Retail Dude

What is the necessity of a format for retail? An answer can be given by defining the word “Format” in retail sense. The formats of a retailer is the overall appearance and feel that it presents to customers, primarily its look and layout, the sort of range it stocks and the approach taken to pricing. With the help of this format only a customer can align his/her needs with the offerings of a store. The format, together with range, pricing and marketing, is one of the key determinants of a retailer’s success. Of these, the format is very often the hardest to get right. A good format will both draw in customers (generating footfall) and help present products well to generate sales.

In retail business where everything is related to bottom line, I started correlating profits with the format of retailer. And I found somewhere a relation between the average profits of a retail company with the format it have. The average profit of all the stores of an organization is greatly associated with the different formats in which this organization is dealing with. For example Future group operates in different formats like Big Bazaar – a uniquely Indian hypermarket chain, Food Bazaar — a supermarket chain, Central — a chain of seamless destination malls and many other specialty formats like Star and Sitara, Planet Sports & Home Town and also an online format named futurebazaar.com, the average profit from all the different format stores is correlated with the type of formats each store of an organization is operation in. And this correlation can be given by -

C (AP) _t = cos (F, P) _t

where,

C (AP) is a correlation coefficient of format and profit

F is a vector sum of all the formats (covering assets, real estate value etc.)

P is a vector sum of profits from all the formats

t represents the number of formats

Once we get the correlation coefficient we can figure out the profit of any particular format or we can decide on the format for a particular location from which we already finalized the profit to be earned.

But this quantitative analysis will never take care of the external factors like the one we have right now i.e. global financial crisis.

Reliance, a name not only among big industrialist but also a dominant player in retail segment in India, have a separate format for each category, a format for footwear – Reliance Footprint, a format for grocery – Reliance Fresh , a format for electronic goods – Reliance Digital etc. In total more than 8 formats varying from a hypermarket to specialty and convenience.

My question “Is this a good strategy to have a whole format or a particular format store for a particular category?

From the present scenario it is clear that the Indian retailers are in the mode of opening spree, currently not worrying on the profit margins but what bothers them is to gain national presence and footprint all across India. But is this means to have presence in every format? World’s no. 1 retailers Walmart also don’t operates in all formats. It entered into SFR (small format retailing) few weeks back only, after 46 years of successful & profitable operations, then why this madness regarding formats in India?

And finally what I came to know is Reliance is not able to handle the complexities, as per a report in Economic Times, Reliance Industries is considering merging 3 different formats - hypermarkets (Reliance Hypermart), supermarkets (Reliance Super) and convenience formats (Reliance Fresh). The idea of the merger is still at a conceptual stage and seems to be motivated by the desire to cut costs.

This definitely shows improper and unprofessional planning of retailers. Where all research companies are depecting India as a big playground for retailers, I can’t bet on our myopic home players.

-Prateek Katiyar

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