Tag: retailing

Shopping Centres – Boon or Bane

Devangshu Dutta

March 13, 2008

Many people I know treat shopping centres or malls as a new phenomenon, a progressive development of recent times or a modern blot on the traditional cityscape (depending on your point of view).

However, Grand Bazaar (Istanbul, Turkey) is the earliest known mall, with the original structures built in 1464, with additions and embellishments later.

In India, if one were to include open arcades, Chandni Chowk in Delhi is reported to have opened around 1650, with its speciality shopping streets. (Of course, more traditional bazaars have been around many thousands of years around the world.)

But even if one were to get more “traditional” about the definition of a mall, possibly India’s first mall was founded in the hottest city in the country then, Kolkata (New Market) in 1874.

In more recent history, Delhi’s municipal pride, the air-conditioned underground Palika Bazar was a novelty in the mid-1980s, while Bangalore’s Brigade Road saw several early pioneers with their shopping arcades in the late 1980s.

Then came the mall-mania beginning with Ansal Plaza in Delhi and Crossroads in Mumbai. Everyone started looking at malls as the new goldmine, being pushed ahead by a “retail boom”.

The early stage of any such gold rush usually has several experiments missing their mark, which is what has happened with the hundreds of mall-experiments that have been launched in the last 7-8 years.

Some of the significant and common issues are starting to be addressed, but many others remain.

Catchment-Based Planning is Needed

The top-most issue in my mind is “oversupply”. While this may sound absurd to many people, given the low figures quoted for modern retail, I am referring to the over-concentration of malls in a small geography. If 8-10 malls open 4-5 million sq. ft. of shopping in a catchment that can only support 1 million sq. ft., everyone knows that some of the malls will fail. But everyone also believes that their mall will succeed (otherwise, they would obviously not have invested in the mall).

What happens to the malls that fail? Depending on the design of the building, many of them can be repurposed into office space – another area where a lot of investment is still needed. So in the end, actually, most people win, one way or the other. Yet, there will be some losers. Does anyone “plan” on being one?

The second key issue in my mind has been that mall developers have been thinking as “property developers” rather than retail space managers. The successful shopping centre operators worldwide (now also in India), are actually as concerned about what and who is occupying that space as a retailer would be. They are concerned about the composition of the catchment, the shopping patterns, the volume of sales, the shopping experience. Therefore, the tenant mixes as well as adjacencies are factored into the earliest stages of planning the shopping centres.

In fact, if I were to identify the most critical operational problem for many of the malls, it is the lack of relevance to catchment and, therefore, the low conversion of footfall into sales for the tenants other than the food-courts. Customer flow planning within the mall is another factor that can make a tremendous impact on the success and failure of the tenant stores.

Once you start looking at these factors during the planning of a mall, another obvious aspect that jumps out is “differentiation”. Currently, there is little to choose from between malls (other than possibly the anchor store). However, with more clarity in terms of the target audience, the potential strategies for differentiation also become clearer. The visitors also become segmented accordingly, and there is a natural benefit to the tenants occupying the mall.

If, as a mall operator, you want to be in business for long, and also develop other properties in the future, the success of your tenants is probably the most critical driving factor for your business.

Integration into the Urbanscape

When we gauge malls from the perspective of integrating within the urban landscape, there are obviously some glaring errors being made. Instead of aesthetic design that reflects the heritage and culture of the location and its surroundings, or some other inspirational source for the architect, most malls that have come up are concrete and glass boxes.

Beyond the looks, some of the malls are a victim of their own success. They attract more crowds during the peak than they have planned for. Not only does the parking prove to be inadequate, there is no holding capacity for cars entering or exiting the mall. The result is a traffic nightmare – not just for general public, but even for the visitors to the mall. Someone who has spent 45 minutes stuck in a jam waiting to get into the parking of a mall will certainly not be in the best frame of mind to buy merchandise at the stores occupying the mall.

Some of the problems lie outside the mall-developer’s control – for instance land costs are a major driver of the cost of the project (and, therefore, the lease costs to the tenants), and land is a commodity which is independent. Real estate is available within the cities as brown-field sites (former industrial locations), but the regulations are convoluted and the strings are in the hands of too many different departments of the government (city, state and central). This needs joint creative thinking on the part of developers, the government and the public, if our cities are to develop in a more sane fashion than they have in the past.

Similarly, land deals are still not clean enough for foreign investors to be comfortable participating in many developments. This obviously is holding back a tremendous source of capital and domain expertise that could contribute to the growth of this sector.

Many other operational issues exist – manpower, systems, health & safety – some of them can be managed or controlled by the mall developers, and it is a question of time (and of their gaining experience). Other issues are more in the domain of the government, and need a visionary push to make “urban renewal” a true mission.

New Life for the Cities

In my opinion, one of the most interesting areas which would be in the joint interest of almost all parties (that I can think of) is the possibility of revitalizing the high streets and community markets, and reinventing them as the true centres of shopping.

Many of our markets are rotting (a strong word, but let me say it anyway). The individual stores are owned by individual owners who are not all equally capable of maintaining the same look and feel throughout. The infrastructure in and around the markets are owned or managed by several different agencies. To make matters worse, there is often no cohesiveness and no synergy in the interests of most of the members of the market association. None of these individually have the power or the mandate to recreate the shopping centre. But what if they could get together and take the help of a re-developer?

If an example is needed, New Delhi’s Connaught Place provides the example of one stage of redevelopment. Connaught Place had lost its pre-eminent position as a shopping centre, due to the spread of Delhi’s population and the new local markets that had come up. Further disruption was caused by the construction by Delhi Metro. But DMRC has reconstructed an “improved” centre, and the Metro connectivity has made the customers come back into CP, as it is affectionately known in Delhi.

There are clearly many such opportunities around India’s cities. These need to be looked at as a commercial opportunity for all concerned (revenue for the redeveloper, better sales for the store owners / tenants, more tax revenue for the government from additional sales and consumption). But it is also a broader social opportunity to breathe a new life into our cities, and to make them proud beacons of a growing India.

It would be a mission that would truly prove the worth of shopping centre developers, urban planners, regulators and the retailers themselves.
Any takers?

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Brand Immortality and Reincarnation

Devangshu Dutta

January 18, 2008

The entertainment business suggests that nostalgia is a very powerful driver of profit.

It is quite clear that retro is “in”. The movie business worldwide is full of sequels, prequels, re-releases and remakes. The music business is ringing up the cash registers with remixes and jukebox compilations.  Star Wars and Sholay still have a fan following. ABBA has leaped across three decades, Hindi film songs from 30-60 years ago have been given a skin-uplift by American hip-hop artists, while Pink Floyd is hot with Indian teens along with Akon and Rihanna.

As copyright restrictions are removed from the works of authors long-gone, the market gets flooded with several reprints of their most popular writings. Of course, we know that classic literature survives not just a few years but even thousands of years. Examples include the still widely-read 2,500-year-old Indian epic Ramayana by Valmiki, the Greek philosophers’ works that continue to be popular after two millennia and the Norse legends that have been told and re-told for over a thousand years.  Spiritual and religious leaders’ writings are also recycled into the guaranteed market of their followers and possible converts for a long time after their passing away.

On the other hand, the basic premise of today’s fashion and lifestyle businesses is that silhouettes, colours and design-cues will become (or be made) obsolete within a few weeks or a few months, and will be replaced with new ones.   This principle is true not just of clothing and footwear, but is applied to home furnishings, furniture, white goods, electronics, mobile phones and even cars.  In fact, the fashion business (as it exists) would find it impossible to survive if customers around the world chose only classics which could be used for as long as the product lasted in usable form.

What Fashionability Means for Brands

Other than individual styles or products falling out of favour, as fashions move and as the market changes, it is evident that some brands also become less acceptable, are seen as “outdated” and may also die out as they lose their customer base.

Of course, that some brands become classics is quite apparent, especially in the luxury segment where brands such as Bulgari have survived several generations of consumers, and continue to thrive.

However, the past is of relevance to the fashion sector because, other than planned or forced obsolescence, the fashion business has also long worked on another principle – that trends are cyclical.

The question then is not whether brands can be relaunched – they can. The more important question for brand owners is: should a brand be relaunched. And using the logic of the fashion business, rather than being left to linger and then dying a painful death, could brands be consciously phased-out and later brought back into the market as the trends change?

The Brand Portfolio – Diversifying Opportunities and Risks

These questions are particularly important for large companies, or in times when market growth rates are slow, or when the market is fragmented. Organic growth can be difficult in all these scenarios, and companies begin to look at developing “portfolios” by acquiring other businesses and brands, or by launching multiple brands of their own.

The car industry worldwide has lived with brand portfolio management for long. Even as companies have merged with and acquired each other, the various marques have been retained and sometimes even dead ones have been revived.  The companies generally focus the brands in their portfolio on distinct customer segments and needs (such as Ford’s ownership of “Ford”, “Volvo” and “Jaguar”, or General Motors with its multiple brands), and then further play with models and product variants within those.  When things go right portfolio strategies can be quite profitable, but the mistakes are especially expensive. Sensible and sensitive management of the portfolio is absolutely critical.

In the fashion and lifestyle sector, the players who already follow a portfolio strategy are as diverse as the luxury group LVMH, mainstream fashion groups like Liz Claiborne (with brands in its portfolio including Liz Claiborne, Mexx, Juicy Couture, Lucky Brand Jeans) and LimitedBrands (Limited, Victoria’s Secret, La Senza etc.), retailers such as Marks & Spencer (with its original St. Michael’s brand having given way to “Your M&S”, and also Per Una) and Chico’s (Chico’s, White House | Black Market, and Soma Intimates) who wish to capture new customer segments or re-capture lost customers.  Some of these companies have launched new brands, some have relaunched their own brands, and some have even acquired competing brands.

The issue is also relevant to the Indian market, whether we consider Reliance’s revival of Vimal, the new brand ambassador for Mayur Suitings, or the PE-funded take over of Weekender.  As the market begins evolving into significantly large differentiated segments, branding opportunities grow, and so will activity related to existing or old brands being resurrected and refreshed. An additional twist is provided by Indian corporate groups such as Reliance, Future (Pantaloons) and Arvind that are looking to partner international and Indian brands, or grow private labels to gain additional sales and margin.

The issue also concerns those companies whose management is attached to one or more brands owned by them which may not have been performing well in the recent past, but due to historical or sentimental reasons the management may not like to close down or sell them.

For the company, acquiring an existing brand is often a lower cost way to reach the customers, and also faster to roll-out the business. The company may assess that the brand already has an existing share of positive customer awareness that is active or dormant, and that the effort and resources (including money) needed to build a business from that awareness will be much less than that to create a new brand.

The risk of failure may also be lower for a relaunched brand than for a new brand.

This is because the softer aspects, the hidden psychological and emotional hooks, are already pre-designed. This provides a ready platform from which to re-launch and grow the brand.

From the customer’s point of view, there is the confidence from previous experience and usage, and possibly also nostalgia and comfort of the ‘known’.

‘Age’ or vintage is respectable and trustworthy. This is especially powerful during volatile times or in rapidly changing environments when there is uncertainty about what lies in the future, and makes an existing brand a powerful vehicle for sustaining and growing the business.

On the Downside

However, when handling brands it is also wise to keep in mind the cautionary note that mutual funds issue: “past performance is no indicator of the future”.

In re-launching active or dormant brands, there is also a downside risk.  While the brand may have been strong and relevant in its last avatar, it may be totally out of place in the current market scenario.  The competitive landscape would have shifted, consumers would have changed – new consumers entering the market, old consumers evolving or moving out – and the economic scenario itself may now be unfriendly to the brand.

Also, the “awareness” or “share of mind” may only be a perception in the mind of the person who is looking to re-launch the brand, and the consumer may actually not care about the brand at all.  There are instances where the management of the company has been so caught up in their own perception of the brand that they have not bothered to carry out first-hand research with the target segment to check whether there is actually an unaided recall, or at worst, aided-recall of the brand. They are imagining potential strengths, when the brand has none.

It is also possible that, during its last stint in the market, the brand may have gathered negative connotations – consumers may remember it for poor products or wrong pricing, the trade may remember it for late deliveries, vendors may remember it for delayed payments…the list goes on. In such a scenario, it may be a relaunch may be a disaster.

So how does one know whether to resurrect a brand, or to reincarnate it in another form, and when to just let it die?  The answers to that lie in answering the question: what is a brand? And then, what is this brand?

A Critical Question: What is a Brand?

Even in these enlightened marketing times, many people believe that the brand is the name. They believe that once you advertise a name widely and loudly enough, a brand can be created. Nothing could be further from the truth.  High-decibel advertising only informs customers of the name, it cannot create a brand.

If we put ourselves in the customer’s shoes, a brand is an image, comprising of a bundle of promises on the company’s part and expectations on the customer’s part, which have been met.  When promises are delivered, when expectations are met, the brand develops an attribute that it is defined by.

The promise may be of edgy design (think Apple), and the customer expects that – when the brand delivers on the promise and meets the expectation the brand image gets re-affirmed and strengthened. However, these attributes are not always necessarily all “positive” in the traditional sense. For instance, a company’s promise may be to be low-cost and low-service (think Ikea, or “low-cost airlines”), and the customer may expect that and be happy with that when the company delivers on that promise.  The promise may be products with a conscience (think The Body Shop), which may strike a chord with the consumer.

What that brand actually stands for can only be created experientially. Creating this image, creation of the brand, is a complex and step-by-step process that takes place over time and over many transactions. Repetition of the same kind of experience strengthens the brand.

The brand touches everything that defines the customer’s experience – the product design and packaging, the retail store it is sold in, the service it is sold with, the after-sales interaction – all have a role to play in the creation of the brand.

For instance, to some it may sound silly that market research or how supply chain practices can help define a brand, but that is exactly how the state of affairs is for Zara.  Changeovers and new fashions being quickly available are what that brand is about, and it would be impossible for Zara to deliver on that promise without leading edge supply chains, or a wide variety of trend research.

Similarly, it may sound clichéd that your salesperson defines the brand to the consumer, but even with the best products, extensive advertising, and swanky stores, for service-oriented retailers everything would fall apart if the salesperson is not up to the mark. This is indeed a sad reality faced by so many of the so-called premium and luxury brands.

Of course, brand images can be changed or updated, but the new image also needs to be reinforced through repeated action, a process just like the first time the brand was created.

Reviving a Brand: the New-Old Seesaw

Given that a brand is created over multiple interactions and repetitive delivery of certain attributes, it is only natural that the older the brand, the more potential advantage it would have over a new brand.  Just the sheer time it would have spent in the market would give an old brand an edge.

An old brand can appear to be proven, experienced and secure, while a new brand could be seen as untested, raw and risky.  An old brand may have had a positive relationship with the consumer, but may have been dormant due to strategic or operational reasons.  In this case, reviving the brand is clearly a good idea.  There is already an existing awareness of an older brand, which can act as a ready platform for launching the same or a new set of products or services.  Often, there may be a connection with the consumer’s past positive experience of the brand.

On the other hand, a new brand may appear to be fresh, more up-to-date and relevant, and vigorous, compared to an old one that may be seen as outdated and tired.  Certainly, if nostalgia had been all that brands needed to thrive, then old brands would never die and it would be difficult to create new brands.

Clearly, there is no single answer to whether it is a good idea to re-launch an existing or old brand.   If you are considering whether it would be a good idea to revive an old brand, or to acquire and turn an existing brand around, ask yourself this:

• Is there evidence of enough customer awareness and support for the brand?
• Are there positive connotations for the brand that can be built upon in the current market context?
• Is there an opportunity to refresh the brand, so that it does not appear outdated, while retaining its core promise and authenticity?
• Does the company have the resources and inclination to be a “caretaker” or “steward” of the relationship that has been created in the past between the brand and its customers?

If the answer is “No” to any of these questions, then one needs to think again.  However, if the answers are all “Yes”, then a resuscitation is just what the doctor might have ordered.

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Retail FDI – Rains or Drought?

Devangshu Dutta

March 3, 2006

In February, just before the mega-blitz of “India Everywhere” at the World Economic Forum, the Indian government took a step forward.  Amidst shrill outcries from its coalition partners and domestic anti-FDI lobbies, it finally decided to bell the cat, and let foreigners invest in retail again!

About a month has passed since the cabinet announcement, the dust has settled, and it is a good time to consider what has happened.

Since the initial euphoria of the early-to-mid 1990s when international retailers entered the market including companies such as Benetton (50% JV) and Littlewoods (100% subsidiary), this revised policy provides the first opportunity for large global companies to participate in the Indian market’s growth.

The key questions being raised are:

• Will the new policy bring in a rush of companies?
• Will domestic retailers be able to stand up to the competition from foreign retailers?
• What impact will it have on manufacturers?

What Is Allowed, and Who Might Enter?

Let’s first deal with what the government has actually allowed. In a nutshell, a foreign retailer can set up a company in India in which it holds 51% equity, the balance being held by an Indian partner. This subsidiary can operate retail stores in India under one brand name.  All products in the store must also carry the same brand name, and this branding must have been applied during the process of manufacturing.

This means that, as yet, a foreign department store selling multiple national and international brands cannot set up its own 51% owned operation in India.  Nor can a supermarket or hypermarket chain like Wal-Mart, Carrefour or Tesco, sell their wide range of products under any name but their own, if they decided to take a majority stake in a retail operation.

In theory, you could have a Wal-Mart store selling Wal-Mart cola (not Pepsi), Wal-Mart butter (not Amul or Mother Dairy), Wal-Mart chocolates (not Cadbury’s), Wal-Mart cookies (not Britannia or Sunfeast), Wal-Mart T-shirts (not USI or Duke).  You could have Tesco jeans (not Levi’s or Numero Uno) or Carrefour luggage (not Samsonite or VIP).  This obviously dilutes the consumer proposition of the store, which may then have to primarily focus on a single-point agenda – such as low prices – to draw consumer footfall.

On the one hand, the cabinet decision clearly allows companies such as Starbucks and The Body Shop to step in with a majority stake, provided the branding is clearly by the primary name (store name) – thus, you may not be sold the famous “Tazo Tea” in Starbucks, but get “Starbucks Tea” instead.

However, to a brand such as Starbucks, this policy change is significant as its international expansion is largely through owned operations, especially in potentially large and strategic markets such as India.  Starbucks would now have the option of not only controlling the retail operation through a 51% ownership, but also the raw material sourcing, storage and wholesale operation.

On the one hand, this may mean nothing to a retailer such as The Body Shop, whose international strategy in Asia has been largely driven through franchise relationships.  This is true now of India as well, as The Body Shop announced its master franchise arrangement with Planet Sports in India.

A retailer such as Gap would need to set up separate retail operations for Gap, Old Navy, Banana Republic and Forth & Towne.  There obviously are ways to consolidate operations even with the diverse retail corporate structure, but it does mean that the foreign retailer will be operating several corporate entities in India.

An existing company such as Benetton does not benefit from this change in regulation. In 2005 Benetton actually increased its stake in its joint-venture to 100%, but in the bargain had to forego the stores it was running. Its current network comprises entirely of franchise stores, and will have to remain so, unless Benetton reduces its stake to 51% in order to be able to run stores in India, which is highly unlikely.

Other existing international brands such as Levi Strauss, Adidas and Nike are not retailers in themselves, and are not dramatically affected by the change in policy at all.  All of them operate subsidiaries in which they have complete or majority ownership.  Brands such as Tommy Hilfiger, Wrangler and Lee are also present through licence or franchise relationships, and unlikely to change their strategy.

Will Global Retailers Come?

All of this obviously raises the question whether government regulations preventing foreign investment in retail were or are actually keeping foreign companies out of the Indian retail market.

The answer to that is both “No” and “Yes”.  The reason is that companies that are looking at international expansion apply criteria that are specific to their own business needs which can lead to very different evaluations by each company.

Laws allowing or preventing FDI in retail are only one of the several factors that any global retailer would look at, when considering a market.

Other factors, such as various market options possible at the time, the state of development in the market, existing sourcing and other relationships, scale and scope of investment required vs. the rate of return expected, the risk factors involved, and the retailer’s own business strategy, all play a part in their decision-making process.

Thus, in one company’s case India may be the hottest market in which it would like to open a store at the earliest possible date this year, while for another company India may be of interest only after 5-7 years.

Opening single-brand retail to foreign direct investment, therefore, is at best an encouraging signal that the government has provided.  It is unlikely to prompt international retailers to look at India any sooner than they might otherwise have.

The second key issue is whether FDI itself is of any consequence to whether the retailers enter India.  This again is related to the individual retailer’s own strategy and business context, as well as how they perceive the risk-return ratio.

Thus, while China may not have any restrictions on foreign investment in retail, western retailers may still prefer to go with a local partner due to the differences in cultural and market nuances.  Even in other unrestricted markets international retailers may prefer to enter through licensees or franchisees because the effort and investment in setting up their own company may not be compensated by the size of the opportunity, or their own investment strategy may not be in line with setting up international subsidiaries.

Some companies such as Wal-Mart, Tesco, Gap and Starbucks prefer to invest in international operations themselves, as ownership gives them a higher degree of control over the business.  Of course, both Tesco and Wal-Mart have set up joint ventures in markets that are starkly different in cultural and business norms from their home markets but, by and large, where feasible these companies prefer majority or 100% stake in the business.

Other companies, such as Mothercare, Debenhams and The Body Shop, have expanded their international presence through franchises.  Their premise is proprietary product and an enormously powerful brand that translates well across cultures.  These companies have taken the less intensive route of franchise.  In India, too, they have signed master franchises. Mothercare has assigned master franchise rights to the Rahejas’ Shoppers Stop. Debenhams and The Body Shop have both signed up with Planet Sports (soon to be renamed Plant Retail), which is also the franchisee for Marks & Spencer.

Thus, while allowing FDI may help some companies, it is unlikely to have investors beating down the door in a rush to enter.

What Does FDI in Retail Mean for India?

Permission for foreigners to invest in retail businesses in India obviously mean different things to different stakeholders in India.

For real estate owners, especially shopping centre developers, new entrants are always welcome, since it provides a wider basket of brands to present to the consumer, and the opportunity to differentiate one shopping centre from another.

To existing retailers, it does mean potentially more clutter in the market, possible higher marketing expenditure for them to maintain their position.  However, it also means that more players can encourage the growth of the market, which otherwise can end up looking stale and in-bred.  Brands that are entering the market for the first time can also bring fresh ideas in terms of merchandise, store planning and display, advertising etc.

To the question of whether Indian retailers are prepared to handle the competition, I would say that, while global best practices help, retail is a uniquely local business.  Indian retailers who bother to listen to the consumer and constantly upgrade their own business are possibly in a stronger competitive position than a foreign brand that wants to impose its own alien sensibility on the market.

For suppliers, new brands bring in new avenues for business growth.  Many of the international brands will look to increasing their sourcing from India, to take advantage of local labour costs and skills, or to down-play the disadvantage of duties on imported merchandise.  Thus, especially for suppliers of fashion goods this is definitely a growth opportunity.  Retailers might even prefer to work with the supply base from which they already source for their operations in other markets.  Thus, the growth opportunity exists for exporters – the question is how many of them are willing and able to make the transition to begin supplying locally.

Not only do new retailers bring the prospect of increased business, but also the possibility of better systems and skills, improved product development, and in all, an opportunity for the supply base to upgrade itself.  This will certainly have a positive fall-out for exporters, since their business is likely to become overall more competitive globally, too.

Let’s consider another stakeholder, who we tend to miss – the government itself.  Organised retailers, including global companies, tend to be more constrained by law than a retailer from the unorganised segment. Based on that assumption, a large international retailer (and his Indian counterpart) will set up a local company that will carry out business by the book, recording all sales and purchase transactions.  All local sales and purchases will be subject to VAT and sales taxes, while all imports would be documented and therefore subjected to import duties. All of this means more revenue for the government.

On the other hand, do foreign retailers pose a threat at all?

Well, there is certainly a threat to those retailers who insist that the market needs to remain structured the same way that it has been for years, and who refuse to upgrade their own business. There may even be a threat to the large Indian corporate retailers who are competing on the basis of their scale relative to the rest of the market.  With the presence of global retailers with deeper pockets, these large Indian retailers will no longer be the big boys on the block.  But the positive outcome for the many seems to outweigh the negative outcome for the few.

What I would certainly like to see is how quickly the government translates the promise of opening into a concrete plan that can benefit the Indian consumer, the Indian supplier, the Indian real estate market and the government itself.

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 KISHORE BIYANI: The Man They Wrote Off

admin

June 14, 2004

Two years ago, no one took Kishore Biyani seriously. His company, Pantaloon Retail, was seen as a one-man show. Biyani himself was regarded as unpredictable, and not a long-term bet. Today, he is the biggest retailer in India. In two years, Kishore Biyani has bounced back to become India’s largest retailer. Here’s how the maverick ignored conventional wisdom on retailing, and won.

By M. Rajshekhar

The makeover of 26, Residency Road is almost complete. On this Thursday morning, Bangaloreans walking down this tree-lined avenue slow down to stare at the megalith that has replaced the old Victoria hotel. It’s a sharp, new mall. The sort with escalators and huge grey metal flanks clamped to the walls outside.

That seems to be something of a running motif throughout Kishore Biyani’s life. Ask people who India’s largest retailer is, and chances are they will say B.S. Nagesh of Shoppers’ Stop or RPG Retail’s Raghu Pillai. And yet, it is Biyani who is the largest player in the Indian market today. This June, when he announces the 2003-04 results of his company Pantaloon Retail, his topline will be about Rs 650 crore. A clear Rs 100 crore more than RPG’s, the second largest player in the Indian market. Shoppers’ Stop is in third place with revenues of Rs 400 crore.

Back in 2002, when Businessworld last wrote about him, the ‘bania’ from Mumbai was in much the same position as the Congress Party was before the elections. No one took him seriously. Biyani hung around the periphery of the retail industry, which was dominated by personalities like the suave Nagesh, unlike whom, he was taciturn to the point of being tongue-tied. He fidgeted constantly during formal meetings, which made the task of carrying out any serious conversation with him quite an ordeal. Little wonder, he seldom received invitations to speak at industry seminars.

No one quite liked him either, because the man strongly believed – and said so bluntly – that his peers in the retail business were mere copycats. “Most Indian retailers tend to blindly copy from Western models. I am looking for a pan-Indian model of retailing,” he would say to anyone who cared to listen. His search for the ideal model also meant that he took colossal risks – something that scared away most financiers used to dealing with more conventional businessmen. On top of that, Biyani made no bones about the fact that he liked to run a one-man show. “I use people as hands and legs. I prefer to do the thinking around here,” he once famously said. As a result, both professional managers and investors avoided him. And few people gave him any chance of succeeding.

Between then and now, a lot has changed. Biyani has moved centrestage. Today he has three highly successful retail formats: the Big Bazaar hypermarket; Food Bazaar, that straddles the food and grocery business; and his original Pantaloons apparel stores. The property opening in Bangalore is his fourth model, a mall called Central. By the end of next year, he expects to have 30 Food Bazaars, 22 Big Bazaars, 21 Pantaloons and four Centrals. Right now, he has 13 Food Bazaars, 9 Big Bazaars (the 10th is opening next week in Nashik), 13 Pantaloons and one Central. Between them, Biyani’s stores occupy 1.1 million sq. ft of retail space. By the end of next year, they will occupy 3 million sq. ft.

With the opening of Central, Biyani says his portfolio is complete. Even as his competitors like the Rahejas (who own Shoppers’ Stop) embark on new formats (food and grocery), Biyani says that his appetite for experimentation is now sated. “I will no longer try out newer formats. My focus will be to consolidate our operations.” Don’t take him too literally, though. What he means is that he will continue betting on new opportunities ranging from gold to car accessories, but not on quite the same scale as, say, his first Big Bazaar or his first Food Bazaar. Instead, he will concentrate on ramping up each of his four main formats.

Drawn by his growth, in the last two years well-known financial institutional investors like Goldman Sachs and Citigroup Global Markets have picked up stakes in his firm. And when the stockmarkets looked buoyant just a few weeks before the poll results, the Pantaloon stock was among the best performing on the BSE. It quotes at Rs 311 today, up from Rs 51.25 a year ago. Things are going so well now that Biyani has stopped talking about selling out to foreign retailers when they come in.

“Things have really fallen into place in the last two years,” he says. It is noon, and we are walking through the mall. Inside, the whole place is a mess. There are less than 30 hours to go before Bangalore’s newest and largest mall opens for business. And, so far, nothing is in place. The escalators are not working. The shelves are still coming up. The merchandise is still coming in. The stuff which has come in hasn’t been unpacked yet. Cardboard cartons, plastic sheets lie everywhere. And yet, there is something oddly relaxed about Biyani’s demeanour. He wonders about the stockmarket. Why is it rising? Can Manmohan Singh be the next PM?

Perhaps Biyani is in an unusually good humour because he knows that the chaos will settle down soon enough. Just like it has with his entire business. A big factor, he says, was Big Bazaar Mumbai. The format was a huge gamble, says Bala Deshpande, who served as ICICI Venture’s representative on the Pantaloon board. Around 2001, when the first Big Bazaar opened, Pantaloon’s topline was Rs 180 crore. The company needed money to expand, but had just Rs 4 crore of profits. The share price was low (Rs 18), so it could not have raised much from the bourses. Biyani would also have had to part with a lot of equity – his family and he hold 40% in Pantaloon today. Biyani took a Rs 120-crore loan that pushed his debt exposure to as high as 1.5. If Big Bazaar hadn’t worked, he would have ended with huge debts and a loss.

But, as it turned out, the store clicked. In week one, the first Big Bazaar store pulled in over a lakh customers, and did a crore in turnover. By the end of the first year, Biyani had opened three more Big Bazaars. Riding on the hypermarket, Pantaloon saw its turnover of Rs 286 crore (2001-02) climb to Rs 445 crore (2002-03). Investors began to take notice. They also became more comfortable with the idea of him being a maverick. Says Biyani: “Investors look for growth. And there are not many growth stories in Indian retail. Most companies are growing very slowly.”

It helped, also, that around the same time, Biyani began to pay a lot more attention to what the investors wanted. Says Deshpande: “As the new investors came in, they told him that he needed to delegate in order to grow.” And so, he went on a hiring spree. Biyani pulled in the head of Globus, Ved Prakash Arya, to handle operations; Jaydeep Shetty from Inox to create new brands; Sanjeev Agrawal to handle marketing; Kush Medhora from Westside to look after new store rollouts; Ambrish Chheda came in to look after Food Bazaar and handle business development; Bina Mirchandani came in to look after the merchandising; V. Muralidharan came in from Lifestyle to head Central…

Persuading the professionals wasn’t easy. Take Kush Medhora. Initially, he didn’t want to join. “I thought the company was unprofessional from the way the first few stores looked. I had also heard that the company was a one-man show.” But during the job interview, Biyani told him he wanted to abdicate everything except strategic planning and the selection of new locations. That helped Medhora make up his mind.

There is probably another reason why Medhora joined. He enjoys the adrenaline rush. His job, opening new stores, keeps him on the road for 220 days in a year.

As the company grows by leaps and bounds, it is discovering all the advantages of scale. In everything, from raising finances to negotiating rates, the economies of scale kick in. To go from its current 1.1 million sq. ft of retail space to 3 million sq. ft by the end of 2005, Biyani estimates he will need an investment of about Rs 250 crore. Of that, Rs 32 crore has been raised through a convertible debenture offer made in November 2003. Another Rs 60 crore is being raised though debt. The current cash flows should take care of debt servicing without much problem. Meanwhile, the rapidly growing profits can be ploughed back to fund the expansion. The company has an EBITDA (earnings before interest, tax, depreciation and amortisation) of a little over Rs 65 crore. Right now, says C.P. Toshniwal, chief of corporate planning, “Our turnover is around Rs 650 crore. But by next year, the turnover will be Rs 1,300 crore. So, we will have an EBITDA of Rs 130 crore, all of which help fund the expansion.” In contrast, Shoppers’ Stop will throw up Rs 24 crore as EBITDA this year.

Interestingly, even as Biyani gets more cash from his business, at the same time, he is making that cash work harder. In the old days, he says, “I would have paid Rs 7 crore-7.5 crore for a 50,000-sq. ft store and I would have done an annual turnover of Rs 35 crore. Now, I spend about Rs 4 crore for a store of that size, and do a business of Rs 50 crore-60 crore.”

You can attribute that partly to the mall-making frenzy in this country. There is a shortage of anchor tenants in this country – at least ones that can pull customers in, and Biyani is exploiting that. Not only is he able to negotiate lower rentals, he has begun insisting that mall owners also develop the place for him. In the old days, he says, “We would buy the property, do the fittings and so on. Now, I just take a fully-appointed building from them.”
Day two. Kishore Biyani is standing on a scooter. The Businessworld photographer is trying to get some elevation into the photograph. From that unsteady perch, he is talking about why he thinks the best is yet to come for his chain. All his formats, he says, are seeing an interesting evolution.

Take Pantaloons. This is the brand that started Biyani’s transformation into a retailer. Back in 1997, Biyani was manufacturing two brands, John Miller and Bare. Both were struggling. Even though his products were good, and the pricing was competitive, high distribution costs and margins were making the whole business unviable. And so he decided to set up his own stores. That year, the first of these came up in Kolkata. At this stage, the plan was that the company would open another 2-3 such stores, no more. Recalls Kabir Loomba, who worked with Biyani as a chief operating officer (COO) in that period: “When the first store came up, we did not know when the second store would come up.” But the Kolkata store was an eye-opener. Biyani had been hoping it would do about Rs 7 crore in its first year. It did Rs 10 crore. Loomba feels this taught Biyani an important lesson: the Indian market was under-retailed. This was when the aggressive retail expansion started.

Over the years, Pantaloons has been through a few makeovers. And right now, it is getting another one. Biyani is junking the old positioning of ‘India’s family store’ and is planning to target the youth instead. His consumer insight is, like always, a shade radical: “Within a family, people were thinking and dressing and acting very differently. Which is why I believe studying Indian consumers by demographics and psychographics is a waste of time. We should look at communities: techies, metrosexuals, etc.”

Zara has a neat model that lets it launch new lines in less than 21 days. What made it possible is that it had its own factories. Biyani is doing something similar. Faster manufacturing, says Anshuman Singh, who looks after the supply chain, will let the company keep less inventory, which will make it more responsive to market changes while reducing the amount of stocks to be sold at a discount. At the same time, as fresh stocks hit the market faster, sales will rise. By becoming much more responsive, says Biyani, “We can up our margins by 5-6%.” Right now, he has brought the time lag down from 90 to 40 days.

But fashion tastes in India don’t change that fast. So the real question is: what will it take to drive disposability of clothes higher? According to retail consultant Devangshu Dutta, that is price. “Pantaloons will have to really bring prices down, by half or so. But that might create a problem between Pantaloons and Big Bazaar, for the latter is also based on apparel.”

And then, there is the format that fascinates and worries Biyani: Food Bazaar. Right now, of the company’s topline of about Rs 650 crore, Rs 250 crore has come from Pantaloons, the apparel store, another Rs 230 crore from Big Bazaar and the rest (Rs 160 crore-170 crore) is contributed by Food Bazaar. Biyani worries that Food Bazaar is growing too fast. He says: “I could double the stores I have and still face no problem. But it is important to recognise that it should not be more than 30% of my topline.” (That is why, he says, “I have underplayed food in Big Bazaar.”)

That flies in the face of conventional wisdom. Most retailers believe food is central to their retailing operations. If you look at the rival hypermarket format Giant from the RPG stable, 50% of its revenues come from food. In contrast, Biyani doesn’t want the share of foods to rise over 30%. He has a simple explanation: in India, cost of modern retailing is very high, and food doesn’t offer adequate margins. If cost of operations is 30%, food margins are just 12-14%. In contrast, apparel and non-food segments offer margins of 25-30%.

Part of his success is the ability to paint on a blank canvas. Incredibly, when Big Bazaar was conceptualised, he put in place a team of four people, including himself, none of whom understood the hypermarket business. And one of the first insights the team had was that all neighbourhood markets are the same – each of them has a bania, a dry cleaner and a chemist. “We knew we would have to create that same mix of the mandi in whatever new format we evolve.”

Or take Food Bazaar. “I am going to change the face of food retailing in India,” promises Biyani. Right now, he is working on a new focus for Food Bazaar. He calls it ‘farm to plate’ – essentially, a plank to improve freshness in the products. Boasts Chheda, the chief of business development: “The Ahmedabad Food Bazaar has a full-scale dairy set-up in place with a capacity to produce 1,000 litres a day. We make our own paneer and pasteurise milk. The company is also adding spice grinders and atta chakkis (flour mills).”

It’s an example of how earthy entrepreneurs think differently. Says Biyani: “It is obvious to everyone that what Indians prize most in their food is freshness. That is what I need to give my consumers. But most managers take that as a mandate to set up a cold chain in this country. But I wonder, why cannot I have a farm next to my store? Managers always complicate things. It is the MBA culture. B-schools teach you how to manage complexity, but I don’t think that is necessary. Life is quite simple.”

Central is a smart concept too. It is a seamless mall. In other words, while there are lots of retailers under one roof, the look and feel is like that of a department store, down to the unified billing centre. And yet, all the stocks are held not by Biyani, but by the partners. By the end of September, Biyani will add two more – a 210,000-sq. ft monster in Hyderabad, and a smaller one in Pune. A fourth one will come up by May next year. The four Centrals will do about Rs 360 crore in turnover in the first year.

To continue innovation, Biyani has a new businesses team. Newly constituted under the charge of former Globus manager, Anand Jadhav, it is trying to identify new businesses for the company. Says Jadhav: “In 4-5 years, same store growth might start to plateau. To keep that rate of growth intact, we are identifying new businesses we can expand into, or use to replace less profitable ones.” Right now, Jadhav and Biyani come up with the ideas and Jadhav’s team sees how each of the areas can generate a topline of Rs 100 crore in two years. So far, he has zeroed in on footwear, music and car accessories. His mandate: to launch 3-4 business ideas every year.

Talking about managing innovation brings us to contrast Biyani and Nagesh. Nagesh believes Biyani will have to give up on gut-feel soon. “Gut-feel is not consistent. He will just confuse his managers terribly. There is no doubt in my mind that Kishore will have to go in for tech-driven answers.”

In many ways, the two are poles apart. Nagesh is extremely systematic. He gets systems in place and then scales up very fast. Biyani works the other way around. He believes in growth first, and that problems can be fixed along the way. As the Indian market evolves, it will be interesting to see who has the better retailing organisation. The scientific Shoppers’ Stop, or the serendipitous Pantaloon. It will also be interesting to see how Pantaloon retains its founder’s intuitive spirit even as the professional managers and systems take root.

It is a little after 6 p.m. The diya is lit. The ribbon is cut. And the mall opens for business. A lot of employees are hanging around, all eager to see how the mall does. Medhora is standing, grinning, near the entrance. “Five days before the store opened,” he tells me, “A tenant called to say he could not get any cabinets for his counter. We had to run to find carpenters. We got the cabinets just in the nick of time.”

The mall begins to fill up. The first glitches reveal themselves. The public address system is not working too well – the speakers are too high. And then, a few minutes after the mall opens, the power fails. The lights dim. The escalators stop moving. Opening glitches, shrugs Biyani.