Sleeping ad giant Amazon finally stirs

San Francisco/New York: Amazon.com Inc is known in the advertising industry as the “sleeping giant” because the world’s largest Internet retailer harbours a trove of consumer-spending data that many marketers have called an unrealized opportunity.

Now it’s awakening to the potential. After running ads on its own website for years, the company has taken the first steps toward becoming a true Internet advertising network, using the knowledge garnered from its data to place targeted ads for some of the world’s biggest advertisers across thousands of other websites.

An Amazon mobile ad network, launched late last year, is now blasting ads via apps on smartphones and tablets, including Apple Inc iPhones and devices powered by Google Inc’s Android operating system.

For Amazon, an ad business is a new revenue stream with fatter margins than its retail operations. To Google, Facebook Inc and other online ad leaders, Amazon is a threat because it has data they lack.

Google knows what people are searching for. Facebook knows what people like and who their friends are. Amazon knows you searched last week for running shoes, but also that you bought a pair a year ago. That kind of information has advertisers salivating.

“In today’s marketing world, data is gold and Amazon is Fort Knox,” said Jeff Lanctot, chief media officer at digital ad agency Razorfish, which counts Mercedes Benz USA, Delta Air Lines and McDonald’s among its clients.

Lanctot has worked with Amazon for over a decade and says the company’s attitude to advertising used to be “take it or leave it.”

“Now it’s clearly an area they decided to invest in,” he said. “They have made a concerted effort to listen to what advertisers want – the type of data you need, the type of scale you are looking for.”

ANOTHER $1 BLN BUSINESS?
Amazon is getting into hotly contested turf. Google, Yahoo, Microsoft, Facebook and AOL command two-thirds of U.S. online advertising, according to eMarketer.

But its consumer data gives it a unique proposition, industry insiders argue. And though the competition will be stiff, it could be worth it.

Online advertising has 20 to 30 percent profit margins versus less than 5 percent for Amazon’s retail business, according to Ben Schachter, an analyst at Macquarie.

On Thursday, when Amazon reports results, analysts will be looking for signs of growth in higher-margin businesses, such as advertising and cloud-computing, after years of sacrificing short-term profit to grow those divisions.

Amazon does not disclose ad business results and spokeswoman Kristin Schaefer Mariani declined to comment.

But analysts estimate the ad business already generates at least $500 million a year in revenue. David Selinger, a former Amazon executive who runs e-commerce personalization firm RichRelevance, recently predicted that Amazon’s ad business will hit $1 billion in sales this year.

That’s a fraction of Amazon’s revenue, expected to be $75 billion this year. But longer term, the ad business could become substantial if it can grab a bigger slice of a digital ad market that will be worth over $50 billion by 2015 in the United States alone, according to eMarketer data.

“Could it rival something like Yahoo, Facebook or AOL’s ad businesses?” said Macquarie’s Schachter. “Sure.”

ADS ON OTHER WEBSITES
Display ads on Amazon’s own websites have grown fast since 2011 but what really excites Madison Avenue and Wall Street is Amazon’s latest push to create and serve ads on other sites.

“The big opportunity is in having a third-party ad network,” said Schachter. “There are only a few Amazon sites. Expanding beyond that, they can take advantage of millions of other websites out there.”

Amazon quietly started serving ads on other websites in the fourth quarter of 2010. This part of its business remained un-named until about the middle of last year, when the company formally christened it the Amazon Advertising Platform.

It currently serves ads on thousands of websites in the United States, Britain and Germany, according to its website.

Amazon’s Mariani declined to name websites. However, she said Amazon buys ad inventory – or online ad space – from content publishers or through exchanges, which are online markets for buying and selling inventory.

The company’s in-house technology serves the ads to third-party websites in real time. A campaign Amazon ran for Kimberly-Clark’s Huggies diapers, and another for video game designer Ubisoft, included ads served off Amazon websites.

This is where its advantage lies. It has tracked what millions of shoppers browse, search, and buy on Amazon.com for more than 15 years, using that information to recommend related products to customers.

Now, it’s using that data to buy ad inventory more efficiently and serve ads to the right consumers, on the right websites, at the right time.

A large entertainment company worked with Amazon to promote one of its movies last year, according to a person at the entertainment company. Data on purchases of related DVDs, books and music on Amazon.com helped identify potential customers who were likely to see the movie at the theatre and ads were targeted at this audience. Results were above average, based on the number of impressions served and the number of clicks on the ads, the person said. They did not want to be identified as they were not authorized to speak publicly about the company’s ad spending.

“Amazon spent a lot of time developing algorithms to make recommendations to consumers shopping on Amazon.com,” said an executive who oversees an ad exchange that is a partner of Amazon’s.

“Now they can do this outside of the Amazon world for other companies. It’s really an extension of one of their core competencies,” said the executive, who declined to be identified because Amazon is an important partner.

Armed with consumer information, Amazon can bid more aggressively on exchanges because it is confident that ads created from that inventory will be clicked on more often. The company can also charge advertisers more because its ads are better targeted, according to industry insiders and analysts.

“Amazon is not a retailer anymore, it is the largest behavioural marketing company in the world,” said Yaakov Kimelfeld, chief research officer at Kantar Media Compete, which helps global brands improve their online marketing. “Amazon will be the best positioned to predict whether to buy inventory or not and be the most efficient in this market.”

Amazon’s purchase data helps advertisers spend more efficiently because they only have to buy access to those consumers most likely to respond to their messages, according to Mark Pavia, an executive at media buying firm Starcom USA, which represents clients including Kellogg, Samsung Electronics and Mars.

“I can spend 100 percent of my dollars, if you will, against only the people I want to get because of the purchase data,” Pavia said. “That level of targeting is highly interesting.”

Source: Thomson Reuters 2013

Walmart continues US lobbying on ‘FDI in India’

Walmart continued to lobby with the American lawmakers over Indian retail FDI rules during the first quarter of 2013, even as a probe is underway into the global retail giant’s US lobbying activities for facilitating its India entry.

In its latest lobbying disclosure report filed with the US Senate and the House of Representatives for the quarter ended March 31, 2013, the various lobbying issues of Walmart during the period included “discussions related to FDI (Foreign Direct Investment) in India”.

During the quarter, Walmart lobbied on close to 50 issues before various government departments and agencies and spent a total amount of USD 1.84 million on these activities, shows the 17 page lobbying report filed on April 22, 2013.

The other lobbying issues were related to overseas investments, tax-related matters, cybersecurity, data security and privacy issues related to e-commerce, immigration reforms, “discussions regarding retail sales practices, compliance, and background check process related to firearms transactions”, and issues related to domestic sourcing and manufacturing.

Despite an intense political opposition, India last year approved 51 per cent FDI in multi-brand retail, paving way for Walmart and other global retailers to set shop in India.

However, many global companies are still concerned over various clauses in the regulations, which include certain amount of sourcing being made mandatory from within the country. Besides, the state government and union territories have been allowed to take their own decisions on whether or not to allow FDI in their respective areas.

Tesco treads cautiously in India

While talking about Tesco’s plans for India, China and Turkey last week after the announcement of the retailer’s 2012-13 results, Chief Executive Philip Clarke was particularly silent on its India plans. Save for a passing reference, there was no word on opening stores in India or the size of the potential investment.

Tesco insiders say even though rules were relaxed to allow foreigner to own a majority stake in an Indian retailer early this year, the world’s third largest retailer has not been able to make much headway, largely because of the clauses on local sourcing and infrastructure investments. Multi-brand retailers with foreign investment are required to source 30 per cent of goods from small-and-medium enterprises locally, and invest $100 million in the first three years of setting up shop.

“The riders put by the government such as $100 million investment in back-end operations, city-specific restrictions and approval by states have been a dampener for global retailers,” says Arvind Singhal, chairman of retail consultancy Technopak Advisors.

Tesco entered India in 2008 after striking a deal with Tata’s Trent to provide back-end support to its Star Bazaar hypermarkets. However, the company has failed to bring its whole gamut of IT services into the country because of the limited scale at which Trent’s hypermarkets operate.

Tesco has also put its plans to enter the wholesale market in India with 50 cash-and-carry stores on hold.The company, for now, is treading cautiously and focusing on boosting its international sourcing and tech services. It hopes to increase sourcing from India and hire 1,000 more people for its tech service centre in Bangalore.

The company is clearly finding it hard to replicate the success of its global models here. Its private labels, which account for 40-45 per cent of total sales in the UK, make up for only a small fraction of Star Bazaar’s sales. In contrast, in its home market, Tesco has thousands of stock keeping units in private labels in almost all conceivable categories from wine to baby diapers.

“It (Star Bazaar) does not have that much scale to bring many of Tesco products here,” says an industry executive. Tesco has brought in over 250 stock keeping units of its private brands in Star Bazaar which it wants to double in the next couple of years.

The executive adds that laws on standard weights and measurements and maximum retail price, which are peculiar to India, have also been a deterrent in the success of private labels. In India, products cannot be sold at arbitrary pack sizes such as 61 grams or say 73 grams.

Consultants say Tesco also could not introduce its good-better-best (value, premium and finest segments) approach in India. “It could bring either one or two range due to limited opportunities here. Ideally, it would want to bring more but volumes would not justify,” says Naimish Dave, director at OC&C Consultants, a global management consultancy.

A Tesco India spokesperson says: “Tesco products which suit the tastes and preferences of Indian consumers and meet the price-point expectations prevalent in the market are introduced on an on-going basis.”

The limited scale of operations has led to the company foregoing many of its international best practices in India. For instance, Tesco is not using the services of “dunnhumby”, its subsidiary which specialises in data analysis, although it has an office in India. Dunnhumby’s services could have helped Star Bazaar in tailoring offerings according to the needs of local customers, consultants say.

In international markets, 60 per cent of Tesco’s food range is differentiated by socio-demographic groupings across its stores with the help of dunnhumby.

“We did not use dunnhumby’s expertise in this venture as Star Bazaar operations were not commensurate with the scale with which dunnhumby operates,” says the executive, while adding that Tesco will use it once India business achieves scale. The company has also not launched its e-commerce portal in India for the same reason.

“Tesco believes in providing global know-how and expertise that is appropriate to the needs of the market and the stage at which the business is,” says the company’s spokesperson.

Devangshu Dutta, chief executive of retail consultancy Third Eyesight, says Tesco has not been able to bring its various strengths due to policy restrictions. “Policy restrictions limit the freedom with which they can operate. If they had full control on the business, they would have brought lot many things,” Dutta says.

However, executives at Star Bazaar say despite the limitations, Tesco has been able to bring a lot to the partnership. Tesco’s back-end and technology support have enhanced customer experience at its stores. For instance, its “planogram” software, which helps retailers display products, might have helped Star Bazaar, says Sanjay Badhe, an independent retail consultant.

Tesco has also helped Star Bazaar develop its own private labels in many categories such as noodles and ketchups.

“Compared to others, Star Bazaar is doing reasonably well, they have not gone overboard. They went in a measured way with appropriate sizes. They have many processes and systems in place because of Tesco,” says Dave of OC&C.

However, unless doubly sure, Tesco is unlikely to go solo or scale up its business in India. A former Tesco employee says:  ”Tesco has reached this level in the UK after 80-90 years. In India, these are initial years for the company. Till the time it doesn’t see viability in business, it will remain the way it is today.”

Groupon India ties up with Croma to sell products online

NEW DELHI: E-commerce company Groupon India today joined hands with Tata Group multi-brand retail chain Croma to sell electronic products across the country.

“We offer very good deals for restaurants and other places and are very strong in some categories like fashion. With this tie-up, we will be now offering electronics and Croma is the best name in this category,” Groupon India Chief Executive Officer Ankur Warikoo told reporters here.

As per the understanding, customers will place the orders on a new site and it will be then delivered through Croma’s route, he added.

“The end-to-end operations and logistics service to end customers will be exclusively managed by an in-house team at Croma. The entire process will be looked after by Groupon,” Warikoo said.

Elaborating on the type of benefits, he said the company will offer discounts of up to 70 per cent to customers, who will book through the site.

“We are confident that Groupon users across the country will now get another reason to grab the most attractive deals on mobile phones, tablets, laptops, iPads and cameras through our special microsite,” Warikoo said.

With the help of this association, Croma aims to optimise the large user base of Groupon India to reach a wider set of consumers as part of its multi-channel strategy.

Infiniti Retail Managing Director and CEO Ajit Joshi said: “This collaboration will help us to widen our horizons to reach customers, who are looking for attractive deals on gadgets without compromising on the quality. It blends perfectly with our corporate philosophy and we are looking forward to a successful journey ahead.”

Tata Group firm Infiniti Retail operates consumer durables and electronics chain Croma.

Source- Economic Times

Swiss watchmaker Raymond Weil to expand presence in India

Swiss luxury watchmaker Raymond Weil is looking at setting up three more stores and also expand its presence in multi-brand outlets in the country.

The plan is to have three more company-owned stores in the next two years as well as expand presence in at least 10 multi-brand stores in the coming year

“We have been in India for a long time and we have received appreciation across segments, especially women. We have stores across the metros and are now looking at cities like Bangalore,” Raymond Weil Global CEO and President Olivier Bernheim said.

The plan is to have three more company-owned stores in the next two years as well as expand presence in at least 10 multi-brand stores in the coming year, he added.

“When you have a product like luxury watches, you can’t go on an expansion spree. The location and the type of store also become very important,” Bernheim said.

Raymond Weil is one of the last independent brands in the Swiss watch industry. Being a family-run business, Bernheim declined to give financial details.

The company’s watches are priced between Rs 45,000 and Rs 8 lakh.

“We have seen strong growth in the Indian market. Though India is not among our top markets now, we are bullish on the market here as we see a lot of opportunities,” he said.

Factors like growing affluence, young population and the increasing desire to spend on luxury products are driving sales, Bernheim added.

Source- Business Standard

Wal-Mart CEO’s pay jumps 14.1 percent to USD 20.7 million

Wal-Mart Stores Inc Chief Executive Mike Duke earned USD 20.7 million last year, up from USD 18.1 million a year earlier, as the world’s largest retailer grew despite a sluggish U.S. economy and concerns over alleged international bribery.

 

Duke’s cash incentive payment in fiscal 2013 was nearly USD 4.4 million, up from nearly USD 2.9 million a year earlier. Wal-Mart’s total sales rose 5 percent to USD 466.11 billion in the fiscal year that ended in January. Sales at Walmart US the company’s largest unit, rose 3.9 percent to USD 264.19 billion.

Out-of-town retail: The viability of value

Selling off the damaged or out-dated products has always been a nerve-wrecking task for retailers. However, they can liquefy their obsolete products on discounts to consumers who want to get branded stuff at reasonable rates. Retail companies can offload factory surplus stock at discreet stores located on highways and city outskirts.

Big hypermarkets, cash-and-carry outlets, furniture dealers and designer wear stores often cannot find sufficiently large retail spaces within the city. Such stores tend to look for out-of-town properties in locations which are in line for anticipated growth as indicated by the directions in which the city is expanding.

This trend has given rise to some popular out-of-town weekend shopping destinations. Some of these are:

• Mehrauli-Gurgaon Road and Mahipalpur in Delhi
• Kharkhana and Trimulgiri in Hyderabad
• Marathahalli in Bangalore
• Parel in Mumbai
• Kundli in NCR
• Manesar in Gurgaon
• SG Highway in Ahmedabad

Out-of-town retail outlets tend to be located in areas close to operational factory outlets and are targeted by customers who are looking for a bigger bang for their buck.

Retailers That Seek Out-Of-Town Properties

The size of India`s retail industry is estimated at Rs 20 trillion in sales. Of this, 40-48% comes from sales of branded products, which are part of the organised retail segment. 45% of such products are sold during discount sales or through factory outlets which offer a 15-40% discount throughout the year – and almost 70% discount twice a year – to unburden ‘out of season’ stocks from their shelves. As old merchandise in retail stores continuously gives way to new stock at the end of every season, off-loading out-dated goods from retail stores is an on-going issue with retailers. In such a scenario, the need for ‘factory outlets’ is practically a given.

In fact, almost all of the leading domestic (and even some global) brands are active at out-of-town properties. Brands such as Mega store, Promart, Brand Factory, Loot Mart, Loot, Brands R Us and all branded factory outlet stores look for such kind of properties where they can sell at a discounted price throughout the year. Cash-and-carry outlets such as Best Price, Metro and Bookers are some of the international brands that specifically look for such spaces.

They typically look for properties with low rents, large floor spaces and ceiling height, power back-up and sufficient parking. Easy approachability is important – such locations need to be connected to a national highway and immune to traffic snarls.

Once they locate such a property, retailers require their spaces to be built to suit their requirements. The entire premise of this business model is that if all these factors are met, customer will be willing to ‘go the extra mile’ to shop at discounted or wholesale prices.

Challenges

Opening a factory outlet is not that easy as opening an exclusive brand Outlet or a multi-brand store. This is because EBOs and MBOs represent the regular and fresh stocks of the brand, whereas the product line which is sold in factory outlets is either damaged or out-of-date. For instance, the footwear industry business is all about sizes and colours. As not all fresh arrivals are necessarily sold in a single season, the company has a constant need to off-load surplus stock. Similarly, the Indian apparel industry is witnessing rapid changes in seasonal styles and colours that need to be sold off one way or the other once they are ‘obsolete’.

Changing Landscape

As in all other segments of retail, customer preferences for out-of-town retail complexes are changing too. Despite their focus on savings, these are nonetheless aspirational people – college students, freshly-recruited executives, executives with family liabilities – and, of course, value shoppers who want branded, trendy products but cannot afford them at the regular prices.

While the Indian upper-middle-class shopper is definitely the profile of a typical department store customer, he or she is now seeking more value through cross-shopping at factory outlets. Given that the India growth story remains strong with the international business community, the attractive footfall rates and sales statistics of factory outlets ensure that even top-notch brands cannot afford to ignore them. This has fuelled the emergence of malls dedicated to such stores.

Today, discount malls have cropping up rapidly on outskirts of Faridabad, Mathura, Kundli, Pinjor, Manesar, Bhandup, Bangalore, Vishakapatnam and Ludhiana. And it isn`t just discounts that attract customers to factory outlets, although these are a big draw. The fact is that one is assured of discounted rates at such malls at any time of the year.

Thanks to these discount malls, retailers were able to continue with their expansion plans despite the significant dip in prime retail space supply across key cities last year. This positive sentiment is indicative of retailers taking a long-term view of the Indian economy despite the short-term challenges. The Government’s bold and welcome move of allowing FDI in retail has further contributed to this positive sentiment.

Most Popular Store Sizes For Out-Of-Town Retail

• Cash-and-carry outlets – 52500-60000 square feet.
• Factory outlets – 1500-2500 square feet per store

Rentals

Factory outlets are situated in out-of-the-way locations, along the highways, and in areas with low penetration of branded outlets. Sales depend on location and also vary from city to city. A factory outlet usually earns anywhere between Rs 35-40/sq.ft. per day. The maximum that they tend to be willing to  pay is Rs 70-90.sq.ft. per month. Cash-and-carry outlets can afford to pay between Rs 36-48/sq.ft., depending on the city and location. The approximate rental difference between in-city and out-of-town retail spaces would be nearly 40%.

Lease Arrangements

The lease agreement for out-of-town retail stores is similar to those for inner-city agreement and are governed by  applicable bye laws, municipality rules and the specifics introduced by the retail property’s legal consultant. It can take the form of a basic agreement for conducting business, a leave and licence agreement, franchisee agreement, lease agreement or a simple rent agreement.

Source – Money Control