Is there something as a Click-Only customer?

I was recently invited to attend the first edition of the Retail Marketing Summit Chennai, organized by Paul Writer, a leading consultancy which works in the Marketing space and advises various enterprises. The day was very exciting, with speakers from various Retail companies and Brands expressing their opinions. During the course of discussions, there was a topic which was discussed elaborately by the esteemed panel of guests as well as the audience. The topic of discussion was, whether there was someone called a “Click-only customer” that existed, who shops only online. There were ayes and naes but there was no single answer that could be fully validated. On the need for having an online presence and also focusing on the internet commerce business, Mr. Pattabhi Rama Rao, President of Australian Foods, which runs the Cookieman chain of stores felt that the market is too small at the moment on the internet and Retailers should continue to focus on the offline business by providing a better customer experience. In his own words, Man is a social animal and social interactions would never cease to exist. Pattabhi should be knowing well. With over a dozen years behind him in the Hospitality business, he started off the Cookie business 13 years ago. His brand of cookies were priced 10 times as that of a normal biscuit, although such a comparison is odious. He continued his focus in the business and now has over a 50 stores across the country. Most of his outlets are located in prime locations in Malls and Airports. Many of them bake fresh cookies at the store and the aroma spreads all over. It appeals to the senses and therefore converts a passerby into a customer, a customer into a loyalist and a loyalist into a brand ambassador. However, there is indeed an opportunity to sell categories like cookies online, although they are restricted to gifting and occasion based purchases.

In another panel discussion, Calvin John of Caratlane.com which specialises in the sale of jewelry products said that a customer has purchased 35 times in a few months from their site. And he felt that there were a small but growing species of “Click-only customers” who shopped extensively online. Jessie Paul, the convener of the event and also a moderator in one of the sessions confirmed this and said that she shops grocery extensively online at BigBasket.com, a Bangalore based start-up which has been slowly but steadily growing its online-only grocery business. With more and more people shopping online, it is all about convenience and discounts? Would the charm of shopping (at Retail outlets) dwindle over time? There are references to the West and how things have been changing in developed countries. A lady from the audience says that at Macys.com, sales were 37% of the total compared to just 26% in the previous year during the holiday season. And this was countered with a view that the sales increase was only during the Holiday Season when Macy’s was very badly organized at their stores. In India, the Books category was the first to succumb. Customers (in India) bought books online from Indiaplaza, Flipkart, eBay and the likes not just for convenience but also due to the generous discounts that were being doled out. But for those discounts, would customers have bought online? Perhaps yes, but a majority would prefer browsing and buying at their favorite books stores down the road such as Crossword.

The Internet Commerce business in India is still too small compared to the Offline one. As it is, Organized Retail in India is just under 10% of the INR 200,000 Crores market size. And e-commerce accounts for a decimal percentage of that. Although online retailers are showing double digit growth year on year, the business model is largely led by discounts and there is no hypothesis at the moment to prove that shoppers would still buy online at full prices, except for the gifting and essential categories. In my opinion, there is room for online and offline Retailers, But the bigger growth is offline, given the levels of broadband, internet and computer penetration in India. Payments gateways for credict cards, debit cards and Net Banking is quite limited too. In fact, I would place my bets more on m-commerce - shopping on smartphones which is still an untapped category. So, if you are a Retailer or a Brand, do build an internet commerce site now, if you already don’t have one. But remember, Retail is all about customer experience, and there is no better place than the store to demonstrate it.

Expansion woes for Retailers

I have admired the way Mahindra Retail has built a respectable business over the past few years, ever since the launch of “Mom & Me” Stores in 2009 which sell mothercare and babycare products. In a short period of time, the company had built a massive network of 115 stores ( as on this date) spread over 10,000 – 15000 sft. primarily at residential locations in metros and mini-metro cities. The Brand has earned the respect and spending of thousands of customers for their friendly staff, wide assortment and excellent service at their stores. The market size for this category is about INR 40,000 crores and the organized segment accounts for less than 5% with small mom-and-pop stores taking away most of the business. Apart from Mom & Me, there is no other respectable national chain of repute in India other than Mothercare, which is operated in India by Shoppers Stop and kids wear sections of reputed Retail Brands such as United Colors of Benetton, Tommy Hilfiger, Zara, to name a few. Therefore, they had a massive opportunity to quickly garner market share within the organized space. Just when things were going good, they launched a new division in the name and style of “Beanstalk” which focused on Toys, Puzzles, Games, etc. While many of the Beanstalk showrooms were part of the Mom & Me stores or located adjacent to them, many were standalone locations in pitiable environments. While Hamleys caters to the upper end of this market, Beanstalk tried to bridge the gap competing with the neighbourhood stores.

Although scaling up evens out Fixed costs in the Retail business in the long term, it also proves to be a massive cost burden in the short-medium term. I guess, that’s exactly what happened to Mahindra Retail. Their swanky office in South Bangalore is spread over three floors, houses hundreds of employees and over a dozen senior recruits – from merchandising to operations to marketing and business development. While there were plans to reach a billion dollars in sales, the company could manage not more than 20% of that figure in the fourth year of its operation and was losing over INR 50 Crores every year. Obviously, the plot was lost somewhere and half a dozen senior guys moved out of the company over the past few months. The company also plans to shut atleast 10 stores in the near short term which are making heavy loses. As reported in The Mint newspaper, Mahindra Retail declined to comment on the specifics of the store closures but chief executive K. Venkataraman said in an emailed statement, “Retail Industry is cutting costs as a rule everywhere, and Mahindra Retail too does where we deem fit. Closure of non-performing stores, and some churn in management are unavoidable realities of the business, much as new stores and new management replace the lost ones.”

The biggest bane of Retailing in India is the Real Estate and Manpower costs which is what plaguing most of the Retailers. Ideally, the Rent to Sales ratio should be not more than 15-18% in the second year of operation but that is not to be. Manpower costs are enormous in the beginning of the business as most Retail companies believe in showing off a massive strength of show in its teams. I am aware of so many case studies from the west where frugal HR costs are the norm. But in India, we have cultivated a culture of large teams, each level overseeing the other and hence so many layers and levels. While Mom & Me is essentially present only on High Streets, a very smart strategy I would say (to keep Maintenance and allied costs lower which are a big takeaway in Malls and Shopping Centres), the unrealistic High Street Rentals are not helping Retailers much.

Mom & Me is not just a retail store – it has already cultivated a calibrated relationship with its customers during its short tenure and I am sure the company would tide over the current circumstances quite well. The challenge is whether to expand further to leverage fixed costs or to build efficiency with the current set-up. Would make for a great case study in years to come.

Car Care at its best

I pass through this outlet almost everyday but have always been on a rush. This time around, I stopped by and experienced first hand what they have to offer. I am referring to the 3M Car Care outlets which have sprung up across the country quietly but drawing attention from car enthusiasts and those who love to maintain their cars spic and span. These outlets are franchised and are managed by capable entrepreneurs who have an inclination towards the automotive business and customer service. Spread between 1,500 sft – 4,000 sft covering three different business models, these stores provide complete car care which include the following;

• Car Detailing
• Interiors / Exteriors
• Corrosion Treatment
• Films for sun protection
• Car Care products Retailing
• Car Graphics
• Customer Engagement
• DIY Bays

I was warmly welcomed by a service staff who knew his subject well – he explained the different packages they offered and justified why they were expensive. There were already two vehicles which were undergoing treatment – a Mercedes S Class and a Renault Duster. I asked him how is the business doing and he gave a smile, meaning things were doing quite well. Location was not totally a disaster though. It is located on the Beach Road, close to the iconic Light House (in Chennai). Although I felt it could have been located more strategically. Another gentleman walked over to me shortly and started interacting. Introducing himself as Vijay, he informed that he was the Franchisee Owner of the store. He explained in great depth his interest in automobiles, cars and bikes alike and his love for taking good care of them. According to him, the investment on the store including security deposit is around a crore (though I felt it was quite high) and the monthly business was about 15 lakhs with a margin of 35% on Sales.

The customer lounge is powered by lighting wifi and one can use the facility while the car is being spruced up. Customers have written their compliments and feedback on Post-Its, which is incidentally one of the most iconic products of 3M.

The company has taken up print advertisements recently which has helped increase walk-ins but what they actually need to do is much more – own the category and grow it too. The market size for Car Accessories in India is estimated to be over Rs. 1,000 crore, most of which is unorganized. Car Dealerships and private players like Carnation,3M, etc. have a huge potential, given the shoddy ways of getting your car done up at busy street-side shops. If marketed well, this could be a viable Retail model and is easily scalable. Like in many other cases, I see a bigger opportunity in smaller towns across the country where people take good care of their possessions.

For me, its about making up my mind for a 20K bill – sooner than later, I would be there!