Monday, April 30, 2012

Exporters unable to rely on China’s growth


For a company reporting record quarterly profits, Caterpillar’s analyst conference call last week had a remarkably defensive tone to it.
“China is not a huge part of our business,” said Mike DeWalt, Caterpillar’s head of investor relations, making a point he reiterated several times.  
 “Sometimes people think that its significance to our machine sales in construction is a lot higher than it actually is.”
While Mr DeWalt noted that China accounts for one-tenth of company sales in the Asia-Pacific region and just 3 per cent of global revenues, the misperception is, at least in part, of Caterpillar’s own making.
The manufacturer, the world’s biggest maker of earthmoving equipment by revenues, has rapidly ramped up its capacity in China, building 16 manufacturing facilities in the country, with nine more under construction. It employs 11,000 workers in China, and plans to double its workforce there by 2015.
Last year, it moved its first senior executive to Hong Kong to demonstrate the importance of China to its growth.
By de-emphasising China this earnings season, Caterpillar signalled a retrenchment that is taking place across the US industrial sector.
Manufacturers that have counted on Asia for growth in recent years – while developed economies have been sluggish – expect that this year they will depend on the US and, to a lesser extent, Latin America, while Asia and Europe drag on their results.
Although the trend can be traced back to the middle of last year, the speed of the slowdown in Chinese demand has taken companies by surprise. Caterpillar said it had overestimated Chinese demand for construction equipment and now expected demand to decline in China this year, down from its prior forecast of growth of 5-10 per cent.
In the US, Caterpillar said sales had been stronger than anticipated, as resource and construction companies replaced ageing machinery. The trend was also evident at Eaton, the manufacturer of industrial equipment, which increased its demand growth expectations in the US to 9 per cent from 6 per cent while downgrading those elsewhere to 2 per cent from 4 per cent.
“We are seeing a sort of stark change from what we were all witnessing over the last few years, where most of the growth was in emerging nations,” Sandy Cutler, chief executive, told the FT.
Much attention, however, has been on the negative part of this equation.
Andy Kaplowitz, an analyst at Barclays Capital, says that although most big industrial companies’ quarterly results have exceeded expectations, slowing demand in China has cast a pall over earnings season.
“In a lot of these industrial calls, it’s been dismissed that North America is good. The focus is all on the tenor of China.”
While weakness in Chinese demand affected most US industrial companies, some have seen sales pick up in other emerging economies.
DuPont, one of the world’s biggest chemicals companies, said sales rose by 30 per cent in the Middle East and 23 per cent in Latin America from last year, while revenues fell 2 per cent in Asia.
3M, the diversified manufacturer, also singled out Latin America. “The western hemisphere is doing well, with Latin America leading the way,” said Inge Thulin, chief executive. “Western Europe has stabilised, but at lower levels. Growth in Asia is slow because of China, Japan and electronics markets.”
General Electric’s Chinese sales in the quarter rose 18 per cent from last year, but sales to Latin America were up by 35 per cent, while those in Russia doubled.
At United Technologies, the industrial conglomerate, Chinese orders fell by 15 per cent in the first quarter, with demand at its Otis elevator unit dropping by 21 per cent, but orders rose by one-fifth in Brazil, India and Russia. “The problem in emerging markets for us is really isolated to China,” said Greg Hayes, chief financial officer.
Ultimately, however, China’s economy has not yet slowed down to the extent that it is forcing manufacturers to rethink their long-term plans.
Doug Oberhelman, Caterpillar chief executive, made clear that as far as China was concerned, “our mid- to long-term forecast has not changed”.
That view was echoed by other manufacturing leaders such as United Technologies’ Mr Hayes.
“We … continue to make investments in China and China will be a growth market for years to come,” he said. “You’ll see ups and downs in China but a couple of quarters of China being down doesn’t dissuade us from the opportunity that’s there.”
In the meantime, however, US manufacturers are looking to their home market to offset weakness in the rest of the world.
That leaves them dependent on American economic exceptionalism.
“We continue to expect global manufacturing results this year to be influenced heavily by the extent to which US and Latin America buck the negative demand trends now being seen in China and Europe,” cautioned analysts at Fitch this week.
“Any faltering of the US economy would likely drive weakening global operating results for manufacturers in the second half of 2012.”

Food inflation feared as soya prices soar

The price of soyabeans is heading towards the record high set during the 2007-08 food crisis, which is set to reignite fears of runaway global food inflation.
The surge in prices is because of falling global production levels following dry weather in Latin America and increased China imports.
Soya’s wide range of use as feed for cows, sheep, pigs and poultry – and as a source for oil used in foodstuffs such as biscuits and cakes – means its high price could trigger food inflation fears.
As one of China’s most important agricultural imports, soyabean prices are closely linked to Chinese inflation, which has eased from a peak of 6.5 per cent last summer to 3.6 per cent in March. Commodities traders said soyabean prices were likely to rise to $16-$17 a bushel, targeting the all-time high of $16.63 set in the summer of 2008.
“We are going to see much higher prices as it is becoming clearer that the Latin American harvest is sharply down,” said one senior executive with a leading trading house.
Soyabean prices have risen more than 10 per cent in the past month to hit a peak of $15.09 a bushel on Friday, the highest in four years. Other sources of edible oil, including rapeseed and canola, have also reached levels last seen during the 2007-08 food crisis.
Soyabean production is sharply down in the agricultural belt of Brazil, Argentina, Uruguay and Paraguay as the La Niña weather phenomenon has exposed fields to hot, dry weather over the past few months. Latin America accounts for about 55 per cent of global exports of the commodity. The US Department of Agriculture estimates that global soyabean production in the 2011-12 growing season will suffer its biggest annual drop in absolute terms since records began in 1965.
Alberto Weisser, chief executive of Bunge, one of the world’s largest agricultural trading houses, said that soya was the “tightest” agricultural commodity after a “shorter-than-expected” crop in Latin America.
“The market is sending a clear signal that farmers [elsewhere] need to plan more,” he told the Financial Times.
But US farmers, who supply 40 per cent of global soyabean exports, have indicated they will sow more acres with corn, and plan to slightly cut the amount of farmland for soyabeans.

Why the Amazon Naysayers Should Be Scared

Another quarter, another blowout earnings report for Amazon.com (AMZN). The online retailer and technology juggernaut blew away analysts’ expectations on Thursday, posting $13.18 billion in revenue for the first three months of the year. The stock is up 13 percent. At this rate, the company will easily become the fastest retailer in history to cross $50 billion in sales for the year (it just missed in 2011). “The March quarterly results showed just enough upside in both revenues and margins to make the naysayers run for cover,” Stifel Nicolaus analyst Jordan Rohan wrote in a research note, sticking the shiv into the vociferous Amazon short-sellers.
The earnings report was yet another rousing movement in the entrepreneurial symphony being conducted in Seattle by Chief Executive Officer Jeffrey Bezos. Everything seems to be going right just now: His company is attracting new customers and third-party sellers, getting existing customers to spend more, and increasing profitability on new ventures such as Amazon Web Services and the Kindle. In the context of those improved margins, its expensive investment in its own operations, normally so disconcerting to Wall Street, now looks much less foreboding. Amazon added almost 10,000 employees in the past three months and now employs 65,600 people, up from 37,900 a year ago. It is building at least 13 new fulfillment centers in the U.S. this year, which will allow it to accelerate delivery and perhaps even expand its nascent grocery-delivery business beyond Seattle.
I say “at least” 13 new centers because there’s new news on that front almost every day. This morning, Amazon and Texas officials announced the company will begin collecting sales tax in Texas by this July and that Amazon will invest at least $200 million in new distribution centers in the state. It’s one more example (California was another) where Amazon essentially blinked in its standoff with a state that wanted it to begin collecting sales tax. Yet Amazon still wins, because it builds the new distribution centers it needs to expand its operations. Bezos has perfected the art of architecting the win-win situation.
Amazon’s founder himself was a no-show in yesterday’s earnings ritual. (Tom Szkutak, Amazon’s chief financial officer, runs the earnings call with an amazingly soporific drone. He could have a bright future narrating Audible audiobooks about medieval history.) One of the most interesting aspects to veteran watchers of Amazon’s earnings report is the quote from the CEO that Amazon includes in its earnings release, because it typically shows what the company wants to draw attention to. Amazon’s two-day Prime shipping club used to get most of the attention. Yesterday, Bezos used the opportunity to flog the thousands of e-books that are exclusive to the Kindle.
“You won’t find them anywhere else,” he wrote. “They include many of our top bestsellers—in fact 16 of our top 100 bestselling titles are exclusive to our store.” Amazon is desperate to put a Kindle in people’s hands, not only to dig a competitive moat around its book business, but to bring customers into the Kindle ecosystem at a time when they might consider entering the digital realms of such rivals as Apple (AAPL) or Google (GOOG) instead. That possibility—not profit margin, investment in operations, and expensive new innovation—is what the short-sellers should be worried about.
(Source: Bloomberg BusinessWeek)

Café Coffee day to raise share of foods, merchandising segment

Café Coffee Day (CCD) – the retail chain of coffee cafes – plans to up the share of merchandising and foods business.
Merchandising and foods together account for about 40 per cent of its total business currently, said Mr Ramakrishnan K, President-Marketing, CCD.
A division of Amalgamated Bean Coffee Trading Company, CCD, would take specific initiatives such as re-engineering of its food menu, adding more cafe lounges and products to its merchandise to garner a bigger share of the pie.
CCD would also continue to lay thrust on expanding its beverage business through its coffee outlets across the country, Mr Ramakrishnan said.

Merchandising

“Merchandising as a culture is fast picking up. It helps keep the brand young and vibrant,” Mr Ramakrishnan told Business Line.
The company currently sells its own products such as coffee powder, juices, cookies, mugs and coffee brewing machines.
This apart, CCD has also tied up with IPL teams such as Kolkata Knight Riders and Chennai Super Kings for selling their merchandise.
“Merchandising currently accounts for less than 10 per cent of our total business, but we see a good opportunity for growth in this segment. Sale of merchandise of IPL teams has been a good experience for us,” he said.

Foods

Foods as a segment accounts for about 30 per cent of its total sales, Mr Ramakrishnan said. “We are largely seen as a beverages and hangout chain. To encourage consumers to have food at our joints, we launched the lounge format,” he said.
CCD, which currently has 36 lounges in the country, plans to expand it moving forward.
“We offer a range of cuisine like pasta and biryani at our lounge. We take adequate measures to refresh our menu every six months,” he said.
Cafe Coffee Day currently operates 1,330 outlets in 185 cities in three formats – cafes, lounges and kiosks.
The company plans to scale it up to 2,000 outlets spanning 400 cities by the end of 2014, Mr Ramakrishnan said at a press meet to announce the launch of its ‘Café Moments' pre-paid cards here recently.
CCD is also engaging itself strongly on the digital media platform to woo the young consumers. “Close to 30 per cent of our consumers is below 20 years of age, while another 30 per cent of our consumers are in the age group of 20-35 years. This is clearly our brand positioning and we will continue to focus on this segment,” he said.
(Source: Business Line)

Croma eyes Rs 250-cr sales from pvt labels in FY’13

Riding high on the growing demand for its private labels, Tata Sons-promoted Infiniti Retail, which operates a chain of multi-brand electronics stores under Croma, is eyeing a revenue of Rs 250 crore from its own brands and expects to break-even in the current fiscal.
“We treat our private labels as brands and we sell what our customers want. We are expecting revenues of Rs 250 crore from our private labels in this fiscal,” Infiniti Retail Managing Director and CEO, Mr Ajit Joshi, told PTI here.
The Tata Group company clocked a revenue of Rs 80 crore in 2010-11 and Rs 130 crore in FY’12 from its private labels.
“We are very strict with our private labels, if the product does not deliver, we will throw it off the shelves.
But, we have observed that our private labels are well accepted in the market,” Mr Joshi said.
Under the Croma brand, the company sells refrigerators, air-conditioners, washing machines, fans, vacuum cleaners, hair dryers, among others.
“Our air-conditioners, including split and window, have registered a penetration of nearly 44-50 per cent. Similarly, the penetration of Croma vacuum cleaners and microwaves is 61 per cent and 20 per cent, respectively. This has given us confidence to go into larger appliances,” he said, adding that the company is also planning to launch front-loading washing machines.
Mr Joshi said Infiniti Retail is expected to break-even in this fiscal year. “We started this company in 2006. We expect to break-even in this fiscal itself,” he said. The company had a revenue of Rs 1,970 crore in FY’12.
e-commerce portal
Meanwhile, the company has entered into the e-commerce space by launching a portal ‘cromaretail.com’, which will enable it to reach 319 cities.
“With the higher penetration of Internet connectivity, online sales are catching up in a big way. The e-commerce portal will help us reach deeper into cities where we do not have presence so far,” he said.
Mr Joshi said Infiniti Retail is expanding its store network. .
“We plan to open another 14 stores by September to take the total count to 86,” he said.
(Source: Business Line)

Tata Elxsi to increase headcount at Bangalore lab

Tata Elxsi is in the process of expanding head count at its visual computing lab in Bangalore on the strength of a strong order book, a senior company executive has said.
“We have 330 people working in Bangalore and we are in the process of hiring more,” Tata Elxsi Head, Marketing & Sales, Asia, Mr Kunaal Saigal told PTI here.
The Tata Group firm provides engineering software and design services. It has four labs - at Andheri and Bandra in Mumbai, as well as Bangalore and Santa Monica in Los Angeles - which develop visual effects, 3D stereoscopy and animation for TV commercials, TV serials, movies, custom made content and computer games.
“Yash Raj Films (YRF) is our key client. We recently bagged a deal to do visual effects for its forthcoming movie called ‘Ek Tha Tiger’ We will also do visual animation for `Roadside Romeo’, a YRF-Walt Disney co-production, as well as UTV’s ‘Arjun, The Warrior Prince’ ‘Dhoom 3’ and ‘Bhag Milkha Bhag’ are the other movie projects we will be doing,” he said.
He declined to disclose the value of these deals, or the respective contributions to the company’s revenues from its divisions like embedded product design, industrial design, as well as systems integration, besides visual computing labs.
The company has also become a preferred partner of Microsoft’s computer games.
“We are a preferred partner for Microsoft’s Connect gaming platform. We have already worked on games like ’Disneyland Adventure’ as well as ‘Rush’, which we delivered recently,” Saigal said.
(Source: Business Line)

Future Group to demerge Pantaloons retail format

Future Group today announced the intent to execute a full demerger of Pantaloons retail format from Pantaloon Retail India Ltd.
The demerger, subject to necessary and statutory approvals, will invite an investment from Aditya Birla Nuvo Ltd.
Aditya Birla Nuvo will subscribe to debentures amounting to Rs 800 crore issued by Pantaloons Retail.
On completion of the demerger process, the debentures will be converted into equity in the demerged entity of the Panatloons format.
The existing shareholders of Pantaloon Retail, including its promoters will continue to own shares in the demerged entity. Post-demerger, the total debt of Pantaloon Retail will reduce by Rs 1,600 crore.
Mr Kishore Biyani, Founder and Group CEO, Future Group, said, “We always had a great admiration and respect for the businesses developed by Madura Garments. This marks a unique coming together of brands and enterprise that will create significant value for customers, suppliers and all stakeholders.”
The board of directors of Aditya Birla Nuvo and Pantaloon Retail has in-principle approved the proposed transaction and it is subject to finalisation of the Scheme of Arrangement, due diligence and statutory and other approvals.
JM Financial acted as the sole financial advisor to the transaction.
(Source: Business Line)

Education stocks aren't toppers any more

Apart from corporate governance, promoter stake sale issues, loss of ‘scarcity' value may have led to valuations dipping
A few years ago, education was the hot new sector that every investor — from retail to private equity — wanted a slice of. But the secondary market has not been all that excited, at least in recent times.
Consider these numbers. Companies such as Educomp, Everonn and Aptech that had enjoyed price-earnings multiples of 60-99 times in 2008 (investors were willing pay Rs 60-99 for every rupee of per share earnings) are now trading at single digit valuations.
Even as more education-related companies are listed on the bourses now, investors aren't willing to pay high price to own a share of them.

Why have multiples collapsed?

It isn't the profit growth that is the problem. Companies in the education space have seen their profits surge 3-5 times in the last three years.
“The listed basket of education players is still relatively small and each of them has their own unique issues, which led to a de-rating of the stocks,” explained Mr Nikhil Vora, Managing Director, IDFC Securities. He pointed to corporate governance issues in Educomp and promoter issues in Everonn.
In the case of Educomp, questions about the company's rapid pace of growth and stake sales by the promoters were raised by analysts, leading to a de-rating. The (erstwhile) promoter of Everonn was arrested by the CBI for allegedly trying to bribe an income-tax official. He was subsequently granted bail. Then he resigned from the company.
But governance issues apart, companies that got listed in the last couple of years (such as Career Point and Edserv Softsystems) have seen their multiples crash too. The loss of the ‘scarcity' value could be one reason.
“While there is a fantastic growth opportunity in this space around K-12 schools, higher education, education services such as testing, coaching classes and education-focussed technology players, private equity players are learning with each incremental investment.
“The sector continues to be attractive for PE investors although in my view valuations may start getting moderated given the overall macro economy trends coupled with a moderated IPO market,” said Mr Raja Lahiri, Partner, Transaction Advisory, Grant Thornton India. There also have been exits from prominent education companies by private equity players in recent years. Educomp and Everonn saw private equity funds exit.
Gaja Capital made an exit from Educomp in March 2011 while New Vernon made a complete exit from Everonn over the past one year.
Tutorial companies MT Educare and Career Point which made IPOs in the past year saw private equity investors such as Helix Investments and Franklin Templeton Private Equity, respectively, offload some shares.
“It's still a little early for meaningful PE exits as education as a theme caught on only in the last couple of years. Apart from Pearson-Tutor Vista and some IPOs of education companies such as Tree House, there haven't been any large-scale PE exits in this space per se.
“Of course, there have been cases of partial exits by players during IPOs, which would be driven by liquidity needs of private equity players,” explained Mr Raja Lahiri. The sector is attracting some new investors though.

Pockets of value

As per data provided by Grant Thornton India, the sector had attracted about $395 million worth M&A and PE investments in 2011 up from $266 million in 2010.
Within the space, those involved in coaching for competitive exams, such as FIIT JEE, Career Launcher and IMS, have seen private equity investments. A non-regulated space, the $6.4-billion coaching class market is one of the larger opportunities, but not without its challenges.
“There is limited value creation potential in the space as scalability is a challenge in 80 per cent of the market (tuitions).
“In the remaining that offer coaching for aptitude-based entrance exams to engineering/professional courses, scalability is an issue,” felt Mr Nikhil Vora.
(Source: Business Line)

India Cements to invest Rs 750 cr in Tamil Nadu unit expansion

The India Cements Ltd, one of the country's leading companies in the sector, is to invest around Rs 750 crore in one of its factories in Tamil Nadu. The proposed investment is to expand the annual capacity of this plant to two million tonnes (mt).
V M Mohan, joint president, corporate finance, said the present capacity of the unit at Thalavai in Ariyalur district was 1.8 mt per annum. “The mode of funding will be decided in due course,” he said.
The company has approached the Union ministry of environment for clearance. One more proposal was also placed before the ministry, on expansion of its Salem unit. Details about this expansion were not disclosed.
“Major commencement of works at Ariyalur will start once we get the ministry's approval, which will take six to nine months,” said Mohan.
India Cements has a total yearly capacity of 15.5 mt, including 1.5 mt in Rajasthan. The company reported capacity utilisation of 67 per cent last year in its Tamil Nadu plants.
According to vice-chairman and managing director N Srinivasan, “capacity utilisation can pick up if the demand in the market continues at the existing level”.
He said after reporting a decline of three per cent in the first nine months of 2011-12, the southern market showed some sign of recovery in the March quarter, by reporting nine per cent growth. Net plant realisation increased to Rs 3,431 per tonne from Rs 2,661, while the gross realisation rose to Rs 4,777 per tonne in 2011-12 from Rs 3,853 a tonne in 2010-11.
Besides cement, the company has power generation units, fuelled by wind, gas, waste and thermal energy, with a combined capacity of
150 Mw, including the Vishnupuram plant expected to go on stream by March 2013.
The company is also in the process of investing in a coal mine in Indonesia for around $20 million.
During the quarter ended March 31, India Cements reported a 17 per cent growth in net profit at Rs 64.9 crore as against Rs 55.3 crore a year before. Total income rose 11 per cent during the quarter to Rs 1,118 crore from Rs 1,000 crore a year before

Rajasthan scraps power project tenders won by BHEL

The Rajasthan government has scrapped tenders worth Rs 12,000 crore that were bagged by Bharat Heavy Electricals Ltd (BHEL) more than a year before for two separate thermal power projects in the state.
Rajasthan Rajya Vidyut Utpadan Nigam Ltd (RVUN), a state government company, has scrapped EPC (engineering, procurement and construction) tenders for the upcoming supercritical units of the Suratgarh and Chhabra thermal power stations, sources said.
RVUN cancelled the separate tenders floated for two 660 Mw units each for Suratgarh and Chhabra, respectively, without specifying reasons, sources added.
When contacted, BHEL officials said no reasons had been assigned by RVUN for cancelling the tenders and the company was trying to get in touch with RUVN. BHEL had emerged as the lowest bidder for the Rs 12,000-crore worth tenders, sources said. The second lowest bidder was BGR Energy.
Calls and messages to RUVN chairman and managing director P N Singhal did not elicit any response. BGR Energy could not be reached for comments.
The cancellation letters were sent on April 25. The development comes at a time when BHEL is grappling with slowdown in its order book. Owing to an overall sluggishness in the power sector, the company's order book more than halved to Rs 22,096 crore in the last financial year, compared to 2010-11.
According to sources, though the tenders were finalised in January 2011, RUVN initiated price negotiations with BHEL only this January. There were extensive discussions between the two parties, sources added.
When the tenders were floated in November 2009 and opened in April 2010, there were three bidders — BHEL, BGR Energy and Russia's Power Machines.
RUVN had invited international competitive bids for the two projects.
The tenders were for design, engineering, manufacture, assembly, testing at works, supply, civil structural and architectural works, erection, testing and commissioning of main plant and balance of plant on EPC basis.
The scrapping of the tenders would delay the two projects — having total capacity of 2,640 Mw — in Rajasthan, which is grappling with power shortage. At present, RUVN has an installed capacity of 4,097 Mw.
(Source: Business Standard)

Raymond to gain from its sharpened focus at home

Various restructuring initiatives, strong growth outlook and likely monetising of a part of its land bank in the near future can lead to a re-rating of the stock of Raymond, India's biggest clothing and apparel company.

BUSINESS

Raymond sells textiles, readymade garments and engineering tools. It has around 60% market share in the worsted textile segment (mainly used for formals). In the branded apparel segment, its key brands are Raymonds, Park Avenue, Color Plus and Parx.

The company has manufacturing plants in Vapi and Jalgaon with a total capacity of 38 million metres. It is also present in the retail space through its store brand, The Raymond Shop, and exclusive branded outlets. It has a total of 853 stores, including 39 in the Middle East and the SAARC region.

FINANCIALS

Raymond's net sales have grown at a CAGR of 12% in the last five years. For FY12, net sales were Rs 3,642 crore (y-o-y growth of 20%), while EBIDTA was at Rs 535 crore (up 93%) and PAT was Rs 143 crore (up 236%). The main reason for this jump in the profitability was the reduction in employee expenses which resulted from the voluntary retirement offered to its employees and lower employee cost at its new plants. The company's debt which trippled from FY05 to FY09 due to acquisitions in the west and new ventures, has stabilised since then. Currently, the debt is around Rs 1,800 crore and the debt to equity ratio is 1.4.

GROWTH DRIVERS

Over the last three years, the company has undertaken various restructuring measures such as shifting its Thane plant to Vapi and Jalgaon for cost optimisation. The company also shut its loss-making European and US business in FY10. The company has also increased outsourcing to improve its working capital cycle.

Also, the company is now mainly focusing on the domestic market where it enjoys a significant presence and has the first mover advantage. Raymond has increased its retail presence over the last few years from 409 stores in 2007 to 853 stores in 2012 through franchising. This will give the company, the first mover advantage and allow its apparel business to grow at a double-digit CAGR over the next three to four years.

Also, the company has 125 acres of land in Thane. Even on the conservative side, the valuation of this land is likely to be around Rs 2,500 crore. A partial sale of this can help the company bring down its debt significantly and trigger a re-rating of the company's stock.

(Source: Economic Times)

Social gifting: the new buzzword in e-commerce

Last year, the buzzword in e-commerce was Groupon Inc and its myriad of competitors that offered daily online coupons to entice shoppers in a down economy. Now, the latest fashion in retail is social gifting, where people get together on Facebook to buy each other gifts.

Start-ups such as Sweden-based Wrapp, which is launching its U.S. business on Monday, are getting millions of dollars in venture-capital funding, and retailers like Best Buy Co Inc , Gap Inc and Starbucks Corp are scurrying to be a part of it.

"Brick-and-mortar retailers are all looking for new, more efficient ways to drive sales into stores without diluting their brands ... we wanted to really see how retailers can leverage the megatrends of smartphones and social networks," said Hjalmar Winbladh, chief executive of Wrapp.

Wrapp is essentially an app that can run on smartphones, tablets and computers. It allows Facebook friends to buy each other gift cards from participating retailers either individually or by teaming up, which they can store on their mobile devices and redeem either online or inside physical stores. Retailers like it because there is little marketing cost and because customers often end up buying more once they are inside the store.

Since mid-November more than 165,000 active users have given over 1.4 million gift cards that can be redeemed in some 50 major retail stores across Europe, according to Wrapp.

"The thing that struck me as unique and interesting about Wrapp is that it is kind of the intersection of three trends: gift cards, social networks and mobile (shopping)," said Reid Hoffman, a cofounder of LinkedIn and a partner at Silicon Valley venture-capital firm Greylock Partners.

Wrapp has received $10.5 million in funding from Greylock and technology VC firm Atomico. Hoffman serves on Wrapp's board, as does Skype co-founder and Atomico founder Niklas Zennstrom.

In the United States, the Swedish company has tied up with retailers including H & M Hennes & Mauritz AB, Gap Inc , Sephora and Fab.

E-gifting - or people buying gift cards from a retailer's website - is still in its infancy, accounting for only $1 billion of the $100 billion gift card industry last year, according to Brian Riley, senior research director at CEB TowerGroup. Of that $1 billion, social gifting made up only about 5 percent or $50 million.

Technology is naturally progressing toward platforms like social gifting, said one industry player. "E-commerce platforms are becoming inherently more social with the inclusion of comments, recommendations and purchase history from each person's social graph," said Randy Glein, managing director at venture capital firm DFJ Growth.

THE RETAIL LINEUP

Starbucks expects social gifting to make up about 20 percent of its gifting business in the near future.

"Customers can connect from our site to their registered Facebook account to view upcoming birthdays of Facebook friends, send them e-gifts directly, and share the news on their Facebook wall," said Alexandra Wheeler, vice president of global digital marketing at Starbucks.

Bridget Dolan, vice president of interactive media at Sephora, said conversion rates - measuring the amount of customers who actually come to stores to redeem the vouchers - are likely to spike on holidays like Valentine's Day, Mother's Day, and just before Christmas.

This optimism has a host of startups like CashStar, SocialGift, Groupcard Apps and DropGifts rushing in to be the early birds in the sector.

CashStar, for example, works with more than 200 retailers for their e-gifting businesses, and has seen sales grow 463 percent in the latest quarter. Nearly 10 percent of CashStar's retailer network uses social gifting, CashStar Chief Executive David Stone said.

"Facebook commerce is still very nascent; it is a small, small world. Within that, social gifting is one area where we can potentially build sales," Stone said.

While there are high hopes for the future of social gifting, it may be appropriate to remember last year's darling, Groupon.

As a private company, Groupon was one of the fastest-growing businesses in history and in November pulled off one of the largest Internet IPOs of the past decade, valuing the company at well over $10 billion. But since the stock market debut, the shares have fallen around 40 percent on concern about the sustainability of that growth and the company's accounting.

WHAT'S IN IT FOR THEM?

Retailers view social gifting as an opportunity to reach out to their target buyers and promote their brands at almost no extra cost.

Wrapp, for instance, charges retailers nothing until a transaction is made. It bets on the premise that most shoppers will end up spending more than the gift card's value once they are in the store.

"As marketers, we want to be where the consumers are, and they are all on Facebook," said Bradford Robinson, gift card manager for Chili's Grill & Bar.

Wrapp, which works with companies like home improvement chain Clas Ohlson and Dixons Retail -owned consumer electronics chain Elgiganten in Europe, said users reportedly spent 5.2 times the value of the gift card when they came to claim their gifts.

"I have no doubts that because of the FB platform, these things can grow very quickly and get a lot of users in a short period of time," said Sucharita Mulpuru, an analyst with Forrester Research.

But she also has a word of caution. "It is new, and there is a lot that remains to be seen. It could be a very powerful form of marketing (and) drive incremental value. But the challenge is that there is a promise and there is a reality ... you can't just introduce a platform like this and expect it to deliver gold to everybody," she said.
(Source: Economic Times)

Highest attrition in hospitality, aviation sectors: Survey

Hospitality and aviation sectors are witnessing the highest attrition rates among employees, making retention of critical manpower resources a key challenge, says a survey.

According to a study by MyHiringClub.com, the average attrition rate in aviation and hospitality in fourth quarter of 2011-12 was 22 per cent across sector, a rate that has increased by 8 per cent from the from the year-ago period.

In comparison, attrition rates in IT and ITeS sector had fallen from 24 per cent in fourth quarter 2010-11 to 18 per cent in same period in 2011-12.

Similarly, in the auto sector, attrition rates fell to 10 per cent in January-March quarter from 11 per cent in the corresponding period in 2010-11.

"At the entry and mid-management level, attrition rates in aviation and hospitality industry have doubled over the last three years. This is happening due to perceptions of being poor pay masters, delay in salaries, job insecurities and little concern for employee welfare.

"Profitability of these sector is also major reason for high attrition," MoneyCrest Management Director Ravi Gupta said.

Echoing similar views, Sat-n-Merc Manpower Consultant Director Prachi Kumar said, "factors such as attractive and definite pay package with incentives and working conditions seem to be more moderate and regulated in areas of aviation, hospitality, retail and animation."

The hospitality industry has failed to retain good professionals, Kumar said, adding that one of the greatest challenges plaguing the sector is the unavailability of quality workforce at different skill levels.

MyHiringClub.com CEO Rajesh Kumar said: "Now these days organisations from these sectors had either freezed their hiring activity or are hiring very less number of employees.

"Also employers are facing very high attrition because of their credibility. In last six months, the issues with aviation industry is driving the high attrition rate."

The survey is conducted among over 7,000 employees and nearly 250 employers in April.
(Source: Economic Times)

ILO warns of new global jobs crisis

The International Labour Organisation (ILO) Monday warned of the emergence of a global jobs crisis, noting that around 50 million jobs that were lost during the financial crisis are still missing today.

Despite signs that economic growth has resumed in some regions, the global employment situation is alarming and shows no sign of recovery in the near future, the ILO said in a report entitled "World of Work Report 2012: Better Jobs for a Better Economy".

The report attributed the fact to factors including the fiscal austerity policy and tough labour market reforms carried out by many governments, especially in advanced economies; loss of confidence as well as skills of jobseekers; non-standard forms of employment which are on the rise; and aggravated social climate which may lead to further social unrest.

Youth unemployment rates have increased in about 80 percent of advanced countries and in two-thirds of developing countries, reported Xinhua.

On an average, more than 40 percent of jobseekers in advanced economies have been without work for more than a year, while the majority of developing economies show a decline in both long-term unemployment and inactivity rates.

Involuntary part-time employment has increased in two-thirds of advanced economies and temporary employment has also risen in more than half of these economies, while the share of informal employment stands at more than 40 percent in two-thirds of emerging and developing countries, according to the report.

It said that in developed countries, especially in Europe, job recovery is not expected before the end of 2016, unless there is a dramatic shift in policy direction.

If a job-friendly policy-mix of taxation, increased expenditure in public investment and social benefits is put in place, approximately two million jobs could be created over the next year in advanced economies, it added.
(Source: Economic Times)

Royal Enfield roars back on quieter, sleeker bikes

The "thump" is gone, but sales are booming. Royal Enfield, a 119-year-old Anglo-Indian motorcycle maker with a cult following, has brought its distinctive bikes into the modern era with new and quieter engines and can't make them fast enough to meet demand.
The once-sleepy company sold 74,600 motorcycles in 2011, a 40 per cent increase, all made at its 57-year-old factory on India's southeastern coast, and is spending $30 million this fiscal year in a push to double capacity and upgrade manufacturing technology.

For now, customers must wait six to nine months to get their bikes.

"Paradoxically, the more we make the more we appear to be falling behind. Only when the new plant kicks in fully next year will we be able to fully address the waiting periods," Venki Padmanabhan, chief executive officer of Royal Enfield Motors, told Reuters.

A new engine has replaced Royal Enfield's antiquated cast iron engine, boosting acceleration, performance, mileage and reliability, and reducing emissions.

The company is best known for the powerful Bullet model, but it is the newer Classic series that is driving growth in a crowded and fast-expanding Indian market where 10 million motorbikes were sold last year.

"They've finally got the markings, the logo and the colour schemes perfect," said 35-year-old George Koshy, who works in an advertising firm and owns four Royal Enfield bikes, including a Classic 500.

Royal Enfield's motorcycles start at 108,000 rupees ($2,100) in Mumbai and rise to 175,000 rupees, against 72,000 rupees for a 220 cc Bajaj Avenger, a similarly powerful bike also marketed towards enthusiasts.

Harley Davidson, whose bikes start at 560,000 rupees, is part of a slew of overseas manufacturers such as Britain's Triumph and Japan's Kawasaki that is ramping up activity in India to capture a growing premium motorbike market.

"If you want to ride for the heart, you ride the Bullet; if you want to ride for performance you ride the Harley," said Koshy, who plans to add a Harley Davidson to his collection.

TRANSFORMATION

Purists still come to the company looking to buy a bike with the old engine, but they have to go to the second-hand market as production ceased in 2010.
Royal Enfield originally built motorcycles to be parachuted into enemy territory by British forces during the Second World War, and the classic styling and trademark thumping of its engine at full throttle drew a legion of gearheads to the brand, including television host and motor enthusiast Jay Leno.

It rolled out its first motorised bike in 1901 and entered the Indian market in 1949, where the Bullet, now in its 80th year of manufacture, became a staple on the country's roads.

Royal Enfield, which stopped building bikes in Britain in 1970 and was bought by India's Eicher Motors in 1994,

expects to open a new 50-acre plant in the southern Indian state of Tamil Nadu next year, taking capacity to 150,000 vehicles.

It is a niche manufacturer in a country where mass-market players led by Hero MotoCorp and Bajaj Auto sell cheap bikes as basic transportation and family vehicles.

The company sold just 3,200 bikes overseas last year and is looking to expand its export markets on the strength of its upgraded engines. It recently signed up dealerships in Malaysia and the Philippines, and is working to resurrect its distribution network in Germany and France.

An auto-industry veteran, the 49-year-old Padmanabhan started his career with General Motors in Michigan and took the top job at Royal Enfield in January 2011 after two years as chief operating officer.

"For many motorcycle companies, when they change engines it's like life and death - if you don't do it right you're finished," he said.

"For us we think we've been successful with the UCE engine, which just happened a little over a year ago, and there's still a lot more to be done with this engine," he said.
(Source: Economic Times)

Dabur, Pepsi, Coca-Cola, Amul and others betting on functional beverages

Water is now more than just a thirst quencher, and dairy drink's more than flavoured milk. They can now rejuvenate you and boost your performance in the form of energy drinks, vitamin water, fortified milk and yogurt, and enhanced iced tea, among others.
A slew of companies, including Groupe Danone, Dabur, PespiCo, Coca-Cola, Amul, Britannia and Rasna, are betting on such functional beverages to woo the young, health-conscious Indian consumer.
"Functional beverages is an emerging segment and it pays to enter these categories early," says Sunil Duggal, CEO of Dabur India, which plans to launch value-added beverages on the health under its Real brand. "Some of the products will be launched as soon as the second half of the fiscal," he says.
French company Groupe Danone, which makes bottled water Qua in a joint venture with Narang Group, is now test-marketing B'lue, an aqua restorative drink, in Pune.
"The 18-35 age group is willing to try something new. They are keen on products that are modern and stylish. The first step of success is to surprise them," says Pierre Betat, country manager of Danone-Narang Beverages.
He says the surprise element-aroma, colourless liquid and taste-helps consumers who typically compare new products with cola and juices to become adopters quickly.
In a brief on functional beverages Euromonitor International in November last said people in urban areas are concerned they are not getting essential nutrients due to erratic eating habits and schedules, and are looking for easy-to-consume fortified beverages.
Euromonitor estimated India's functional soft drink market at Rs 546 crore in 2011, 19% more than the previous year.
Amul, the country's largest food brand, is rolling out Prolife lassee and buttermilk, to compete in a category created by probiotic yogurt drink Yakult in India. Probiotics products have live bacteria which when consumed regularly improve intestinal health.
But the dairy giant is in no hurry to nationally launch its whey-based sports drink Stamina, which was first launched back in 2006. The company is "waiting and watching", says RS Sodhi, managing director of Gujarat Co-operative Milk Marketing Federation, which owns Amul brand.

This is perhaps because some big players had to withdraw their functional drinks due to poor response. Examples include PepsiCo's energy drink SoBe, GlaxoSmithKline Consumer Healthcare's sports drink Lucozade and Tata Global Beverages's tea-based wellness drink T!ON.
PRICING KEY
Piruz Khambatta, chairman and managing director of Rasna, blames these failures on their pricing and business strategy. "Two problems with the functional drink segment in India is that companies have launched their foreign brands without local customisation and at prices which are far premium," he says.
Rasna, India's largest instant-drink maker, plans to enter the category in the mass market with a new subsidiary. It is in talks with European and American firms to form either brand licensing arrangements or technical collaborations.
Functional drinks contribution to total beverage sales at India's largest retailer Future Group is in single digits. But Devendra Chawla, the company's president (food & FMCG), says if the products are made affordable, it can be promoted through sampling in modern retail where consumption is more evolved.
When former Coca-Cola employees Suhas Misra, Neeraj Biyani and Neeraj Kakkar partnered with Wharton classmate James Nuttal to launch an energy drink, they knew pricing had to be disruptive to compete with likes of Red Bull priced at Rs 95.
So their firm, Hector Beverages, chose flexible doy pack instead of a can for its Tzinga energy drink. This brought down costs by 40%, enabling the Catamaran Venture Fund and FootPrint Ventures-funded company to price it at Rs 20.
Tzinga has 50% repeat consumers, Hector Beverages CEO Neeraj Kakkar says, adding that its biggest consumption spots are the IIT Delhi campus and the canteen for cab drivers at Bangalore International airport. "We knew we had to change the rules, if we had to play the game," he says.
PepsiCo India, whose sport drink Gatorade is growing in high double digits, says its joint venture with Tata Group, NourishCo, also focuses on the mass segment.
NourishCo launched glucose-based drink Tata Gluco Plus in a 200 ml cup priced at Rs 6 last year and nutrient water under Tata Water Plus at Rs 16 for a 750 ml bottle in Tamil Nadu recently.
"It is only now that a large part of the Indian population is becoming aware of the intensity of malnutrition and under nourishment that afflicts them and hence the need for nutritional interventions in their daily lives," say a PepsiCo spokesperson, adding they would introduce more products based on need gaps in the market.
LONG HAUL
Danone-Narang's Betat says the market is still nascent and it will take time for a brand to establish. "You cannot expect success in India in six months, you need 3-7 years," he says. Danone-Narang rolled out vitamin-water Qua Plus in the premium segment in 2010.
Britannia Industries has two value-added milk-based products in its portfolio. Actimind, currently sold across Chennai and Bangalore, is positioned for mental sharpness and TigerZor with five nutrients is targeted at child development, Vinod Menon, head of the firm's dairy division, says.
A Coca-Cola India spokesperson says the functional beverages segment in India is limited to big cities now. "There is awareness about functional drinks, but it's limited to top tier cities and metro towns," he says. The top soft drinks maker launched energy drink Burn in 2009, now available across three cities. Its new division, Minute Maid & alternative beverages, is now working on expanding Burn's presence in India. Functional drinks segment is worth more than $9 billion (approx Rs 47,200 crore) in the US alone, according to market research firm Mintel.
(Source: Economic Times)

TVS Motor launches new Apache RTR 2012 bike series

Two-wheeler manufacturer TVS Motor Company today launched the new Apache RTR 2012 series incorporating cosmetic changes.

The Apache RTR series, a successful motorcycle for the Chennai-based automajor, had been launched with "new beast themed styling", a company statement here said.

"The new design, all lines pulled back, excesses eliminated and curves chiseled to perfection, synergises with a high performance powertrain to look dynamic," it said.

The new design and styling has been incorporated in all Apache models -- RTR 160, RTR 180 and RTR 180ABS. Besides, the new range would have new pilot lamps incorporated with LED light and a new aerodynamic styling reducing the engine heat, it said.

"We have taken the Apache RTR to the next level with obsessive engineering and menacing design. The priority in every step of the Apache brand's development has been race bred performance. Every system, detail and component has been tuned to maximise performance." TVS Motor Company President (Marketing) H S Goindi said.

The new TVS Apache RTR 160 is available in four dual tone colours -- green, red. Yellow and grey with black being the base colour. The 180 RTR series also comes in four colours of white, yellow, grey and black while the ABS version in white and black.

The new TVS Apache RTR Series is available in all its dealerships across the country. The TVS Apache RTR 160 is priced at Rs 67,505 (ex showroom Delhi) and the RTR 180 at Rs 72,090 (ex showroom Delhi. The RTR 180 ABS version would cost Rs 82,780 (ex showroom Delhi), the statement added.
(Source: Economic Times)

Maruti Suzuki pools efforts with vendors to cut costs

 In its drive to cut costs, Maruti Suzuki India is expanding the basket of raw materials sourced jointly with vendors apart from hedging forex together to avoid averse currency movements.

The country's largest car maker, which has already hedged 40 per cent of total exposure of 100 billion yen (over Rs 6,530 crore) together with vendors for the ongoing fiscal, is now planning to source plastics together in order to reduce costs.

"About five years back, we had started sourcing steel together with our vendors from suppliers. We have also done the same for aluminium about two years back. Now we intend to do the same with plastics," Maruti Suzuki India (MSI) Managing Executive Officer (Supply Chain) S Maitra told PTI.

Commenting on the need for such joint contracts with vendors, he said: "When we source raw materials independently, the suppliers quote different rates to us and another to vendors".

After such combined sourcing, the company has been able to achieve 5-10 per cent saving on costs, he added.

"Now we are looking to take up similar approach for plastics, as a large quantity is used by us as well as our vendors. We have had talks with Reliance Industries which is the biggest supplier," Maitra added.

Apart from the commodities, the company has also pooled in efforts to hedge yen exposure together with its vendors.

"For the fiscal 2012-13, the combined exposure of Maruti and its vendors is 100 billion yen and 40 per cent of that has been hedged," MSI Chief Financial Officer Ajay Seth said.

He declined to disclose the rate at which it has been hedged but said: "It is much better than the current yen- dollar exchange rate".

On the contract for steel for the next six months, Maitra said the company has started negotiations with domestic suppliers.

"The Indian steel suppliers have asked for about 5 per cent increase in the price. We are negotiating it and have not come to a final price," he said, adding the firm is yet to start the process with foreign suppliers.

MSI and its vendors source steel from domestic firms, including Tata Steel, Essar, Hero and Bhushan. Its main overseas steel suppliers include Posco and Nippon.

Maitra also said MSI has asked its vendors to take up other cost efficiency measures in order to bring down costs.

"We have been asking them to focus on improving efficiency, optimise manpower and take up other cost saving measures so that the overall costs can be brought down by 3 to 3.5 per cent," he said.

Spain in recession as austerity bites, demand shrinks

Spain's economy slipped into recession in the first quarter as domestic demand shrank, data showed on Monday, with deep government spending cuts in an uphill battle to trim the public deficit likely to delay any return to growth.

Gross domestic product shrank 0.3 percent in January-March from the previous quarter according to preliminary National Statistics Institute data, unchanged from October-December and compared to a Reuters poll expecting a 0.4 percent contraction.

Madrid is under intense pressure from its European peers to streamline the euro zone's fourth largest economy, reduce a massive public deficit and fix a banking system battered by a four-year economic slump and a burst property bubble.

On an annual basis the economy contracted by 0.4 percent compared with growth of 0.3 percent in the previous quarter, the data showed. Economists polled by Reuters, as well as the Bank of Spain, had forecast a slippage of 0.5 percent.

"Spain's still very much recession and we think that this isn't going to improve soon. It's likely they'll have to create more fiscal tightening in order to catch up if they wish to avoid going in to plan, and that's going to be counterproductive," economist at Citi Guillaume Menuet said.

The Spanish government's updated economic stability plan, published on Friday before sending it to the European Commission, saw an estimated contraction of 1.7 percent in 2012 turning to 0.2 percent growth by next year.

Friday, April 27, 2012

Porsche Mongolian Push Shows Chinese Wealth Heading West

Forget Beijing or Shanghai. Porsche AG, Maserati and Bentley Motors Ltd. are taking the fight for China’s rich to the deserts of Inner Mongolia.
The maker of the 911 sports car opened a dealership in Ordos -- a sparsely populated mining city known as home to Genghis Khan’s mausoleum -- in March after sales jumped 10-fold in four years to 200 vehicles, according to the head of Porsche China. Executives at Volkswagen AG (VOW)’s Bentley and Fiat SpA (F)’s Maserati said they also plan to open showrooms in the city.
Luxury-car showrooms are sprouting in rural cities from Ordos to Chairman Mao Zedong’s birthplace of Changsha as growth slows in the nation’s eastern coastal megacities, where premium- vehicle ownership levels already exceed those of the U.S. and U.K. That means central and western China may fuel the next phase of growth for both high-end and mainstream carmakers vying in the world’s biggest automobile market.
“Major cities such as Shanghai, Beijing and Guangzhou powered the initial phase of the auto demand boom,” said Ashvin Chotai, managing director at industry researcher Intelligence Automotive Asia. “Expansion into the inner provinces and smaller cities is a natural aspect of the evolution of the car market and will be an ongoing process in the medium and long term.”

Beijing Parking Lot

While nationwide premium-car ownership in China lags behind the global 10 percent average by two percentage points, their share in eastern coastal provinces already exceed U.S. and European levels, Sanford Bernstein wrote in a report this month. For example, luxury cars accounted for 24 percent of vehicles in Beijing in the first half of 2011, more than double the 11 percent U.S. average, according to the report.
Inland, the residents of Inner Mongolia’s 1.17 trillion yuan economy ($117 billion) aren’t the only ones shopping for $142,000 Porsche Cayenne SUVs and $584,000 Continental GT sports cars. Xi’an, where tourists go to see Emperor Qin’s earth-glazed Terracota Army, Changsha, Shenyang and Harbin will also see an influx of Maseratis and Volkswagen’s Lamborghinis, according to the companies.

Lambo’s Push

“There is a market, there is potential, and we have to follow the market,” said Broeker, who plans to expand Porsche’s Chinese dealership network by more than 40 percent this year, with new showrooms planned for Jinan, Tangshan, Hohhot and Lanzhou.
Christian Mastro, Lamborghini’s Asia-Pacific general manager, agrees future growth may lie inland. The concentration of mining and coal industries in those cities makes them “very important” to China, which may become the world’s largest market for luxury goods in the next decade, he told reporters at the Beijing auto show April 22.
Helped by a government-led push to boost mining production, cities such as Ordos -- whose average estimated economic growth has exceeded 20 percent annually for the past decade -- have prospered. Foxconn Technology Group, the contract manufacturer that assembles Apple Inc. (AAPL)’s iPhone, and Unilever are expanding to Central and Western regions of China. Government officials at Chongqing, Zhengzhou, Changsha and Chengdu all predict economic growth in their respective cities to beat the national average.

$2.7 Trillion Market

“It used to be the poor part, but there’s more and more wealth there,” said Mastro, who plans to start selling Aventador and Gallardo sports cars in Changsha, Shenyang, Taiyuan this year. “We have to be there.”
Lamborghini, Bayerische Motoren Werke AG (BMW)’s Rolls Royce Plc (RR/) and Bentley already say their biggest market is China, where Cap Gemini SA (CAP) and Bank of America Corp. estimate is home to half a million millionaires with $2.7 trillion in wealth. Chinese showrooms formed 10 out of 12 of Porsche’s best performing dealerships globally, the company said April 22.
Deliveries of cars priced beyond 2 million yuan are set to grow 19 percent this year to 5,278, according to data from industry researcher IHS Automotive. By comparison, the state- backed China Association of Automobile Manufacturers predicts the total number of passenger vehicles will increase 9.5 percent in 2012.

‘Safe Bet’

“You can’t slow the movement down,” said Bentley CEO Wolfgang Duerheimer, who plans to add showrooms in Tangshan, Changsha, Dalian and Ordos this year. “China is a safe bet.”
Christian Gobber, Maserati’s managing director for China, Hong Kong and Taiwan, said he was surprised four years ago when the automaker’s dealership in the southwest city of Kunming, the Yunnan province capital located closer to Myanmar than Shanghai, exceeded sales projections.
Sales at the Italian automaker’s Kunming dealership have risen five-fold since its opening in 2008, and Maserati now plans to increase its number of dealerships in the nation by as much as 60 percent to 25 dealers this year, focusing on the smaller cities outside Beijing, Shanghai.
Upscale car dealers will be targeting consumers such as Wu Lijun, 25, in Chongqing.

‘Bamboo Shoot’ Demand

“My car isn’t even among the better ones in my hometown,” said Wu, who drives a 7-series sedan, as he browsed through a magazine at a BMW dealership with his girlfriend. “A few of my former schoolmates drive Porsches, Land Rovers. You see Rolls Royces on the road.”
The inland migration isn’t limited to carmakers seeking to cater to the ultra-rich. General Motors Co. (GM) and Fiat have said they plan to expand west.
“If you go to Guangxi, Yunnan, Sichuan and other inland areas you will find demand coming up like bamboo shoots,” said Jack Cheng, general manager of Fiat’s Chinese venture with Guangzhou Automobile Group Co.
Targeting such customers isn’t easy. Porsche only hires locals from the provinces where inland dealerships are located and sets aside more resources to educate customers about the brand, according to Broeker. Chinese customers are also not the most patient buyers, said Bentley’s Duerheimer.
“When a customer comes to the dealership, sometimes for the first time, he expects to take the car when he is leaving the dealership,” he said. “They won’t wait three months for you to deliver. It needs to be there now.”
(Source: Bloomberg)

Starbucks Falls 5% After Same-Store Sales Trail Estimates

Starbucks Corp. (SBUX), the world’s largest coffee-shop chain, fell 5 percent in late trading after reporting second-quarter same-store sales that trailed analysts’ estimates amid weaker demand in Europe.
The shares dropped to $57.64 yesterday at 7:59 p.m. New York time, after closing at $60.66. The Seattle-based company’s stock had gained 32 percent this year through the regular New York close.
Sales at stores open at least 13 months rose 7 percent globally in the quarter, Starbucks said yesterday in a statement. Analysts projected a gain of 8.2 percent, the average of 17 estimates compiled by Consensus Metrix. Such sales fell 1 percent in Europe, the Middle East and Africa amid “slight decreases” in transactions and average check, Starbucks said.
Customers in Europe “are just cautious, as you would expect, not unlike what they were like in the U.S. three and four years ago,” Chief Financial Officer Troy Alstead said in an interview. Starbucks “is not immune from that,” he said.
Second-quarter net income advanced 18 percent to $309.9 million, or 40 cents a share, from $261.6 million, or 34 cents, a year earlier, the company said. Analysts projected 39 cents, the average of 28 estimates compiled by Bloomberg.
Starbucks raised its forecast for fiscal 2012 profit excluding certain items to as much as $1.84 a share, compared with a previous estimate of up to $1.82. Analysts estimate $1.86, on average. Full-year revenue growth will be in the “low teens,” Starbucks said in the statement.

Turnaround Effort

Chief Executive Officer Howard Schultz recently has sought to boost the company’s flagging business in Europe by increasing advertising and changing its drink recipes there. Schultz, 58, returned to the CEO position in 2008 amid declining sales to engineer a U.S. turnaround after the company opened stores too quickly.
Starbucks is “optimistic” that Europe can be a profitable market for the company, Schultz said yesterday on a conference call. Still, the rebound “won’t happen overnight,” he said.
The company has raised menu prices in some markets this year because of higher costs for coffee beans. Commodities will add about $230 million to costs in fiscal 2012, the company said today.
Same-store sales climbed 18 percent in China and Asia Pacific, matching analysts’ estimates, according to a survey by Consensus Metrix, a researcher owned by Wayne, New Jersey-based Kaul Advisory Group. Comparable or same-store sales are considered an indicator of a retailer’s growth because they include only established locations.
Starbucks is accelerating unit growth in China and Asia, where it has more than 3,000 cafes, and will open 400 stores there this year, it said in the statement.
Revenue advanced 15 percent to $3.2 billion during the quarter ended April 1, compared with analysts’ average estimate of $3.19 billion.
Starbucks has about 17,400 locations worldwide and plans to open about 1,000 net new stores this year.
(Source: Bloomberg)

Samsung Ends Nokia’s 14-Year Run as Biggest Handset Maker

Samsung Electronics Co. (005930) overtook Nokia Oyj (NOK1V) as the world’s biggest vendor of mobile phones for the first time, ending the Finnish company’s 14-year run as the global leader, according to an industry study.
Samsung shipped 93.5 million handsets in the first quarter, 36 percent more than a year earlier, compared with 82.7 million for second-ranked Nokia, researcher Strategy Analytics said in a statement today. Demand for Galaxy smartphones helped Suwon, South Korea-based Samsung post first-quarter net income today of 5.05 trillion won ($4.5 billion), beating analysts’ estimates.
Nokia had been the biggest mobile-phone maker by shipments since 1998, when the Espoo, Finland-based company took over the spot from Motorola Inc. (MMI) Nokia reported a 1.34 billion-euro ($1.8 billion) first-quarter operating loss after handset sales slumped. Both smartphones and low-end handsets declined as Nokia’s aging portfolio was outpaced by handsets running Google Inc. (GOOG)’s Android. Its handset shipments in China fell 62 percent.
“Last year Samsung became No. 1 in Europe while Nokia retained the No. 1 position in most emerging markets,” Tom Kang, a Seoul-based research analyst at Strategy Analytics, said in a phone interview today. “In the first quarter, we expect Samsung took a lot of market share from Nokia in Asia. China and India were the two biggest markets where Samsung gained.”

Nokia Stock Drops

Nokia dropped as much as 2.5 percent to 2.69 euros, the lowest price in more than 15 years based on closing prices, and was trading down 0.6 percent as of 11:31 a.m. in Helsinki. Samsung gained 2.5 percent to a record 1,374,000 won at the close in Seoul.
Apple Inc. (AAPL) is the world’s third-biggest maker of mobile- phones after shipments rose 89 percent to 35.1 million last quarter, according to Strategy Analytics.
“Samsung will probably still be No. 1 in the second quarter, but the full year will be a close call because the third and fourth quarters are traditionally Nokia’s best,” Kang said.
Samsung also regained the lead from Apple as the world’s biggest vendor of smartphones in the first quarter. Smartphone shipments surged 41 percent in the quarter, the analysts said.
The South Korean electronics maker shipped 44.5 million smartphones in the first three months of the year, giving it about 31 percent of the market, Strategy Analytics said. Apple shipped 35.1 million units, accounting for about 24 percent of the market, it said. Nokia ranked third in the segment.

Windows Phone Sales

Nokia said this month that its new smartphone line using Microsoft Corp. (MSFT)’s Windows Phone platform sold more than 2 million units in the first quarter out of 11.9 million smartphones that Strategy Analytics said the Finnish company had shipped.
Samsung accounted for about 25 percent of the global handset market by shipments, while Nokia’s market share was almost 23 percent, according to Strategy Analytics. Apple’s market share was 9.5 percent, it said.
Global mobile-phone shipments rose 3.3 percent to 368 million last quarter, according to Strategy Analytics.
(Source: Bloomberg)