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By Vishal Krishna
September 21, 2009
Normally, the performance of the market leader is a fair indicator of which way the wind is blowing in a sector. But there are always exceptions, and this is one such. According to data from JP Morgan, Pantaloon’s store sales have been on a steady rise since March this year (see ‘Scaling Heights’). Another big player in retail, Shoppers Stop, has also declared a profit of Rs 3 crore for the April-June 2009 quarter, after making a Rs 40-crore loss in 2008-09 fiscal.
These signs of hope, however, stand starkly against overall consumption trends. Although the real GDP numbers for June show a resilient Indian economy growing at 6 per cent, consumption has fallen. According to Kotak Mahindra Bank Treasury Services, private consumption expenditure was at Rs 4,91,000 crore in the first quarter of 2009-10, down 2.6 per cent from Rs 5,04,342 crore in the fourth quarter of 2008-09. Compared to the same periods last year, consumer spending grew 1.6 per cent for the first quarter this fiscal, down from 2.7 per cent in the fourth quarter of 2008-09.
Nobody understands the mixed signals better than Pantaloon. “The sentiment has improved, but we are cautious on expansion,” says Rajan Malhotra, president of strategy and convergence in Big Bazaar, the food and grocery hyper format of the Future Group “Only festival sales could improve the second quarter’s results.”
Analysts say that the delayed monsoon has already begun to impact the earnings of FMCG companies — the main suppliers to organised retail. Combined with slowing consumption, the organised retail industry, especially those in the food and grocery space, will continue to struggle. In such a situation, retailers are adopting a variety of strategies to ease the pressure on margins.
Apparel Versus Food
“Retailers have been focusing on value items and private labels to sustain their margins,” says Abheek Singhi, partner and director of Boston Consulting Group (BCG) in Mumbai, adding that apparel retailers would fare better because of higher margins of up to 45 per cent. This move is apparent in Pantaloon’s strategy of expanding its value sports apparel format, Planet Sports, ahead of food and grocery retail. Currently functioning with 94 stores across the country, the company will add 10 more by the end of the second quarter. “We have seen a 22 per cent rise in sales over last year and there is potential in opening larger format stores,” says Ravdeep Singh, CEO of Planet Sports, attributing the trend to affordable sports apparel gaining in sales. Also intending to expand is Shoppers Stop, which primarily deals in apparel and accessories. “We will be adding four stores in the next four months, thanks largely due to rationalised rents,” says Govind Shirkhande, CEO of Shoppers Stop. “But our older properties need to further rationalise rents.”
What about the food retailers? Apart from the poor consumer sentiment, they were hit because of other reasons. In the past three years, top food retailers such as Reliance Retail, Big Bazaar, Aditya Birla Retail and Spencer’s Retail added more than 2,000 stores. Many of these stores were in poor locations where sales remained low and rentals were steep.
Rent rationalisation, therefore, has been a critical component of strategy for retailers in recent times. And it has begun to show results. According to a recent KPMG report, retailers are now getting less expensive rates when signing properties. As a result, rentals now comprise 5-6 per cent of operating costs, compared to 7-10 per cent earlier. “Retailers have reviewed their strategies in cutting costs, and benefits will show up in the next quarter,” says Devangshu Dutta, CEO of Third Eyesight, a retail consultancy in Delhi. Besides, some analysts feel that despite the dipping consumption numbers, discretionary spends have actually begun to rise marginally, aided by a variety of factors.
“Consumption has shown some nascent signs of recovery,” says Ajay D’Souza, head of Crisil Research. The positive performances of Pantaloon and Shoppers Stop are initial indicators. Analysts say that the growth has not been driven by promotional activity as witnessed during the early part of this year. “Rising consumer confidence, recent tax cuts, lower interest rates, stable wages and overall improvement in the economy are the catalysts,” says D’Souza. With the festival season about to kick in, hope runs high.
Waiting To Expand
“Although margins took a dip from December 2008, the situation has improved during July-August and we have had a sales growth of 25 per cent over March to June 2009,” says Dipali Goenka, director of Welspun Retail in Mumbai, which runs over 200 stores across the country.
Smaller retailers who had decided to ride out the downturn storm by holding on to expansion plans last year, are now preparing to add stores because they anticipate sales to pick up over the next six months. Blackberry’s, an apparel retailer, says sales grew by 40 per cent in the first quarter of FY10 over the fourth quarter of 2008-09. “We were lucky not to have expanded last year,” says Sunil Goklani, general manager of Blackberry’s Retail. “Now that the market is beginning to see signs of a recovery, we are looking at new properties.” Blackberry’s plans to add 20 stores to its current count of 35.
A similar expansion strategy is being followed by Basecamp, an adventure-travel accessories retailer, which had only one store when the downturn set in. Now it has four stores, and plans to open another three in three cities. “We are a niche retailer and have experienced a rise in sales,” says Anish Goel, managing director of Victorinox India, who also runs Basecamp in Mumbai. “It is important for us to be in the right geographies to run the retail business.” Being in the right places, with the right rents, and the right products are what retailers, big and small, are focusing on. Besides fervently praying for the consumer to return to her high-spending ways.
(From BusinessWorld, Issue of September 21, 2009)
The dark clouds of recession and rain seem to be lifting just a little bit. Governments have been energetically throwing seeds of stimulus and economists are eagerly spotting “green shoots”. The festive season is around the corner, with anticipation of higher sales.
So perhaps it is time to cheer. Or perhaps not.
In the recessionary environment during the last year or so, ‘cutting back’ rather than ‘building’ has been the philosophy for most businesses.
The implications of these cut-backs are not always visible in the place you have originally made the cuts. But, unfortunately, they inevitably impact the area which should be the last to be touched: customer experience!
The problem arises not so much from the cut-back. Obviously if the business prospects are looking negative or less positive, the management needs to adjust its expectations and also its expense and investment framework.
No, the problem lies in the fact that most such initiatives are internally focussed. Whether it is supply chain (“lean inventory”), operating strength (“fewer people”), merchandise rationalisation (“narrower range and fewer brands”), the implications and benefits that are identified are mostly internal to the business. The driving philosophy is that “a penny saved is a penny earned”.
During the navel-gazing we forget the fundamental principle that the purpose of a business is to deliver a set of goods or services to meet the customer’s needs and expectations; if those needs are not served, the business interest is not served either.
Here are a few examples from the recent past:
These are all companies that have spent millions on store-fronts, real estate, IT systems, brand logos and hip advertising. After all, those are the visible vehicles for the brand and the brand promise.
Unfortunately, because of the internal disconnect between the strategic intent and the operational reality, these millions are now dripping down the drain, one customer relationship at a time.
Which brings me to one significant area of concern – the people who interface with the customer.
In western economies, due to the high cost of manpower, consumer-facing businesses are run on the basis of highly system-driven processes, lean staffing and a self-help orientation, whether the customer is interfacing with a call-centre or with a physical retail store. There are also significant cultural and infrastructure differences that make these models work in those economies.
In modernising countries such as those in Asia, it is quite understandable that the new consumer-facing companies are trying to emulate western “best-practice” models. However, often they falter on two accounts.
Firstly in these relatively hierarchical societies, customers don’t want to feel “help-less”. They may not exactly enjoy an intrusive sales associate, but they enjoy even less the feeling that there is no one around who can help when they want it. A number of retailers have failed this “quantity” test in the last few months.
Secondly, it is not just a “warm body” that is needed to ask a polite question and smile brightly, but someone who is empowered and feels accountable to solve the customer’s specific issue. That is a “quality” issue. Part of it is related to the huge gap between the personal context of most consumer-facing staff and their customers’. The other, significant, issue is the culture of accountability – that the salesperson or the service executive makes the effort to understand and solve the customer’s problem, rather than only focussing on following the law laid down in the operating manual. These needs can only be addressed through training – lots of it, and repeated liberally – and creating a culture that, top to bottom, is focussed on the customer.
Analysts have said that recessions are a great time for the good companies to separate themselves from the rest. That is true to an extent.
However, I believe that in recessions many companies, bad or good, suffer due to circumstances beyond their control – it is in the recovery after the recession that is a much tougher filter.
When the customer’s mood is beginning to move up, so are his or her expectations. Companies that have not cut muscle along with the fat, companies that have not only focussed on themselves in the downturn but have remembered the customer at all times, are the ones which will manage to retain their customer relationships. And will grow faster.
By Manish Pareek
Food retailers are investing in a war on the senses
Food and grocery retailers are leaving no stone unturned
to gain the loyalty of the spoilt-for-choice consumers. One
bad experience and poof! The loyal shopper is gone for good.
Not only does this imply assuring good shopping experience
every time a consumer enters a store, but also retain them
by ensuring an impressive visual treat for them.
You get only one chance to create the first impression. This impression would either create a happy loyal shopper or would eliminate their chance of ever stepping into the store again. A store that projects a differentiated image and branding definitely gains in the long term.
And with the retail scene heating up in the country, only merchandise and the brand name of the retailer store would not help eliminate the competitors. Instead, more attention and fine detailing needs to be done in terms of designing the store and visual merchandising inside the store.
In the information-laden consumer world, shoppers are increasingly asking for better and newer products. Most of the times, the customers are more knowledgeable than the store employees. Thus, raising the bar of what retailers and the store employees need to know. What is the way to know the mind of the customers and capitalise on it? The answer lies in Visual Merchandising, which is taking retail experience to a different level.
For many food and grocery retailers, strategies based just
on price have been rendered ineffective as big players have
mastered the “mass” end of the marketplace with
scale management and better efficiency. Traditional levers
of competition, such as assortment, service and customer and
market segmentation, which were once differentiators, are
no longer the buzzword. More and more store owners are placing
extra emphasis on interior design which has progressed from
the shop-fitting to entertaining and inspiring the customers,
and hence providing added value to the store.
Customers respond both consciously and unconsciously to visual clues when they visit a store. Marketing books repeatedly make suggestions about business imaging and creating a brand. Even a news print needs to be visually appealing in order to entice readers to read it. Visual merchandising is an artist method to ensure that merchandise sells faster. It’s a tool to appeal to the visual senses of the customer. It is downplayed element which is gaining popularity nowadays with the introduction of self-service in retail stores. There is increased emphasis on store layout, building, fixtures, equipment, colour displays, silent communication tolls, and window display. In-store displays have taken the art of retailing to a higher level.
Visual merchandising pushes impulse buying. Devangshu Dutta
of Third Eyesight opines, “Impulse buying at the cash
counter with small stores is only possible if the cash counter
is around 15 to 20 sq.ft. If the density of the stock at cash
counter is low and well-arranged, then impulse buying can
be well-reciprocated by the customers.”
How does VM help?
1. Publicises the business
2. Publicises the product
3. Lays a foundation for future sales
4. Builds prestige
5. Educates the public
6. Supports popular trends
7. Harmonises pure business inter¬est with aesthetics
8. Arouses Interest
9. Creates Desire
10. Causes Decision to Buy
11. Takes Advantage of the Highest Profile Location
12. Directs and Redirects Common Customer Traffic Patterns
Where to start from and where does it end?
VM begins where the customers connect first with the store – the exterior of the store. Tjsi part sets the tone for a shopper’s experience. This effect may become secondary over time as other aspects of the store’s environment take over and leave lasting impressions than a store’s exterior. But exterior of a store design cannot be neglected as it is a billboard and the first communication point, at least during the initial visits.
Samar Singh Sheikhawat, VP Marketing, Spencer’s Retail Ltd, shares, the outside and therefore the retailers need to understand that the store interiors also play a vital role.”
A good in-store design creates atmosphere, helps establish store branding, and guides people through their shopping experience. Creating the right ambience inside the stores and store designs are indeed part of the total communication process with the customers. The small F&G retailers do have space constraint within the store many-a-times but creating an inviting entrance or an appealing frontage is definitely possible.
The retailers can use the following outside features as the initial VM tolls such as
• Window Display
It is seen that many retailers still under use the element of store exterior. But from the signage to the smallest item in the window, the store front should be considered as a strategic marketing tool, which acts a good branding.
Signage, not only highlights the name of your business, but it also adds visual beauty to the street and streetscape. Signage is a direct indication of the store’s image. Using it as a tool for customers walking down the street, motorists stopped in traffic or patrons of public transport, who may only have a few seconds to scan the line of shops on the street is the call. Sheikhawat says, “A row of well-maintained, unique and at times ‘whimsical’ signs adds a lot of character and personality to any shopping strip. It always pays well to be a bit peculiar. But the F&G retailers in India, to a certain extent know and have used this to a good knowledge.”
A good window display enhances communication of the product,
brand and image. Samar Sheikhawat says, “The window
can communicate a viewpoint or trigger an emotional response,
giving the customer a reason to enter he store. Stores only
have a few seconds to get the customer’s attention.
So use it to the best of one’s ability.
What is the most interesting is that this does not always have to be a costly affair. Use of the simplest items can make for a dynamic statement and aid in the sales of product. It is better to have balanced merchandise in the window display and props should not consume more space than merchandise.
The way one welcomes guests at home, the same way create an invitation entrance for the customers. The entrance to the store leads the customer to the store and merchandise. Stores with selling racks and table outside the store should always ensure the entrance is not blocked. Decorative tile work on the floor of the entrance could reflect the image of the store or simply add character. Adding greenery, for example, a topiary tree on either side of the entrance will effectively ‘frame’ the entrance to the store.
“Every business house and businessmen knows why merchandising is important and a good merchandised store will be worth its weight in gold as it will inspire, excite, educate and stimulate the customer, resulting in healthy sales and ongoing patronage,” Sheikhawat says.
For the entrance the smaller size players (around 200 to 400 sq ft) should aim fro inviting counters if entry of customers into the store is not possible. At the counter it is better to keep products that are close substitute or complimentary to the main product with the main product (how would a retailer know which is the main item in every shopper’s basket???). But he counter should not be clogged with excessive products.
How to connect with five senses?
When placing a VM plan into reality, some of the factors to consider are attracting the five senses of Sight, Smell, Sound, Touch and Taste. Visual is the first factor in getting the customer to come in – are the colours, brightness, size, and shapes friendly or will they turn the potential customer away?
Devangshu Dutta comments, “Sight, attractive display
of the product with colour will facilitate this sense to be
utilized to a good extent. And a well-lit store is a delight
to walk into and make sure the prices are well displayed as
The aural element plays a key factor. Does the background music playing matches the product? Is the pitch of the music comforting or annoying? Does the store have a fresh, clean smell to it or does it give the impression of a seldom visited store? Is the air temperature comfortable for the majority of the clients?
Smell, open product display for that of spices or prepared food is good. It is better that they are fresh and well laid out in front of the counter or the display section. The smell of the store as well needs to be fresh so use a light scented air freshner regularly and also cleaning the floor with a scented lotion will keep the surrounding clean and fresh.
In lifestyle retailing, peppy music in the stores would drive the sales whereas slow music there would be a bit odd. But soothing music, on the other hand, in spa would be perfect. The ambience of a small store, which cannot have clear zoning in their stores, can drive the behavior of the customers.
Touch & Feel is the most important amongst the five sensory marketing basics and is widely used. Every F&G retailer, whether big or small, organized or unorganized, uses this element to let the consumer judge the freshness of their stored products. Majority of kirana stores uses this sense to boost up the sales.
The sense of taste should be given utmost importance. For instance, letting the consumers taste the samplers when they are buying packed foods, will help drive the sale. Or in the case of cheese, let there be samplers so that they can taste and select the type of cheese they would need.
Sheikhawat of Spencer’s shares, “At any store for a good VM, the store design, in-store communication, feature displays, and merchandise presentation – all play synergistic roles in connecting with the five senses. Lighting, for example, should be tried for retailers who have the option of space and investment. The small retailers can have well-lit shelves and counters with bright lights at the top and fading lights as they move down the counter or shelf. Allow customers to comfortable read product information with good lighting inside the store.”
He adds, “Figure out VM hotspots in the store and create dramatic feature displays, whose themes are consistent with what store aims to serve the customers with, at these hotspots. The merchandise presentation on these hotspots will allow customers to conveniently touch and feel or taste the products. Edutainment signs and posters should be used in strategic places around the store and engage the customer at the point of sale.”
It is a good idea to research what each colours associate mentally to most shoppers. For instance, Wal-Mart is widely known for using blue accents. Because of the colour choice made by Wal-Mart in the beginning years, mot shoppers identify the blue with this huge retail chain. This has created a feeling of familiarity for the shoppers.
There are more factors involved in design and environment
planning than just painting the walls of a store. Depending
on what the store is attempting to express to the customers
will help to solve the correct colours for the products one
is selling. Colour zoning is also well used for identifying
certain areas within the store. Colors can also help in leading
a person, with eyesight or reading problem, find the ay inside
the store. Dutta says, “There should be not too much
of mix and match or colours in one store. The changes should
take place according to the product sold, the time of play
and the locality as well.
“Even developed markets have different shades of color in each store depending in the area they are operating in.”
Layout of a store is often set by the corporate headquarters so all stores in a retail chain look similar and help consumer connect with the store, no matter which location. Dutta adds, “The same layout for a big retail chain is sometimes possible as it depends on the availability of the property which is same as the previous one. But for small retailers it depends on locality and the demand within the locality. Formats will be different with each individual store and the layout will change from store-to-store based on the investment allocated to the outlet. Store design requires in-depth knowledge of your product mix and what your store needs to communicate.”
But the overall design of the store must create an atmosphere that encourages the shopper, to lower his or hers psychological defences and become interested in the merchandise offered. Everything is interconnected and design needs to reflect the intent of the business, as well as appear appealing to the shopper.
The right kind of atmosphere is created by the store and
interaction with the customers. The interaction between, the
store employees and shoppers’ creates the overall feel
of the store. Each retail store in a chain has a different
atmosphere. But for smaller retailers there is rarely a concept
of chain of stores but they can still create a better atmosphere
as the owner deals directly with the customers. The customers
prefer taking the suggestions of small organized/unorganized
F&G owner more than the employees at a big retail store,
which is definitely a major plus for the small players.
Store display, floor layout, traffic flow
Having promotional displays of higher value in high traffic areas of the store is good and the same holds true for enticing the impulse purchasing of lower value items. Additional service displays are best located in low stress locations such as post-check out kiosks. Devangshu Dutta cautions, “But be careful of offering displays that are too well-structured. Studies have revealed that displays with too much organization create a lack of trust and interaction between the customer and the display.”
Individual retailers: display space is of utmost importance.
Small retail stores do not assure easy access to the merchandise,
because of their size, whereas larger formats have the option
of open displays and they use it to the fullest. Customer
access beyond the counter is important and closed counter
doesn’t help. In the developed and high income areas
there is a lot of change and the retailers (whether organized
or traditional) are influenced by the population there in.
As well-planned floor layout will effectively maximize the retail space for greater return. A much more careful arrangement of fixtures and display racks form and influence the footfall. The smooth flow between the low and high traffic areas is better for the store as are easy access, visible aisle-ways and suitable aisle patterns etc.
Any store attempting to save room by adding shelves that are too high for the average consumer will turn customers away. Crowded or narrow aisles will also leave a negative impression on the client.
Sheikhawat articulates, “It is important to communicate the brand’s identity, the features and benefits of the product range in every way and at every square inch possible. At Spencer’s, we convert negative spaces inside the store to positive ones by actively indulging the customers with well-positioned feature displays and compelling edutainment materials that attract them, pique their interest, and impel their decision to purchase.”
Are they doing anything wrong?
Both Sheikhawat and Dutta are of the view that VM in F&G segment is new for everyone in India but very few players are using them. So there is still a long way to go before they master this art.
However, there are some common errors which are confused with visual merchandising which are:
• Too much merchandise
• Too little merchandise
• Display changes too slowly
• No display budgets
• Lack of an underlying theme
• Too many props
• Inappropriate props
• Displays changed too seldom
• Lack of attention to detail
• Errors in applying the principles of display
The largest component of retailing is visual. But the biggest visual challenge is to constantly monitor the store’s appearance by viewing it differently. So, every single day marks a brand new start for the retailers.
So how can retailers entice the customers to enter their stores?
Devangshu: “In that case we are looking at the silver magic bullet – which does not exist. So it is up to the retailers to look at their stores with a new eye every time. Keep upgrading the store with a new innovative idea, use the store area available and not make the areas congested with excessive products for a big display, rather have a better display with minimal products of high sales value.”
Samar: “To the contrary, I think that a lot of inroads have been made by F&G retailers in improving the overall ambience and character of their stores in the past two years. We have definitely taken store design and visual merchandising as an important aspect of our 360-degree brand experience. Synergizing brand and product communication from outdoors and in the stores is an effective tool for us.”
A store owner has a lot of homework to do, when designing is done, to endure success. Every element should be selected carefully to match the products being sold and what the store needs to communicate. Ergonomics also must be positioned in the acceptance for success. When creating the selling environment, the owner should be able to make a positive statement about what the product they are selling that will excite the shopper
One can understand that a lot of effort and planning must be incorporated in the VM elements to create a successful retail store. Direction must be clearly be focused at the overall need of the store. Investing in design and environment changes just for the sake of investing without any comprehensible motive will only lead to long-term failure. Overall, the final decisions are still made on what each owner thinks is beneficial for their store.
There was a time when a retailer could simply rent a building, put a product in that store and be successful. But that is history – today the choices abound. It is a more competitive retail environment than it has ever been before. Store design and visual merchandising is emerging as the most successful distinguishing factor for a retailer. Now, is the time.