Slowdown turns Ahmedabad into 'retail graveyard'

Once a darling of retailers and a hot new destination of modern retail, Ahmedabad is turning into a “retail graveyard”. Apart from glaring vacant spaces in the swanky city malls, the first visible downturn seems to be the closure of two Big Bazaar outlets.

Be it a heterogeneous product mix, inviting ambiance or other cosmetic benefits of modern retail like air conditioning, all have failed to sustain the interest of Gujarati consumers looking for functional benefits from the retail experience. The result: closure of ambitious retail projects across the city. Brands like Nike, Tea Centre, Conizza, etc, have already closed shop.

“Not just prohibitive rentals, but consumption pattern of local consumers too has been a roadblock to modern retail in Ahmedabad. Although the cash-rich Gujarati consumer has lured brands to Ahmedabad, low acceptability of modern retailing will turn the city into a retail graveyard,” points out sector analyst Harish Bijoor of Harish Bijoor Consults Inc.

The closure of two Big Bazaar outlets, the ambitious hypermarket format of the Pantaloon Retail (India) Ltd, in a span of six months, the last being in the process of winding up, could just be the tip of the iceberg.

While the company had closed down its Big Bazaar outlet in Bapunagar (old city) earlier, its outlet at Shyamal Crossroads is all set to down shutters. However, western zonal chief of the Pantaloon (Retail) India Ltd, the promoters of Big Bazaar, Anand Adukia told ET that the closure has more to do with consolidation rather than shutting shops in totality.

“While we have closed two stores in Ahmedabad, we are strengthening the capacity of the remaining three stores. The 22,000-sqft Big Bazaar outlet in Bapunagar has been shut down with the idea of expanding Big Bazaar at 10 Acres Mall in Maninagar, whose size will be increased to 1-lakh sqft to accommodate the entire customer base in the area,” he insisted.

Retail analyst and marketing faculty at IIMA Piyush Sinha says retail consolidation is a natural phenomenon. However, this is not the first instance that retail boom has been a dud in the city.

Ahmedabad could see withdrawal of more brands in future, retail analysts predict. The Sarkhej Gandhinagar Highway that once prided itself in housing a congregation of malls has now the likes of Gallops, Dev Arc, Fun Republic, all nursing their failed relationships with various brands.

Source: The Economic Times

Scattershot Strategy-

The risk is the possible loss in the integrity of the original brand and inability to hold on to core consumers.

I’ve been a fan of Fabindia for many years now — for their furnishing fabric, their clothes — and the odd knick-knack. So, when it was time to redo our curtains I decided to abandon our usual practice of tailored curtains for Fabind ia’s delightful ready-made drapes. As a for-profit with the mission of providing sustainable employment for Indian craftsmen, Fabindia has grown steadily since it was set up in 1960 – from an exporter of home furnishings, it now retails apparel, home furnishings, organic food and body care products.

Over the last fortnight I visited over six Fabindia shops — I was pleasantly surprised to find their outlets punctuating every other residential neighbourhood in the city. A few years ago, you had to trudge to Delhi or one of the solitary outlets in a few metros to get your fill of Fabindia products — today I am told there are over 86 outlets dotting the country — and more to come, I am sure. Their range of products has also widened. Apart from the typical apparel and furnishing items, each store now keeps an interesting variety of furniture — smart, contemporary designs fashioned from solid wood with quality craftsmanship. There is also a surprising entry into food products — muesli, herbs, salad dressings, brown rice – the few that I sampled were excellent in quality.

All this was great news. The downside is that with the huge surge in the range of products, there has been fallout in the depth of stocking of the core items leading to a rather inconsistent retail experience. My curtain-quest, for example, has remained unsuccessful because each outlet just does not have a wide enough range of colours and pieces. I rarely found more than a few options of patterns or colours — and when I did find something I liked, the sales girl looked apologetic that there wasn’t enough stock to fulfil my modest order. If I asked whether I could order them, there was an even more apologetic response saying that it could take a long, long time. The food range differed from outlet to outlet and no one had a clue where the yummy muesli was available or when the delicious lime pickle would make its entry.

I felt a bit conflicted about the experience. On the one hand, I am delighted that the ubiquity of Fabindia’s presence allows loyal customers to partake of their offerings more easily and the new products are also a welcome addition. Yet, I was a tad disappointed that the depth of offering had visibly reduced making it a bit of a scattershot approach in stocking — a sampling of items, and not too much of anything. One sales girl took pity at my disappointed reaction and told me to go to the largest store in town where I might be luckier — which made me wonder what benefit the new stores had given me. Earlier, I could wander into one of the large well-stocked stores confident of wandering out with a purchase; now, it seems I need to have serendipity on my side.

I had a similar dissonance with Landmark. Again, I’ve been a faithful Landmark customer since 1990 and I credit it with having changed the way books are retailed in India. However, with growth has come a change in the Landmark experience.

There was a time when the trained and knowledgeable staff made book-buying a pleasure. During the last year I have had the dubious pleasure of being sent to the food section when I asked for the travelogue Butter Chicken in Ludhiana and to the yoga section, when I requested the book of short stories called Karma. Clearly, the sales staff is not as clued in as before. Earlier, when I placed orders the greased-wheels system ensured a rapid response — my last request for a bunch of audio CDs has elicited no response so far.

It could be because books today are just one part of the range – a huge variety of random products, many of them pure kitsch, now fill the shelf space and you can’t wander past one counter without an offer to be spritzed with a perfume.

Of course, these items have huge margins and must be the profit drivers for the range, yet each outlet has morphed into a mini-mall offering everything from jewellery to clothes and perfume — in the process the essential promise of the book-buying experience has suffered. The chain is growing fast and while that deserves celebration, it would be a pity if the original promise of Landmark as a destination store for book and music lovers is lost in the process.

A blitzkrieg of new stores and a rapid widening of the product range offer a glamorous and dramatic approach to growth as compared to a slower, more focused approach. The risk, of course, is the possible loss in the integrity of the original brand and inability to hold on to core consumers. It’s a dilemma that every business faces when it looks for profitable growth: what are the limits of diversification? Will the change in the offering impact the core consumer adversely, and if so, is it worth the risk?

Of course, both stores are doing well, so one could well argue that these complaints are minor compromises in what is a presumably profitable growth strategy. Yet, there are some learnings from Starbuck’s scorching growth path that made it the poster boy of retail innovation and growth. The cost of the growth was an erosion in the basic vision of Starbucks as “the third place” after home and work.

Growth brought with it change that valued speed of delivery rather than a personal experience, and new products that diluted the focus on coffee, all resulting in alienating erstwhile Starbuck loyalists. Starbuck’s recent announcement that it will be closing 600 stores is testimony to the fact that random growth can be hazardous.

Retail in India is still relatively nascent, and retailers, especially those who began as niche stores with a strong fan following, would do well to introspect and ensure that their short-term growth does not end up eroding value in the long run.

Radhika Chadha is a consultant in strategy and innovation and the co-author of `Innovative India: Insights for the Thinking Manager'. Karate-gy is the proprietary name of the strategic exercises conducted by Paradigm Management Knowhow Ltd.

Source: The Hindu Business Line

Retail keen on evaluating business structures with high-end cos

The slowdown in the economy and archaic rules on real estate may have affected the mainstream retail industry, but there is a flurry of activity on the high-end retail segment, as existing players actively explore business structures to tie up with global high-end retail majors.

Mandates with consulting firms, including those from the Big Four, show that players such as Reliance Retail, Aditya Birla Retail, Shoppers Stop and others are keen on evaluating business structures with high-end firms such as Marks & Spencer or Armani or a Moschino to tap demand from the growing number of HNIs (high-networth individuals).

According to sources, growth in demand for luxury items is pitched against a slowdown in mainstream retail as high inflation pushes back purchase decisions. The main driver is an increase in the number of individuals in India, who can afford to fly abroad to splurge on high-end accessories ranging from Rs 80,000 and above.

Business structures being considered include a franchisee model to start with, which could later be converted into a joint venture if the two partners consider it worthwhile.

Firms such as KPMG, PricewaterhouseCoopers and Ernst & Young are working on such structures and also advising on possible tax-efficient structures, as there are grey areas in levying value-added tax (VAT) on items such as a diamond-studded watch or a high-end leather jacket. For a diamond-studded watch, if the item is categorised as a watch then VAT levy is a high 12.5% compared to that on a gold or a diamond item where VAT could be just 1% or less.

Recently, many UK retailers, including Marks & Spencer, have been looking to gain a presence in India. Consulting firm KPMG’s tax partner in India, Amarjeet Singh, is expected to advise such high-end retail clients who are planning to move to India, especially as there is a strong demand from European clients for advice on the tax and regulatory environment around investing in India.

Speaking on the robust interest in high-end retail, KPMG manager strategic services C Ravishankar said: “The market for high-end luxury items in India is growing. Since it is difficult to build a luxury item from scratch, there are efforts to bring established global brands into India. In such cases you have to be clear on the type of business structures that can be formed,” he added.

India’s fast-growing high-end retail market is expected to increase from the current $3.5 billion to $30 billion by 2015. According to sources in Reliance Retail, the key driver for luxury retail, apart from growing HNIs, is that the margins are also very high, as much as 70% to 80%. The luxury retail market is roughly estimated to be about Rs 2,000 crore and expected to grow at 20% in the next five years.

Although the pace is slower than the mainstream retail, which had been growing at the rate of 30% to 40%, the value of the luxury market is much higher.

According to KH Vishwanathan of Astute Consulting, firms are currently involved in doing a concept study to highlight the compliance part and tax efficiency of a proposed business structure.

Nielsen Company director (retail consulting division) Asitava Sen says the move to prepare the business structures between Indian retailers and high-end global players is vital when there are strong brands. “Most foreign players are very protective about their brands and won’t allow their Indian partners access to these brands,” he said.

The business model that such ventures would work on is in allowing the foreign company to own the back end in a retail venture while leaving the front end to the Indian company. In such a structure, the foreign company would have complete control over the price and packaging.

Source: The Economic Times

Story of Private Labels

Contributed by Richa Kapoor

With India on the cusp of a retail revolution and discount stores riding high on the wave, the only way retailers can create moolah for themselves is having their "Private Labels".

But the only caution for retailers is that there should be a clear understanding of what a Private Label strategy mean and what are the different types of labels which can compete in the market:

Store brands – The goods produced by the retailer himself, to transfer the cost benefits to the consumer are called store brands. The retailer's name is very evident on the packaging. for eg: Shoppers' Stop : STOP

Store sub-brands - Products where the retailer's name is low-key on the packaging.

Umbrella branding - A generic brand, independent from the name of the retailer.

Individual brands - A name used in one category, this is only used to promote a "real" discount product line.

Exclusive brands - Again a name used in one category, but to promote "added value" products within the category.

Copycat private labels - brands owned by a retailer which use similar trade dress, i.e. packaging as a leading national brand.

Reference: The Free Dictionary
Wikipedia, about retail

Inflation addressing strategies by Retailers

Contributed by Richa Kapoor

Retail is one of the most badly affected industries in the current inflationary conditions, and is experimenting with various schemes and strategies to keep up the footfalls and sales graph.
Retailers are using these strategies in combination to make sure the consumer sees value in the offering and decides to visit the store in this lean time. In the recent past the retailers have been focusing on the following:

Flat Discounts: This is one of the most widely used promotions technique by the retailer, under this a retailer offers a flat percentage deduction of the price of a commodity.

Happy Hours shopping: is a period of time during which some restaurants offer discounts for alcoholic drinks for promotion of the venue in the quieter times. The same is being replicated by retailers some retailers are offering happy hours discounts during the day when all the merchandise is sold at rock-bottom prices

Buy One, Get One Free: Originally, "buy one get one free" was a random, end of season or stock clearance method used by stores who were left with a large quantity of stock that they were looking to sell quickly. More recently it has become a popular, planned and considered marketing method to sell high-end brands

Coupons: These have become a standard promotion tool with retailers for inviting consumers at the store; this not only invites a consumer to the store but also leads to a higher conversion rate than what is allowed for. Under this many retailers are tying-up with Corporates to give away their sales coupons as rewards.

Free-Standing Insertions: Insertions in the local newspaper showcasing best and lowest price deals is emerging as the biggest crowd puller.

Rebates: To attract huge footfalls retailers are rewarding consumers through offering rebates like additional discounts, assured gifts, money back, holiday trips for carrying with them a cutting of newspaper advertisement of the store or past purchase bills.
Retailers are becoming much more flexible and agile than they used to be. It would be interesting to see some new techniques and strategies by the retailers to adjust to the global slowdown.

Reference: Wikipedia

Mall Promotions

Contributed by Charu Gupta

In this competitive retailing environment, pulling the crowd has become a daunting task for retailers. Even mall owners have to implement new strategies and promotional tools to bring in the crowd as they want greater footfalls and more business for their tenants.

I recently visited Ambience Mall in Gurgaon during the festival of Teej which was also coinciding with friendship week. Ambience Mall, which boasts of being India’s largest mall with 1 km shopping floor, was totally abuzz on that day. The mall was totally in sync with the festive mood. At the entrance, there were people in traditional Rajasthani costumes singing and playing dhol welcoming visitors.

The atrium of the mall was replicated into a Teej fair running in a village. Swings decorated with flowers were placed where children as well as adults were waiting for their turn (yeah…even I was one of themJ). Various small shops selling hand-crafted and wooden toys were set up along two rows. A vendor giving “gudiya ke baal” free to children, puppet dance running in one corner, astrologer with his parrot giving free advise to people (was a busy man..this shows astrology services is a big business in India), Mehndi wala sitting at other corner, bangle shop, vendors selling “ek tara” and traditional perfumes and lots of other stuff, professional Rajasthani dancers dancing to the beats of folk music was all adding to the vibrancy of the place. Also, there were cots placed around adding to the village feel where people can sit and relax.

The atmosphere was filled with festive mood. Even the retailers were capitalizing on the festivities, various outlets and department stores were running “Sale” for increasing the footfalls in their store. One soft toy shop, on the event of Friendship Day, had organized games outside its shop and winners were being awarded Rs.100 gift voucher which could be redeemed at the shop. This was not only an enjoyable experience for the participants and passers by but has also brought additional sales for the store.

On that day, the whole mall was abuzz with fun activities going around lighting up the place. This all suggests that mall owners are realizing the need to bring out timely strategies to keep the footfalls increasing in their malls. Carrying out promotional activities during festive season and special occasions, organizing events and shows, food festivals, handicraft exhibitions, etc. are becoming regular feature for mall promotions.

After choosing the right tenant mix, mall owners’ responsibility is to sustain and increase the footfalls in their malls to ensure that the tenants do not make losses due to low footfalls.

One of the other examples is Simon malls in Indianapolis which is using “experiential marketing” which provides entertainment in addition to shopping. Simon, which owns six malls in the Atlanta area, develops promotions and events in partnership with radio and television stations, retailers, charities and celebrities. Simon has sponsored events for children and concerts by teen performers as part of a back-to-school promotion. The company also sponsors after-hours events to raise money for charity. [1]

Developers can work on drafting marketing strategies for individual malls to meet the needs of the local consumer base and the challenges of local and in some cases, regional competitors. A “Mall events” calendar can be made and shared with retailers so that they could organize their merchandise accordingly in tandem with the event. Such promotion events not only increase the popularity of the Mall, but also increase the value of the space available in the mall. Such events make the mall more popular and help the mall in attracting better brands at better prices.

Reference: [1] BizJournals
Fibre2fashion

Loss Leader Strategy in Retailing

Contributed by Richa Kapoor

Loss leaders is a time honored pricing strategy adopted by retailers worldwide to attract consumers to the stores. The intent of this pricing strategy is to not only have the customer buy the (loss leader) sale item, but other products that are not discounted. The rate of success of this strategy has been enormous worldwide which is being replicated in the Indian Market too but with the Indian Retail market opening up, retailers introducing newer product categories and many retailers entering the market.
It has become crucial for retailers to adopt strategies like loss leaders. But, to be able to understand the concept thoroughly.

What is a loss leader?
A loss leader is a pricing strategy which involves selling a product at a low price (at cost or below cost) to stimulate other, profitable sales. It is a kind of sales promotion, in other words marketing concentrating on a pricing strategy. This is a commonly used technique to attract customers via bargain on necessities and sell to them products which they don't require; this will help in generation of profits.

Some Common Strategies:
Usually retailers place the loss leader at the end of a store, so that purchasers walk past racks of other displayed goods which have higher profit margins.
As loss leader item is a product that customers purchases frequently—thus the retailer ensures that the offered price is a bargain.
Retailers offer limited items as loss leaders, which discourages stockpiling by customers, which compels consumers to make repeated visits.
The retailer sets limitations on the quantity that one purchaser can make (e.g., " Buy One Get 20% off on second").

When and Why a Loss Leader Strategy is used?
Move Overstock: A retailer can use the loss leader strategy to encourage the sales of products which are the declining stage of their life cycle or if a retailer has inventory that isn't moving or if he is overstocked on a particular item, a loss leader can move it. By cutting the price of such an item, a retailer not only frees up the shelf space and reduce inventory, but also increase cash flow.

Increased Footfalls: Using loss leaders as a marketing tool can help gain new customers and increase return visits. Consumers like a bargain and will likely come back to shop.

Attracting Customers from Different Sectors: Retailers use loss leader strategy to attract customers from different age groups, backgrounds and demographics.. For example, recently a leading supermarket introduced the sale of jeans from a leading jeans manufacturer. The clothing was purchased from a wholesaler and priced competitively which results in low profit. This helped in attracted young consumers who are not the target consumers for a supermarket.

Loss Leader Precautions
Though there have been successes in loss leader pricing, but a retailer must be aware of some obstacles to the process. If done incorrectly, loss leaders can actually cause the business to lose money.

§ A loss leaders strategy should be used only when it's assured that the lost profit can be countered by the sales of other products or services. It should be made sure that there is a significant quantity of the sale item in stock

§ Not all manufacturers and suppliers allow their products to be priced under their minimum advertised price or less than what their other dealers are selling the same item. As it may be perceived as damage to the brand image of the manufacturer. Thus, it may be good idea to contact the manufacturers or suppliers before proceeding with the strategy.

§ In some states it is forbidden to sell products below cost. In recent years, lawsuits have emerged claiming loss leader pricing strategies to be equivalent to illegal business practices.

§ Competitors can take advantage of a retailer's bargain and purchase the loss leader goods from the retailer to sell in their own shop. In which case, they could further reduce the price giving them a competitive advantage over you, or sell it at a price with a view to making a small profit.

The loss leader strategy is used primarily to attract customers to a retail store through the introduction of a bargain. Implementing the loss leader strategy can be risky and therefore needs to be considered that it is the right approach for penetrating the market.

References:
Bizhelp24, Retail.about, Wikipedia