A Red-Letter Day For Retailing in India!

A Red-Letter Day For Retailing in India!

24^th November 2011 - It’s yet another red-letter day in the history of modern retailing in India! The Union Cabinet passed 51% Foreign Direct Investment in multi-brand retailing and opened up the single brand sector to allow 100% investment.

The first major breakthrough in the matter of allowing FDI in retailing in India was achieved when the Government of India passed 51% investment in single brand retailing. Though it has taken almost five long years after that to go to the next level, it is an achievement on the part of the ruling coalition government to take this bold initiative to pass FDI partially in multi-brand retailing with a few conditions though. A lot has been done to satisfy various quarters which had those significant kind of people crying foul to a good cause of opening the retail sector to attract more investments; many studies and researches have been carried out to establish the fact that FDI in retailing will do more good to Indians than any harm. It is worthwhile at this juncture to remind ourselves of this: when automation started in the country a score years ago, many cried foul with a vociferous reluctance to adopt technology. Such cries were heard from the nationalized banking sector to cite as an instance, and they feared loss of jobs. Today banking is one of the most significant sectors in India offering direct and indirect employment even in rural areas. Customers are happily smiling their way not just to the banks but to the ATMs! The same happiness is going to be seen when all our Indians are able to get the best of goods anytime, anywhere!

Is our Indian retailing not organized at all? That’s a question that used to come to my mind, especially whenever research agencies kept anchoring the figure of organized retailing in India at four or five percent. And they have been publishing such a consistently stunted figure for almost a decade now! It needs only a few steps to be taken to become organized in retailing. It means a retailer has to be registered under all the relevant regulations and statutes; he must give a bill for each transaction and above all the retailer should stand by the goods he sells! Even many jewelers have started making their bills for each of their transactions properly since a few years now. The GOI took special efforts to keep VAT at just 1% in almost all the states to facilitate this transformation. Going by these parameters we are a lot organized in retailing in India. Many confuse modern retailing with organized retailing!

Some Indians in the USA like quite a few of the natives there do not want to be seen shopping in a Walmart! The reasons are obvious. So for them the presence of a Walmart in India does not make any difference at all. Like them, there may be many more in future as they may have their own experiences of buying from such stores. I am not demeaning a value store, but I am just explaining the fact that a wide variety of customer segments in India will discern and buy from the stores of their choice for different reasons. At the same time the same customer may be happy buying vegetables from a street vendor who calls at the door! This definitely goes beyond the fundamental marketing principles learnt in our B-Schools. A customer living in Malabar Hills is comfortable making his purchases from a modern store while he is also at a full throttled ease eating from a ‘chowpatty’ vendor when he goes for a walk in Marine Lines in Mumbai. A former colleague of mine who is the CEO of a large organization invariably goes hunting for bargains and discounts and he never purchases any of his garments at full price! An industrialist friend of mine who lives in Madurai travels to Mumbai for the last thirty years to a particular store to buy his preferred brand of shirts available in a solitary location and that’s the height of customer loyalty! Customer segments are studied in India with their behavior analysed on occasions, companionship-mix during different occasions and on the degree of dynamism of their attitudes! Every retail format in India will co-exist. What may be perceived as modern now may become mundane with the attributes of modernism becoming hygiene factors pretty soon and Indian retailing will not be an exception to this as it evolves further!

A relative of mine grows a lot of coconuts in the Cumbum valley in Tamil Nadu. He says that he sells coconuts to the ‘mandis’ at Rs.4 or Rs.5 each depending on the size. You can guess at how much price do we all get coconuts in retail stores – at least at thrice the cost! And this anomaly should come to an end with the supply chain becoming organized soon, as a consequence of the transformation of retailing in India. I am sure as retailing in India becomes organized fast, it will integrate backwards in a swifter pace to make the entire pipeline effective. Is a two hundred percent hike in price as an item travels from the farm to the store, justified?

The phantoms of threats against having multinational retailers in India resulting from vested interests will vanish into thin air. We Indians have every right to enjoy the availability of everything that a common man across the world does! Everything in retailing in India is going to be about satisfying customers at the right time and place with the right products sold at the right price. And whether modern or ultra-modern, organized or unorganized, customers will look for all the value that they can get to attain maximum benefits. As competent retailers may step into India with their own investments, the value of the customer in India will be only be truly realized – literally! The rest will be history!

- Dr. Gibson G. Vedamani

THE WAITING LINES OF RETAILING

The Waiting Lines of Retailing

When any smooth and pleasurable drive in an expressway is interrupted by a toll plaza forcing someone to wait in a long queue of vehicles, wasting precious time, it can irritate the person out of his wits. Similarly after a day’s work as one returns home from Nariman Point in Mumbai to board a suburban train at Churchgate if one has to stand in a long queue to have a seat in a share-cab to reach the railway station, it can be awfully painful. Just imagine a customer if he has to stand in a queue at the cash-till for long especially after pleasurable browsing and shopping, he would feel as terrible. In India we have a good deal of patience to wait in such queues. We have been conditioned at a subconscious level to exercise a kind of ‘taming’ endurance. We have waited long enough in queues starting from the first experience of many in the yesteryears to wait in the ration shop queues often or periodically when staples like rice and sugar and home needs like kerosene were rationed under the Indian subsidy system. Trains and buses those days were but a few and inadequate in number as compared to the demand and one had to stand in a serpentine queue to book tickets for any upcountry travel (unlike today’s immense convenience booking such tickets online). Wherever we went we had queues to fall in line with, whether at banks, post-offices or even hospitals. Though we studied the queuing theory in detail, we could not apply it to our everyday walk of life in yesteryears perhaps because of lack of resources.

The scenario in India’s modern retailing currently in some instances is no different. We as customers are forced to wait in queues with patience at many places in our retail stores and malls, as they are crowded invariably and more so in week-ends. Consider the typical scenario of a mall in Mumbai: The multi-point queuing up process begins from the entry point in any mall – once at the point where the vehicle security screening is done, then at the point where the vehicle parking coupon is obtained and once again at the very parking area if one is not lucky enough. As one alights from the car and gets into the mall, there is a queue at the security scanning point at the entrance of the mall. If one has to enter a store in a mall and some bags are carried, they have to be kept in the baggage storage counter in keeping with the store security policy. There one goes once again in the queue even before entering a store. Needless to say, a customer has to wait in the queue again after selecting the merchandise to bill them and pay at the cash counter. At the exit again the baggage stored has to be collected back and if one is not lucky again in a busy day, one may have to wait in a queue again. So, in all, the tally of queuing points in a retail environment, especially in a mall may go up to seven! The long wait nevertheless happens at the cash counters. One may have observed that in any retail store even in a busy day, no queue-busting exercise by the retailer is done and hence customers are subjected to a great deal of hardship. In airports very often we see the security checks at departure having long queues and at the same time we may find a few security and scanning stations remaining closed for some reason or the other pointing to a clear lack of sensitivity to the convenience of passengers. Similarly in retail stores even during busy shopping hours when customer footfalls are at the highest, some cash counters as we may have seen many a time, may not be functional and as a result the number of customers in the queues may keep increasing. This is a common occurrence in hypermarkets in India where the cash-tills may even be more than twenty five in number but the functional ones may be much less at any point in time. Isn’t it time our modern retail stores adopted a few queue-busting techniques? Many retail stores in developed economies as a policy do not allow more than three customers to wait in any queue at the cash-till and the store management personnel spring into action to see that they either guide them to tills where there are less number of people or they use handheld devices to bill the items bought and receive payment to dispense with the customer at the earliest ensuring customer convenience.

Modern retailing is about providing experiential shopping. It is worthwhile to look into all the operational aspects of the retail business to scan for the reasons to understand why queues become longer and find appropriate solutions to remove hurdles for promising greater customer comfort. How can retailers ensure convenient customer entry or checkouts without making them wait in a queue for long?

De-clog Car Entry: A team of valet parking drivers can be engaged by these malls in line with the facility that the star hotels in India offer to its guests, can be provided on busy days. Efficient entry and security check processes with target timelines to dispense every vehicle with clocking the time taken for each car to park can alleviate the problem a great deal. Malls have to provide for a minimum of 6 cars’ parking space for every 1000 square foot of retail space as a standard parking norm to follow. Malls look at the parking facility as a revenue stream and they charge a flat rate of anywhere between Rs 30 on weekdays and Rs 50 on weekends. It takes a lot of time to pass the toll as the parking fee is collected at the entry itself and not at the exit based on time consumed, in many instances and this too clogs the entry line in busy malls in India.

Checkout Cash-tills: Busy retailers who have large customer footprints like supermarkets, hypermarkets and department stores can have special fast checkout cash-tills for five items and below. Retailers also have to readily operate additional tills on busy occasions, having a provision to add temporary tills whenever required. The effective use of self checkout Point of Sale (POS) solutions with electronic payment facility would do the trick to dispel crowds at the cash-tills in future.

Use Dedicated Card Swipes: Many retailers may not have a dedicated Electronic Data Capturing (EDC) machine dedicated for each cash-till in the store. As a result, cashiers may have to depend upon a few swipe machines used in common among a few Point of Sale tills for credit/debit card swipe, which can cause a good deal of delay. A dedicated EDC device ought to be a non-negotiable facility for every cashier’s use.

Ensure Efficient Barcode Scanning: Difficulty in scanning barcodes can cause a tremendous amount of delay especially in supermarkets and hypermarkets. Retailers have to ensure the best quality of barcodes printed on the price ticket where scanning failures should be brought to a naught. When a barcode fails to scan, the cashier is forced to punch in the product code manually and one can imagine how much extra time it will take if two or three barcodes fail to scan while scanning a basket of a hundred items in a supermarket! Ensuring the use of barcodes adopting the universal electronic article numbering system like the GS1 barcode standards on all items sold in the store will go a long way to facilitate easy scanning.

Use Handheld POS: Retailers may use handhelds with connectivity to the Point of Sale. Handheld devices have the capability to raise bills. Some handheld devices have the facility to accept card payments directly as well. The use of such handheld devices especially during busy hours is a respite for many retailers who are keen on ensuring customer delight without letting them wait in a queue for long. Retailers like Woolworth PLC extensively use mobile POS as a technology application and deal with check-out lines on the spot to reduce waiting lines drastically.

Check Electronic Article Surveillance (EAS) Tags & Bagging: As the billing process in the cash counter comes to a close in every transaction, the EAS tags in merchandise like apparel and accessories have to be removed, often by the cashier himself. Efficient devices to de-tag merchandise have to be used. Having additional help deputed at every cash-till to remove the EAS tags and to do bagging during peak hours will save a good amount of time for the customer.

Ensure Operational Ease of Schemes and Promotional Offers: Retailers may run many schemes and promotional offers due to which cashiering may become difficult and delays may occur resulting in hold-ups. They ought to ensure ease of operation for the cashier to handle such schemes, offers and coupons/gift vouchers through proper technology support. It may be appropriate to do a dry run beforehand to see how much time it takes in different scenarios for checking out a customer and train cashiers accordingly.

Deploy Service Mission Control: A mission control team may be in place to streamline such processes and organize the act of queue busting in stores and malls that have a large number of footfalls. Such mission control should be a part of the service team taking instantaneous audits to ensure a good customer experience.

Apply the Queuing Theory: The Queuing Theory states that in a situation of a service offered and its customers, the service center can only serve a certain limited number of customers and when a new customer enters to access the service, it is exhausted and the new customer has to wait in a queue until the service facility is available to attend to him/her. Any such service facility has got three elements to it – the population of customers, the service facility and the waiting line. The cash counters in a retail store are limited and the customers are many more who come to the counters and a waiting line is formed. The elements within control – to increase the number of tills, to augment the efficiencies at the tills and to contain the waiting line not to have more than three customers at any point in time, must be understood and examined for corrections to be executed for attaining better efficiencies to save time for all. The application of the queuing theory will help the retailer or the mall management understand the problem areas better to find the best solutions.

Above Everything, Engage Queuing Customers: Psychologists say that customers engaged in any activity of interest while waiting in a queue, will always find the waiting time shorter! Walt Disney asks its guests waiting in a queue to see its comedy shows to text message jokes that could be used in the main event.

A greater sensitivity to customer convenience is required on the part of every modern retailer and proper queue-busting techniques have to be deployed as a temporary or permanent measure to delight customers. Walt Disney is said to have employed about 75 industrial engineers who help the organization with effective queue management at its parks around the word. Customers today are different; the very thought of waiting in a long queue based on a similar experience earlier would not only sicken them, but the very sight of long queues at the tills will discourage them even from entering the store. Gone are the days when we had a resource crunch and today every customer values his/her time and every stakeholder in the service process is aware that the service provider has the resources but only lacks the attitude and the efficiencies to attend to providing customer convenience. If a busy store does not do queue-busting, it may unconsciously be engaged in customer-busting! Queue-busting is after all an art to respond with sensitivity as much as it is a science to experiment and implement the right solutions for ensuring a truly pleasurable experience for customers in our modern retail stores!

DR. Gibson G. Vedamani

THE MANY CLOAKED COSTS OF CLOSING A STORE...

Is it easy to close a store? The many cloaked costs

The implications of closing a store can be severe for a retailer, as much as for the store employees and customers

We have seen many reports in the media of late announcing that retailers are consolidating their operations. The retail rush witnessed a few years ago involved many retailers ramping up operations fast by getting into a store-opening spree. Grabbing retail space before competition could lay their hands on the same space was the top-of-the-mind concern for the aggressive new retailers. Ditto when it came to getting people, who were poached from competition at high costs. The rush was about becoming the largest or the most spread out organisation with a national footprint, or becoming the biggest in turnover; but it was never about becoming the most profitable. Retail Infrastructure costs were at their highest in the past two years. However, almost three years after many large companies started their retail operations with the singular objective of attaining scale by reaching a fat number of operating stores, many are now falling by the wayside, unable to perform to expectation. Many stores are rendered unprofitable because of lack of footfalls or inadequate conversions or smaller ticket sizes.

It is now time for the stakeholders to take a stern look at the state of affairs in order to ensure better figures in future. Many enterprises have decided to halt their expansion plans. Many have started closing unprofitable stores. For a layman, closing a retail store may seem easier than opening one, but for the industry professional, the reality is different. Closing a store comes with many pangs of pain and at huge costs as well. When one decides to close a store, one starts with reducing the store’s stock levels and stops the influx of fresh merchandise. No planned replenishments would take place and hence the store management personnel would decide to mark down prices for clearance. These are silent mark-downs and never pronounced through a sale. This is the first step in liquidating the stocks. If time is short and the agreed term of notice to the landlord for vacating the premises is drawing to a close, then the merchandise will be transferred to another store. This transfer process involves three kinds of costs — the cost of transportation, the cost of shrinkage and the cost of marking down excess stocks in the new store, which would lead to a heavy loss.

A store facing closure cannot easily vacate and relocate. As most of the retail premises are leased, the terms entered into with the landlord are such that there is invariably a clause that has a notice period. Some agreements have a lock-in period, which is the worst case scenario. This means that the property cannot be vacated by the store management for a year or two. If one wants to move out despite this notice period, one needs to pay the rent for the agreed lock-in period. That is the high cost of real estate incurred even if one wants to close an unprofitable store and this cost gets loaded on to the profit and loss statement of the company. When a store closes down, it also incurs a good amount of non-recoverable capital costs. This part of the loss for the organisation is huge and it can form more than 50% of the total amount of loss, depending on the format of the store. Almost 40% of the total capital costs are written off as non-recoverable losses on capital expenditure made on the store. These spends relate to the capital expenditure made on furniture and fixtures, IT, store equipments, electrical fittings and HVAC, store surveillance equipments, etc. When many of these equipments are rendered not reusable, the losses are even more, which can make the organisation bleed beyond redemption.

The organisation may lose many people as it closes its non-performing stores for no fault of the employees. Money spent on employee training will go down the drain. Once poached at high costs, employees are now left in the lurch. In many instances, compensation is paid to take care of their severance with the organisation. Notice pay to all employees who are retrenched also would run into huge amounts. The higher cost is about the falling morale of employees in the performing stores as well, where the rub-off effect will be felt in a large measure.

The biggest cost of closing a non-performing store is that of disillusionment in the minds of the customers. As customers come to know that a store is being closed, it sends negative vibrations and their sentiments dive to lower levels. The customers may instantaneously relate the bad performance to the organisation itself rather than only to the store in question. The customers earned by the store so far will have to turn to other stores belonging to competition. If the closing of a store is not communicated well, customers may face the problem of visiting the store without knowing that it is already closed. Though customers may have a short memory, the disappointment of visiting a closed store is hard to forget.

Retailers at times make mistakes in choosing the right location. Such mistakes cannot exceed say 2% of the total locations signed up. The costs of closing a store are very high and they would impact the organisation a great deal and in a larger measure they would impact the store employees and the customers. A rush may pay in terms of expanding retail space faster than competition or it may pay in terms of gaining visibility in a short span of time, but it definitely does not pay when it comes to understanding customer needs faster. Invest money in knowing customers and what they need and not put big monies to book a property in advance, getting the better of competition, for customers can carry a divorced feeling when stores close in their own ‘living catchments’.

- Dr. Gibson G Vedamani

Published in DNA Newspaper, Mumbai on 16/10/08

http://www.dnaindia.com/authors/gibson-g-vedamani

RETAIL DIFFERENTIATION

Retail Differentiation: Key to Win Customers!

A brand has its personality. A few characteristics and propositions become unique to a product before it is recognized by the customer as a brand. A bath soap brand is characterized by its packaging and presentation, colour and content, fragrance and flavour, etc. and similarly a tooth paste brand by many other features. While a few of these characteristics of a brand are perceived, many are experienced in such a way that the benefits of such experience induce consumers to buy brand repeatedly. Shopping in an experiential retail store for a customer is like watching a good movie – one likes the theatrical ambience and one is glued to the screen for a few hours if it would offer a few thrills. Even after disengaging from the act of seeing the movie, the experience will remain as good scenes play back in one’s mind for a few days. Even after one is done with it one feels encouraged to share any good experience with others. In short, such an experience is something that makes one come back again to enjoy the same experience. Customer experience in modern retail stores hence is all about directly having a ‘first hand’ interaction with customers, offering them with such a satisfying experience that they would like to enjoy repeatedly. In the current economic scenario, retailers work very keenly on retaining customers within their premises for as much time as possible. Though modern retailers are rationalizing their costs, they are willing to spend on specific things that can make a positive difference to customer experience. They just want to offer customers the experience of shopping. So many retailers who have opened their stores in modern formats are trying to offer an enjoyable experience that customers seek. Providing great experiences to customers can easily be said than done. It involves a great deal of discipline in identifying those ‘experience enablers’ and consistently providing those to customers without fail. In modern retailing customer experience comes from a variety of factors that eventually would contribute to the store attaining leadership through the store’s delightful product/merchandise offerings or its operational excellence or through gaining intimacy with its customers. It requires building an image in the customer’s mind.

In India, as we are moving to the next phase of retail development, as stores have come up in the metros and as they all endeavour to offer experiential shopping, many have started looking similar. They are faced with the challenge of differentiating one form the other! One of the key observations by customers is that it is very difficult to find the uniqueness of a retail store. For instance, we have many stores claiming to be ‘fashion stores’ but one wonders whether they are truly differentiated as ‘fashion’ stores!

Looking more intently at the example of fashion differentiation for a store, fashion is one such significant route to win customers, which if done well, should offer true fashion value! Fashion is an offering strategy (catering to the niche segment of fashion) used by many retailers internationally to attain a cutting edge in a highly competitive market. The retailer here takes efforts to ‘position’ the store brand in the customer’s mind. As we know Al Ries and Jack Trout, many years ago have talked about Positioning, as a ‘battle of the mind’ and even today it stays to the extent of a store brand taking efforts to nestle its position into the customer’s mind breaking through the clutter. What is fashion all about? Here is how a fashion guru defines fashion, “Fashion is the manner of style of doing something that is accepted by a substantial group of people at a given time and place”. So retailing fashion becomes a dynamic proposition which should offer changing attitudes and styles as it has got by the very definition of fashion, spatial and temporal limitations. The true fashion retailers’ store image therefore is invariably co-existent with the fashion attitudes for relationship building with the customer through different points of interface - the store, the merchandise, the service and the communication. The fashion retail store creates the right atmospherics – the design of its space and its various dimensions like exteriors, interiors, merchandise, visual factors, odour and audio, etc. to evoke the fashion lifestyle differentiation.

The store exteriors for a fashion store are designed to make a lifestyle statement. The trends for the same keep changing with availability of newer materials and design possibilities. Hugo Boss has open large windows that the store can use as billboards to communicate the latest fashion look in the store. The signage is bold and minimal too.

The interiors in a fashion store are of special lifestyle design and are updated often as part of creating updated atmospherics in the store. Flexibility to support constantly changing Visual Merchandising strategies is also a key requirement. The density of fixtures is low as compared to basic apparel. In high fashion boutiques, spaciousness is a requirement to cater to the luxury needs of the high profile customers. Odour is very controlled as the customer is very sensitive to the same in the buying of lifestyle merchandise and accessories. Pleasing odour is introduced, like fresh flowers in ladies fashion-wear and fresh coffee in men’s fashion-wear store, to add to the differentiation of the store. Sound is the experience of music, which is carefully chosen and controlled in terms of the intensity and quality to assist in the experience. Different types of music are used to cater to the different target customers. High-end fashion boutiques could use western classical to contemporary Jazz depending on the positioning of fashion. For example, while Zara, a Spanish fashion retailer uses Latin American music, Ralph Lauren uses Jazz.

The visual factors relate to the visual communication strategy required to communicate the fashion statements of the retailer. Emphasis is given to display, visual merchandising, lighting, signages and specialized props. The visual communication strategy is planned and executed to promote fashion and also position the brand. Theme or lifestyle displays using stylized mannequins and props, which are based on a season or an event, are used to promote collections. In fashion retailing, the merchandise presentation ought to be very creative and displays are often on non-standard fixtures and forms to generate interest and add an attitude to the merchandise. The Abercrombie & Fitch store in New York is a preteen/teen fashion attitude store that sports non-conventional displays, often using live models!

The merchandise type in the fashion category is its exclusivity in addition to the quality and specialty of the merchandise mix. Specialized efforts are put into fashion forecasting, design and communication of the new merchandise range. Fashion stores often become the harbingers of fashion. Pre-season catalogues are sent as direct mailers to select customers so that they get to know what is to come in the stores. Fashion Shows are often organized in the stores to unveil the new collections with customers called on invitation. In fashion retailing shoppers enjoy change and so merchandise needs to be moved around frequently, combined with the introduction of new product lines so as to keep the customer engaged with the brand for fashion needs. The store’s unique range of merchandise assortment defines the merchandise mix. This is limited as compared to a mass merchandised store, in order to gain distinct fashion differentiation. A fashion store’s merchandise designs go through very short life cycles – internationally fashion stores like Swarovski and Liz Claiborne have a fashion life cycle of about 3-4 weeks and the retailer’s challenge is to hold the customers’ attention by keeping them between the growth and peak phase in such a short time while increasing the sales.

Differentiated employees set the service standards of the fashion store. Store employees, in a fashion store are consultants and not just sales and customer service personnel. Specialized training is imparted to them and in fashion lifestyle stores like Nieman Marcus they are trained to recognize and track the loyal customers, who shop above $50000 annually, by name and psychographics. Zara is said to attire the staff with the latest merchandise displayed in the store. The standards of customer service followed are high and personal and provide no room for any compromise. Thus while store employees would form part of the physical attributes, customer service standards will be a part of the intangible psychological attributes, in the process of building the fashion retail differentiation.

When a retailer chooses the platform for creating the right differentiation for the store, he needs to thoroughly understand and organize the elements, (as discussed above in the fashion example) that shall contribute to the creation and sustenance of the differentiation chosen for achieving business objectives. A confident and aggressive strategy will help create superior store brand differentiation and a brand recall that will foster a satisfying long-term relationship between the store and its customers.

Dr. Gibson G. Vedamani