Thursday, February 17, 2011

Failures of Retailing - Subhiksha & Vishal: A Ringing Bell

With the booming Indian economy under the buzz words of liberalization, Globalization and Privatization, Indian retail industry is growing like anything. Many big giants like Carrefour and Wal-Mart are trying to enter into Indian market with the help of Indian Local Heavyweights but are tied by Indian Government . The expanding middle and upper classes has played a big role in the expansion of existing modern format stores and entry of new ones. The biggest question is “Have all of these stores been successful?”  The answer is a big NO.
Two of the biggest failures in the history of Indian retail – Subhiksha and Vishal Retail. Subhiksha was started by R. Subramaniam, an IIM A and IIT Chennai alumnus with its first store at Chennai.  Ram Chandra Aggarwal set up his Vishal Garments Store in 1994 – three years before Biyani’s  Pantaloon and seven years before setting up Vishal Retail. Both of them are discount stores at prices which are much lower than other retail outlets.
Though, Subhiksha has closed down and Vishal is still in the market, there are some points of similarity in their fall from glory which  are mentioned here-
Un-mindful expansion spree across different parts of the country
Subhiksha didn’t realize that with this only a few stores would be profitable and generate positive cash flows. It moved across different sectors such as medicine, grocery, IT, mobile etc very fast.Vishal expanded without having the proper capital. They got the orders from the suppliers but when the stores didn’t work out, the entire supply chain got choked.
IPO problem
Subhiksha was thinking of going for an IPO in 2007 but shelved it in view of “uncertain market conditions”. But I believe that they got greedy as they expected a market correction. Vishal on the other hand raised Rs 110 crore from an IPO in June 2007 which wasn’t enough to meet it scorching growth pattern. It had 50 stores by then and was looking to expand to 130 stores in a year. But it went for short term debt which resulted in a big blow to their entire supply chain when the stores didn’t happen as intended.
Both of them didn’t consolidate
Subhiksha and Vishal instead of stabilizing and consolidating themselves first in different places and then moving to newer locations, tried to be the first in every town.
Poor inventory management
Subhiksha had a bad history of credit defaults and this led to supply breakages. This led to situations where sometimes the store had very high inventory and at others, the stocks were out. This led to great dissatisfaction.  Vishal’s distribution center led model failed as it couldn’t build an IT network. Buying at warehouses was mostly not aligned to what the customers needed and resulted in dead inventory.
Private Labels
Vishal tried to develop private labels in almost every category but had limited scale to support them. Same was with Subhiksha trying to give impossible discounts on its own labels.
Subhiksha closed down in 2009 amid allegations of defaults, non – wages payments and bankruptcy. The people behind it are still struggling to come up with valid explanations.Vishal has brought down the rentals of the properties, decreased its expenses and closed down two dozen stores and warehouses and plans to close more.
Will there be more Subhikhsha’s or Vishal’s is under the cover of future ,but these two give lessons to other retailers to make proper stepping stones before climbing the ladder up in vastly growing Indian Retail Biz.

Contributed By:
Deepak Jain
(Batch 2009-11)

Thursday, August 26, 2010

FDI in Indian Retail

Indian organized retail industry is one of the sunrise sectors with huge growth potential. Total retail market in India currently stands at USD 353 billion in 2009-10 and estimated to attain USD 543 billion by 2013-14. Organised retail industry accounts for only 5.5% of total retail industry  and expected to reach 10% by 2012. The success of Indian economy in bouncing back from global economic slowdown is making it a favorite beneficiary of foreign direct investment (FDI).
More and more global players are eying the developing countries like India and their consumption market to lay the roots of their retail chains. Moreover, to cater the needs of the growing and changing society these global giants are invited by government for direct as well as indirect investments. Currently, Indian Government allows up to 100% FDI in Cash and Carry (B2B), 51% FDI in single-brand retail – that means, the brand can sell various categories of products with the same brand identity – apparel, accessories, watches, footwear, etc. Insofar single brand retail, the restriction is to ensure that Joint Ventures are formed only with Indian partners, thereby benefitting Indian business houses.
The government recently came out  with a concept note on foreign direct investment (FDI) in multi-brand retail trading. This is an emotional issue, and has been placed on the back burner by successive governments in response to fears about its impact on small retailers, who are large generators of employment. This fear is worthy of examination. Trade constitutes around 15% of our gross domestic product, of which retail trade makes up at least half. The retail sector is the second largest employer after agriculture, providing job opportunities to at least 33 million people. Few can underestimate the importance of being circumspect with regard to any legislation that will affect so many jobs. Those favouring the entry of FDI in retail argue that FDI inflow in retail sector is vital for the growth of the country’s agricultural sector and rural infrastructure. Moreover, the massive employment opportunities provided by the capital inflow is immensely helpful in sustaining the economy of the rural segment. Improvement in farmer income, reining in consumer prices and thereby inflation and elimination of inefficiency in the supply chain structure are some of the advantages pointed out. Prosperity of rural areas and growth in agriculture being two major criteria for the country’s economic well-being, the idea of FDI in retail is finding many takers.
However, detractors argue that, FDI in retail would displace small vendors resulting in loss of jobs and livelihood. Small-time farmers need to be organized to have any bargaining power. This needs to be addressed, so do other important issues like electricity and surface water.Still discussion and arguments are going on this topic. To tackle this problem, the department of industrial policy and promotion (DIPP) floa­ted a paper to elicit feedba­ck from various stakeho­lde­rs on this contentious iss­ue. This sector has a potential for tremendous growth and decision on this policy reform has enough power to give a new and dynamic direction to India’s economic growth.



Contributed by:
Jinan Shah
Batch 2009-11

Wednesday, August 11, 2010

Smart Sign- Retail’s Call of Hour


The best of technology giants has come up together with their latest avatar for retail industry i.e. ‘Smart sign’. As with immense competition in retail industry, customization has become the key for success. ‘Smart Sign’ is comprised of Intel’s superior chip technology and unmatched software quality of Microsoft. Smart Sign has been developed in order to understand the fast changing needs of retail customer and to provide customers customised products and offerings based on their demographics (age, gender) observed. It makes use of LCD display, cameras and specialised software at the shelf space itself. The Smart Sign technology would help the companies to use new digital sign technology. It creates the profile of the customers just by observing the age, gender of the customer without asking a single question to you if the customer is registered or not and if in case a customer touches a certain product then they will receive the discount coupons for buying that products and the location of that product in the shop on their cell phone immediately. Such technology will provide a provide a real advertising medium for the retailer which will unable the to understand the changing needs of the customers , focussed approach , customer convince , One to one marketing and judicious use of advertising budget. It provides easy way to customise the offerings according to individual needs. It saves cost of advertising by targeting the right audience hence thereby decreasing the expense over advertisement shifting mass media advertisement to one to one advertisement. Further, it enhances the basket size of customer by providing the offers and schemes.However, it will affect the customer privacy and accuracy of the software is challengeable.


Contributed by:
Prof. Sapna Parashar

Sunday, July 18, 2010

Destination India!!!!


Retailer, refers to "cutting off, clip and divide" in terms of tailoring. The French brought the concept of organised retailing in form of Bon Marche in Paris and did it in a fashionable way. The Britishers adapted it throughout their empire and the Americans modified it, made it efficient and played with the economies of scales. But now it is Destination India, the largest democracy in the world, is all set to welcome the world of organised retailing. But in order to succeed, retailing would have to undergo a major metamorphosis in order to adapt to the Indian market condition. India is the hot favourite destination for all the leading retail chains across the globe. With Indian economy on an upsurge, and the disposable income of the population on an increase, with the expanding middle class, they shall have the taste, if they enter the market with the correct strategy and strategic partner.

The organised retail consists of only 6% of the $20 billion retail market in India and is growing at a rate of 20% per annually, has all the potential to cash on, and thus, excellent incentive for the cash rich foreign retailers to enter the Indian Market. The likes of Walmart, Tesco, Carrefour, Starbucks, Arstana, GAP & other international giants are already in or set to enter the Indian terrain. But there are few political and social barriers for these companies to enter the Indian market. The Indian govt’s FDI policy allows only 51 % foreign direct investment in single brand outlets, and the multi-brand outlets being restricted to only cash and carry formats. Also the current 12 million small Kirana shops in the unorganised Indian retail sector employ more than 33 million people. With the growth of the organised retail sector, these kirana shops face a slow but sure death, hence affecting the millions employed. The Indian goverment cannot ignore these facts, and hence have to put the brakes on the FDI. These policies compile the foreign retailers to join a strategic partnership with an Indian firm, thus clipping their wings and taking away the full operational freedom.

Courtesy-

Aditya Desai
FT Batch 2009-2011

Thursday, August 20, 2009

Rainbow Coalition : Is it feasible?

Did you ever imagine that one day, Aditya Birla, Future Group and few other big shots in the retail industry would be shaking hands together to achieve a common interest??

Well well....................... this is business we are talking about, anything is possible.

Cut-throat competition in India’s organised retail industry seems to have paved way to harmony, with top players such as the Future Group, Aditya Birla Retail, Spencer’s and Reliance Retail coming together to cut operational costs and improve margins. The retailers have formed a rainbow coalition that will align their sourcing operations and share private labels, logistics, warehouses and hiring details on a transactional payment basis.

“We may fight at the front-end but we need not compete at the back-end,” is the norm they have applied. Collaboration is the way forward in retail and they have taken lessons from telecom players that share towers. “Our infrastructure and resources are designed to be shared with others,” said Kishore Biyani, who runs Future Group, the country’s leading retail player. Retailers are hoping to improve their operating margins by 2-3% by sharing back-end resources. Most players in the Rs 30,000-crore plus organised retail industry are affected by teething problems and the economic downturn. Grocery formats have recorded huge losses, forcing retailers such as Reliance Fresh, Birla’s More, Indiabulls and Spencers to shut down unviable outlets and halt expansion.

The retailers clarified that this move doesn’t amount to cartelisation, as the cooperation among players is limited to the back-end . The players are discussing ways to sell private labels to each other and collaborate on shrinkage—essentially a diminution in inventory due to shoplifting, employee theft or supplier fraud. The collaboration can be extended to include sale of each retailer’s power brands, not necessarily store brands. The move essentially focuses on how to cut costs in supply-chain and third-party manufacturing. It is a common practice abroad where the eco systems are far developed. Retail companies are currently focused on bringing down distribution costs by eliminating intermediaries and transport delays between the sourcing point and point of sale.This idea would solve many problems faced by the retailers.

But is it a complete solution?

In grocery, burdened by consumer expectations of more frills compared to no-frills kirana shops, modern formats had to shell out 30% higher costs on rent, energy, bar codes, air-conditioning, bright lights and other aspects. Also, lifestyle retailers were forced to mark down prices to move volumes as consumers traded down to more affordable brands in a challenging environment. The collaboration also addresses issues such as unused furniture or design and completion of shell space—that instead of lying unattended in warehouses can be sold to fellow retailers. Then there is the issue of modern retailers who are keen to promote their own private labels. Under the new concept, retailers may have to sell such labels to each other.

It is a welcome concept but needs to be complemented by developing the systems and procedures as the Indian retail sector is still growing. There are various issues also that need to be tackled parallely for the model to be finalised. Such a joint proposal would also need to address nimble mom-and-pop stores that are swifter in merchandising and understanding local nuances and requirements. Modern formats with their regional and central sourcing structures typically are unable to compete in such a situation. While the plans seem extremely smart, very often issues crop up during the implementation stages. Retail is a business of detail and when there are too many players involved, issues of funding and ownership tends to derail the progress.

So, let us keep track on the moves of the big giants of the retail industry – as to whether they have gone ahead with this model or planning for something new.

Contributed By :
Aasritha Poorna (MBA FT II)

Friday, July 24, 2009

CAN RETAIL SURVIVE ??

Retailers did everything possible to attract buyers over the holidays. From educational sessions to discounts, coupons and special offers, retailers used their ingenuity and marketing smarts to make the best of a dismal season.  Nonetheless, numbers were down and every indicator pointed toward an even gloomier 2009. Perhaps the very profile of the retail environment has shifted as consumers settle in for what may be a protracted economic change.

Here are some ways in which retailers can survive through the second half of the 2009 buying season and keep their business on track.

Don't Take Your Foot off the Gas: Remember the hectic holiday season while you did everything possible to make your business a success? No matter how tired you are or how discouraged you might feel, it's time to keep your chin up and continue marketing to your customers. A reduction in marketing efforts is simply not an option. Marketing keeps you in front of your current customers, enlightens prospects and positions you well for when the economy recovers. Those who stop marketing often find themselves losing precious momentum and having to make up ground in the long run.

 

Make Every Customer a Repeat Customer: You forged new relationships over the holiday season and strengthened old ones. Now is the time to take better advantage of those relationships and transform one-time buyers into frequent customers. Though statistics vary by type of business, product and service, it's clear that it costs more to acquire a customer than to retain an existing one. Whether asking customers to sign up for your product newsletters or offering frequent-user discount cards, you have ways to re-engage buyers.

 

Intuition Is Not Enough: Customers make or break your business. You must cater to your clientele and that means knowing what they want. Use resources such as your newsletters, brochures, etc. to distribute an open-ended customer survey. Actually read customer feedback and make adjustments accordingly, so customers can see you're making real changes based on that feedback. But make sure you track the effectiveness of those changes in your marketing strategies on a monthly basis.

 

ROI: Stop any spending that isn't directly resulting in customer acquisition or sales. Your rupees are tighter than ever, so managing them is critical. Examine your marketing mix and invest wisely. There are plenty of low-cost communications channels that have significant return on investment (ROI).Talk to your customers about what resonates with them and where they are now, and make decisions from there.

Think Thematically and Theatrically: Retailers are great at this: They find a seasonal hook and exploit it - pulling together displays, product offerings and so on - so that entire campaigns are tied together. However, this approach shouldn't stop at product marketing. marketing communications should reflect the same cohesive thinking. Timing each communications piece - press announcements, online ad campaigns, etc - to work in sync with the overall campaign can increase the effectiveness of your efforts and your overall brand resonance. Retailers should  surround their customers with the right message, both online and offline.


So, Plan ahead!

Thus it can be concluded that today’s customers are different from those you encountered even a year ago. They expect more of everything - more information, more choices and more convenience. The energy, enthusiasm, and efforts retailers put into their holiday and festival campaigns can continue to pay dividends this year if they continue to face each day with the same vigor and determination  displayed over the holidays and in the festive season.

Contributed By: 

Rohan Naik

 

Wednesday, July 8, 2009

RETAIL RESURRECTION : VISION GOING AHEAD

When Sam Walton started his first retail outlet, even he would not have been sure of where it would take him and the paradigm shift he would give to the age old tale of retailing. From the sixties to this millennium, retail has evolved from being “the monkey” to being a   “homo-sapien”. The evolution has been swift primarily because of the turnaround from supply side economics to demand oriented economics. One base learning that has been deeply enrooted in me during the course of my curricular studies is that “Customer is the King”, or more appropriately, “A profitable customer is the king”. On a pure philosophical level, the shift from capitalism to consumerism is something like the patriarchy giving way to democracy, and one thing is for sure: it is here to stay.

The questions that this evolution is posed with are multiple, but the need of the hour is to find the perfect retail mix or whether it even exists or not. Romantically speaking, the current economic crisis has opened more possibilities than ever. For the real hero an adversity is more of a testing ground than something to give an excuse about: Darwin’s theory of survival of the fittest thwarts the same fact. In this light, what is really that would make “the fit”-“fitter” can be viewed in the following ways:

Collaboration Vs. Competition

In the retail industry, it is common to have high footfalls but low conversion. To tackle this issue an alternative approach can be reengineering the supply chain not only on a company level but on an intra industry level. Integrating competitor resources together would only add buyer’s power to the cumulative retail sector. Common sourcing can be one way of going ahead. This would be helpful in getting better margins from manufacturers and would also be helpful in developing the organised retail market. The solution may be similar to the collaborative approach that is adopted by the banking sector in interbank ATM transactions that has made a tremendous improvement in terms of reach and more importantly market penetration.

Technology as facilitator Vs. Technology as value provider

Technology has always been looked upon as the facilitator of business activities but now looking at the expectations of consumers, technology should be looked at as a value provider. The new role of technology would impart it an unprecedented position in the coveted retail mix. This requires a fundamental shift of position driven by change in consumer perception towards technology. The awe that consumers had towards technology in the 20th century has been replaced by an expectation of consumers that stores should minimally have “state of art” IT infrastructure. This new demand for technology can only be captured by surprising the customers with an altogether new standard of technology. Not only would it add to the value proposition of the retailer it would also help tapping the new information age, tech savvy customer.

Employees Vs. Business Facilitators

"It's ironic that retailers and restaurants live or die on customer service, yet their employees have some of the lowest pay and worst benefits of any industry. That's one reason so many retail experiences are mediocre for the public."     Howard Schultz

When someone enters a shopping arcade one of the biggest turnoffs is the undernourished, exhausted looking employees that retail stores have. In this information age the role of sales executives has to change to being purchase facilitators in the true sense of the phrase. A major boost to this idea will be revaluation of the compensation structure. The training of employees at the grass root level is important and would only enhance the conversion rate.

 

Drawing conclusion from the above mentioned ideas, the tale of retail would have a “happily ever after” continuum when the entire concept of retail is restructured, renovated and rejuvenated with greater enthusiasm. Eventually the shopping experience has to be enriched by enhancing quality through conscious endeavours of innovating and adding value. Lastly, the way to a resurrected retail sector in terms of quality of shopping experience can be elucidated by the following lines by William A. Foster

Quality is never an accident; it is always the result of high intention, sincere effort, intelligent direction and skilful execution; it represents the wise choice of many alternatives."

Contributed By                                  

  Devesh Srivastava         

  Pankaj Kaul