Retail in India–Way ahead for 2012

 

Organized Retail in India has come a long way over the past decade and 2011 was expected to change the wind towards the positive side, due to allowing FDI in Retail. Thanks to political unrest and the opposition parties claiming hoarse, FDI in Multi-Brand Retail has been put on hold (hope not shelved) while FDI in Single Brand Retail has quietly been allowed, atleast on paper. While a few International Brands such as Benetton, Tommy, Diesel, Esprit, etc. have been operating in India for many years now through Joint Ventures with Indian partners, a beeline of Brands wanting to enter India is expected in 2012 – a hope that many in Retail have been holding on for sometime now! The coming months are expected to be exciting times for our Industry and here’s a view on how this landscape would evolve;

Malls

From a lakh square feet to a million square feet in 10 years, modern shopping centers aka Malls have walked a long journey all these years. Today, Malls are not places for consumers to just shop but a generous mix of shopatainment – which includes Shopping, Dining and Entertainment. While there are over 200 operational malls today in the country, another equal number is expected to come up in the next few years. A number of mall projects which commenced during the slowdown in 2008 are ready for occupancy now and many are expected to launch this year.

Supermarkets

The neighborhood supermarkets have evolved the most, among all formats of Retail over the years. Size was always a concern for players like Spencer’s and More – getting it right was a challenge, either the stores being too big with empty shelves or too small with regular stock-outs. Many players have exited the marketplace while a few like Food Bazaar and Nilgiris (through franchises) are increasing their presence assuming scale-up would help them gain overall net margins which range in high single digits. This would be the first format, in my opinion that would straighten up – only serious players would exist and they would do a great job while many others would exit – hopefully this year.

Hypermarkets

With foreigner CEOs and advisors engaging the managements of Indian Retailers, it was widely believed that Hypermarkets must be large, really large like the ones in western countries.Thanks to some early learning, many players like Hypercity and Total have corrected their ways of working. Small is the new Big, with Hypers ranging from 20,000 – 45,000 in prime retail areas in multi-level locations compared to the earlier proposition of being over 60,000 sft – one single floor in suburban areas! Newer players especially multi-nationals like Tesco and Target are expected in this format in the coming year while existing players are planning massive scale-ups.

Department Stores

These large format stores, the blue-eyed ones due to their colorful appearance was and is expected to be the only ones to see some EBIDTA in their early years. That’s a boon and bane in a sense in this format. To ensure they attract high-spender footfalls regularly, they should turn their stocks quite often; that means having the right mix of merchandise is extremely important which is a direct impact of having high quality staff who can choose the right merchandise every consecutive season. This is a vicious cycle and players like Shoppers Stop, Lifestyle, Westside etc. have got it right while a few of them are still struggling to learn.

Specialty Retailers

Stand-alone specialty stores of international and even domestic brands are seeing dwindling numbers. The total number of stores that were being added year-on-year have reduced considerably. If it was 20 new stores and most being unprofitable four years ago, the numbers have reversed, thankfully. Most brands don’t talk about crazy numbers anymore, only well-merchandised stores and outlet level profitably.

QSRs and Food Retailing

It seems cooking and eating at home is a more expensive proposition these days thanks to high food inflation and going by the sales of pizza chains and fine-dine restaurants. While Dunkin Donuts is almost ready with its first outlet, Starbucks is slated to open quite soon too. Café Coffee Day will ad over 200 new cafes this year while Dominos and Pizza Hut will have company in California Pizza Kitchen and a few others. This would indeed be the most exciting format to watch indeed!

Kiranas

The unorganized retailer down the road doesn’t pay taxes or offer health benefits to employees; no one ever checks the quality or quantity of goods sold; BUT he is able to offer lower prices everyday to consumers with other additional benefits such as short-term credit and quick home delivery. Modernisation is the byword for the them and they are indeed giving a touch competition to the organized players.

E-Commerce

But the real competition, if not threat to all formats of retail in 2012 is going to be through E-Commerce. Sadly, many brands and retailers are not paying attention to the increasing internet user base – over 100 million as of 2011 compared to just three million in 2001. This has allowed fly-by-night operators to open websites that sell everything from toothpaste to watches, apparel to expensive jewelry! Most of them have no clue how e-commerce works and many are even buying merchandise and selling – something which goes against the fundamental philosophy of transacting online!

When Retailers and Brands collaborate!

 

Its not so usual that you see Electronic Retailers promoting one particular brand at their stores. It means there is a larger strategic relationship between the two beyond just selling a few pieces of a particular model. Most retailers though, refrain from such tactics to avoid the wrath of other players in the respective segments. It is not just the advertising cost that gets shared between the two, but they both look at building an everlasting relationship to build a category, as the one undertaken between Apple and Croma, the electronic megastore from the house of Tatas. One could own an iPad 2 at just over Rs. 2,400 a month (USD 45), on an EMI basis for 12 months, thanks to credit offered by ICICI and HDFC Banks. Croma has built up their electronic retail format over the past years, thanks to its aggressive expansion mainly among metro cities where consumers shop around not just for exciting deals but where the staff are well trained, an inviting store ambience that allows you to browse at ease without too much intrusion by the staff and ofcourse, the TATA Guarantee. The Salt to Steel Major has built its retail portfolio through TRENT – the company that operates formats such as the Westside Department stores, Zara exclusive stores and Star Bazaar Hypermarkets. Incidentally, Apple which has a strategic tie-up with Reliance and allows it to operate the exclusive Apple stores has not undertaken such an aggressive promotion with Reliance Digital, the electronics format of Reliance Retail. Instead, they seem to be promoting rival Samsung with its Galaxy Tab, seen as a major contender for the No. 1 space in the tablet market.

Retailers who focus on mobile phones and accessories such as The Mobile Store, UniverCell, Sangeetha, etc. seem to play a similar strategy, just that they promote those brands which they distribute themselves. For example, Sangeetha has been promoting the latest from Nokia, the Lumia 800 pretty aggressively. At a similar EMI of Rs. 2,400 pm one can easily own the latest windows-based smartphone which was meant to revive the fortunes for Nokia, though the initial launch results have proved it to be unlikely. Nokia somewhere lost the steam – that’s the chorus that most observers and industry watchers seem to say. A once trusted phone for the smarter class lost its popularity to the Blackberry and Android based smartphones and ofcourse to the iPhone (although negligibly) due to the price disparity. Nokia continues to be a leader in the entry segment, phones below Rs. 5,000 but sees enormous competition from local brands like Micromax, Karbonn and Lava while Samsung and LG have also been stepping up the gas in these segments. 

There a few advantages when Retailers promote a particular brand;

• Brand Leadership

When a Retailer courts itself with a particular brand and also aggressively promotes its products, it looks like they have leadership specific to the said brand. This brings in positive recall in the minds of potential customers who would like to buy that particular brand in future and the retailer becomes the obvious choice.

• Continuity of customer cycle

When customers of a brand want to upgrade / replace their existing products, they flock to the preferred retailers due to a previous positive experience. This is category agnostic and hence would prevail for most products, so to say.

• Better Prices

Being the preferred partner (to a Brand), the Retailer also commands a special price to the new launches. Not only do they get the products first (than the other retailers), they would also be able to command a special price – directly from the brand as well as through special associations with Banks who provide 0% interest on EMIs

There are also a few drawbacks;

• Popularity among other brands

When Retailers strike a special note with a specific brand and keep promoting them aggressively, potential customers could perceive that the Retailer doesn’t maintain other leading brands. This, in a way distracts customers and diverts them to other Retailers.

• Relationship with other brands

When other brands know that a Retailer promotes a particular brand, they may turn away to other multi-brand retailers who provide equal importance to other brands. Although this is uncommon, it could be seen as a potential threat, especially for future launches.

Nevertheless, it is nice to see Retailers and Brands collaborate to promote each other. The Retailer attracts walk-ins into the store and the Brand sees higher conversion. In the US, UK and European markets, there has been a strong swing towards e-commerce over the last few years where customers are shopping online for mobiles and electronics. This is bound to happen in India soon. Until then atleast, let such collaborations prosper!

Retail Employees Day! Thank you folks!

No matter how popular or old a retail brand is, they will not be able to reach out to their customers without the continued and trusted efforts of their employees. Retailers across the country have come forward to support an initiative called "Retail Employees Day" to be celebrated on the 12 December every year. An organization by the name TRRAIN is behind this idea. TRRAIN is the brainchild of the most respected Mr. BS Nagesh, the Vice-Chairman of K Raheja Retail which manages various retail formats such as Shoppers Stop (Department Store), Crossword (Book Store), Hypercity (Hypermarkets), Home Stop (Home & Living) and InOrbit Malls. Nagesh has been part of the Retail industry over for over 20 years and is seen as an icon among the retail professionals young and old, a kind of role model that every retail manager wants to become! He has been through the industry's ups and downs and has always been there to support the various ideas and initiatives of the Retail Industry. 

Retail staffing in India has come a long way since the 1980s. The old-fashioned “showroom salesman or salesgirl” is now referred as “Customer Care Associates”, thanks to the proliferation of modern and organized retail formats. Even stand-alone traditional retailers have embraced this well and provide respectable employability to their front-end staff, who can make or break the business. The final “conversion” of a potential customer into a real one is in the hands of the CCA and hence, a lot of importance to their well-being is being provided. In the good old days, they were paid a lumpsum as salary but things have changed today. They are covered under Minimum Wages Act, are to be provided PF, Gratuity and ESI and needless to say, additional income options such as performance bonus and variable increments. CCAs undergo a fortnight, if not more of classroom training before they enter their dream world of employment at the swanky retail stores. Within two years of commencing their first job, many smart ones move up the hierarchy as floor managers, department managers, etc. There are even classic examples of front-line staff making it to senior positions and more are in the making. The dedication of some of the staff is exemplary, to say the least. I personally know a few who have gone out of the way, beyond their call of duty at many times. 

I have been personally involved in training the front-end staff right from the beginning of my career. A fellow colleague, who used to sell DVDs and Video Games at Musicworld Kolkata ten years ago has now grown to the rank of a Regional Manager at one of the most reputed music companies in the world! I was also a certified trainer at RPG Institute of Retail Management, an inhouse training agency of RPG Retail which was created to focus continued training and development to the front-end staff. I have trained over 2,000 staff members ahead of the opening of Central Malls at Bangalore, Hyderbad and Pune during 2003-04. They stand all day, greet customers with a smile, make your shopping and dining experience a great one and at the end of day, deserve more than their salaries.

On this day, I salute these heroes – without whom the Organized Retailers cannot grow the way they aspire to! My heartiest thanks to each one of them for making us proud; Cheers guys!