientele overseas, a retail presence was the natural next step for us.
Within India, the demand for diamond jewellery has been rising significantly. We already had a large client base through our Mumbai lounge and exhibitions in major Indian cities, and so retail was a way to service that clientele better and more frequently. We saw the need to go beyond large jewels that are only worn at occasions to precious jewels for every day.
Given the current economic environment, what is your view on the growth of the luxury sector in the Indian market over the next five years? How do you foresee luxury jewellery market shaping up in the next five years?
We see the luxury sector in India growing by 20% every year for the next five years. More and more consumers are understanding the meaning of luxury as quality rather than just a brand name. And gifting of luxury jewelry for small and big occasions will continue to increase. Changing mindsets, growing aspirational purchases and a young affluent population are all factors that bode well for the growth of the luxury sector in India. Within the luxury segment, jewellery is the only one considered an investment as well, and in India it is especially poised to outperform the rest of the luxury market.
How do you foresee brand “NIRAV MODI” to evolve in the coming years?
We hope to evolve into a global diamond jewellery brand. We are going to make the “Made in India” label for jewellery aspirational. Our current plans include expansion in the US, the UK and Hong Kong.
In addition we hope to establish a global footprint, and be known for uncompromising quality and innovation.
We will continue our research and create beautiful jewels with minimum metal to ensure maximum sparkle; this includes creating new diamond cuts, which will change the way the world and India perceives design and craftsmanship when it comes to diamond jewelry.
18 | The retailer
1 Luxury retailers revolutionise in-store experience via technology
Retail is a channel through which firms reach out to their customers and satisfy them and build a brand image. Generally tech savvy, social media users and the youth form major part of the target segment today. Therefore, luxury brands are increasingly focusing on using digital innovations in store to connect better with these customers. Three such interesting techniques used by international brands are virtual shopping scenes, agile commerce and technology-inserted advertisements.
Luxury brands are placing virtual scenes into fitting rooms. Customers can change the color of walls and choose fake décor at their will. This technology transforms fitting rooms into entertainment venues.
Burberry employees are provided with mobile devices that help them to assist customers and increase customer attention.
Victoria Secret launched stores that have a video wall formed of many digital screens wherein customers have a chance to watch the latest catwalks while shopping. This feature can be managed remotely through smart phone devices. This in-store feature enhances brand image.
Ralph Lauren launched a 4D advertisement via advanced video mapping technology that combines multiple scenes, collaborates with art, fashion, music and fragrance on the external wall of their stores.
http://fashionbi.com/newspaper/fabulously-used-in-store-tech-in-luxury-retail, accessed on 11 Aug 2014
Innovation board4
In recent times retailers and brands are sending personalised text messages to customers endorsing a sale that they are likely to react to. These brands target their customers very differently and mainly take three action points in evolving their digital marketing strategy – offer exclusivity, personalisation and create supporters.
Website such as Gilt and Rue La La offer exclusive benefits and offers to their members through private promotions.
Burberry launched a smart personalisation program that allows a customer to buy made-to-order coats and accessories from fashion shows in store or through mobile devices.
Tiffany maintains an extremely active Facebook presence where it shares pictures of celebrities wearing its diamond. It also involves customers through a free mobile app that help customers share to share their images and experience and post them on their website.
http://blogs.sap.com/innovation/industries/digital-marketing-luxury-goods-customer-01249882, accessed on 11 Aug 2014
2 Luxury retailers adapt digital marketing 3 In-store
experiential moments excites luxury brand customers
Brands are now focusing on their flagship stores and boutiques to focus on creating exclusive brand experiences.
Saks 5th implemented Oracle-made software that expedites check out systems and makes it more efficient by equipping its associates with valuable customer information. This information helps associates in providing more personalised, quality service and recommendations.
Audi uses state-of-art-technology that enables visitors to experience millions of combinations of colors, equipment options and technical details through multi-touch tablets based on customers will. The customised version is displayed on large HD screen letting them drive through different locations.
http://sodaspeaks.com/2013/07/the-new-luxury-retail-experience-digital-immersive-experiential-theatrical-exclusive-for-soda/, accessed on 8 Aug 2014
19The retailer |
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