M&S plans revenue share model with developers
The Hindu Business Line, April 23, 2009, Page 17
Amit Mitra, Mumbai
Marks & Spencer Reliance India (MSRI), which plans to roll out 50 retail outlets in the next five years, is experimenting with a new economic model of revenue sharing between the retailer and developer of the outlet.
MSRI, which is 51-per cent owned by leading UK retailer Marks & Spencer and 49 per cent by Reliance Retail, a subsidiary of Reliance Industries, has already sealed such revenue-sharing deals with developers for its next four to five outlets.
“The model has been successful in the UK and we do not see any reason why it should not be successful here. The developer develops the mall and advertisers to attract customers. So the extra revenue earned by retailers should he shared as an incentive to the developers. The entry costs can also be brought down through this model,” Mr Mark Ashman, MSRI’s Chief Executive Officer, told Business Line on the sidelines of the launch of its new store in Mumbai.
The joint venture plans to invest about Rs 230 crore to open 50 new stores with a total capacity of 1 million sq ft in the next five years. “We will be trying out the revenue sharing model with as many of these proposed new outlets as possible,” Mr Ashman said.
The company has concluded deals with developers to set up outlets in Delhi, Bangalore, Hyderabad and Chennai.
While Marks & Spencer is providing the retail services and building the retail brand, Reliance is primarily providing back-end services, such as identifying developers, warehousing and logistics.
Localisation
The company intends to further localise the brand, with plans to hand over the operations to an Indian management team and increase local sourcing for its apparel products over a period of time. Presently, the management team consists of three expats from UK, including Mr Ashman and Mr Spenser Sheen, Head of Retail Operations and three officials from India, including one from Reliance.
Pegging it down
MSRI’s first task on hand is to get prices of its products in India on par with the prices in the UK. Marks & Spencer’s erstwhile franchise partner in India had initially pegged a 25 per cent premium on the products sold through the local outlets.
“We have now lowered prices and will continue to do so. But, one thing, we are not going to be the cheapest in town,” Mr Ashman said.
Firstly, in each category of its products, the retailer has broadened its opening price points, which helped the pricing in India to come closer to that in the UK. The company intends to source 70 per cent of its volumes locally to be sold in India, over the next five years, to become further price competitive.
Introducing products
MSRI has not yet introduced Marks & Spencer’s footwear products in India due to steep import duties. “But we are looking for local suppliers (in the footwear category). We are open to introducing this category in India,” the CEO said.
As for Marks & Spencer’s food products, which are sold under the brand Simply Food in UK, MRSI will have to approach the Indian Government for a fresh permission. So for the time being, the company may not look to bring its food products in the Indian circuit.
The Mumbai outlet has about 3,000 products stacked across three floors, involving 1,500 sq ft —the products are the same that the retailer sells in the UK, Singapore or Hong Kong.
The Hindu Business Line, April 23, 2009, Page 17
Amit Mitra, Mumbai
Marks & Spencer Reliance India (MSRI), which plans to roll out 50 retail outlets in the next five years, is experimenting with a new economic model of revenue sharing between the retailer and developer of the outlet.
MSRI, which is 51-per cent owned by leading UK retailer Marks & Spencer and 49 per cent by Reliance Retail, a subsidiary of Reliance Industries, has already sealed such revenue-sharing deals with developers for its next four to five outlets.
“The model has been successful in the UK and we do not see any reason why it should not be successful here. The developer develops the mall and advertisers to attract customers. So the extra revenue earned by retailers should he shared as an incentive to the developers. The entry costs can also be brought down through this model,” Mr Mark Ashman, MSRI’s Chief Executive Officer, told Business Line on the sidelines of the launch of its new store in Mumbai.
The joint venture plans to invest about Rs 230 crore to open 50 new stores with a total capacity of 1 million sq ft in the next five years. “We will be trying out the revenue sharing model with as many of these proposed new outlets as possible,” Mr Ashman said.
The company has concluded deals with developers to set up outlets in Delhi, Bangalore, Hyderabad and Chennai.
While Marks & Spencer is providing the retail services and building the retail brand, Reliance is primarily providing back-end services, such as identifying developers, warehousing and logistics.
Localisation
The company intends to further localise the brand, with plans to hand over the operations to an Indian management team and increase local sourcing for its apparel products over a period of time. Presently, the management team consists of three expats from UK, including Mr Ashman and Mr Spenser Sheen, Head of Retail Operations and three officials from India, including one from Reliance.
Pegging it down
MSRI’s first task on hand is to get prices of its products in India on par with the prices in the UK. Marks & Spencer’s erstwhile franchise partner in India had initially pegged a 25 per cent premium on the products sold through the local outlets.
“We have now lowered prices and will continue to do so. But, one thing, we are not going to be the cheapest in town,” Mr Ashman said.
Firstly, in each category of its products, the retailer has broadened its opening price points, which helped the pricing in India to come closer to that in the UK. The company intends to source 70 per cent of its volumes locally to be sold in India, over the next five years, to become further price competitive.
Introducing products
MSRI has not yet introduced Marks & Spencer’s footwear products in India due to steep import duties. “But we are looking for local suppliers (in the footwear category). We are open to introducing this category in India,” the CEO said.
As for Marks & Spencer’s food products, which are sold under the brand Simply Food in UK, MRSI will have to approach the Indian Government for a fresh permission. So for the time being, the company may not look to bring its food products in the Indian circuit.
The Mumbai outlet has about 3,000 products stacked across three floors, involving 1,500 sq ft —the products are the same that the retailer sells in the UK, Singapore or Hong Kong.
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