Category: Press Quotes

DURABLES RETAILING

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September 6, 2009

Durables retailers are dreaming bigger than ever before. Will they go the American way or the European? AARTI KOTHARI explores.

Traditionally, the South has been the vanguard of organised retail in the country, now being matched by the West, namely Mumbai. Not surprisingly, in the Rs 20,000-crore consumer durables industry, these three cities represent most of the 5 per cent share of organised retail. The large players within these regions are expanding, experimenting and imagining the future. Watching from the sidelines are some 40,000 durables dealers – a majority of whom operate single outlet dealerships – across the country waiting for signs of success.

The top nine retailers in the country are set to expand their number of outlets from 148 today to over 500 by 2006-07, and revenues from Rs 850 crore to over Rs 2,600 crore in the same period. Ironically, the industry is still at a crossroads; it needs to decide the way ahead. In the US, the all-products-under-one-roof stores like Wal-Mart are more favoured, while in Europe exclusive durables-only chains like Dixons are the norm.

While nowhere close to Dixons in size, Chennai-based Vasanth & Company; Sony Mony Electronics, PlugIn Sales and Sumaria Appliances in Mumbai; and Bangalore’s Pai International and Girias have adopted the durables-only chain format. Then there are Vijay Sales and Kohinoor Televideos in Mumbai and Chennai’s Viveks- all gung-ho about their shop-in-mall forays.

But there are no strict loyalties. Nor is that possible at the moment. Being leaders, these players need to consolidate first for organised retail to take off in durables. The next five years will see mergers and acquisitions, expansion in geographical coverage, and eventually pan-India players. Only after that has happened will different formats like malls and hypermarkets become a serious consideration. Those who have set shop in malls are looking at those stores on a four to five year perspective and not as significant contributors to their sales immediately.

Why the rush? Largely because the current retail revolution in FMCGs and fashion has whet their appetite for scale and experimentation. Take a look at the newest entrant, PlugIn Sales. Though it started operations only in July 2003, it already has 23 multi-brand outlets in Maharashtra. Says Nitish Tipnis, CEO, PlugIn: “We want to give our customer the same hospitality hotels render. That 35 per cent of our customers have come back to us is proof that we have arrived.” The business model is similar (though smaller) to Hong Kong’s biggest player, Fortress, which has 40 showrooms of a maximum of 2,500 sq ft each, with the exception of a single 50,000 sq ft anchor store. With its Pune operations doing better than Mumbai and several established players in Mumbai already, the company has decided to keep a foothold in Mumbai while focusing on the rest of Maharashtra.

Higher scale, higher costs

“There’s a far greater amount of price negotiations that takes place,” says a marketing head with a durables company.

However, all this investment also means more power. The bigger players are growing faster. “Earlier, if 80 per cent of my sales came from smaller dealers, and 20 per cent from bigger dealers, today 40 per cent of my sales is coming from bigger dealers. So, on a higher proportion of sales we are incurring a higher cost,” says a marketing head of Mumbai-based company. But companies also don’t mind spending more on bigger dealers, as the extra spends are made up by higher volumes. “The absolute cost could be higher, but the per unit cost might not be higher, as the expenses are spread over larger volumes,” says Salil Kapoor, head of marketing, LG Electronics.

Smaller shops are typically owner-run, have lower real estate costs, don’t do much advertising and keep a smaller product range. Companies have to support bigger dealers by giving a higher margin, or through merchandising support, which can be 1-2 per cent of the sales value. Yet there is no sudden change: costs have been going up for awhile and marketers have built this cost into their sales structure.

Corporates are also getting into it. Eureka Forbes is creating a chain of Home Stores, while Raymond has promoted PlugIn. Experts feel all this would lead to consolidation of retail in the next two to three years.

To keep pace with the market, a traditional retailer like Viveks has reinvented itself. After corporatising its operations in 1995, Viveks acquired Jainsons, the third largest chain in Chennai in 1999, and subsquently, another small chain called Premier. Today it is the largest durables dealer in the country and the only chain with three brands in its kitty. It has 46 outlets across Karnataka and Tamil Nadu, and plans to reach 100 showrooms by 2008. Together with its closest competitor, Vasanth, it accounts for Rs 400 crore out of the total durables market of Rs 1,500 crore in Chennai, while the remaining Rs 1,100 crore is split between 400 small retailers.

Vijay Sales has been around as long as Viveks, but has a slightly different tack. It has a turnover of Rs 150 crore from just nine showrooms in Mumbai. This is because – unlike Viveks’ average showroom size of 2,500 sq ft – three of its nine outlets span over 20,000 sq ft each, while the others are between 5,000-12,000 sq ft. “In most cases, around 10-30 per cent of a manufacturer’s sales in Mumbai comes through us. In four years we’ll expand to Pune, Nasik and Nagpur, among other cities, and then maybe outside Maharashtra,” says Nilesh Gupta, managing partner, Vijay Sales. It accounts for half of the city’s high-end products sales.

In Bangalore, Girias is the third largest player operating in both Karnataka and Tamil Nadu. It plans to add eight more outlets to its existing nine by 2009. Says Navin Giria, director of Girias: “This might seem slow, but all our properties are self-owned.” Its close competitor, Pai International, differentiates itself through customer service and relationship building. “The products are all the same. We may even charge Rs 100-200 more than competition, but our customers keep coming back to us because we offer them superior service,” remarks Pai’s general manager Suraj Nayak. With seven showrooms across the city spanning 2,500-25,000 sq ft, he has plans to enter a mall to boost Pai’s brand image. But not immediately. He’d rather wait and watch how his competitor Viveks fares.

Strangely, unlike in FMCG and lifestyle products, malls have been ignored by durables. Retail consultant Devangshu Dutta says: “Real estate is the single biggest stumbling block. Margins in the industry don’t lend themselves to being in malls. While in other markets like the US and Europe, rental costs could comprise 1-6 per cent of sales, in India the figure can be as high as 12 per cent. However, malls will be the biggest push for organised retail in the next 4-5 years. Rentals will have to come down.”

Those who’ve ventured into malls have had mixed experiences. PlugIn’s 1,000 sq ft. shop-in-a-shop with Arcus in Phoenix Mills is going to break-even much after its earlier timeline of one-year. Says Tipnis: “Our customer feedback shows that durable purchases are still a neighbourhood activity for ease of repairs and servicing. But Arcus is a home store, so it makes sense to have durables there too. We’re looking at it on a three to five year perspective, and since our investment is low, we’re going to keep this space.” Prem Shah tried it with Sumaria, but says it wasn’t a success because mall shopping means impulsive decisions for lower-cost goods.

But Viveks believes malls are here to stay. Says B.K. Vijay, associate V-P (CRM), Viveks: “Malls are promising if you don’t go overboard on investments. The products moving out of there are from select high-end categories, so no point stocking up like any other outlet. Customers want a known brand. A new one would not really take off immediately.” Viveks is in two malls in Bangalore – Forum and Central – and at the Spencer Superstore in Spencer Plaza, Chennai, each spreading over 1,000-3,000 sq ft.

But these are all small scale attempts. Competitors are holding their breath for the verdict on Vijay Sales’ 23,000 sq ft one-floor space at ‘The Hub’ in Goregaon, Mumbai. Says Ramesh Shah: “We didn’t want to miss the bus, so we took a gamble. The choice was: small or big? We decided to go the whole hog since there’s no market on the expressway between Bandra and Borivali. So, if it works, we get the first-mover advantage.” The weekends see 70,000-80,000 footfalls. The strategy is to offer ‘best deals’ in the lower-end products, as malls are about impulsive buying. Shah is hoping to break-even on all investments in three years and on operating costs in 1.5 yrs. The goal is to get 15 per cent of Vijay Sales’ total turnover from this showroom in the next six months.

It will still be some time before we can gauge the success of malls in this industry. For now, B.A. Kodandaraman, chairman, Viveks, says: “Studying the West shows us only one way ahead…. All these companies (Dixons in the UK, Wal-Mart in the US and Kingfisher in Europe) had a humble start of one brand, one store, but today they have a minimum of a dozen brand names under which they operate their 100 to 4,000 stores in multiple countries and multiple continents.”

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Getting the retail value chain right

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August 31, 2009

Times of Oman

Monday, August 31, 2009

THE global retail industry today is struggling to get out of the recessionary clutches and finding ways to curtail operating expenses and maintain profit margins.

The consumer driven industry is feeling a dire need to streamline processes and optimise operational efficiencies. Industry experts are of the view that to fight back in this challenging environment, retail value chain can prove a handy tool for retailers to understand and identify performance improvements within the network while at the same time improving the customer experience in every store.

Management guru, Michael Porter theorises in the concept of retail value chain: "The term ‘margin’ implies that an organisation’s capability to realise a profit margin depends on their ability to manage the linkages between all activities in the value chain."

Chhavi Sharma, brand manager (Parfums), Christian Dior, Capital Store, avers: "A retailer’s ability to gain a competitive edge in these times will depend on its ability to gain that margin by focusing on the links of operations, technology and customer relationship management (CRM)."

"Value chain describes the activities within and around an organisation, and relates them to an analysis of the competitive strength of the organisation. Therefore, it evaluates what value each particular activity adds to the organisations products or services."

The concept of retail value chain (RVC) differs from the standard value chain definition. Industry experts say RVC must start and end with the customer – what the customer desires and whether the retailer exceeded those expectations.

A.T. Kearney, one of the world’s foremost management consulting firms, defines RVC through its proven store operations excellence framework, which starts with understanding the voice of the customer and ends with the key interactions and final impression in the core store operations.

Two theories that have evolved in the retail value chain are quick response (QR) and efficient consumer response (ECR). The QR theory was introduced in the context of speciality retailing while ECR was developed in the FMCG segment.

"The focus of QR is to rely on information systems to renew processes. The main thrust is to improve forecasting and follow up orders, to reduce product stock outs and obsolescence costs," says Sharma. Inventory management is a nightmare for any business but more so for a retailer. The focus lies in carrying the right inventory at the right time. Recently, the world’s largest retailer Wal-Mart Stores posted a second-quarter profit fuelled by tight inventory controls beating the Street estimates.

"Wal-Mart has drawn more affluent shoppers away from rivals with its new focus on better brands, better service and cleaner stores. This fiscal year, the chain is remodelling 600 of its 3,600 US stores at a cost of $1.6 billion to $1.7 billion and sprucing up its merchandise even more in the hope of retaining its new customers after the economy recovers," according to an Associated Press report.

Case study

The retail giant’s business model on how it captured and dominated the US retail industry is a classic case study for business schools around the world.

One of the case study reveals that "Wal-Mart made strategic attempts in its formulation to dominate the retail market where it has its presence, growth by expansion in the US and internationally, create widespread name recognition and customer satisfaction in relation to brand name Wal-Mart and branching into new sectors of retailing."

For retailers it is important to understand which activities can be eliminated or simplified, resulting in reduced costs. Recently "Gap posted a slightly stronger than expected quarterly profit as more full-priced sales, inventory controls and cost cuts helped offset declining revenue at all its chains.

Gap has boosted margins by streamlining its organisation, reducing inefficiencies in its supply chain and cutting costs," says a Reuters report.

Cost reduction initiatives are achieved across the retail network through real estate portfolio management or efficiencies gained through technology.
"Within the stores, the store productivity cycle provides an ongoing analysis of primary value chain activities to eliminate, transfer, or simplify retail processes," says Robert A. Ziegler, partner-vice president, A.T. Kearney (Middle East).

Recently, for a global big-box retailer, A.T. Kearney conducted a store operations excellence project to transform the core of the retail value chain at the store operations level. Benefits resulted in increased efficiencies, decreased costs, better category management, and most importantly improved customer experience.

"Retailers must go back to basics at the core of the value chain – store operations – to ensure that every customer interaction provides a positive experience, while at the same time managing costs throughout," says Ziegler.

Industry experts say companies like Zara, The Limited, Gap, H&M, Li & Fung are good examples of buying organisations that effectively manages the logistic chain.

A case study on Zara, the flagship brand of the Spanish retail group Inditex, reveals the fact that the brand focuses on the actual need of the consumers. "It just quickly produces the least amount possible of what is hot with consumers and moves to the next hot style fast. Garment styling for Zara actually starts from the email or phone call received from the stores.

Thus from the beginning Zara is responding to an actual need, rather than forecasting for a distant future," says Devangshu Dutta in his case study on Zara. Dutta is CEO, Third Eyesight, a consulting firm focussed on the retail and consumer products sector.

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Retailers discover potential in the ‘back-to-school’ market

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August 3, 2009

By Gouri Shah

MINT (Exclusive Partner The Wall Street Journal)

Mumbai, Aug 3, 2009

These last few weeks have been hectic for freelance beautician Riddhi Kasurde. Her seven-year old son, Hrishikesh, was getting ready to head back to school—and juggling her work, his classes and a long shopping list had the 30-year-old mother in a tizzy.

Kasurde’s shopping list went beyond the usual school supplies: there was a Rs250 school bag that “looks like one that college students use.” Rs2,000 worth of fabric for his school uniform, Rs500 for the tricycle which was his reward for scoring well in his class I exams and a Rs550 computer game he could use to hone his English and math skills. “I would like to give him all the opportunities that we didn’t have,” she says.

Hrishikesh is the first child in the Kasurde family to go to an English-medium school.

The weeks, between the carefree joys of holidays and stressful months of rote learning, are emerging as a sweet spot for Indian retailers and technology product companies that are tapping the back-to-school market.

Gone are the days of basic satchels, canvas shoes and hand-me-down clothes from elder siblings. Children are now showered with everything from fancy school bags and sports shoes to iPods and gaming consoles.

“Typically after any major exam, parents promise their children that they will buy them something as a reward for a good performance. So, it could be anything from an iPod to a mobile phone to gaming console,” says Ajit Joshi, managing director and chief executive officer of Infiniti Retail Ltd, which runs the electronics and appliance retail chain Croma. “Who wouldn’t jump at the golden opportunity to attract new customers?” he asks.

The burst of back-to-school shopping is not yet of Diwali proportions, but it has enough potential to become one of the highlights of the Indian retailing calendar.

It is already large enough to bring a gleam into many a retailing eye.

Oyo, the brand of children’s clothing, offered hefty discounts this year, along with a chance to win a fully paid family vacation to Singapore. Retailer Croma launched a 24-page Back to School catalogue and ran promotions that bundled products together. It also tied up exclusive deals with brands such as computer maker Acer, to ensure that its new product range was only available at Croma for that time period. Bata launched two-three new types of sporty school shoes this year and also threw in free goodies from Ben Ten, a popular character on Cartoon Network, with every back-to-school purchase.

Office supplies chain store Staples registered high double-digit growth, “over 50%”, on its back-to-school promotions. “One thing is for sure. Indians will spend on their kids, no matter what. But at the same time they are looking for value and are willing to try out innovative products,” says a Staples spokesperson who did not want to be identified, citing company policy.

Other companies, too, bear this out.

“Our sales during the April-June period accounts for almost 40% of our annual revenue,” says Ashim Mathur, national marketing manager, entertainment and devices division, Microsoft India. This means the company sells almost an equal number of X-Box gaming consoles during this time as it does during the festive season in India, considered the peak season for several brands.

Acer India Pvt. Ltd has focused on educational clusters—or cities such as Pune with a high density of educational institutes—to drive sales. “An increasing number of professional courses require students to own their own computers, so what happens is that they invite bids from brands such as Acer, beat down the price and buy in bulk. The cost of each individual laptop is then worked into the student’s fee,” says S. Rajendran, chief marketing officer, Acer India. This season starts in April, peaks in July-August and ends by October. According to estimates by Rajendran, the total market is worth around Rs500-650 crore, of which 90% accounts for individual purchases.

“At this point, retailers will jump on every opportunity there is to shift merchandise and drive sales. Five-ten years ago, June-August was considered the low season for retail, so in that sense back-to-school sales are a useful tool to drive customer impact and cut across the clutter,” says Devangshu Dutta, chief executive, Third Eyesight, a retail consultancy firm.

It is hard to estimate how large the market is. Data from market research firm Indicus Analytics suggests that around 700,000 students in the top five metros come from families with enough purchasing power to interest retailers and companies.

Average spending of around Rs3,000—as was the case with the Kasurdes—would mean an estimated back-to-school market of over Rs200 crore. But throw in the new gaming consoles and digital music players, and the numbers would start looking even more impressive.

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Apparel retailers move into small towns for growth

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July 27, 2009

Reuters
MUMBAI
27, July 2009

Apparel retailers are poised to chase consumers in small towns, besides lower operating expenses, while aiming for a balanced presence across markets in a challenging economy.

Exploring the relatively unexplored markets are S Kumars Nationwide, Arvind Ltd, Alok Industries and Welspun India’s Welspun Retail.

As the economic slowdown hurts retailers in large cities, smaller towns are less impacted due to their dependence on agricultural income and independent enterprises.

“The rationale is in fact the tier 2, 3 and 4 cities, the amount of money that is available there and the amount of consumer growth happening there, there is a big shift happening for the consumer, especially in garments,”
Nitin Kasliwal, managing director of S Kumars, said.

S Kumars, known for premium brands such as Reid & Taylor and Belmonte, is launching a ‘mass brand’ for the tier 3 and tier 4 cities at “very reasonable rates,” said Kasliwal.

Rival Arvind, which already has about 30% of its revenue coming from tier 2 and tier 3 cities, plans to locate a significant share of 30 outlets to be added this year in tier 3 cities, said J. Suresh, chief executive, brand and retail.

The company plans to spend about Rs400 million for expansion this year, he said.

Branded apparels and home furnishing maker Alok, owner of the H&A brand, is planning to triple its store count by next March, with a strong focus on the tier 2 and tier 3 cities.

“Once we reach the 300 target, then my share coming from tier 2 and tier 3 cities will be about 75%,” said Umang Garg, vice president, domestic business. It already has outlets in Moga and Firozpur in Punjab, and Latur in Maharashtra.

Welspun Retail, with 200 stores under its ‘Welhome´ brand that targets budget customers in home furnishing category, plans to add 70-80 stores in FY11, with 30% focused on villages.

BALANCING ACT

Besides the potential of the markets in the interior, it is also a balancing act for companies wanting to mark their presence in different markets to leave no consumer untapped.

“For long term perspective…it makes immense sense for us to be in all strata of the markets, of course with different brands,” said Kasliwal.

As big brands target budget consumers with value-pricing range, firms believe brand awareness is growing in small towns.

“The market is evolving, today if I make inroads, that would pay dividends tomorrow,” said Welspun Retail director Dipali Goenka.

“There are lots of towns and cities where companies don’t have the distribution reach or retail presence. That is a new market for them,” Devangshu Dutta, Chief Executive, Third Eyesight, said.

Skyrocketing rentals in big cities also makes moving to tier 2 and tier 3 cities attractive.

High rentals in big cities make even covering the cost of merchandise difficult, while small towns give 8-12 times of the rent in returns, said Alok’s Garg.

“You can have a profitable business by opening more shops in smaller towns with lower rentals.”

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Zoozoo rakhis, anyone?

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July 24, 2009

By Gouri Shah

LIVEMINT.com (A Wall Street Journal Partner)

Fri, Jul 24 2009

After making their debut on television ads during the Indian Premier League earlier this year, the lovable egg-headed Zoozoos quickly made their way onto comic strips, newspaper mastheads, birthday cakes, wedding cards, shoes, T-shirts, key chains and even rakhis, as clever local and Chinese marketeers cashed in on their popularity with fans. Now, creator Vodafone Essar Ltd is planning to launch official Zoozoo merchandise with retail chain Shopper’s Stop Ltd.

“We are in discussions and are very close to signing the deal,” said a senior official from Shopper’s Stop Ltd, who did not want to be named, citing company policy. This was also confirmed by a senior advertising executive familiar with the development, who added that Shopper’s Stop was still scouting for good suppliers to produce the Zoozoo merchandise. It’s a delay that could cause the official Zoozoo creators to lose revenues to pirated merchandise producers.

Shoppers Stop is likely to manufacture and market Zoozoo T-shirts, bags, clocks, dolls, mugs and key chains, among other things. “The merchandise should be out soon, possibly within a month or two,” says Rajiv Rao, executive creative director, South Asia, Ogilvy and Mather Pvt. Ltd, who created the Zoozoo campaign.

Shoppers Stop has so far produced branded apparel and accessories for films such as Farah Khan’s Om Shanti Om and, more recently, for the forthcoming Saif Ali Khan starrer Love Aaj Kal. Barring a slightly unsuccessful licensing deal with Disney almost a decade ago, this will be the firm’s only attempt to produce branded character merchandise. It’s an area few retailers want to venture into, considering the vast amount of knock-offs available at every price point in the market.

“Character merchandising is easy to copy and there really isn’t any control on violation of intellectual property,” says Govind Shrikhande, customer care associate and chief executive for Shoppers Stop Ltd.

He explains that unlike film merchandise, which has a shelf life of 10-12 weeks—allowing merchandisers to move in and move out before the knock-offs had even arrived—character merchandising is a greater challenge, especially if the official merchandise is expensive, thereby encouraging the demand for cheaper knock-offs.

According to Shrikhande’s estimates, the size of the branded merchandise market is around Rs1,050 crore. Of this, film merchandise accounts for Rs50 crore, character merchandise from the largest player in the market, Disney, for Rs500 crore and another Rs500 crore is for other popular characters such as Ben 10, SpongeBob SquarePants, Hanuman and so on.

For Indiangiftsportal.com, an e-commerce site hosted by Intermesh Shopping Network Pvt. Ltd, it made good business sense to stock products featuring the Zoozoos. “In the last 15 days, the site has sold close to 100 Zoozoo rakhis,” says managing director Manan Sharma. The rakhis cost Rs300 each and include a card, a handmade box, courier and credit card charges. “The little Zoozoo characters are manufactured and sourced from China, the colourful rakhi ribbons and threads are added here,” he says, adding that his attempts to win an official licence for Zoozoo merchandise had come to nought. Was he worried that he would be sued for infringement of intellectual property rights? He says, “Why should it be a problem? We are making the Zoozoos popular!”

Online merchandise site Myntra Designs Pvt. Ltd has been a little more cautious.

“We have 4,000 creative designers on our site who contribute their own designs and in the recent past, we’ve had to reject at least 15 T-shirt designs that were based on the Zoozoos due to copyright issues,” says Mukesh Bansal, chief executive, Myntra Designs, an e-commerce site that also enables users to create and design their own merchandise. “However, we allow consumers to place orders with their own images and we’ve had two-three customized T-shirt orders like that, with images of Zoozoos.”

No surprise there, considering the character’s broad appeal and popularity. The official Zoozoo fan club page on social networking site Facebook has at least 313,129 fans. Experts maintain that such branded merchandise serves well for the brand as well as the retail partner. “For the brand, such merchandise reinforces the image. For the retailer, each time there is an ad, you get to ride on the popularity of the character. So in that sense, it works beautifully for both parties,” says Devangshu Dutta, CEO, Third Eyesight, a retail consultancy firm.

Vodafone Essar on their part is choosing to remain tightlipped about the deal. “Discussions are on, but I’m not sure if we will be able to do anything. To begin with, we have no experience in this (merchandising) business and secondly, there is still so much we have to do in the telecom business…we’re not ruling it out. As and when we have the bandwidth, we will consider it. As of now, we haven’t zeroed in on anything,” said Harit Nagpal, director marketing and new businesses, Vodafone Essar. “We don’t need to overdo a good thing.”

The mobile services provider has three ongoing campaigns: the pug to convey customer service, Bollywood actor Irrfan Khan to communicate the brand’s value for money products and the Zoozoos to communicate their products service and offering. Industry watchers believe that the last could eventually go on to promote more than just value-added services for the mobile services provider.