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October 19, 2006
The Economic Times, Chaitali Chakravarty & Bhanu Pande
19 October 2006, NEW DELHI
CALL it the Reliance effect! The retail boom has sent the aspirations of small regional retailers soaring. Delhi-based pharmacy chains, Guardian and 98.4, garment retailer Ritu Wears and Bombay Selections, department store Big Jo’s , VMart , Gokul Mart and SRS, South Indian durables retail chain Viveks are all engaged in talks with banks, high networth individuals (HNIs) and private equity funds to raise money for expansion. Not surprisingly, scores of terms sheets and investment seeking proposals are floating in the market.
For instance, Guardian Life Care is looking to raise $20m and is in talks with a few PE firms. “We want to put in place 2,000 – 3,000 outlets in the next five years and the fund we are raising will help implement our first phase of expansion (600-700 outlets),” says Ashutosh Garg, CMD, Guardian Life Care. Similarly, South Indian durables retail chain, Viveks, wants to raise around Rs 150 crore to complete its expansion in the South . Subsequently, it has plans to go for an IPO to fund its pan-India expansion. Gokul Mart and Bombay Selection are looking for funds to open 10 new stores.
Small retailers have sought the help of financial consultants who can devise innovative ways to raise funds. Says Jyoti Gadia , director of Resurgent India, a management and financial consultancy, which has the mandate from six retailers to tie-up funds, “Banks put forth too many conditions on small players. Under such circumstances , we have to look at new ways of raising funds. Credit card securitisation is one of them.” According to him, many HNIs have also shown interest in the retail sector. “Some of the retailers want only Rs 25-30 crore to help them open the first few stores and that’s not much for an NRI,” says an industry source.
“Even private equity players find the sector interesting as most retailers are no longer single store entities. As they show reasonable scalability, PE firms see a clear exit prospect,” says Devangshu Dutta, CEO, Third Eyesight, a retail consultancy. “On the other hand, small retailers are finally showing appetite for external investors and willingness to share ownership.”
For instance, last month PE fund Actis invested $65m in the Nilgiri’s group, a South Indian food brand. GIC Special investments from Singapore has joined Actis in making this investment. The funding provided by Actis will be used to expand the company’s South Indian franchise network and strengthen its supply chain and distribution capacity as well as to expand the group’s food manufacturing operations.
RELIANCE BOOKS PRIME SPACE IN ANSAL MALLS
New Delhi: With the fight for retail space heating up, Reliance
Industries, which has major plans for this sector, has reached
an understanding with Ansal Properties and Infrastructure (APIL)
for taking up the anchor space in the real estate major’s upcoming
mall projects, report Mayur Shekar Jha & Joji Thomas Philip.
According to sources, the first of the deals has already been
signed, under which Reliance Retail will be the anchor tenant
in the upcoming Ansal Plaza malls in Greater
Noida and Palam Vihar, Gurgaon. Even as sources confirmed the
development , this comes as a blow to Shoppers’ Stop, which
is currently the anchor tenant in most of the Ansal Plazas.
This move also assumes importance considering that APIL has
already outlined plans to build about 18 new malls, most of
which would be located in tier II and III cities. “With Reliance
Retail too actively targeting these cities, the company can
now ride on the APIL’s infrastructure,” sources added.
When contacted, an Ansal Properties and Infrastructure (APIL) spokesperson said, “We are hopeful of a long lasting relationship with Reliance, but there is no formal agreement as such.”
admin
September 16, 2006
Textile Industry Report Calls for Capturing Billions in Lost Value
A report by management consulting firm, Third Eyesight, has called upon the Indian textile and apparel industry to urgently develop capabilities to capture the value that is being lost due to inadequate focus on product development and value addition. The report titled “Eternal Hope to Reality: Sustained Global Competitiveness for the Indian Textile and Apparel Industry” was released by the Hon’ble Minister of Textiles, Shri Shankersinh Vaghela, and a well-attended industry conference organized by the Federation of Indian Chambers of Commerce and Industry (FICCI) .Highlighting the immense gap between the current exports of about US$ 20 billion and the vision of US$ 55 billion, Third Eyesight’s report says that the Indian industry needs to look beyond incremental steps. Presenting the report, Third Eyesight’s chief executive, Devangshu Dutta said, “Dramatic growth cannot come through concentrating on volume alone. Even if the industry wishes to increase its volume of trade, ports are operating at 91 to 92 % of capacity utilization. This sort of growth of exports is only possible through focussing on value addition.” |
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The Third Eyesight report highlights the fact that when India compares poorly to other countries on the value captured per employee. For instance, if Indian industry were earning as much as Turkey, India’s exports would be close to China’s exports of US$ 161 billion. The report says India’s exports are still too weighted in favour of raw materials and intermediate products, rather than finished products, and this is a major concern if one looks at the long-term competitiveness and value-capturing capability of the industry. According to the Third Eyesight report, apparel exports account for only 41% of India’s textile exports in 2007-08. |
| India is neither the cheapest producing country nor possibly the quickest in terms of delivery, but it already provides buyers with value in terms of product development and design. According to Third Eyesight, this is the winning formula that needs much more focus. The report describes how design, merchandising and product development capabilities can enable Indian companies to become strategic suppliers to global industry. India’s domestic industry, and its skill at understanding market needs, creating and merchandising product, can also play a valuable role in the industry’s growth in the global area. |  |
Devangshu Dutta, chief executive of Third Eyesight, said that India already had a significant cachet as a brand in the 1960s, but lost its position until the beginning of this decade. While the trade-brand of India has now started becoming stronger, it is time for the industry and the government to emulate successes created by countries such as Italy. By creating an ecosystem focused on design and product development, India can create and capture the billions of dollars worth of value that is being lost to other countries.
admin
September 15, 2006
In classic “Mission Impossible” style, I was asked to research and write a report on how renovations impact retail businesses. Every person I called responded in the same manner. First they laughed, then said “good luck, no one gives out that information” and then several people actually were kind enough to share their company’s statistics.
After researching this topic I have chosen to divide the subject into three sections: Emotional/Psychological Impact of Renovations, Fixtures Old and New, and Renovation Facts and Figures.
The Emotional and Psychological Impact of Renovations
Why choose to renovate?
The negatives are: renovations are expensive, time consuming and there’s no guarantee that they will improve business.
The pluses are powerful.
Renovations talk to your customers and to your staff. When management chooses to renovate a store it is showing its faith in the future of the store. Both customers and staff are aware that renovations are rarely made to stores about to be closed.
This certainty creates good faith and a sense of continuity and trust. In today’s fragile business climate, developing trust and a sense of security are primary goals for all retailers.
When a retailer renovates a store he is telling the competition:
” I’m here to stay”
” I’m a player”
” I’m offering my customers more than my competition”
” Match me!”
“I’m here to stay” falls into the reliability/stability category. People want to know that they are buying from someone who will stand behind their merchandise. Although the “Going Out of Business” signs in the windows of several electronics/gift stores on Fifth Avenue in New York City generate sales, confidence in the products is limited. Generally only tourists think they might get a “deal” on Fifth Avenue.
Renovations = longevity in the mind of the consumer.
Renovations = longevity in the minds of the employees. They
will treat their customers better with lower job anxiety levels.
Better service = better sales.
Renovations = better sales.
“I’m a player” is an annoying expression but it sums up the feelings of both the manager and the staff of a renovated store. When a store is renovated it says to the competition – “I’m in business, I’m counting on growth and I’m going after you!”
The perceived quality of a purchase is in direct proportion to the look of a store. People buy down in prices when a stores’ energy and appearance is faded, tired and old. Even when maintenance standards are high, people can sense dead energy.
A store that feels old and faded gives customers the feeling that the merchandise assortment is made up of “losers” and is unwanted. Only clearance goods will move well in that kind of environment.
Renovations = management’s confidence in the future of the
store
Renovations = employees pride in the look of the store
Renovations = customers awareness that the store is in business
to stay and is growing.
Awareness of growth and appreciation of new look = improved
sales
“I’m offering my customers more than my competition” is another way of saying, “my merchandise mix and my employees are terrific – and I have the power to make it even better.”
Making it even better is the key.
Customers are a captive audience in many of Aramark’s locations. Where else are they going to go for souvenirs or gift items at Muir Woods or Ellis Island? But, even with a captive audience, they will buy less if the energy in the store is old. While cleaning and moving merchandise will improve energy flow, renovations alone create a dramatic increase in the perceived value of the merchandise. If the merchandise is perceived to be more valuable, customers will feel better about themselves when they buy.
People like to be associated with winners.
When a store positions itself as a “winner”, it’s telling the customers that they too are winners for buying at this store.
This may sound simplistic or childish – but it’s true.
Imagine that you bought two t-shirts. One was purchased at
a basic discount store for $12.99 while the other was bought
at an attractive gift store for $15.99. Which T-shirt will have
more emotional value?
Which shirt allows you to feel like a “winner?”
The experience at the attractive gift store would be more memorable because it was appealing. The discount T-shirt would be a practical purchase while the gift store shirt may be more emotional.
Now, add an overall positive experience to the attractive gift shop – such as a walk in Muir Woods or experiencing the win of your favorite team -and the T-shirt’s emotional impact doubles in value.
Renovating the store adds to the value of the merchandise by helping the customers and the employees feel like they are worth the effort. When people feel like they are worth such an intensive effort – they feel like winners. Winners support the store that makes them feel great.
Renovations = people feeling like winners
Winners = spending money to keep feeling that way
Renovations = more money spent in the store
“Match me!” This is not just a challenge to your competitors; it’s a challenge to your staff.
It’s one thing to have a great location and just wait for people to wander in – and another to galvanize them when they come in to buy far more than they intended.
A store that hasn’t been renovated in 7 years has fallen into patterns and traps. The personnel, no matter how hard they try to do something different, are going to repeat merchandising habits over and over.
A newly renovated store offers a fresh floor plan, new fixtures, different lighting and forces the staff to rethink the entire merchandising for the store. Rethinking encourages creativity. Creativity honors both the customer and the sales staff.
Renovations + Creativity = sales.
Renovations get energy moving in a store. Most merchants will either admit – or brag that when they move something – it sells.
There are several reasons for movement creating sales.
Why not just move stuff around the store? Why go to all the trouble and expense of renovation?
Customers know the difference. Fixtures, flooring, wall treatments and lights all get old. They are very difficult to move. Even fixtures on casters may move – but they never change – except to get beat up and old looking. So, you can move product all over the place and it’s a short-term good investment in energy. In the long term, only renovations will give the total store the lift it needs to get people to buy more when they come in to browse.
Fixtures Old and New
After talking with numerous fixture manufacturers and store designers one fact came up over and over. The only people who buy stock fixturing are small Mom & Pop stores that think they can’t afford custom fixtures.
The big box retailers who have seas of chrome quads can afford to have the quads manufactured to their exact specifications. Even the most mundane, typical fixtures in a chain store have probably been recreated and engineered to fit the store planner’s needs.
While there are many specialty fixtures on the market that are standard – such as some quilt holders, poster swing frames, etc., the bulk of fixtures are custom made.
Custom doesn’t have to mean more expensive. A lot depends on the surface materials and how complicated the fixture gets. Interesting, expensive surfaces = interesting, expensive merchandise.
Interesting surfaces can make even the most mundane gifts seem unique. When you are trying to develop a mood, feeling or image for a store, standard non-custom fixtures will more often than not destroy that mood by making the store similar in feel to the local convenience store.
Custom fixtures have the most impact in the front of the store, in focal areas and at the cash wrap. These are the areas that will convey the entire theme of the store. If these areas are standard issue – the store will have less impact than 7-11.
The logic behind this is easy – what we see influences what
we think. If we see bland off-white counters and chrome racks
with a vast assortment of gifts heaped on the shelves, we think
– “okay, let’s grab something for the kid and get out of here
before the traffic gets bad.”
If, however, the counters are wood mixed with copper and the
sides are birch and you see trees wherever you look adding a
soft feeling throughout the store – all of a sudden things start
looking more appealing. It’s more interesting, fun and engaging.
The store has honored you, their customer, by making itself
more presentable and different from the competition. The merchandise
then looks more appealing and interesting which leads to increased
sales.
Renovation Facts and Figures
Very few people were willing to share their renovation facts and figures. One major fact that became extremely obvious was that if renovations didn’t pay off, no company would be doing them.
Every company that renovates one or more stores figures on a minimum increase of 10% of sales with an anticipated and/or hoped for increase of 38% which seems to be the average increase after significant renovations.
The method of analyzing the success of a renovation is unique to each company.
There is virtually no way to compare sales and profits figures or, “apples to apples” by company. Each figures their costs differently. The only figures that matter are those within each individual company.
Some smaller companies saw immediate increases in sales and didn’t dwell on the actual renovation costs. For other companies, the costs are factored in to determine the actual profit and the percentage of profit increase over time after the initial renovation costs are covered.
One of the premier upscale chain of stores in the United States shared their process with me for this essay. They did not want their name mentioned.
When they decide to renovate one of their stores they first look at the real estate deal. The costs of the real estate determine how much they need to make on the property after renovations.
They then create a target for this location. They look at the history of the location, the national average of their stores and their actual goal for the store.
They determine the sales per square foot by category in the store, the average throughout the chain, their expectations for each department and the gross margin by department.
This corporation expects -and generally gets 2.5 growth out
of each renovation – for example: 1 million spent on renovations
will generate 2.5 million in sales.
The one million will be amortized and capitalized over five
years.
Their oldest stores are often located in their best market areas. To remain competitive and to keep their best customers from going into their worst stores, they often renovate highly successful locations to keep them fresh and appealing. They believe they must remain competitive in their own market.
Bobby Drouin, the director of Real Estate and Store Planning
for “Things Remembered” was very helpful with information regarding
their remodeling projects.
” Things Remembered” has two types of remodels/renovations:
The Skin Package
This is a clean-up/fix-up program that deals with the storefront,
carpet, wall paint and lights.
Full In-Place Remodel
This includes new architecture, custom fixtures – which consist
of a standard fixture package that is custom for them.
They tend to have stronger percentages of growth after either
type of remodel in “A” centers.
Mike Grimes, the president of GH Home Furnishings in Charlestown,
MO finds that when he makes improvements to his store the confusion
and movement during construction excites customers and sales
increase. When he put a new façade on his building the
sales increased 28%.
When he did a remodel in the bedding area of his store (new
carpet, new walls, banners and fixed the ‘dip’ in the floor)
the sales in that area increased 45%.
“Spirit of the Red Horse” carries American Indian western-themed
gifts. Jim Stelton of CBR. Inc. carried out a renovation for
this interesting store that included:
– Replaced the ceiling coves to make the energy flow better
and create an airy feel.
– Changed the fixturing from solid to the floor to “leggy” so
the airflow and energy improved and the store feels lighter.
– Redid store front
– Created storage drawers by each bay with twin panels to reflect
the new traverse detail.
After renovations “Spirit of the Red Horse” improved their business
by 30% yearly with an average ticket price increase of 10%.
Devangshu Dutta, based in New Delhi, India has been researching the impact of renovations on retail sales internationally. What he discovered was the impact in the six months following major refits and renovations ranged from 10 to 40% of a sales increase with large discounters showing a lower impact than smaller specialty stores. Gross margins also improved to the extent of 10 to 12%. The sales upswings tapered off after the initial months but sales levels per square foot remain higher than comparable stores that remain unrenovated. They also remain about 5-10% higher than previous levels for the same store. The impact, Mr. Dutta states, comes from the renewed consumer interest as well as better management of space and merchandise.
These figures are supported in the United States by every person interviewed. All those who did not want their names or companies mentioned in this report agreed that the percentage increase in sales after a full renovation averages between 30 – 39%. “Skin” remodels averaged 12 – 20% sales increases.
A renovation tells the world that you are putting your money where your mouth is – a cliché that makes financial sense.
When you renovate you are offering your customers more than the competition. You are giving them an interesting, fresh, creative and hopefully exciting shopping experience. When you correctly factor-in location, renovation costs and new merchandise, experience proves that your profits will increase significantly over time.
admin
September 14, 2006
admin
September 14, 2006
When I was contacted for an article on supply chain management, for publication towards the end of 2002, two topics came to mind. One of them was a good one to begin a year with, and could form the basis of a “new year resolution” article. The other topic forms the basis of this article.
Just as you would introspect about and evaluate a number of other things at the end of the “old” year, how about evaluating your supply chain? Admittedly, it takes a little more time than the six days between Christmas and New Year, but we can certainly try to lay the foundation here. Remember, you cannot hope to improve what you cannot measure, and since the buzzword is supply chain improvement / optimisation / effectiveness, we do need to look at the measures as well.
Traditional Measures Will Not Get You There
In their efforts to improve profitability or just to sustain the businesses, most companies face a dichotomy in satisfying each customer’s needs and in keeping costs under control. In this context supply chain management is mainly seen as a means to contain costs. Thus, the traditional key measure many managers apply to effective supply chain management is the cost of their supply chain operations – the lower the cost, the better the supply chain looks to them.
However, even the most hard-nosed manager will acknowledge that it is virtually impossible to do this on a sustained basis – cutting “fat” too deeply can lead you to cutting muscle – similarly profitability, market positioning, competitive advantage can be whittled away if supply chain management only focuses on cutting costs.
Even if you just focus on costs, what costs will best indicate supply chain effectiveness? The cost of inbound and outbound logistics? How about the costs of inventory carried in the various distribution centres? What about work-in-progress? While we are looking at costs, let us not forget the other costs associated with sourcing, and distribution, including manpower costs which do not get covered elsewhere. And finally, if goods hit the market late due to a poor supply chain performance, discounts and markdowns need to be considered as well in the costs incurred by the supply chain. So the thinking that cost is a straightforward measure is, in itself, an incorrect assumption – if you think so, you are probably over-simplifying or under-estimating the costs involved.
Let us then look what other measures might be available. In a previous article I mentioned the need to integrate supply chain management with the company’s business strategy, rather than treating it as a back-office function with dirty fingernails and greasy elbows. In my view effective supply chain management must work backwards from the customer needs in mind. Adopting this approach can enable companies to add financial and business value not only in the long term but sometimes immediately.
Once you look at supply chain management this way, as emanating from customer needs and being integrated into every other function of the business, you begin to realise that there needs to be another way to measure its success as well as taking the key decisions related to supply chains: location, production, inventory and transportation .
Time and space will not permit me to detail the various methodologies, but I believe it is worthwhile highlighting one as the most comprehensive, if not complete, method. Even within this there are several detailed layers, which can only be briefly touched upon here.
“From Your Supplier’s Supplier to Your Customer’s Customer”
The Supply-Chain Council’s Supply Chain Operations Reference (SCOR) model is a method of benchmarking and measuring improvements in supply chain performance. The Supply-Chain Council was formed in 1996-1997 as a grassroots initiative by individuals representing companies including AMR Research, Bayer, Compaq Computer, Pittiglio Rabin Todd & McGrath (PRTM), Procter & Gamble, Lockheed Martin, Nortel, Rockwell Semiconductor, Texas Instruments etc.
SCOR, now in its fifth version, is a cross-industry reference model that contains standard process definitions, standard terminology, standard metrics, supply-chain best practices, and enabling information technology. The SCOR model defines common supply chain management process, and matches them against “best practices”. The model was designed to enable companies to communicate, compare and learn from competitors and companies both within and outside of their industry.
SCOR includes all customer interactions from order entry through paid invoice, all product transactions (whether physical or service) and all market interactions from understanding demand to fulfilling it at each individual order level.
The model works primarily with a three-level pyramid.
