Retail Dude

Slowdown, share market crash, real state downturn is tuning the fortunes of kirana stores. Kirana stores have seen increase in sales by 25% in the present quarter. Kirana stores which were victim of organized retail and see a massive decline in their sales over a period of time are thankful to slowdown as consumers prefer them over organized retailers. Consumers are trying to be less extravagant and so are refraining from overspending in malls and organized super markets and convenience stores.

Generally when a consumer goes to a mall for his monthly grocery purchases, he ends up buying many products as an impulse purchase and not a necessity. But with this slowdown and salary cuts in picture, they are not willing to overspent and stick to their shopping list. So, we may see attracting offers in coming months as retailers will try to lure consumers to visit them.

- Rajeev Damani

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As the store rents have dropped as much as 35% in last one year, retailers across the verticals have decided again to expand. But I hope this time they are doing their complete homework before reaching to any conclusion. Otherwise it won’t take much time for things to change. And we have already seen effects of such unplanned expansion earlier with closures in Ahmadabad and many other parts of country. I agree that rentals form a substantial part of a stores expense sheet but it’s not the only part. Apart from rentals there are many other expenses which a store needs to meet effectively like human cost, inventory cost, infrastructure cost, maintenance cost, electricity, etc. And at the end purpose of opening a new store is not just meeting expense but is to earn profits.

Here is expansion plan of some of the retailers:

SOURCE: http://www.rediff.com

-          Rajeev Damani

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At this time of great global economic hit, where everybody is trying to predict the future of retail, I thought to look back and have a peek into the history.

So folks, let me ask you a question – “Which is world’s first original department store?” I know answers will vary from Walmart to Macy to J.C. Penney but none of these are right. However, department stores were not conceived by Americans. Those were French who created Department stores and then Americans followed their example. Allow me to introduce a man who had the first real department store in Paris, France. A man named Aristide Boucicaut. His dry goods store was called Bon Marché and it was transformed into what we now call a department store.

Aristide Boucicaut, born on 14 July 1810,the son of a banker, he began as a simple clerk in Bellême before he left to become a fabric salesman selling shawls. In 1829 he settled in Paris. He set up Le Bon Marché as a goods store in 1838, but his innovations in distribution became most noticeable after 1852. After this the store grew to be among the, if not the, largest in Paris, where he spent the rest of his life. The World’s Fair in 1855 gave him further ideas on how to innovate. These involved the notion of browsing, greater advertisements, fixed prices and in 1856 a catalogue. His wife also played an important role in expanding the business.

Bon Marche differed from the specialty and dry goods houses that came before in four significant ways.

First, the initial theory of dry goods houses was to sell items with a high mark up and a slow turnover of goods. Boucicaut sold his merchandise at a small mark up. Compensating for this smaller profit margin was the high turnover of goods. The volume of goods sold and the speed at which they were sold differentiated department stores from the ordinary specialty shops and other dry goods stores. Another difference was that goods were offered at a fixed price in Bon Marche. The prices on goods would be the same for every shopper; a certain kind of equality was offered. Previous to this, bargaining in stores was not only allowed but expected. The third conceptual change made by Boucicaut was the custom of free entrance. Every person could enter the shop, inspect the goods, and be free from the obligation of purchasing anything. This denoted a shift in expectations; people were obligated to buy something upon entering the specialty and dry goods stores that came before this. The last major change that was instituted by Boucicaut involved the idea that customers could return the goods they had purchased. If they wanted their money back they could get it or if they preferred to exchange their returned item for something else they were allowed.

Boucicaut’s success was impressive. He went from a total of a half- million francs in sales in 1852 to five million in sales in 1860. Because of this boom, Boucicaut diversified his lines of merchandise. He started by selling only piece goods, and expanded to offer dresses, ladies’ coats, underwear, and shoes. These new lines were carried in the same store but in separate departments. This change occurred around 1860. Boucicaut’s new handling of goods and how they were offered represented the first real department store.

The United States was the first country to follow the French example. Though there were many successful apparel and dry goods stores, many of them did not immediately follow Bon Marche’s model. Stores like Lord and Taylor (1826), Jordan Marsh (1841), Macy (1858), Wanamaker (1861), and Marshall Field (1866) still limited their merchandise to dry goods and the traditional retail lines. The first stores in America that followed the Parisian example were A.T. Stewart of New York (that was later a part of Wanamaker), Wanamaker of Philadelphia, and Marshall Field of Chicago. This occurred in America in the 1870’s. These stores refer to Boucicaut as their source of inspiration.

Source: Virginia University

-Prateek Katiyar

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There has been tremendous change in Warehousing Model in past few years. Traditionally Warehouses were required only to deliver goods to stores. It was responsibility of stores to future make it available to customers. But with changing retail business and growing multichannel retailing, warehouses also need to deliver it to store as well as to customers placing order online or through catalogue or any other model. So, with this the traditional idea of having few big warehouses doesn’t work anymore. This led to evolution of Regional Warehousing and Multi-Warehousing. The idea is to have multiple regional warehouses to meet demands of customers.

With multichannel retailing, lead time for deliveries has also changed significantly. Traditionally stores use to order a week in advance, but with online retailing and all, consumer want their product in three days and even next day in many cases. Not only this, they even expect it to be gift wrapped. So, this requires regionalization of warehouses.

 This trend has not only changed warehousing, but has also changed the transportation used for delivery. Traditionally, LTL (Less than Truck Load) and Large Trucks delivering to multiple stops were used. But now with this new model of warehousing, smaller trucks and straight trucks are used more. These trucks are used as there are lot of residential deliveries these days.

This shift in industry has also led to growth of 3^rd Party Warehousing and Collaborative Warehousing.

-          Rajeev Damani

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Since we at Retail Dude are committed to help out our new young brigade to learn more and better about retail, here is a small presentation that is shared in the download section. The presentation very easily is a thought provoking one which talks about some essentials in retail. These are basic pointers if you are to open up a retail store. This is just to facilitate more learning’s. This presentation is a big thank you to Global Purchasing Inc.

Retail up guys!

- Sudip

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While having my morning tea in cafeteria of my office, I came across this news and article posted by Sudip hit me hard. He mentioned that retailers will enjoy the “Retail Rental Slides”, but the Real Estae giants like DLF are not ready to compromise yet.

DLF has hold on the construction of “Mall of India”, one of the most high profile and awaited malls. The reson for hold is sliding rentals and preceious money.

 “There are several projects where developers have not begun construction, or have stopped construction after having done excavation work. In some cases, the proposed malls are being converted into office space, partly or completely,” says Cushman & Wakefield director (retail) Rajneesh Mahajan.

So, the way is not so easy for retailers yet. Whether this rental slide will result into expansion of retail outlets or contraction of retail real estate is something we need to wait and watch!

- Rajeev Damani

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I apologise for a late entrance & a late welcome to Roli.

Getting back to business, that of Retail now…There is general misunderstanding, among most, about Recession & Depression.

Recession is broadly defined as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales.”

A sustained recession may become a depression.

Generally, periods labeled “depressions” are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced using current resources and technology

Therefore, the time is hardly ripe, to judge general consumer spend-trends & specifically that via organised retail.

FMCG consumption via Indian organised retail is just about a “single” digit of the total, naturally. On top of this, we need to understand that juxtpaosition some tactically publiseh trends, though “textually” similar sounding but actually worlds apart, may not be addressing the real problem at all.
For example, Roli mentions “17-18% FMCG growth, followed by “more foreign brands” entering India & so on so forth”.

IF we agree to FMCG’s lion’s share selling through unorganised retail, these observations are very unrelated!
A daily labourer who bought 2 extra packs of Lux, because he could not afford two new sets of clothes, for his teenaged daughters could well be the scenario!

We can safely presume that at least 70% of our population (check if your housemaid knows) are quite unaware of the turn world / Indian economy has taken! And “that” is a BIG number of Indians, consuming a BIG chunk of FMCG! Of course there will be growth here!

In a very disturbing report, recently, we also get to know that many “global” retail biggies are actually conducting “experiments” in partnership with glamorous Indian partners! Needless to say, we Indians ARE the guinea-pigs. The same learning will again to “sold” to us at high prices. Look at the pharma industry, for instance.
As I have posted in various earlier rolls, I request the fresh minds, like yours’ to look “beyond” the made-up retail face. Scratch & peel off the foundation, it’s just a few layer-years deep! The surface below has been shaped & moulded by decades of austerity, food-control & malnutrition. All “actionable” like British rule was, through the fight for independence!

Yes, organising retail, developing supply-chains, eliminating fakes/spurious products - all these have huge potential in India.

The path, however, is nowhere close to the high-speed expressways we’ve been sold on. There are huge undulations on this road which will shake our confidence, miles of dust which may choke our verbose throats, rocky dry riverbeds most likely to challenge the J-Lo ish Michelins & steep climbs on where it will be easy to lose grip - the glitzy CRVs & Beemers will not make it I’m afraid!

But then, that does not mean they’ll run amok in the city streets either!

- Arnab

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Retail is growing and so are the ways in which retailers do their business. The recent trend observant in the organised retail is the “revenue sharing model with the mall developers”. The concept behind is to pay a percentage of the store revenues to landlords instead of a flat lease rate. It’s a way of minimizing risk, and provides a cushion to the retailers in the event if the mall fails to attract customers. “It makes the developer half a retailer himself,” said Pranay Sinha ex-chief executive officer of Select Infrastructure Pvt. Ltd, which has built the 1.4 million-sq.ft Select Citywalk mall in Delhi’s Saket area. The model also ensures that the mall owners not only build the project and leave it to the tenants to make it successful but contributes equally in taking off the project well.

“Three to five years ago, when mall development took off in a big way in the country, mall owners were chasing the top line instead of the bottom line”, says Mr Arvind K. Singhal, Chairman, Technopak India. Then, engaging the space with brands was the top most priority and thus flat rates were being charged. But as the market has slowed down  retailers are under pressure of making profits and hence are finding it difficult to sustain fixed rental rates. Even for mall owners falling rentals has become a cause for worry. It’s the time they have realised that the demand in the market is not perfectly inelastic and so prefer to follow a mixed rental pattern where the fixed part is decided by the brand of the mall and the variable part by the revenues of the retailers. According to S. Raghunandan, CEO of Retail, Prestige Estate Projects, which owns and operates the Forum Mall in Bangalore,“Occupancy rates have to be made more affordable and this can only be done through the revenue sharing rental model.” Brands like Madura garments and Esprit have signed “revenue sharing” contracts with malls and many more are expected to follow the league.

- Rashi (Guest Author)

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There are somethings money cant buy, for everything else there is the “Great Recession”.

After noticing tremendous spurt in retail rentals over the years, finally the recession period has brought a smile to the retailers. Retailers are going bullish over expansion plans, as they are getting prime coveted retail space at prices 35 per cent lesser than the last year. Infact a news headline todays says, Benetton will open a store every 3 days this month. Beat that…Phewwww.

Whatever the retailers are booking now, will be delivered a year down the line, and therefore will reduce their rental cost substantially. Despite the slowdown and high inflation, compainies remain attracted by the growth opportunity in organised retail. 

The much needed correction finally has happened to the retail rentals. For the record, lease rentals for a specialty/small store should be around 12-15 per cent of the revenue. However, retailers were paying over 20 per cent making their business. Grocery and Apparel retailers were paying 10 to 20 per cent of their sales as rent against an ideal payout of 6 to 12 per cent respectively. Meanwhile, even as they expand, retailers are also closing or shifting unviable stores. RPG group’s Spencer’s Retail has shifted 30 stores in the last year in West Bengal, Kerala and Karnataka to other locations due to high rentals and lower footfalls. Industry sources say initially most malls in the same micromarket had similar rental rates. But as they became operational, the rentals started to get aligned with revenues and footfalls. Further according to me, due to increased interest rates and fluctuations in the industry market has negated growth of demand for residential space. The realtor has definately been hit for sure. But nevertheless, its a green go for growth in retail.

Cheers!

Sudip

Excerpts from BS, ET and DNA

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Fireworks, Lights, Gifts and Sweets! It has been a lovely week here in India, and a new beginning across the globe, now we are back in action, and how! Well we have decided to step down from our levels of male chauvinism and have made way for our first female author, Roli Aggarwal, well who would understand retailing better then a female! So we have a new dudette on board now. Her profile is up in the authors section, and you can leave the welcome notes in the comments section. 

Secondly, keeping up with our promise of getting you quality content about retailing, we have been able to get our hands on a paper about FDI in retailing in India. This paper has been authored by Dr. Mandeep Singh and Mr. Amanpreet Singh Banga. A quality read, get your hands on it at the downloads section. 

- Sarthak

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