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)

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

 

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 20^th 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             

FORECOURT RETAIL IN INDIA: An Emerging Concept

Another important development in the Indian retail industry is the emerging concept of Forecourt Retailing, a retail format having an unlimited growth potential in India.
With the rising fuel prices, the margins of the oil companies are being hit hard. More and more emphasis is being given to layout planning, visual appeal, customer service and providing value added services to the consumers. Since, fuel is a commodity and there exists no brand loyalty in the customer’s mind so the companies are trying to 32 woo customers to their fuel stations by providing other ancillary services. It is with this objective that more and more companies are entering into the concept of forecourt retailing. Although the industry is still in its infancy stage of its life cycle, unlike in other places like US and Europe where the industry has matured to quite an extent. In the Asia Pacific region, only the Japanese market has accepted the concept of Forecourt Retailing and in other parts including India, the industry has had a very dismal start.
There exists a strong synergy between Forecourt Retail business and Fuel Retail industry. The various aspects which provide strong linkages between the two industries are:

1. Network: The network of the fuel stations is very huge. They are present in each and every part of the country.
2. Location: owing to its ubiquitous presence, the fuel stations are located in almost every major locality and cater to all the economic segments with are in need of fuel.
3. Number of Footfalls: The number of footfalls in a typical fuel station is almost comparable to that of any big supermarket. Each day, lakhs of people visit these fuel stations to get their automobiles re-fuelled.
4. Space Availability: Most of the fuel stations have much idle space available within their premises. This space can be better utilized to conduct some sort of retailing business like coffee shop, convenience store etc.
5. Financial Backing: All the players operating in the fuel retail sector are very sound in terms of financial strength. This means that if they have the capability to venture into forecourt retail in a big way and scale up rapidly.

Indian Oil is planning to partner with existing retailers, such as Apollo, for pharmacies, Subhiksha, bookseller Crossword and Cafe Coffee Day. This' is similar in concept to the "In & Out" retail store format at competitor Bharat Petroleum Corp. Ltd, which has formed strategic alliances with major brand owners, retailers, and music stores Planet M and Music World, among others.
Globally, petrol pump-based convenience stores have developed into large businesses with companies such as Royal Dutch Shell Pic., Caltex Australia Petroleum Pty Ltd, and BP. Generating profits from convenience store chains. India's organized retail business is quite nascent, constituting 3%, or $6.4 billion, of an estimated $200 billion Indian retail business. Consultant KPMG estimates that the share of organized retailers will reach $23 billion by 2010. A KPMG survey says most large retailers expect to grow in excess of 40% per annum in the next three years. Indian Oil, which racks up losses on its core fuel sales at such stations, is hoping it can benefit from that growth and start generating profits from its essentially existing, sunk cost. To read the initiatives taken by Bharat Petroleum …………….
http://www.bharatpetroleum.com/wheels/inOutStores.asp

Zooming ahead with Petro Retailing

Retail is one of India’s largest industries, accounting for over 10 per cent of the country’s GDP and around eight per cent of the employment. With a contribution of 12% to this industry, the petroleum retail sector is one of the largest segments of the industry. The petroleum retailing industry in India faces significant challenges in the deregulated environment with low product differentiation, lack of customer loyalty, coupled with intense competition, a downward pressure is exerted on margins forcing players to adopt new and innovative strategies .India has deregulated the pricing mechanism for retail petroleum in 2002, enabling new players to enter the market. The entry of new players like Reliance will increase the number of stations from existing 19,000 to over 30,000 in the next 4-5 years. This will also reduce the average throughput per station, and total fuel volumes per player. With a market determined pricing mechanism, prices will have to be lowered, thus reducing margins from fuel products. With limited growth in the number of vehicles, the retail fuel volumes will remain stagnant, thus offering little scope for further improving the overall revenues and margins. In such scenario, the petroleum retailers will need to develop differentiated value propositions, to improve revenues and their bottom lines, by adopting a customer focused approach and building strong brand equity.

To drive revenues and margins, the retailers will have to attract new customers or increase share of their existing customer’s wallet. The latter can be achieved by offering non-fuel products and services. Non-fuel products, which offer higher margins compared to petroleum products, enable companies to sustain themselves, especially during times when oil prices are high. However, keeping in mind that petroleum retailing is a retailing of product and service, with differentiation possible petro-retailers will have to take a look into the retail skills and accordingly have to make adjustments in that. Network optimization, proposition/brand management, dealer management, site operations management, partner management, customer relationship management etc. are some of the skills that should be incorporated to succeed in the changed scenario. Immense competition in this sector will make loyalty programs for every segment of consumers as an integral program of the day- to-day functioning of petro-retailing. Moreover, proper understanding of market forces and economics at state/territory level will be the most important factor which will help not only help in smooth functioning of business but also drive customers to the outlet.

Retail Destinations

A.T. Kearney’s Global Retail Development Index (GRDI) ranks 30 emerging countries on the urgency for retailers to enter the country. The scores are based on 25 variables across four primary categories: economic and political risk, retail market attractiveness, retail saturation levels and time pressure (difference or addition between gross domestic product and modern retail area growth). Vietnam's leap from fourth in the 2007 GRDI to first place in 2008 was driven by strong GDP growth of 8%, changes to the country's regulatory structure favoring foreign investors, and increasing consumer demand for modern retail concepts. India, Russia and China, the top three countries in last year's GRDI, remain important retail investment destinations, but high real estate costs and growing competition have decreased their attractiveness relative to prior years and forced retailers to look for opportunities in tier II and III cities. According to GRDI 2008 report, the Middle East/North Africa region is clearly the world's hottest region for retail expansion. The strong Euro supporting investment in the region, consumer familiarity with modern retail concepts and petrodollar wealth are the primary factors making the region an attractive retail destination. Among the gulf countries, Saudi Arabia, with a robust 9 percent growth rate and low retail consolidation is among the most attractive global retail destinations.

While Eastern and Central Europe as a whole remain attractive for retail investment, the ‘window of opportunity’ for large-scale supermarket and convenience store build-outs will likely close over the next year or two, according to the GRDI. The opportunity for entry into Eastern Europe is for wave-2 retailers — do-it-yourself, consumer electronics and apparel retailers — as multi-level fashion malls and mixed-use centers are cropping up throughout the region. India continues to be one of the most attractive countries for global retailers today. The retail market opportunity is larger than ever at $510 billion and spending patterns and consumer maturity are growing faster than most global retailers had forecast. But challenges have emerged which could potentially slow the pace of growth for global entrants. Foreign players entering India today face stifling regulations, a clouded political atmosphere, soaring real estate costs and a fiercely competitive domestic retailer group. In China, the countryside has turned into the next retail battleground, despite China's drop to number four in this year's GRDI. China remains one of the fastest-growing economies in the world. Although its per capita GDP remains low given China's large population, consumer spending has more than doubled from the mid-1990s and continues to grow rapidly in the large southern and eastern cities.

Stylish Retailing

There is a trend towards offering extended product ranges that are focused onto a particular customer type; this is called lifestyle retailing. It is a real understanding of how far a lifestyle can extend and formulating a product offer that reflects the approach to life and the choices a consumer would make. A lifestyle retailer can be a generalist or specialist. A generalist lifestyle retailer would offer a wide variety of product categories, with shallow but very specific orientation to the products. A specialist lifestyle retailer might offer both depth and variety, but targeted to very specific lifestyle needs. The introduction of lifestyle format is not an easy one to undertake as it involves lot of innovative activities. But the companies generally lose the ability to innovate as they develop and mature. To allow innovation to occur firm must acquire a dual mode of operation one made of the existing business and a very different approach for new embryonic business. Research findings highlight that recipe of success of lifestyle retailing not only lies in product and design but also in managing the customer relationship management and designing organizational structure to manage innovation. In Britain, there is no consensus on what the concept means and further there is no theoretical and empirical research on the concept as it means somewhat different things to different people.

Retailing in India in the lifestyle segment as well as the value retail segment is in the nascent stage. The opportunity is really big for any player in the retail sector. Lifestyle has been a trendsetter of sorts in the Indian retail industry. In India we have used international experience and expertise to redefine the retail environment which has reached new heights of customer delight. Today, there are five major lifestyle retailers in India; Lifestyle, Westside, Shoppers' Stop, Globus and Ebony which alone account for a little over 200,000 square feet of retail space. ITC’s Lifestyle Retailing Business Division has established a nationwide retailing presence through its Wills Lifestyle chain of exclusive specialty stores. Pantaloon also sees spurring further growth in lifestyle retailing focus. The most recent example is of Madura Garments Lifestyle Retail Company, a 100% subsidiary of AV Birla Nuvo, is working on setting up 12-14 stores to meet the fashion needs of the urban Indian man.