After a scarred start, Dabur's retail venture went for a facelift. Will it work?

In the beauty business, nothing works better than makeovers. Dabur's retail venture New U is trying to capitalise on this insight in more ways than one. Not only has it got itself a complete makeover, it has used it as a powerful lure to get more people into its stores. On weekends, from 9 a.m., a stage is set up near a New U retail outlet for the Makeover Marathon. With brands such as L'Oreal, Maybelline and Lakme participating, shoppers enjoying an outing at a mall can indulge themselves, experimenting with cosmetic changes and more. We do 300-400 makeovers in a day, says Parikshit Sharma, COO, New U, Dabur India. At the end of the makeover session, he says, it's natural for many of the shoppers to drift into the New U store and buy products. CHANGED ORIENTATION For a company that was seriously thinking of downing its shutters a couple of years ago, it's been quite a turnaround. Sharma says he is further encouraged that two stores in the southern region Hyderabad and Bangalore have broken even for the first time. It's only individual stores breaking even now, mind you, the whole operation is still to come out of the losses suffered from the earlier faulty start, and overall break-even will take time, he cautions, as he says, New U went through a very bad patch indeed. A veteran in the retail industry with stints with the Landmark Group, when Sharma took over in 2010 his brief was simple to put New U back on track. New U was set up in 2007 and the first store was opened in 2008. At the time of the launch the format comprised 2,000 sq. ft.-plus stores stocking beauty, wellness and health items which had a fit with parent Dabur's product lines. As Sharma explains, there were several factors why the venture did not take off in its initial avatar. For one, the beauty segment four years ago was not as well developed as it is today. Two, the large format worked against us. If you open 2,000-3,000 sq. ft. shops, there are not enough categories you can put into it, so you end up stocking double the merchandise. There was no sales throughput, says Sharma. According to a retail analyst BrandLine spoke with, the start was faulty also because the Burmans of the Dabur group got into the retail business for the wrong reasons. At that time the price to earnings multiples of retail firms were 50 to 60 while FMCG firms' PE multiples were just 25 to 30. But only once they were in they realised that retail was a very low-margin business at 4-5 per cent, unlike manufacturing which had 15 per cent margins. Retail ventures also have

a high gestation period of five years. It was quite dilutive from a financial viewpoint, he says. To compound its problems, Dabur hired an expat consultant who had no clear understanding of the Indian market and the initial few stores were opened in inopportune locations crowded high streets with limited parking. It was also a time when property prices were at their highest. Not surprisingly, the red ink on the business was significant. NEW AVATAR In its second coming, New U did three things rationalise space, price, and change the product mix. To begin with, it changed the store format, switching to small, 500 sq. ft. outlets and store-in-store (SIS) formats as well. It took a conscious decision to open stores only in malls. Malls have a protected environment and have a steady footfall, whereas on high streets, we would have had the onus of creating walk-ins. And frankly, we didn't have that kind of marketing budget, says Sharma. What helped them at this time was the fact that most mall developers were now willing to go from pure rental arrangements to revenue-sharing arrangements, says Sharma. So, rather than cough up huge sums as rentals, the arrangement was to give 12 per cent of sales to the developer. The second big change was the decision to opt out of healthcare products and stop being an extension of Dabur's line of products. We realised that beauty was the mainstay of the store and decided to phase out all the other products, including Dabur's ayurvedic range, says Sharma. A decision was also taken to go after private labels. We found that in our earlier launch, with too many public labels, our prices were completely off track, says Sharma. When they found that the fastest moving items in the store were nail enamels, nail polish removers, and cotton balls and so on, the company quickly started private labels. Now, Sharma says they will also be moving into private labels for personal care products, which are fast-movers. We are getting into it slowly and steadily. We have a full R&D centre. And once the formulations are ready, we will invite third-party manufacturers to make these products, he says. On the product front, New U has also got into exclusive arrangements with labels from the UK and Turkey. For instance, it has brought in Turkish brand Flormar, which is a fairly affordable brand. It has also expanded into fashion accessories and silver jewellery. A SLEW OF MARKETING INITIATIVES New U has focused aggressively on below-the-line promotions but customers have predominantly been enticed into the stores through campaigns such as the Festival of Beauty and concepts such as GWP (gift with every purchase).

The store has also started a non-card based consumer loyalty programme where points are credited on the mobile number of the customer. Card-based loyalty programmes are not very practical as very often you forget to carry them, says Sharma. EXPANSION THROUGH FRANCHISE ROUTE Now, that it is 45-stores-strong, mostly following the cluster route, New U will be getting into the franchise model to expand. The products in our stores are impulse purchases 99 per cent of shoppers are walk-in customers and there is 95 per cent conversion into buys, so we feel it will be attractive to franchisees, says Sharma. As the company itself will stick to the malls, he says, franchisees could be on the high streets. Will they get into beauty services, a la Marico's Kaya venture? Sharma does not rule that out, but says that once they reach a critical mass 90 stores at least which they hope to achieve by the year-end, they will take a call on that. But, the big question is will the second coming prove successful for New U? Analysts feel Dabur should stick to its knitting and opt out, but retail experts feel as the beauty niche only has a limited number of players such as Health & Glow, so it could work.

Dabur acquires Turkish personal care firm for $69

New Delhi, July 26 Dabur India Ltd on Monday announced a $69-million acquisition of Turkish personal care products company Hobi Kozemtik Group. The acquisition will be carried out by Dabur's overseas subsidiary, Dabur International Ltd, which has acquired a 100 per cent stake in three Hobi Group firms that include Hobi Kozmetik, Zeki Plastik and Ra Pazarlama. Important step' The acquisition of Hobi Kozmetik is in line with Dabur's strategy to aggressively expand its scale of operations and strengthen its presence in the fast-moving consumer goods space across the globe. The acquisition is an important step towards further consolidating and expanding our already substantial presence in the West Asia and North Africa region, said Mr Anand Burman, Chairman, Dabur India Ltd. The transaction for the acquisition is likely to be completed by the third quarter of the 2010-11 financial year. Hobi Kozmetik is a market leader in the hair gel category with 35 per cent market share and its products are sold across 35 countries, including West Asia and North Africa.

The acquisition offers Dabur an entry into an attractive new market like Turkey and adds to our portfolio a host of popular international brands that enjoy pole position in their respective categories. We also believe that the opportunities for capitalising on the strengths of this business across our international operations are significant, said Mr Sunil Duggal, Chief Executive Officer, Dabur India Ltd. Dabur India Ltd also announced its financial results for the quarter ended June 30, 2010. Riding on strong volume-driven growth across key categories such as hair oils, skin care, health supplements, foods and home care, the company reported a 20.5 per cent growth in consolidated net profit for the quarter. Net profit stood at Rs 107.39 crore as against Rs 89.09 crore in the corresponding quarter last year. Consolidated net sales stood at Rs 924.38 crore, a growth of 19.5 per cent over Rs 773.60 crore in the corresponding quarter last fiscal. Standalone net sales for the quarter under review were up by about 26 per cent to Rs 775.23 crore as against Rs 612.97 crore in the corresponding quarter last year. Standalone net profit was up by 11 per cent at Rs 89.52 crore as against Rs 80.83 crore in the corresponding quarter last year. The macro environment is improving with good monsoons fuelling resurgence in demand. Dabur continues to register sales growth ahead of the market in several key categories and this growth is almost entirely volume-driven, said Mr Duggal. Dabur's Health Supplements category grew by 42.8 per cent, led by Chyawanprash and Glucose while the home care category bounced back to end the quarter with a 31.5 per cent growth. Oral care grew by 20.2 per cent while the foods business grew by 21.2 per cent. Dabur's international business also registered a 28.7 per cent topline growth during the quarter led by Nigeria, Egypt, Levant and North Africa. Bonus issue The company's Board of Directors also announced issue of 1:1 bonus share to the shareholders of the company. We are happy to announce a 1:1 bonus issue to the shareholders to mark the 125 {+t} {+h} year of Dabur's establishment. We feel the bonus issue was long overdue to our investors, said Mr Burman. At close of trade on the BSE on Monday, Dabur's share price stood at Rs 203.70, down by about 3.73 per cent from the previous close of trade.

Dabur unit to buy US' Namaste Labs for $100 mln

(Reuters) - Fast moving consumer goods maker Dabur India Ltd said on Tuesday its U.S. unit Dermoviva Skin Essentials Inc will acquire U.S.-based personal care company Namaste Laboratories for $100 million. The deal includes Namaste Labs' two units in the U.S. and one each in South Africa and Nigeria. The transaction is expected to be completed by the end of 2010. "This acquisition is in line with our strategy to build a global presence in the international consumer goods market," Dabur Chairman Anand Burman said in a statement. Namaste Labs, which makes haircare products preferred mainly by people of the African descent worldwide, enjoys significant market share in the U.S. and in many countries in Africa, Middle East, Europe and the Caribbean region of North America. "This transaction will act as a gateway for our products in the U.S. and will also enhance our profitability, increase stakeholder value and substantially add to Dabur's already strong presence in Africa," Burman said. "Currently, our revenues from our African operations stand at $30 million, which includes North Africa and Sub-Saharan Africa, which will increase by at least a third over the next year due to this acquisition," he told television channel ET Now. The current management team, led by Namaste founder and chief executive officer Gary Gardner, will continue to run the operations in its current facility. Dabur will also keep scouting for acquisitions and will use internal accruals and borrowings to fund them going forward, Burman said. In July-Sept., Dabur's consolidated profit rose 15.4 percent on year to 1.6 billion rupees due to strong volume and cost cutting measures. Sales rose 14.7 percent to 9.72 billion rupees. The company had earlier said that it expects to maintain margins at 19-19.5 percent this fiscal and may resort to price hikes. It had increased prices of a few products -- mainly hair oil -- by 3-4 percent in the second quarter. At 11.28 a.m., shares of the firm, which rose as much as 4.5 percent in early trades reacting to the acquisition news, were up 0.57 percent at 97.7 rupees per share in a weak Mumbai market. (Reporting by Nandita Bose; Editing by Rajesh Pandathil)