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Sinking Feeling

Malls: That sinking feeling

Abhilasha Ojha, Business Standard

New Delhi, August 26, 2013

It was supposed to be a fancy sea-facing mall boasting high-end brands and an unmatched shopping experience. It turned into a nightmare for the owner, Bhumiraj Group, when brands started pulling out of Full Stop Mall on Palm Beach Road, the Marine Drive of Navi Mumbai

A similar fate awaited Gold City Mall in Navi Mumbai’s premier Vashi area; it is now an office complex teeming with people who bear no resemblance to the inveterate mall hopper

In Delhi, Star City Mall in Mayur Vihar had hoped to capitalise on the rush of people who would walk in and out of the bustling metro station nearby. That was not to be and the management decided to lease the place out to corporates to set up their offices and to some banquet hall owners to rent it out for weddings and other functions

These are just a few examples of malls that have either shut shop or tweaked their original glitzy plans faced with poor footfalls, low brand pull and sheer mismanagement. Numbers tell the extent of trouble. Roughly 250-300 malls came up in the country over the last two years but 70-80 per cent of the spaces in these malls lie vacant. Around the same time, as many as 40 malls have shut shop, according to Squarefeet Advisory, a mall management company.

The economic slowdown has landed especially heavily on the old-line department stores that anchor many malls. As their sales and profits have tanked, they’ve been pulling out of malls, much to the distress of the smaller merchants who depend on the larger stores to feed them traffic. These trends are hitting the market capitalisations of most of the largest owners of retail real estate. Of course, the slowdown was the catalyst, but competition from online retailers has been the continued driver.

Cushman and Wakefield estimates only 50 per cent of the scheduled malls came up in the top eight cities of India in 2012. And only 250 new ones are being planned in the next two years, while there is space for at least 2,000 malls. A clear marker for shopping centre distress.

To start on the right foot:

Fail-proof the business plan: Focus on the development of retail brands and not solely on quick returns on investment; The primary responsibility should be that of catering to the consumer catchment and driving footfalls for the retail occupants. The other requirements follow from this simple premise

Do a thorough recce of the catchment: Ask questions like can the catchment support the development in terms of consumer footfall and spending? Is there a connect between the needs of the immediate catchment and the occupants of the mall? Are there too many malls in the catchment area?

Offer good occupant mix: You cannot have mall occupants who have little relevance for the target consumer. You cannot have the same type of retailer; this would cannibalise rather than provide a healthy mix

Ensure good access: Accessibility and connectivity to get the traffic smoothly in and out of the mall is a must; ensure there is adequate parking space

Avoid under sizing: A small-sized is a straight handicap because it will lack variety, which is de rigueur in the business, and you run the risk of getting dwarfed by the next big mall that throws its hat into the ring

Focus on design: This involves making the mall brands ‘visible’, ensuring appropriate ‘zoning’ in terms of entertainment, multiplexes, kids’ areas, food courts etc. This will result in better customer flow management

DEVANGSHU DUTTA, Chief Executive, Third Eyesight

Is India’s love affair with the mall over? Experts say this is not the end of the road but a time for introspection. Most malls go through cycles just like the economy: New malls get popular, then traffic begins to die down, then the mall enters a lull phase where anchor stores are leaving/being replaced or the mall simply closes altogether. Also, for many Indians, especially people under 20, the mall is their first experience with organised commercial activity, their first brush with fashion and entertainment, the first place they get their concept of style.

In short, this would be the time to draw lessons from the experiences of mall owners who have been forced to change the script.

Study the catchment area

The first generation malls in India were flagged off in the mid-nineties without much research or understanding of the market, say analysts. As crowds began to throng to these places, many others simply replicated the idea without a clear view of what works in the business and what doesn’t. The slice-and-sell-AC-shops-within-a-big-box approach didn’t work simply because it lacked planning and management and made no provision for demands emerging in the future.

It may come as a surprise but "this is an industry driven by real estate, not retailing", says a consultant. The experience in India, in fact, has been similar to the US market in the early years of mall development as documented by Paco Underhill in his 2004 book The Call of the Mall: A Walking Tour Through the Crossroads of Our Shopping Culture. As he points out, the industrial appearance of the mall and its box-like stores do not express the attempts of retailers to attract customers, but the efforts of developers to squeeze the maximum profit from a construction project. While some of the smarter developers quickly altered the recipe and came back from the brink of disaster, there were others that became a case study of sorts on how not to run the business.

Against this background, the biggest lesson, so to speak, has been that the mall business is like any other business. And like any other business, a thorough understanding of the consumer is the first and the most basic requirement for the business. Says Rajat Wahi, partner, KPMG India, "It is very important to look at the consumer and shopper profiles of the catchment areas before renting space to brands."

This was a lesson that Delhi’s Select City Walk, one of the most successful malls in the country, kept in mind while starting out. Spread over 1.3 million sq ft, which also include landscaped open spaces, the mall was designed keeping in mind the affluent female consumer used to shopping in premier South Delhi markets. The product mix was designed to offer quintessential Indian boutique brands such as Good Earth, Fab India etc alongside international labels such as Zara, Mango, Tommy hilfiger.

Mind you, it is as much about the brands as it is about the ambience in the mall. "You want to have a mall where the shopping experience is enhanced and people want to keep coming back," says Wahi. Some new mall owners are creating "zones" (read, multiplexes, food courts, kids’ play area) to meet the changing needs of the shoppers and upgrading services like access, parking (in terms of even lanes leading up to the malls), security, providing prams for children etc, going as far as to organise regular events around celebrity visits, shopping festivals, flea market fiestas etc to ensure footfalls and consumer involvement. The amenities draw the consumer in for reasons other than to just purchase items.

Here’s how Crossroads, which was acquired by retail czar Kishore Biyani from the Piramal Group of Industries for a staggering $66 million, made the transition. The Mumbai-based mall started floundering when the building’s poor design – which allowed consumers to have a dekko at the mall’s signature brand Pyramid but didn’t allow them to notice other brands that were housed there too – made things difficult for a majority of the brands housed therein.

Given the high tenant turnover, customer loyalty began dwindling.

Rechristened Sobo Central, not only was the mall’s floor layout changed to offer all brands better visibility, there was also been more emphasis on putting together the right mix of food, fun and shopping experience.

Speaking of design, at Delhi’s Select City Walk, the layout is such that at a quick glance, the consumer can easily read the labels/logos of 12-15 brands.

Be open to change

The shift to a revenue share model has also proved to be a win-win for brands and mall owners. Take DLF, which moved to a revenue sharing model when many of its branded malls started faltering. The group initially gave out space on a first-come-first-serve basis besides offering shops to those who promised higher rentals.

This essentially meant there was no thought given to the brand mix. What made it worse was that DLF allowed many investors to buy the shops and rent them out later. The result: no sense of ownership and low overall accountability from brands. This proved a thorny issue at the time of discussions regarding renovation or even during promotional activities.

What went wrong:

The initial euphoria of developing shopping centres has faded from the time retailers started insisting on revenue share and minimum guarantee rather than the pure rent model. With the new scenario, retailers’ ability to pay is limited by their sales. As a result, they offer rentals that they can afford, and mall developer often begin to evaluate other asset categories like offices and residential, since offices provide fixed rentals and residential comes with the inbuilt advantage of up-front cash — neither of which are available in the mall format.

Such a scenario can lead to a mall closing down as a retail establishment and reinventing itself into another format.

In the case of older centres — many of them were created without adequate planning or preparation, were not in the right location, or did not have the right size or tenant mix. Following are the lessons worth learning:

  • Ensure that you have the right size, format and tenant mix for a particular catchment
  • Provide adequate parking
  • Do not strata sell spaces
  • Provide professional mall management

Malls must, over a period of time, evolve their tenant mix and offerings so that sales — and therefore rentals — continue to grow. In the event that a catchment does not sustain the development or there is too much completion, retailers will choose the dominant mall.

When a shopping centre is not the preferred one for retailers, value retailers come in – when even value retailers cannot sustain, it is usually because of a combination of reasons. These could be: bad location, bad design, lack of adequate parking, lack of professional mall management (often the result of strata selling spaces) and a mall’s inability to find alternate usages of space.

Anuj Puri, Chairman & country head, Jones Lang LaSalle India

An altered revenue share approach, says Pushpa Bector, vice-president, mall head and senior vice-president, leasing, DLF’s Mall of India, has allowed DLF to take a long-term view into mall management (that includes positioning, zoning, tenant mix, facility and finance management, promotions and marketing) and genuinely look into – and support – all the brands present in the malls with interesting promotions that can drive footfalls. The effort has helped: DLF Promenade has a footfall of 1 million customers per month and round-the-clock operations and better management have ensured higher loyalty among consumers.

Some malls have taken the scope of mall management one step ahead – they track performance of brands, collecting data on per sq ft sales, the sales of a brand and other parameters. This helps them run a diagnostics check on the brands under the roof and figure out whether the brand is using space optimally or there is need for rationalisation. In the bargain, malls have improved yields as new brands have come in at higher revenue share deals and existing ones have delivered better performance within smaller spaces.

Looking at the kind of damage poor planning brings in its wake, other malls are making sure the customer has the right brands and packaging. Inorbit Mall, which began its innings in Mumbai’s Malad area in 2004, carefully took into account the catchment and decided to focus on five anchor tenants (Shoppers Stop, Lifestyle, Spencers, Fame, and Time Zone). The management routinely studies the performance of retail brands, engages with customers to gather feedback and proactively looks out for promising brands that can be a part of the property.

The demand for space in malls like Select City Walk in Delhi or Inorbit Mall or High Street Phoenix in Mumbai is so high now that it has had to right size the stores of existing brands or relocate some within the premises to accommodate new ones. Select City Walk, for instance, has cut down the Levi’s store from 2,700 sq ft to 800 sq ft to accommodate Superdry and Dune Shoes. Next London has shed about 1,000 sq ft of flab, helping the mall welcome Apple.

Will all this be enough to bring the shoppers back to the deserted malls? Mall managers do have a lot on their plates already. Few new malls are being built, and just too many are being ‘repurposed’. Because of their location, keeping in mind the spiralling real estate costs, malls are not accessible to an increasingly elderly population; technology products are taking larger bites out of customers’ wallets as opposed to the traditional fare malls have to offer; online shopping has grown by leaps and bounds; and more and more women have less and less time to shop.

While teenagers and young adults will continue to patronise the mall as an ‘affinity centres,’ to borrow a phrase from Underhill, most real estate professionals understand more profound changes are afoot.

(This article appeared in Business Standard on August 26, 2013.)

Demand for trendy clothes rises as premium brands see spurt in sales

Sapna Agarwal, Mint (A Wall Street Journal Partner)

Mumbai, August 20, 2013

Indian men and women are becoming more picky when it comes to dressing. Formal wear is increasingly giving way to a trendier line of clothes that includes casual sports and lifestyle apparel, according to stylists, analysts and retailers.

Consider the case of Shilpa Kapoor, 26, a marketing professional with a multinational company whose shopping list includes “fitted dresses, racerback tops in funky prints, Aztec print skirts, sequin shorts, one of those awesome colourful bubble necklaces, and one of the funky rings maybe in a serpent form or any other designs”.

Consumers such as Kapoor, who are tuned-in to the latest global fashion trends and the increasing availability of international fashion at affordable rates, are causing non-food retail sales in India to surge even as the economy recorded its lowest growth in a decade in fiscal 2013.

“Gone are the days when you wore just anything and spending on clothes was considered trivial. Dressing well is an important part of the personality and about how you want to present yourself,” said Pampa Biswas, a stylist who works with an advertising agency.

The fashion space, say experts, comprises four consumer segments: Image Seekers, for instance, are driven by the need to be fashionable. Conformists prefer branded apparel to blend with their peer group. Perfection Seekers wear branded apparel for quality assurance, good fit and internal satisfaction, while Variety Seekers seek a range of clothes, but are mainly driven by prices and discounts.

“Image Seekers are the most fashion conscious consumers and our research shows that this group has increased in India by about 25% in the last 4-5 years in the metro cities,” said Raghav Gupta, principal, Booz and Co., a consulting firm.

In 2011, the Indian apparel market was estimated to be Rs.190 crore, growing at an annual average growth rate of more than 9% and is likely to be at Rs.295 crore by 2016, according to a report by Booz and Co. Close to 20% of this market is organized and growing at a higher rate of 18%.

Retailers agree with the trend. At department retail chain Shoppers Stop, the sales of formal wear have been decreasing and that of the trendier lines like casual sports and lifestyle apparel increasing. In the last two years, the contribution of formal brands to the category has come down from 44% to 38% while trendier casual sports, lifestyle and bridge to luxury brands contribution to the category has increased from 56% to 64%, said Govind Shrikhande, managing director, Shoppers Stop Ltd.

The availability and accessibility of international brands has contributed largely to the trend.

“There is a dramatic shift in the way consumers are shopping. They are taking fashion risks,” said Sanjeev Mohanty, managing director of Benetton India. Over the past year, Mohanty has changed his views from needing an India-specific collection at his stores to now rolling out global collections as soon as they are launched because of “globalization of fashion”.

Similarly, home-grown brand Zodiac launched a trendy casual wear brand Z3 in 2008 and repositioned the brand in 2010 to mirror global fashion trends. “It’s our ability to predict international menswear trend for spring-summer 2013 and bring it alive,” explains Salman Noorani, president and managing director, Zodiac Clothing Co. Ltd.

Moreover, big fashion brands, including Zara, Vero Moda and Tommy Hilfiger, have entered the country in the last seven-eight years.

“Of the total 200 odd brands present in India across apparel, footwear and jewellery, 150 were launched between 2005 and 2012,” said Devangshu Dutta, chief executive at Third Eyesight, a retail consulting firm.

And over the years the brands have gained scale and are making their presence felt. For instance, CK entered India in 2007 and now has 27 stores. Zara entered in 2010 and has nine stores. Steve Madden entered in 2011 and has seven stores. Diesel entered in 2010 and has 11 stores.

Moreover, the success of brands such as Zara is seeing incumbent retailers sharpen their offerings as they compete for the customers’ wallet. Zara, the joint venture with Inditex Trent Retail India Pvt. Ltd, posted a revenue of Rs.404.80 crore in fiscal 2013, according to Trent Ltd’s annual report for fiscal 2013.

“There have been nine new launches in the sports and lifestyle segment in the last three years,” said Vinay Bhatia, senior vice-president, marketing and loyalty at Shoppers Stop, citing examples of incumbents such as Louis Philippe (LP), premium menswear brand launching LP, Arrow launching Arrow Sport and Van Heusen launching Van Heusen Sport besides brands such as Celio, Gas, US Polo entering into the market.

What also is helping drive the sale of fashion wear is the large young population. The 21-30 year-old consumer is very conscious of looks and image and is willing to spend, said Mohanty of Benetton, adding that this profile contributes to 70% of the retailers overall revenues as compared to 50% two years ago.

Not that older consumers are not experimenting with fashion. “The 30 to 50 year-old segment is more interesting. They have a bigger wallet and less pressure on the wallet,” said Darshan Mehta, chief executive officer, Reliance Brands Ltd which retails brands like Steve Madden and Diesel.

To be sure, India remains one of the toughest retail markets to crack. In the last two years, nine brands have had to shut shop driven by poor foot falls, high rentals and limited shopper value in terms of brand options available, according to a Reliance Brands Ltd January 2013 report.

Additionally, as the economic growth slows and inflation persists, consumers are tightening their belts.

An India Ratings, a Fitch Ratings Ltd July report estimates that a wage rate increase at 9.4% for fiscal 2013 as compared with 10.4% consumer-price inflation “will affect household savings rate and discretionary spending”.

“Poor consumer sentiment is manifested in the low quarterly same-store-sales growth trend since fiscal 2012, driven by higher pricing with no significant improvement in volumes. Also, discounting may further dampen margins,” said the India Ratings report. Same-store-sales growth measures compares sales of retail stores that have been open for a year or more.

There is growth, though, at a slower rate. “Last year, we grew like-to-like sales at 30% and now we are growing at 18-20%,” said Dipak Agarwal, chief executive officer of DLF Brands Ltd, which retails brands like Mango and Boggi.

Shopping Malls – Start-Off on the Right Foot

If you’re planning to develop a mall, here’s a short-list of key issues you must address:

Fail-proof the business plan by focussing on the customer: Focus on the development of retail brands and not solely on quick returns on investment. The primary responsibility should be that of catering to the consumer catchment and driving footfalls for the retail occupants. The other requirements follow from this simple premise. Also, a tenant-unfriendly revenue model that overloads the tenant with a high rent (whether fixed or as a percentage of sales) leads to a churn in tenants, and in combination with other factors, keeps the best tenants out of the mall making it unattractive to customer as well.

Do a thorough recce of the catchment: Ask questions like “can the catchment support the development in terms of consumer footfall and spending?”, “Is there a connect between the needs of the immediate catchment and the occupants of the mall?”, “Are there too many malls in the catchment area?”

Offer a good occupant mix: You cannot have mall occupants who have little relevance for the target consumer. Also, the retailers must complement each other in a healthy way rather than cannibalise customers and sales from each other.

Ensure good access: Accessibility and connectivity to get the traffic smoothly in and out of the mall is a must; ensure there is adequate parking space.

Avoid undersizing: A small-sized is a straight handicap because it will lack variety, and you run the risk of getting dwarfed by the next big mall that throws its hat into the ring. [However, the specific size can vary depending on the state of development of your own catchment.]

Focus on design: This involves making the mall brands ‘visible’, ensuring appropriate ‘zoning’ in terms of entertainment, multiplexes, kids’ areas, food courts etc. This will result in better customer flow management. Bad design and poor customer flow management within the mall leaves large parts of mall “invisible” to visiting consumers, or improper zoning that confuses customers and breaks up the traffic.

Finally, remember, it’s not so much about the “square feet”, as about the feet that will occupy it! Focus on the consumers that you want visiting the mall and why they should return again and again.

Spilling the beans

Meghna Maiti, Financial Chronicle

Mumbai, August 16, 2013

On the evening of July 13, an Apna Bazaar store, opened by the Maharashtra government in the Mumbai suburb of Andheri, ran out of vegetables in two hours flat. Ditto was the case with 100 similar outlets set up by the state government to sell vegetables at prices a third lower than the market.

Around the same time, in the Inorbit mall in nearby Malad, a supermarket was buzzing with shoppers. The aisles selling fancy imported foodstuff were busy but those selling fresh produce were nearly empty.

The contrasting scenes succinctly capture how futile organised retail’s attempts to sell daily needs like fruit and vegetables has been. Most organised retail ventures have none of the three pillars of the fresh produce business: direct procurement from farms, transport to outlets and cheap prices (at least cheap enough to draw in volumes).

For most, the back-end of the supply chain go no farther than local mandi or wholesale market. That’s why government-run outlets set up across Maharashtra, Kerala and Tamil Nadu to sell fresh produce at cheap rates are doing roaring business where organised retailers have failed — though both source produce from wholesalers such as the state-run agricultural produce market committees (APMCs).

Farm-to-fork is a strategy much vaunted but not practiced. Even farmers prefer to sell to wholesalers and in mandis where they get better prices. Mandis get business from organised retailers by offering them discounts.

Sanjay Pansare, director of Maharashtra APMC, says wholesalers offer organised retailers reasonable credit terms.

In states where the APMC Act is not in force, organised retailers are free to buy from farmers. But as Devangshu Dutta, CEO of Third Eyesight, another Delhi-based consultancy, says, the organised retailers buy from the mandis.

In western markets, produce is engineered for a long shelf life and transported in controlled temperature. Indian retail chains have yet to scale up so as to do this. “Modern Indian retailers sell highly perishable vegetables and fruits that may have been badly handled in the farm-to-store chain,” he adds.

Very few Indian retailers have successfully managed the farm-to-fork chain, according to Thomas Varghese, former CEO and MD of Aditya Birla Retail, and now head of the group’s textile business. Mother Dairy’s Safal is one of them. Organised retailers find it difficult to match the streetside vendor’s flexibility in terms of pricing, credit, he says.

The traditional farm-to-fork model is fraught with redundancies and inefficiencies. The market environment is hyper- competitive.

The local small retailer is no pushover, says Amitabh Mall, partner and director in Boston Consulting Group. This results in losses for the retailer, low price realisation for the producer and fluctuating prices for the consumer. “For the small farmer, the problems get compounded in absence of finance and technical knowhow, which limit him from growing his business,” argues Mall.

Experts say big retailers like Reliance Retail, HyperCity and Aditya Birla rely on middlemen after having failed to establish direct links with farmers. This despite the fact that Reliance Retail has set up three process centres in Hyderabad, Ahmedabad and Pataudi which cater to markets in the north, west and the east.

A Reliance Retail official, however, claimed that where the APMC Act is in force the company buys directly from farmers. Elsewhere, it is problematic. So is the farmer’s commitment. When market prices are low, they want to sell to the company but when prices are high, they sell in the mandis.

Plus, setting up collection centres close to the farms is not easy for lack of electricity and IT connectivity. “Then there is political pressure, vested interests, villagers campaigning against us and spreading rumours,” said the official who chose to remain anonymous.

Even with all this hassles, Reliance Retail, if this anonymous official is to be believed, has a fresh produce business contributing 20 per cent of its total revenue. In absence of official comment from the company, how truly the anonymous official’s claims reflect the reality is anybody’s guess.

Clearly, the grand hope expressed in the economic survey for logistics with forward and backward linkages to develop modern retail, agro-processing and cold chains has not materialized.

In Aditya Birla Retail too the farm-to-fork strategy has hit a roadblock. The company had decided to use the network of the Birla Shaktiman Krishi Seva Kendras and network of fertiliser outlets to source produce.

Part of the plan was to supply seeds and nutrients to farmers so that they could get better prices by selling produce in the company’s retail outlets or directly to their supermarket chain More. Well, things are not going the expected way.

“Back-end, logistics need huge investments. It takes time to make money (in this business),” rues Pranab Barua, business director for apparel and retail of the goup.

Back-end is where success lies. Walmart, the immensely successful American chain, is still in the process of investing in the back-end in India. To begin with, it is trying to make back-end supply chain management efficient so as to, in companyspeak, ‘maximise value for farmers, retailers, and consumers.’

The accent is on reducing waste in the supply chain, so that the benefit of lower prices can benefit our customers, says Arti Singh, Walmart India’s senior vice president for corporate affairs. The idea of what the company calls ‘direct farm programme’ is similar to what the Aditya Birla company intends to do, i.e, develop a supply chain, link farmers directly to consumers and introduce best farming practices.

The programme now includes over 12,500 farmers in Punjab, Uttar Pradedh, Delhi NCR, Haryana, Karnataka, Maharashtra, Himachal Pradesh, Andhra Pradesh and Rajasthan. They are all small or marginal farmers and supply up to 20variteies of fruit and vegetables. By 2015, the number of participants will go up to 35,000, says Singh.

Walmart has tied up with a logistics company in north India to transport fresh produce to its stores by refrigerated trucks. Fresh produce accounts for nearly 30 per cent of Walmart’s sales in India.

But a consumer consultant based in Delhi thinks Walmart’s farm- to- fork strategy has failed because it has been spreading out to too many random locations too fast.

Bharti Walmart, the Indian joint venture with the Bharti Group, is into wholesale cash- and- carry business, not a front-end retail operation. It has 20 stores in eight Indian states. Fresh fruit and vegetables is critical to its business, claims Singh.

Pradipta Kumar Sahoo, horticulture business head of Mother Dairy, agrees that most retailers buy from wholesalers. Mother Dairy has been in the business of selling fruit and vegetables and partnering with farmers for long a time. It has sired 110 farmers associations in 15 cities and a huge distribution centre around Delhi.

Metro cash & carry has local fruit and vegetable collection centres in Malur in Karnataka, Vontimamidi in Andhra Pradesh, Malerkotla in Punjab, Manchar in Maharashtra and Barasat in West Bengal (Barasat). But, according to a company spokesperson, imparting collection and waste education to farmers is still a challenge.

The Future Group and Spencers of the RPG group declined comment.

Logistics is a big headache for organised retail. Both warehousing and cold chains, where they exist do so not in a chain but spurts, bedevil the supply chains of all retailers. The quality of warehouses is poor. So wastage is inevitable,” says Arvind Singhal, CEO of Technopak Advisors. Big food retailers must investment more in cold chains. Also needed are specialised third- party agencies which could also invest in the back end, he suggests.

Back-end infrastructure typically includes warehouses, processing plants, cold chains and logistical support.

The government allows organized retail to buy directly from farmers to remove the middleman and to create infrastructure. A study of the Indian Council for Research on International Economic Relations in 2008 said farmers get 25 per cent higher prices for their produce when sold to organised retail. The thrust of the five- year plans has been on creating regulated markets, warehouses and cold storages, grading facilities, processing units and collating market intelligence – but all this mainly in the cooperative sector.

Retailers who Financial Chronicle spoke to said off the record that they are forced to sell vegetables at subsidised rates. If they didn’t do that, they risked cancellation of their direct marketing licences.

“We do not have any choice but to sell at low prices. This does not increase our margins or footfalls. So vegetables earn very little revenue and almost no profit,” says a Mumbai-based retailer.

Organised retail find it an enormous task to ensure quality and maintain freshness. Equally difficult is to expose the customer to innovative technologies.

Add to that location and space, says Sushmita Paul, marketing head of Star Bazaar. Indians don’t travel big distances to do their daily shopping, preferring the nearby store or vendor.

What of kind of back-end Star Bazaar has is something she refused to share. But she did say Star Bazaar looks at buyer behaviour before laying out stores.

Nothing unique about that: every organised retailer worth his/her salt claims to do exactly that – but still ends up looking sorry.

Here’s a consumer perspective: Sohini Sengupta, 34, a software person in Kolkata, does not buy fruit and vegetables from supermarkets because they are not always fresh. Even pricewise, they are not attractive.

“Instead, it is more convenient to buy from the roadside vendors. In the evening you can actually get a better bargain,” she points out.

Piyush K Sinha, professor of marketing at IIM Ahmedabad, speaks of the shoddy way fresh fruit and vegetables arte stocked in organized chains. “Inconsistent supplies often mean stockouts are common, irritating the customer.”

Govind Shrikhande, CEO of Shoppers Stop, agrees. In the fresh produce business demand outstrips supply and gives less than 20 per cent of the revenue of HyperCity, the supermarket chain of the Raheja group.

Problems identified by Mark Ashman, CEO of HyperCity, are: getting consistent quality, getting imported quality stuff and dealing with perishable products. Getting profits too is not easy, for HyperCity, it seems. It was in a loss in April-June last year; and in a bigger loss the same quarter this year.

For all their warts, retail chains remain upbeat about the fresh produce business. Why? Barua answers: “Fresh fruits and vegetables are a key for footfalls, frequency of purchase and the image of freshness and quality a store can convey.”

For Walmart too fresh produce is critical. Its ‘best price’ modern wholesale stores have significant membership in the fruit and vegetable category from business- members such as hotels, restaurants, caterers, institutions and small resellers. “We offer them better prices too,” claims the Bharti Walmart spokesperson.

Senthil Natarajan, MD of Kovai Pazhamudir Nilayam in Chennai, is not worried about government stores selling cheap. “Our target customer is different. We cater to the middle and upper middle classes who want a variety in what they eat. The government stores sell just essential stuff,” he exults.

May be that’s the way to go. The retail supply chain needs to add variety in terms of niche products which would bring in committed customers.

(With inputs from Trushna Udgirkar in Hyderabad, Sangeetha G in Chennai, Vikas Srivastav in Mumbai, Michael Gonsalves in Pune)

Id — a marketing idea yet to arrive

Priyanka Pani , The Hindu Businessline

Mumbai, August 10, 2013

Ishaq Rawuther was very disappointed with his ‘Id’ shopping.

The malls and supermarkets, which were doling out usual offers during the month-long fasting festival as part of their regular sale period, hardly had any merchandise or product to offer that was related to the festival.

“I could not find a nice pair of pathan suit at any of the malls. Finally, I got it stitched,” said Rawuther, a resident of Kalamboli in Navi Mumbai.

Ramzan, the holy fasting month of the Muslim community, has somehow failed to attract the attention of retailers and consumer goods companies.

A few retailers such as Kishore Biyani-owned Future Group, a pioneer in driving occasion- and festival-led sales, have not missed this opportunity. Some malls conduct events such as ‘qawali nights’ or ‘sufi evenings’ to attract shoppers from this community. Devendra Chawla, President, Food Bazaar, the supermarket division of Future Group, says the company has always believed in every festival and Id is no different.

But many retailers, including Shoppers Stop, refused to comment on why there were no special offers for Id.

Traditionally, the beginning of the holy month sees a jump in the sales of food items, garments, footwear, accessories, electronics and gold jewellery. But most of the offers are from unorganised retailers.

Dev Jyotula, Centre Manager at Mumbai-based Korum Mall, says, “Id falls under the regular sale period and hence it can be a reason why retailers don’t promote it as Id sales. However, it is a good idea. We have started celebrating this festival in malls from last year and it has contributed to higher sales.”

Several marketers and research firms feel that a festival is always an opportunity but retailers have limited themselves to a few occasions such as Diwali and Christmas. About 83 per cent of the population is Hindu. And Christmas leads up to New Year celebrations.

SHIFT IN STRATEGY

“Marketers go by numbers and not sentiments. However, with the new generation, this opportunity (Id) can be tapped into,” says independent marketing consultant Harish Bijoor. Citing an example from the US market, Bijoor says that retailers in that market are evolving and shifting their strategy of celebrating holidays and not religious occasions. “India should also follow the same.”

Devangshu Dutta of marketing research firm Third Eyesight says many retailers do have offers in markets with higher concentration of Muslims like Kerala, Hyderabad or Lucknow.

“Many paint India as a religious country, but actually it is a pragmatic country. It goes by numbers.”

Retailers go omni-channel for clicks and footfalls

Priyanka Pani , The Hindu Businessline

Mumbai, August 8, 2013

Department store chain Shoppers Stop is charting out plans to evolve as an omni-channel retailer in a bid to provide seamless access to consumers in physical stores as well as online. They expect this to make customers buy more — at least 15 to 30 per cent more — as some research studies have shown.

With consumers increasingly turning to online shopping, brick-and-mortar retailers are devising ways to stay ahead by offering incentives to walk-in customers. The omni-channel strategy is one such initiative.

Shoppers Stop Managing Director Govind Srikhande said, “Globally, several departmental stores, such as Macy’s, John Lewis or Sacks have come back strongly through omni-channel retailing. About 9-20 per cent of their overall sales come through this channel.” He said this trend would slowly catch up with Indian retailers, too. The Mumbai-based retailer that got into e-commerce three years ago recently revamped its online channel.

Other retailers, such as Future Group, Lifestyle, Tata’s Croma Retail, too, have similar plans.

Online platform

Rajan Malhotra, President (retail strategy) at Future Group, the country’s largest retail company, said the firm doesn’t want to be a pure play e-commerce or physical store but an omni-channel retailer.

The group’s consumer durables and electronics business, eZone launched an online platform three months ago and has witnessed a 50-60 per cent jump in sales sequentially, he added. “The plan now is to integrate both offline and online in a flawless manner,” Malhotra said, adding that eZone’s online business will fetch over Rs 200 crore within a year from just Rs 1 crore at present.

The Landmark group’s value retail arm, Max Lifestyle, is also planning a similar strategy in the next four-five months. However, the company refused to divulge any details fearing competition.

Devangshu Dutta, founder of a marketing and retail research firm, Third Eyesight, wondered whether retailers had the necessary expertise to meet customer demands.

“They have to invest heavily in creating and integrating all the channels and technology systems to act as one,” Dutta said.

Retailers will have to add quick pick-up counters for online purchasers, train their staff to handle instant check-out though a smartphone or tablet and gather data to personalise the shopping experience, he added.

(This article appeared in The Hindu Businessline on 8 August 2013.)

Color Plus sketches out a makeover plan

Sharleen D’Souza, Business Standard
Mumbai, August 7, 2013

The influx of apparel brands has taken the count to 200 for consumers to choose from. ColorPlus was one of the earliest entrants, 20 years back. Raymonds bought it out from a Chennai-based company in 2002. It is now Raymond’s casual wear brand for men but analysts worry that it might have lost its appeal without anything new to offer over the years. Raymonds has now put in place a plan for overhauling the brand.
An analyst in the know but who did not want to be quoted says, "When it launched it was India’s strongest homegrown apparel brand. It used to have an amazing quality product offering but this is not the case today and it has lost its share to other brands."

The new look planned to rejuvenate the brand will see its exclusive stores concentrate on entire looks for its consumers rather than individual items of clothing. The stores will themselves wear a look to highlight its theme of ‘Colourful Life’. There will be a system of wardrobes based on collections at the store.

"We earlier tested this format in the south and we have received encouraging response. We have now opened seven to eight stores and by the end of this fiscal plan on opening 25 more stores," says Hetal Kotak, COO of ColorPlus. A feature wall at the ColorPlus stores will have spools of yarn, tying the colorful visual merchandising theme with product-linked props.

The brand has trained its staff to guide customers as style consultants, a model Raymond has tried in its namesake Made-to-Measure stores. "Our representatives will help customers to put a whole look together. They will also give the customer space so that they can look and feel the fabrics and enjoy the experience," explains Kotak.

Stressing on an orchestrated look rather than piecemeal garments, will allow the brand to push its accessories as well, in an effort to increase sales. For now, accessories form a small part of its revenue.

Shoes were launched six months ago and leather bags will be launched at Diwali this year. The bags will be priced upwards of Rs 2,495 and shoes from Rs 4,495. ColorPlus shoes, after being piloted in 30-40 stores, will now be launched across India. The brand also plans on launching eyewear in the near future. It had also tested a sports line six months back and plans to introduce that as well.

"Consumers have responded to the change very well and we are seeing buoyant response. This is showing in the number of order that we have got for our autumn-winter collection and it is at an all-time high which shows that despite tough market conditions we are doing well," Kotak adds.

The change would breathe some freshness to the brand which analysts say has lost its relevance with time. In its heydays, ColorPlus was known for wrinkle-free shirts and chinos which established it as a premium brand and gave it a loyal fan following.

"It did help increase Raymond’s revenue as it was already an established brand when taken over. But it lost its level of intimacy and momentum. Also, market conditions changed since we moved from a market with about 40 international brands or so to some 200 international brands offering competing products," says Devangshu Dutta, CEO of the retail and consumer consultancy Third Eyesight.

Competition such as Madura Fashion and Lifestyle too has proved tough for Raymond’s apparel business, especially its brands such as ColorPlus. Some analysts point out that the brand has also suffered from surplus inventory due to which its summer collection is carried over to the autumn and winter seasons affecting the product offering.

However, its makeover could help matters.

This year Raymond hopes to see a 25 per cent increase in ColorPlus’ revenue owing to the change in store format, as well as its extension into accessories. According to sources, the brand’s turnover was around Rs 200 crore last fiscal.

Raymond claims that after the trials, customer walk-ins, word-of-mouth and conversions increased, fuelled by the imagery of a refreshed premium brand. How far ColorPlus is able to grant all its exclusive brand outlets on which it depends for majority of its revenue a new retail identity will determine its success.

HR management in retail

Abhilasha Ojha, Business Standard (The Strategist)

New Delhi, August 5, 2013

There is a rule in business that if you are not growing, you may be dying. But grow too rapidly and you may still find yourself on the fast track to the business graveyard. That will happen if you are not alert or constantly looking out for the speed bumps that will come your way when you are riding on a highway at top speed. Typically, the growth challenges relate to outgrowing the infrastructure, losing talented people, stretching the human capital resources too thin, attracting new competitors and flagging customer service.

These are also the challenges that face the retail industry in India today as it whizzes along on the fast lane. Being a labour intensive industry sector, workforce management has emerged as the single biggest task for human resources managers. Companies are being challenged to reorganise and adapt their employees to become more efficient. The Deloitte Changing Times, Changing Roles report 2013 sums up the key concerns for HR as hiring skilled talent, retaining critical talent and engaging and motivating employees.

Before we get into the specifics, here is a glimpse of how the industry has grown so far. At $450 billion (or Rs 20.85 lakh crore, according to an April 2013 Deloitte Touche Tohmatsu study), it contributes 14 per cent to the national GDP. The sector employs 7 per cent of the total workforce and is the second largest employer after agriculture. Organised retail, which is about 17 per cent of the total, is expanding rapidly at 20 per cent per year, compared with traditional retail where growth is pegged at 7 per cent. This growth is driven by the emergence of large-format retail outlets and shopping malls.

Such scorching growth has meant there is a huge shortage in skilled manpower. It doesn’t help that employee churn is quite high in the sector. Company heads and experts that The Strategist spoke to reckon that the attrition level in the retail sector would be around 70-80 per cent, and even higher in some cases. Globally, the attrition rate is 30-40 per cent.

The situation gets complicated when you consider how the workforce is deployed. In most companies, 80-90 per cent of the staff is employed at the front end. A majority of the staff that represents this front end – where the consumer actually interacts with the brand – is from economically weaker sections and needs thorough product knowledge and training to be able to understand the consumer needs and address them effectively. A senior executive at a popular apparel retail brand explains it well: "That branded dress you purchase from the store at a glitzy mall would cost the same as the monthly grocery bill that the sales person’s family would run up. Imagine the disconnect!"

Also, retail is a thin margin business compared with other service industries where the rewards and dividends are far higher. So, the task of retaining key people becomes all the more difficult. Experts say most of the attrition happens in the first year when bulk of the training is imparted. Which means a lot of training money simply goes up in smoke.

The task of attracting the best people and keeping them happy is big enough to keep every HR head awake at night. Of course, players are learning the ropes and reacting fast. Here are some lessons from the recent experiences of the big boys in Indian retail.

Planning is key

Spencer’s Retail, the Rs 1,400-crore food and grocery chain from the RPG Group, faced two sets of issues when it decided to shift tracks some eight years ago. The first related to downsizing, which required retooling the workforce and the second concerned expansion of its repertoire, which needed a different kind of training altogether.

Around 2004-05, just when the sector was beginning to take off, the company embarked on an expansion spree opening new and bigger stores in newer and bigger markets. In five years, as the market turned competitive and growth slowed down, it had to take the harsh decision to cut the flab. As it began closing down outlets in markets where business was indifferent, the company realised that it had more people on its rolls than it actually needed.

By 2010, the company had calculated that roughly 250 stores had to be shut down in a span of nine months. Which meant 4,000 employees had to make an exit from the company. Spencer’s decided it would go the extra mile to ensure employees did not feel deserted.

"We realised that though we hired hastily, we could not fire hastily. It had to be done with a lot of care," says Nihar Ranjan Ghosh, executive director, Spencer’s Retail. So a damage control exercise was devised. First, the company created cross functional teams to identify and retain the top performing employees at the front end. Second, it had "frank, transparent" one-on-one discussions with the staff that was being laid off explaining why it had to take such a step. Third, the employees, depending on the grade, were given anywhere between 30 and 90 days to look for a new job.

During this time, Spencer’s arranged for specialists to come to the stores, train this laid-off workforce and help them update their resumes. The company made a special request to its recruitment agency to ensure all its employees get placed elsewhere. Many of the internal managerial staff were asked to refer these employees. By the end of the first month of this exercise, roughly 1,000 laid off staff had secured jobs in other companies. Spencer’s also decided that when it would go into the hiring mode later, the first right of refusal would be given to employees who were asked to leave the company.

A big task, according to Ghosh, is to understand how a lay-off can affect a person psychologically. "These were people who came from an economically challenged strata of the society. Merely asking them to go with a severance package would have been unfair and we didn’t want them to feel they had some shortcomings," Ghosh explains. The exercise of hiring specialists, training the laid off staff and connecting them with recruitment agencies cost the company an additional Rs 60-70 lakh (over and above the severance packages that were given), but the company says it was a worthy cause.

But its problems were far from over. While Spencer’s was getting out of unviable markets it also realised the time was ripe to look beyond the food and grocery format. It got into apparel but found it was a completely different ball game.

The people attending to the food and grocery section (who only needed to ensure stock supply, address grievances, keep the store spic and span) now had to interact more intimately with the consumer who would ask questions about design, cut and fit of garments etc, all of which required a different kind of expertise. As its complaint boxes began to fill up, the company roped in Pearl Academy of Fashion to devise a training programme specifically for the Group, which made all the difference.

Training has been a big area of focus for the Future Group as well.

With 90 per cent of its staff comprising the frontend workforce who face consumers as part of their daily routine, training has become the key tool to build employee confidence and improve sales. "Given the high attrition rate in this sector, our endeavour is to nurture employees for the long term and ensure their commitment leads to outstanding professional growth," says G R Venkatesh, head, People Office, retail businesses, Future Group.

Sometimes, however, the best intentions can backfire. The Future Group realised a standalone training programme doesn’t help – in fact, it increases churn as the trained people quickly begin to look out for ‘better opportunities’ outside. What is required, says the company, is marketing the company to its people and making them aware about their growth path there. So now, with author Devdutt Pattnaik as its chief belief officer, the Group has embarked on a plan to demonstrate to its employees where they fit in in the overall scheme so they feel part of a bigger mission. It hosts off-site programmes and team building exercises more often and in most of its training modules uses examples from Indian mythology to drive a sort of emotional connect between the corporate entity and its people.

Building emotional connect is imperative, agrees Venkatramana B, president, group HR, Landmark Group, because employee disengagement is a direct result of the kind of job retail entails. The front end staff stands for eight to 10 hours at a stretch attending to the customer; those in senior positions feel there is not much scope to grow as the market itself is at a nascent stage. To make things better for the people, Landmark has devised as many as 10 training modules aimed at reducing what Ventakramana calls "infant mortality" or exits within in the first three months. It also continuously looks out for signs of disengagement among workers. When Landmark figured that despite all its efforts attrition was touching 80 per cent some years back, it introduced internal job postings (something that didn’t exist before) to identify existing talent and fill up posts with candidates from within the organisation instead of looking out. "This allowed us to look at the career graphs of our employees more closely and give them a fillip," he adds.

Sometimes a well-planned move can fall flat on its face. At one point, when the company was looking at ways to cut costs, Landmark decided to hire people on a part-time basis during lean seasons, idle weekday hours and so on. Soon, the management realised that people under this arrangement had zero accountability and were hardly involved in the work assigned to them. "The aim was to ease matters for our full-time employees but it didn’t work," says Venkataramana.

For electronics retail chain Croma, training is top on the check list if only to serve customers better. Ajit Joshi, MD and CEO, Infiniti Retail, says in his category the staff needs to be absolutely thorough in their knowledge of the products and their understanding of customer needs. So, besides offering a training programme that is a mix of on-the-job and classroom sessions, Croma has started sending daily SMS snippets to its employees with updated information about the products, brands, categories that are stocked by the company. One small move that has gone a long way in boosting the sales person’s confidence; it has also ensured the employee feels looked after, says the company.

Evidently, the challenges are many and there is no one-size-fits all formula for success. A lot depends on how proactively firms pick up the warning signals, says Devangshu Dutta, chief executive of Third Eyesight, a retail consulting firm, rather than "plug the holes after things begin to fall apart".

ROAD AHEAD

Talent acquisition

  • Hire from tier 2/ tier 3 cities
  • Hire permanent staff rather than temporary staff
  • Higher level of gender diversity in retail sector

Talent management

  • Introduce flexible working arrangements to manage peak season requirements
  • Develop alternative channels (etailing, direct selling) as feasible
  • Design competitive compensation structures to incentivise employees

Talent development

  • Identify high potential performers and investing in their development
  • Develop training initiatives and platforms that cater to specific requirements
  • Focus on internal upward movement and cross functional moves to ensure retention
  • Design career plans for key performers


India eases investment rules for retail sector

Nigam Prusty and Nandita Bose, Reuters

New Delhi, August 2, 2013

India relaxed sourcing and investment rules for the retail sector on Thursday in a renewed attempt to attract foreign supermarket chains such as Wal-Mart Stores and Tesco.

Foreign companies have been keen to enter India’s $500 billion retail market since the country allowed foreign investment in its supermarket sector in September 2012 but ambiguity around entry rules has kept them away.

The issue remains politically controversial because of worries that millions of small shopkeepers could go out of business and India has so far not received a single application from any global retailer.

A previously announced rule that foreign chains must source 30 per cent of their products locally when they enter had been a major sticking point.

In the new announcement, the government retained the 30 per cent sourcing requirement but said it can be met over a period of five years initially and after that it has to be met on an annual basis.

It also said that global chains will only have to invest 50 per cent of an "initial" mandatory investment of $100 million in setting up cold storages and warehouses as against the earlier policy, which said half of the entire investment by foreign chains in india had to be in building back-end infrastructure.

"The new rules have removed some major stumbling blocks and should encourage foreign retailers to enter India," said Devangshu Dutta, who heads retail consultancy Third Eyesight. "Although most retailers are still likely to wait for the outcome of the elections next year before they make a decision."

National elections in India are due by May 2014 and a change in government could result in the controversial retail reform, being reversed and any newly opened supermarkets being shut, according to industry officials.

A Wal-Mart spokeswoman said the company was studying the revisions to the foreign direct investment policy.

"We appreciate the government’s willingness to consider our requests for clarity on conditions contained in the new FDI policy," she said in a statement.

The revised policy also allowed global retailers to procure from small businesses that have intial investment in plant and machinery not exceeding $2 million – up from the limit of $1 million set out earlier to ensure modestly-sized Indian companies benefit from the influx of foreign firms.

These businesses can continue to remain suppliers even if they grow and cross the $2 million investment cap at a later stage, an essential requirement for global retailers who want to be sure of maintaining a stable supply chain in the country.

The government allowed Indian states that have decided to support foreign direct investment in retail to make a decision on where they would allow foreign retailers to set up shop. The earlier rule stated foreign chains can only open stores in cities with a population of more than a million.

Several Indian states oppose moves to allow foreign supermarkets and currently only 11 out of 28 Indian states have agreed to let foreign operators in.

(Additional reporting by CK Nayak; Editing by Anthony Barker)