It wasn’t long ago when Indian retailers were riding on the high tide, but thanks to tumultuous economic conditions they all seem to have fallen flat. It’s high time to revisit retail, says 4Ps B&M’s Savreen Gadhoke…
Famous poet Eli Siegel once said, “If a mistake is not
a stepping stone, it’s a mistake.” And the underlying message, it seems, has been well received by the Indian retailers!?? No doubt, the Indian organised retail has gained tremendous momentum in the last couple of years, (pegged to touch $450 billion by 2015 & be amongst the top 10 retail markets in the world, by McKinsey & Co.), but, in the transition they have also made several mistakes. All thanks to their efforts to outdo each other in the game of one-upmanship.
Opening many stores across a single city to increase visibility (without appropriate demographics study), launching different formats to tap all categories of customers (but not accurately estimating the return on investments), not having a robust supply chain management in place, et al, are some of them that seems to have fallen too heavy on the Indian retailers, particularly when the ongoing tumultuous economic conditions are alone enough to take away their happiness. But as Siegel said, the Indian retailers have taken such mistakes as a stepping stone and are now taking measures to correct them. From unorganised to organised retailing, the honchos are now set to re-organise the Indian retail industry.
While Future Group still sounds optimistic about the current scenario as Atul Takle, Head – Corporate Communications, Future Group avers, “Same store growth as well as y-o-y growth has been excellent. We are seeing this as a major opportunity;” Gibson Vedamani, CEO, Retailers Association of India, asserts, “The slowdown in the Indian economy has impacted the retail sector especially the high-ticket sales as they were dependant on consumer loans.” Suports Vikas Vasal, Executive Director, KPMG, who says, “There is a general slowdown in the retail sector as the spending has been low and people are holding tight on to their pockets.” Even the slump in the real estate sector has made its impact felt on retail. “In some places, malls have delayed because of delivery of properties. Slowdown of developers has impacted us,” agrees Sanjiv Goenka, Vice Chairman, Spencer’s Retail.
In fact, retailers have now realised that having too many stores was perhaps not the right strategy to increase sales, as now handling rising operating expenses is beginning to get difficult for retailers. Moreover, rising manpower costs and sky-rocketing rentals too are adding to their dilemma. So, most of the retailers are now either merging their different retail formats or are relocating and resizing. They are even shutting down stores. This is certainly a natural move on retailers part, however, what is intriguing is that how did such a situation rise, especially when the Indian retail boasts of some of the biggest names of India Inc.?
Answers Vasal, “The reason for some retailers closing down stores is the general slowdown & fault in the strategies of the retail players. Some players entered the market during boom and hence the calculations weren’t done adequately.” Recently Videocon-owned consumer electronics store Next revisited its strategies and announced the closure of 20 outlets in prime cities. However, K. S. Raman, Director, Next Retail has a different reason for the same. “We now want to consolidate our presence in the interiors of the country and North East,” he argues. Similarly, Spencer’s Retail, too has shut down 56 stores (out of a total of 400 stores) purely on account of non-performance. Exclaims Goenka of Spencer’s Retail, “It is not an alarming news but a sensible decision.” Reasons cited by Goenka for non-performance of his stores were that in certain places, rents were too high and did not commensurate with the revenues, while in certain other places revenues just didn’t pick up. “You have to see what product(s) you are selling and then choose on a location. In few cases, this was done in a reverse manner,” he adds.
Apart from closing down stores, retailers are also considering to merge different retail formats they opened during the process. Reliance Retail is expected to merge its hypermarkets, supermarkets and convenience store formats. Certainly a merged management will help Reliance save on man-power, operational and recurring expenses. Kishore Biyani-owned Pantaloon Retail has also shelved its plans to hive off Big Bazaar as a separate entity and therefore cut on the costs that were expected to rise with the formation of a new company.
In other cases too, retailers have either relocated their stores (Big Bazaar has changed the format of one of its stores and relocated another in Ahmedabad), or are pruning and resizing their retail space (Reliance has shed upto 40% of retail space in its hypermarket store at Iskcon Mall in Ahmedabad). Retailers are also in the process of negotiating rentals (primary reason for cutting down on retail space) with the landlords and may even go in for revenue sharing models.
It is true that tough economic conditions have made the retailers realise their folly and amend their mistakes. But given the kind of investment that has already gone into this sector, it may not be possible for all to sustain. As Vedamani puts it, “Retailers who have been in existence for more than five years, or those who have strong capital backing can withstand these conditions, but for others it’s going to be tough.” And indeed, a host of other retailers are left with no option but to pare down on the number of stores they are currently operating. Indiabulls retail has shut down two stores in Ahmedabad, apparel retailers Arvind Brands, Reebok and Raymond too have started pruning their operations.
Certainly Indian retailers seem to have got a good lesson and are now making no two bones to accept that they were wrong in their super fast expansion plans and huge investments within a short span of time. As Goenka says, “In the course of any business, you’ll have decisions which are not always right in terms of location, vendors and demographics. It’s always best that if you’ve made a mistake, correct it.”
Earlier, the focus was only on increasing the square foots and therefore there was a certain level of delegation that happened in selection of areas to open the stores. But now, the retailers have taken the onus on themselves to carry out a proper research on the demographics and demands of consumers in different places. Based on such studies, the retailers are now being extremely careful on where to open their stores. “In future, due diligence will definitely pick up,” concludes Goenka. Well, it better pick up, as only then it will be determined whether the previous mistakes were stepping stones or indeed ‘mistakes’.
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
Famous poet Eli Siegel once said, “If a mistake is not
a stepping stone, it’s a mistake.” And the underlying message, it seems, has been well received by the Indian retailers!?? No doubt, the Indian organised retail has gained tremendous momentum in the last couple of years, (pegged to touch $450 billion by 2015 & be amongst the top 10 retail markets in the world, by McKinsey & Co.), but, in the transition they have also made several mistakes. All thanks to their efforts to outdo each other in the game of one-upmanship.Opening many stores across a single city to increase visibility (without appropriate demographics study), launching different formats to tap all categories of customers (but not accurately estimating the return on investments), not having a robust supply chain management in place, et al, are some of them that seems to have fallen too heavy on the Indian retailers, particularly when the ongoing tumultuous economic conditions are alone enough to take away their happiness. But as Siegel said, the Indian retailers have taken such mistakes as a stepping stone and are now taking measures to correct them. From unorganised to organised retailing, the honchos are now set to re-organise the Indian retail industry.
While Future Group still sounds optimistic about the current scenario as Atul Takle, Head – Corporate Communications, Future Group avers, “Same store growth as well as y-o-y growth has been excellent. We are seeing this as a major opportunity;” Gibson Vedamani, CEO, Retailers Association of India, asserts, “The slowdown in the Indian economy has impacted the retail sector especially the high-ticket sales as they were dependant on consumer loans.” Suports Vikas Vasal, Executive Director, KPMG, who says, “There is a general slowdown in the retail sector as the spending has been low and people are holding tight on to their pockets.” Even the slump in the real estate sector has made its impact felt on retail. “In some places, malls have delayed because of delivery of properties. Slowdown of developers has impacted us,” agrees Sanjiv Goenka, Vice Chairman, Spencer’s Retail.
In fact, retailers have now realised that having too many stores was perhaps not the right strategy to increase sales, as now handling rising operating expenses is beginning to get difficult for retailers. Moreover, rising manpower costs and sky-rocketing rentals too are adding to their dilemma. So, most of the retailers are now either merging their different retail formats or are relocating and resizing. They are even shutting down stores. This is certainly a natural move on retailers part, however, what is intriguing is that how did such a situation rise, especially when the Indian retail boasts of some of the biggest names of India Inc.?
Answers Vasal, “The reason for some retailers closing down stores is the general slowdown & fault in the strategies of the retail players. Some players entered the market during boom and hence the calculations weren’t done adequately.” Recently Videocon-owned consumer electronics store Next revisited its strategies and announced the closure of 20 outlets in prime cities. However, K. S. Raman, Director, Next Retail has a different reason for the same. “We now want to consolidate our presence in the interiors of the country and North East,” he argues. Similarly, Spencer’s Retail, too has shut down 56 stores (out of a total of 400 stores) purely on account of non-performance. Exclaims Goenka of Spencer’s Retail, “It is not an alarming news but a sensible decision.” Reasons cited by Goenka for non-performance of his stores were that in certain places, rents were too high and did not commensurate with the revenues, while in certain other places revenues just didn’t pick up. “You have to see what product(s) you are selling and then choose on a location. In few cases, this was done in a reverse manner,” he adds.
Apart from closing down stores, retailers are also considering to merge different retail formats they opened during the process. Reliance Retail is expected to merge its hypermarkets, supermarkets and convenience store formats. Certainly a merged management will help Reliance save on man-power, operational and recurring expenses. Kishore Biyani-owned Pantaloon Retail has also shelved its plans to hive off Big Bazaar as a separate entity and therefore cut on the costs that were expected to rise with the formation of a new company.
In other cases too, retailers have either relocated their stores (Big Bazaar has changed the format of one of its stores and relocated another in Ahmedabad), or are pruning and resizing their retail space (Reliance has shed upto 40% of retail space in its hypermarket store at Iskcon Mall in Ahmedabad). Retailers are also in the process of negotiating rentals (primary reason for cutting down on retail space) with the landlords and may even go in for revenue sharing models.
It is true that tough economic conditions have made the retailers realise their folly and amend their mistakes. But given the kind of investment that has already gone into this sector, it may not be possible for all to sustain. As Vedamani puts it, “Retailers who have been in existence for more than five years, or those who have strong capital backing can withstand these conditions, but for others it’s going to be tough.” And indeed, a host of other retailers are left with no option but to pare down on the number of stores they are currently operating. Indiabulls retail has shut down two stores in Ahmedabad, apparel retailers Arvind Brands, Reebok and Raymond too have started pruning their operations.
Certainly Indian retailers seem to have got a good lesson and are now making no two bones to accept that they were wrong in their super fast expansion plans and huge investments within a short span of time. As Goenka says, “In the course of any business, you’ll have decisions which are not always right in terms of location, vendors and demographics. It’s always best that if you’ve made a mistake, correct it.”
Earlier, the focus was only on increasing the square foots and therefore there was a certain level of delegation that happened in selection of areas to open the stores. But now, the retailers have taken the onus on themselves to carry out a proper research on the demographics and demands of consumers in different places. Based on such studies, the retailers are now being extremely careful on where to open their stores. “In future, due diligence will definitely pick up,” concludes Goenka. Well, it better pick up, as only then it will be determined whether the previous mistakes were stepping stones or indeed ‘mistakes’.
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
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