Are luxury salespeople nicer in a downturn?

There’s some speculation that salespeople in luxury stores are being asked to become more friendly, so as not to turn away and turn off potential customers.

But I think it isn’t just them. I think as the economy slows, possibly everyone might become less abrasive and nicer to each other – less business around so you don’t want to turn off the spenders no matter how they’re dressed – “a king dressed as a beggar” is a good simile.

Actually that reminds me of a story someone told about 20 years ago about an Indian farmer walking into a car showroom and being treated patronizingly by the salesman. The salesman saw a more urbane customer walk in and handed the farmer off to a less agressive colleague, only to see 4 cars being driven off by the farmer’s sons after an all CASH payment.

Maybe the image is not evocative as Julia Roberts in “Pretty Woman”, but still a pretty powerful one, nevertheless.

Retailers vs Brands – the reactions

Delhaize and Unilever may not yet have felt the need to visit a relationship counseler, and of course, the jury’s still out on who (if anyone) will actually win in their battle.

For now, Unilever has lost shelf-space for around 300 of its brands at Delhaize stores.

Delhaize may potentially lose some of the sales that those brands got for it, in case consumers want a specific brand rather than a private label or a substitute brand.

The consumers lose not just in terms of their choice being reduced, but perhaps also in becoming confused about the specific value / benefits of competing products when the certainty of their customary brands is removed. Remember, brand loyalty is built on the predictability of a repeated experience over a period of time. If  you remove that factor from the purchase, each purchase becomes an experiment again, until a similar predictability is found.

(For those who missed the previous post, you can read it here.)

Referencing this battle, reactions to a discussion in at least one online poll on seem to favour retailers, or equally blame both retailers and suppliers. Only about a quarter of the respondents felt that retailers were not being fair. Considering that the respondent universe comprised of professionals from retail companies, suppliers as well as service providers, this seems to be a surprising result. Or perhaps not? Perhaps brands are no longer delivering a significant value to be able to command a premium over private label?

Some of the reactions from that discussion are reproduced below with permission from Retailwire.

  • It’s hard for me to feel for both retailers and vendors when they obviously do what’s best for themselves, regardless of the long-term impact. In this case though, I would tell Unilever to go aggressive and pull all their lines from Delhaize. Then up the marketing of these lines with a cooperative marketing program involving the other retailers. Let Delhaize try to survive with shelves full of private label products and see how long they last. (Marc Gordon, President, Fourword Marketing)
  • First, you seem to be talking more about Europe than the U.S. and that’s a different animal. However, given the universality of the question, I’d say first that the best and worst of people and companies come out during hard times. The best redouble their efforts to build meaningful long-term relationships with their trading partners. Unfortunately, it seems that most are simply trying to squeeze an extra penny or two out of the other. To your specific question–No! CPG companies are only starting to rationalize their portfolios. There are still way too many products out there simply for the sake of putting their name out there–not because the product moves. Some manufacturers are starting to cut back on their lines, but I suspect much more is needed. As to developing private label, what do you expect? Retailers have been copycating for years. But I think consumers have gotten wise to the fact that just because it looks like a brand doesn’t mean it has the same quality. And to any retailer who can’t do any more than copy, shame on them! (Len Lewis, President, Lewis Communications, Inc.)
  • Fast moving consumer goods companies still need to rationalize brand portfolios in many cases, as so many retailers are finding higher profits in reduced SKU counts, without losing shopper loyalty. Depending on how this shakes out with specific retailer strategies over time, this may or may not make room for more local brands and niche players in some instances. Private label is a whole different animal today than it was even four or five years ago. The top tiers are not just inferior substitutes for national brands; they are national brand equivalents (or better) and widely recognized as such by consumers who are switching, and are not likely to come back. As for retailers copycatting, that’s always been a factor. Sometimes retailer behavior is outrageous, but there are laws protecting trade dress, etc., and branded manufacturers frequently litigate, and win. (Warren Thayer, Editor, Refrigerated & Frozen Foods Retailer, BNP Media)
  • There is significant brand proliferation in FMCG. Think about cereal, ketchup, salad dressing or the myriad of other categories that have duplication on top of duplication. I led an industry-wide study that proved retailers could remove 12 – 18 percent of the actual SKUs from a given category (almost across the board) and not lose sales–in fact retailers will grow their sales (by unit volume and revenue). Consumers want true variety and differentiation – not the same thing in the same size. How many red ketchups in the 24oz bottle do you really need on the shelf? In many cases, there should be a couple of national brands and the store brands.
    The study also showed that the very large marketing dollars thrown at retailers to help promote products are in many cases not enough to cover all of the downstream costs and activities retailers engage in to accommodate duplication of brands. The inventory carrying costs alone are staggering. The FMCG companies will not want to hear this, but without fail, we found that there is too much duplication and with careful consumers, retailers should make sure they are offering the very best solutions for their customers while maximizing profits and opportunities. (Kevin Sterneckert, Research Director, Retail, AMR Research)
  • How many shoppers (in the US, anyway) would drive out of their way to get Unilever soap? Probably not too many. Price, proximity and shopping habits are stronger than most CPG loyalty. Higher ticket items, like durables, and higher involvement categories like skin care, have more resilience. Retailers are understandably using the recession as a catalyst to drive sales of private label. Are they playing fair? Well, no.  Manufacturers are over a barrel, giving as much information as they can in order to stay in good standing with retailers. Further, some retailers have even used promotions that pull on national brand strength to promote private label. Publix Supermarkets ran a Buy-One-Get-One, where shoppers could buy a national brand (Thomas’s English Muffins) and get the Publix private label brand free. This drove trial – and presumably–conversion to their brand. No, they aren’t playing fair. The question for national brands is how to stay relevant and on shelf. (Liz Crawford, President, Crawford Consulting)
  • Technology and collaboration should be helping to solve this problem, and it is a problem that existed before the current downturn and will continue when the recovery comes (hopefully very soon!!). If the retailer can show empirically that the new product lines do nothing to add to the profit mix, or worse do something to harm it, at the store, the supplier should yield and remove or not introduce the items. If the manufacturer can show empirically that the new product lines work to bolster the profit mix at the store level, the retailer should yield and add the items. This may be over-simplifying the situation, and there will always be exceptions, but without collaboration both retailers and suppliers are going to lose and the shopper will suffer as well. (Ron Margulis, Managing Director, RAM Communications)
  • “SKU Rationalization” is a dangerous game…as the volume of sales per item does not necessarily reflect the impact to the brand as a whole. The push-pull of private label vs. branded product has been going on a long time and it’s not stopping any time soon. While it’s possible to create an apparel store built solely on private label merchandise, I don’t believe it’s possible in FMCG. All those advertising dollars have, in fact, made a difference. It’s also true that not all private label merchandise is create equal. I might be okay with generic canned food, but there are other products that have a distinct difference in quality. Q-Tips, Band-aids, some cheeses come immediately to mind. There’s a reason why book sellers carry slow movers. There’s a reason why apparel retailers buy a full compliment of colors, even if the percent contribution isn’t the same across all of them. Similarly, there’s a reason why FMCG retailers need to carry brands. It adds to their own brand credibility. (Paula Rosenblum, Managing Partner, RSR Research)
  • I’ll take on whether retailers are “playing fair” by copy-catting national brands/morphing them into private labels: 8-10 years ago, I would have cried foul; these days, it’s par for the course. Yet another reason why vendors have to keep their innovation pipelines full or risk being one private label switch away from extinction. Think of your retailer knocking you off as the sincerest form of flattery (if you can bear it)! (Carol Spieckerman, President, newmarketbuilders)
  • As indicated in the poll questions, there is sufficient blame on both sides. Retailers are dealing with manufacturers who force impractical line extensions through financial influence (incentives) detracting from a balanced category. Private Label is skimming the cream of category sales and threatening to take a disproportionate amount of shelf space. Private Label also can trade down category average pricing through poorly thought-out pricing schemes that do not reflect the market place. The extreme in either direction reduces the optimization of the consumer-centric effort we are all chasing. Manufacturers are the Mecca of product innovation. Private Label merely mimics. When we deviate from true innovation and the goal is to reduce the shelf space of competitors, everyone loses. The leap to Private Label is a result of cash-pinched consumers looking for a bargain. Private Label has a place in retailer strategy, but it should not be the entire strategy. Nor should the overwhelming ownership of space by a single brand. The premium or angel customers will continue to buy brands that exhibit the features and benefits of quality and consistency. Which customers do we want to develop as our base? Angel customers or bargain hunters? By lowering standards, quality and differentiation, we move into a downward spiral into Heck. Manufacturers must put forth innovation and quality as the model. Retailers need to maintain the balance in the categories that maintains a profitable mix of customers. It is about strategy and thinking beyond next week. Ask John Galt. (‘GMROI’)
  • There were several reports on last week out of the Consumer Analyst Group of New York (CAGNY) conference in Florida about what some of the bigger brands plan to do about rationalizing their portfolios. Some were particularly interesting and relevant to this discussion. As for the sub-debate about differences between the US and the ROW (rest of the world)–also very interesting and relevant especially when looked at in the context of globalization vs consumer preferences for locally produced food (a subject on which there is still much to be said as it cannot possibly be, in my view, an either or proposition). ( Bernice Hurst, Managing Director, Fine Food Network)
  • For FMCG, a CPG firm must ensure they have a brand strategy to address the intended audience. Most will say they have that, but the truth is that they try to “cover the Earth” with a wide assortment to capture any and all consumers they can. In these economic times, there will tend to be even less “rationalization,” so to speak, since CPG firms will try to grab any demographic who is spending money.  Of course, regions vary in their propensity to embrace things like private label, however there are great examples across the globe of deep penetration of P/L, some of which have already been mentioned, and also Trade Joe’s in the US. P/L success has more to do with intentions of the retailer, rather than the line of products, specifically. (Ralph Jacobson, Global Consumer Products Industry Marketing Executive, IBM)
  • Where’s the data? Which consumers are buying which products? Which ones are not selling so well? Where’s the demand? Both sides can play the win-lose drama as long as they like and both will lose. (Camille Schuster, President, Global Collaborations, Inc.)
  • Brands are the initiators of product and package innovation.
    • Until Private Label companies or a collaboration with retailers can fund research and development and spend back big dollars back against the brand, the brands will always have customers looking for their new products.
    • Retailers cannot give up the slotting fees that brands pay for shelf space. That is why many stores get more branded skus then they probably need.
    • I am not sold that manufactures can’t execute with creative accounting, “Brand partnership stores.” Retailers work on slim margins but as more retailers self manufacture there is AN opportunity to sell to yourself.
      (‘YOURBOYS’ )

Discounted Luxuries

Luxury has its ups and downs. Assuming that the economy will look up at some point of time in the near or distant future, luxury brands will shine again, even if they’ve muddied themselves slightly in the puddles of discounting.

Public (and industry) memory is short, especially in fashion, where you might be as good/bad as your last collection. There are plenty of luxury brands which had once been pushed to the dustiest back shelves, that have come back into fashion in recent years. So I’m sure many of the brands will be forgiven their current trespasses.

And, as a precursor to that, someone’s going to come back very soon with the bumper sticker from the post dot-con days which read: “I want to be irrationally exuberant again!”

But on a more rational note, brands which have tried to “democratize” luxury by tinkering with the basic product quality and not paying attention to the brand values would find it harder to climb up again. Just because you want to reach a larger audience you cannot inherently reduce the promise of a brand. Especially when there is true quality available across the price spectrum today.

Who knows, we might even get back to the days when the joy of luxury was based on having truly superior products rather than just a name that a lot of people recognise.


Subhiksha’s Last Chance



20 Feb. 2009

Lesser stock on display racks in your neighbourhood Subhiksha, and may have started going elsewhere instead. One fine day, you may have even noticed that the shop was shut. What happened was this: Chennai-based value retailer Subhiksha Trading Services, neck-deep in Rs 600 crore of debt (plus Rs 180 crore raised internally as shareholders’ funds) accumulated over the past three years, could not pay its vendors as all its earnings was going to service the debt. So, over the past six months, it temporarily shut all 1,600 of its outlets in 110 cities.

Yet, till recently, Subhiksha’s managing director and promoter, R. Subramanian, was thinking of expansion. “I will add another 2 million sq. ft by the end of the fourth quarter of 2009,” he had told BW in December 2008, a move that would have raised his store count to 2,200 for an additional Rs 1,000 crore. Today, the company is on the threshold of a closure — it has no money to run its operations, its senior staff are deserting, many of its stores have reportedly been looted, and the government may initiate an independent audit of accounts at the instance of ICICI Ventures, the second-largest shareholder with 23 per cent stake.

However, Subramanian has not given up. Firm in the belief that Subhiksha can still be a viable business, he is making a last-ditch effort to survive by pitching for a Rs 300-crore loan from a consortium of 13 banks, besides attempting a debt restructuring exercise. In a letter sent to BW, Subramanian says, “The infusion of Rs 300 crore would revive Subhiksha soon.” That would allow him to pay off the vendors and resume operations at a minimal level, though he might also have to shell out a significant chunk of his 59 per cent stake. Subramanian’s confidence stems from his belief that his business model is viable. “We did not raise enough equity, and we paid the price,” he says. “It was a capital structure problem rather than a business model problem.”

Analysts agree that Subhiksha’s low-cost model was sound. They blame the company’s troubles on its rapid expansion with debt capital to open 800 stores in a year. Although the same store sales were as high as Rs 12,500 per sq. ft during the first few months of 2008, the debt taken on a number of new stores and the financial crisis put paid to Subhiksha’s exuberance. The industry average for stores of 2,000 sq. ft (Subhiksha’s typical store size) to break even is Rs 5,000 per sq. ft, and analysts say that Subhiksha’s new stores never achieved break-even levels.

The desire to expand at breakneck speed is not typical of Subhiksha alone. “All retailers have read the Indian market wrong,” says Devangshu Dutta, who runs retail consultancy Third Eyesight in Delhi. “There was no prudence; (there was a mismatch) between what the real consumer demand was and the number of stores opened.” Pinakiranjan Mishra, partner of retail and consumer product practice at Ernst & Young, says, “Retailers have spread themselves too thin to benefit from scale.”

The Rs 300-crore and the restructuring may help Subhiksha revive, but only if it closes at least 40 per cent of its stores. That may keep it afloat, but would be disastrous for a company that fundamentally offers low prices and relies heavily on high volumes for better discounts from consumer companies.

(Businessworld Issue Dated 24 February-02 March 2009)

Retailers vs Brands – a sequel

About 7 months ago a spat occurred between the leading retail company in India Future Group and branded supplier Cadbury’s, with respect to margins offered to the Future Group. (A friend described it as a Bollywood saga.) Future Group had also previously had run-ins with other suppliers including the likes of Pepsi. (The previous post is here.)

Now there’s a European film noire sequel in the making, in a battle between the Belgian retailer Delhaize and European FMCG big daddy Unilever. Delhaize has suspended purchases from Unilever as, according to Delhaize, Unilever is making “unacceptable demands” that the chain stock more Unilever brands.

Like other branded suppliers, Unilever has obviously been impacted across Europe and the US as retailers have become more sophisticated in their approach to private label and squeezed out brands that they have been able to replace with their own products.

Given further weakening of the economic scenario, it is likely that consumers would switch to cheaper private labels offered by retailers, and retailers would be tempted to give over even more shelf space to their own labels where they get higher margins than branded products – a continually losing spiral for the branded FMCG companies.

According to a consumer survey carried out by an agency in Flanders in northern Belgium, apparently 31 per cent of shoppers polled were choosing to shop at chains other than Delhaize, and another 19 per cent were not happy with Delhaize decision (but there doesn’t seem to be indication yet that they would switch). Most of the customers who said they were remaining with Delhaize are either switching to other brands or to Delhaize’s own label products.

However this brawl ends, and whether it turns out to be a win-lose or a lose-lose situation, even this survey demonstrates that the retail store has the upper hand – less than one-third of the surveyed customers displayed their hard-core brand loyalty by switching to other stores.

That is obviously a worrying sign for branded suppliers who have invested humongous sums of money and decades of effort in developing their brands. But it also raises questions about whether the consumer is really perceiving any value out of the billions in advertising and millions of man-hours spent by the FMCG companies in developing the nth variation of toothpaste or detergent.

Tough times raise tough questions, and the ones that comes to mind are these:

  • In recent years FMCG companies have rationalized their brand portfolios, but have they done enough?
  • Are they really clear about the value the remaining brands are delivering?
  • Are the retailers really playing fair when they build up so-called partnerships with suppliers, only to take on board the product learnings and then develop own-label copycat products (sometimes down to package colouring and graphics)?

What do you think?

User Customization of E-commerce Websites

Online retailer Zappos is planning to introduce customizable web pages, and that has attracted all kinds of commentary – warm & welcoming as well as dismissive.

The big question is “what is the customization and how it is being offered”.

My rule is simple: web-page customization has to drive simplification of the shopping experience.

Changing skins, page layout, and other cosmetic stuff may keep novelty-seekers happy – for some time, that is. But the average user will find that it is just another thing too many on the already over-full to-do list.

Simplification of the user-friendly sort has to be heuristics and analytics-driven, and behind-the-scenes. It has to be driven by not just stated preferences (through options / settings, through drag-and-drop etc.), but unstated – by studying past behaviour in both purchase and browsing. Imagine if you had every customer stating their preference for a physical store layout. In fact does everyone even know what they really want?

The flip side is that this kind of monitoring may sound creepy and 1984-ish to some people. But probably those would also be the people who are blissfully unaware of the fact that in today’s world the only way to remain totally untracked is to not use any form of electronic / communication device at all, or to build each such device (hardware AND software) yourself from scratch. If you use social networking sites, and have “friend suggestions” on your page, you are being tracked!

There is also the balance to be kept in mind between the boundaries the customer defines and promotions that the retailer wants to drive. The consumer may want to control completely what reaches her; the retailer may take the view that there are incredible deals which the consumer just wouldn’t know about if she built impregnable walls around herself.

For those who’re interested in customization, the British Broadcasting Corporation’s (BBC) document from 2002 about their 2001 website redesign (“The Glass Wall”) is a great resource to refer to. It doesn’t seem to be available anymore on the BBC website itself, but copies are available elsewhere on the web.

A crisis not to be wasted

Cisco’s John Chambers is calling the current economic scenario “the biggest opportunity of our lifetime”, and asking managers to shift from a centralised approach to a more collaborative one. Of course, Cisco as a company has much to gain from the growth of collaborative network organisational models, but he does have a point.

But will it be simple to make that shift? After decades, maybe centuries, of command-and-control behaviour training from kindergarten, it will take more than a few months for people to learn how to collaborate. Remember the management adage: “Lead, be led or get out of the way”? May be time to question even that. I’m not suggesting that there is no further need for leaders, but Jim Collins’ Level 5 Leadership (or even a more evolved form) needs to be adopted, for true collaboration to happen rather than a push / shove / cut & chop. Many current management models have to be thrown out and new ones implemented, and even old ones re-discovered. While we may not realise it (or may not want to see it), many of the current management models are quite feudal in nature.

What’s more – and I might be out on a limb here – we may even have to de-construct our whole economic model which is built on the principle of “scaling up and consolidation”, in favor of fragmentation and individualisation.

A very very good documentary to watch in the current times is “The Corporation”, other than digging into the host of other literature that is available.

Online vs Off

The internet seems to be as much alien territory for bricks and mortar retailers as catalogues are. Bricks and mortar retailers seem to struggle with the medium – most of them try to graduate from their corporate web brochures to transaction sites, and end up doing injustice to both. Many of them are not able to figure out how to create the traffic to their online store, how to create the excitement and liveliness to convert their traffic into transactions, and how to take the transactions to their final closure in terms of payment and delivery in a delightful way.

Of course, there are some notable exceptions – but possibly they are notable because they are exceptions rather than the norm. Many bricks and mortar retailers are also tied down by systems and processes that work very well for their physical store and distribution network, but fail miserably during the online experience.

However, what’s surprising is that even the basics of e-business seem to be escaping bricks and mortar retailers. Starting with search results.

Retailwire quotes a recent study by a search service provider which found that “online retailers claimed 38 percent of the search listings in 2006, 30 percent in 2007 and 35 percent in 2008. The next biggest category was shopping comparison sites at 25 percent in 2006, 26 percent in 2007, and 19 percent in 2008. Brick-and-mortar retailers lagged at 8 percent in 2006, and 12 percent in both 2007 and 2008.”

However, the study does show a steadily improving share of search listings on the part of the bricks and mortar retailers the last three years. It would be interesting to see whether the pressures of the market will push them to get more aggressive and strategic with their online presence to show a marked improvement in share in 2009.

Staying with the fundamentals: customer experience is another such, and it’s amazing to see what “attention to basics” can do for business. has bucked the recessionary trends displayed by other retailers in the US, with an 18% sales growth in the last quarter of 2009 and a 9% growth in profits.

I’ve shopped on since the year they launched. Every experience has been completely satisfactory, some delightful. On some occasions Amazon has picked my pocket – made me spend on stuff that I wouldn’t have bought otherwise, by their very helpful suggestions of what others had bought while they were browsing my selections. On other occasions they’ve saved me money, time and heartburn by providing comprehensive customer reviews at a click.

In my experience, Amazon’s sustainable advantage is their customer-orientation – the technology, the supply chain, the design – everything is geared to making the buying experience as good as possible. A Retail 101 principle that many other retailers – online and offline – seem to ignore every day.

At the end of the day, e-commerce is another channel to reach out to customers – some existing customers who may need to be connected with during additional shopping opportunity windows, others who are completely new to your wares and may never walk into your physical stores. But treating it as an additional graft that will work with your existing operating DNA is a mistake –  the online channel is distinctive and needs fresh thinking on the business model and consumer interaction from beginning to end. At the same time we shouldn’t throw out the baby with the bath-water, and forget the basics of understanding and addressing the needs of consumers.

Exuberance and Despair

In the last few months, I’ve interacted with retailers and their suppliers from a number of countries in North America, Europe and Asia and, except for a handful, the conversations have not been happy.

In November-December companies in France, Belgium, Germany and the United Kingdom were dealing with a season where there was as much red on the P&L statements as in the Christmas shop windows. In January 2009, the National Retail Federation’s annual convention in New York had participation that was somewhat thinner than in past years, but the gloom in the atmosphere was thick enough to slow everyone down.

On the other side, the factory of the world, China, had been battered by a Year of the Rat that brought increasing costs, erratic power supplies, slowdown in orders, safety concerns and product recalls. All of this culminated in reports of factory closures and migrant workers at railway stations on their way home for the Chinese New Year holiday carrying not just clothing, but all their possessions including fridges and TVs. The resultant unemployment figures expected currently range from 20 million to 40 million people.

The Indian retail sector, of course, has had its share of pain. In an idle conversation on a sunny December afternoon, a real estate broker in Ludhiana had a pithy description for one of the retail chains: “Unhone apne haath khade kar diye hain. Bakee logon ne abhi tak toh haath neeche rakhe huey hain – unke bhi upar ho jayenge.” (“They have thrown their hands up in despair. The rest still have their “hands down” – but they’ll also give up eventually.”)

On the one hand you have the gloom-seekers. In the eyes of some of these people, the retail boom is over. In the eyes of others, the retail boom was all hype anyway, a big bubble of artificial expectations.

On the other hand, you have other people asking some uncomfortable questions: here’s a country that apparently has the largest population of under-25s, where millions of new jobs have been created and incomes have been growing. How can retail businesses be showing a decline in their top-lines?

I don’t think anyone has all the answers, but I can offer at least one speculation, borrowing from the title of a book that came out some years ago, named “Irrational Exuberance”. Robert Shiller’s first edition was related to the dot-com stock bubble, and his 2005 edition added an analysis on housing bubble that was developing at the time. He had, in turn, borrowed the term from the US Federal Reserve chairman Alan Greenspan who in December 1996 had said in a speech: “…how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions…?”

We now seem to be in such an unexpected (but was it really unexpected?) and prolonged contraction. Of course, consumers are feeling more cautious about spending, even if their actual income has not been affected (just as it wasn’t affected when they were feeling suddenly wealthy 12-18 months ago). Obviously, stores that should not have been opened will now get closed, or excessively large stores will be reduced in size. Companies that are over-stretched may collapse completely.

But I would label the mood prevailing now “irrational despair” as far as a consumer market such as India is concerned. From a position of over-optimism, the pendulum seems to be swinging to the other extreme of utmost misery, dejection and complete pessimism, and I think that is a swing too far.

I think it’s worth reminding ourselves of the factors that make India a market for sustained consumer growth. The country looks likely to have a large under-25 profile well into the next several decades. These young people will grow older and get into jobs. They will get married and therefore expand the number of consuming households. If the policy-makers don’t really mess up, real incomes should go up. Infrastructure projects should largely remain on track, regardless of the political party or parties in power, facilitating industry, trade and wealth distribution.

So the time is right for business plans that have sound fundamental assumptions – or as the cement ad says: “andar sey solid” (solid from within).

I’d like to repeat issues that I have highlighted earlier as top priority for retailers and consumer products companies in India. These are as follows:

  1. Realistic demand estimation: Let’s work with realistic sales expectations, and not expect all consumption to multiply like cellphones have in the last few years.
  2. Productivity Analysis: As a retailer (especially in food and grocery), margins are thin. Except for marquee locations there is no excuse for continuous losses. Store productivity depends on merchandise availability, staff capabilities and store operations, customer traffic and a host of other factors, and you need to know what’s working and what isn’t.
  3. Moderated growth: Many retailers in India have had tremendous growth in scale without growth in sophistication in processes or people. Some have been driven by motivation to capture market share, others driven by their investors who want an exit, and a few might have been driven by ego. I’m not asking anyone to grow slower that they want to, or slower than they should. However, I would say: do look at Intel. A manufacturing company that makes its own products obsolete in an industry where rapid change has been the norm for the last 40 years. Intel alternates changes in its production and supply chain processes, and products – it doesn’t change everything at once.
  4. People: A leader of the industry pointed out a few months ago that there is no shortage of people in India. But the race to the top of the heap (or as it seems now, the bottom of the loss-making pile) has created artificial scarcity of talent. One benefit of the downturn is that artificially inflated compensations for people jumping on the “retail boom bandwagon” will disappear (at least for now). If we can use the experience of people who have been in modern retail trade in India for decades, and train others who are fresh but committed, it will provide a more solid and lasting impact for businesses.

A number of companies worldwide that we know as market leaders and businesses to be emulated found their feet in the depths of the Great Depression of the 1930s. That should give some hope to entrepreneurs and professionals.

However, does that mean that only bad companies or unprofessional managements will fail in the current downturn? Certainly not. Does it also mean that all good companies or competent entrepreneurs will succeed? Again, the answer is, no.

Some bad companies will manage to ride through this trough, while some really deserving people will run out of cash, ideas and opportunities. Life and “natural selection” processes are not fair.

But, by and large, if we can get our heads down and focus on getting the right people together, making money to get through and having something left over to invest in the future of the business, we would have more chances of succeeding than by over-stretching, or by swinging to the other extreme and being totally defensive.

I won’t even attempt to predict how long the current downturn will last. The Great Depression lasted a whole decade, was “walled” by the Second World War, and the first blooms of real recovery only appeared in the early-1950s, or about twenty years from the first downturn. Other recessions have been shorter. In 2000, after the dot-com bust car bumper stickers in the US quoted a political satirist, saying, “I want to be irrationally exuberant again.” Within a few short years, many people were showing those very signs.

We can be pretty sure that such a time will come again. But I’m also quite sure that durable companies are unlikely to be built on bursts of such exuberance.

 Pantaloon sees second slowest sales growth in 5 years

Business Standard BS Reporters

Mumbai February 11, 2009, 0:31 IST

Kishore Biyani-owned Pantaloon Retail’s same-store sales in January grew at the second slowest pace in five years as consumers curbed spending and the retailer struggled to survive the downturn by offering discounts.

The slow growth comes after the retailer’s value and lifestyle same-store sales registered a negative growth in December.

Pantaloon’s same-store sales in the value retailing segment climbed 4 per cent in the month of January after dropping 4 per cent in December.
Lifestyle sales grew 12 per cent in the month after declining 14 per cent in the previous month.

"Overall the market has improved and since we are the mass retailers we are gaining. Home segment has also picked up compared to December. Same-store sales growth in mobile, furniture and electronics which had dropped in December has also picked up,” said Kishore Biyani, managing director, Pantaloon Retail.

Same-store sales, a common metric in the retail industry, compares sales of stores that have been in the business for a year or more. The measure allows investors to determine what portion of new sales has come from sales growth and what portion from opening new stores. The figures are usually released by retail companies every month.

Analysts attribute the spurt in sales to the month long "The Great Indian Shopping Festival” which was launched on December 13. The sale was extended till January 7. The retailer also unveiled another 3-day shopping festival to coincide with the Republic day, which helped push the sales higher.

"December-January is full of discounts which push up customer’s traffic. The real picture will emerge when a chain stops the offer. Retailers are not out of the woods yet. Consumers are still feeling conservative about spending and cutting back expenses,” said Devangshu Dutta, chief executive, Third Eyesight, a Gurgaon-based business consultancy.

Analysts covering the company’s stock say the future growth for Pantaloon isn’t robust and average sales of the country’s biggest retailer may be contained at Rs 500 crore a month compared with Rs 690 crore in January.