Walmart's Waterloo!

Walmart hit the headlines in Chennai, Tamil Nadu last week when the site under construction for its wholesale business 'Best Price Modern Wholesale' by an independent developer was sealed by the Chennai Metropolitan Development Authority (CMDA). The action was taken by CMDA following agitations by those who oppose FDI in retail - a section of traders and others belonging to some political parties. The reason cited for such a drastic step taken by CMDA was lack of permission for carrying out construction activities in the premises.

One wonders why Chennai's political parties have this 'kolaveri' - murderous rage - against any of Walmart's activities in the state, even though the proposed wholesale format is allowed by the Foreign Investment Promotion Board through the automatic route! The seal on the premises is said to be for want of permissions though, everyone knows that the rage is against Walmart! Metro Cash & Carry of Germany, the pioneering foreign wholesale format to enter India is present in more than 15 locations in India. It is worthy to note that Metro Cash & Carry is present with multiple number of stores in the states of Karnataka, Andhra Pradesh, Maharashtra among other Northern and Eastern states. However the company has carefully stayed away from Tamil Nadu till now, even after almost 10 years of the company's operations in India (the first store opened in Bangalore in 2003).

Rumor mills work overtime in Chennai with the news that the opposing parties are planning to engage a whole train exclusively to travel from Chennai to Delhi and back soon to voice their opposition to the Union Government  further vociferously. The issue has been politicized to assume alarming proportions now! One is urged to ask oneself the question of how these traders - if they are the real ones who agitate at all - have the time or the capability to sustain consequent business losses as they spare all their energies and time to participate in such activities tirelessly!

A wholesale format of Bharti Walmart means that the Best Price Modern Wholesale offers products and services to its member retailers at wholesale prices which render clear retail margins that are said to be more than what the wholesale markets and distributors offer. This benefits those small retailers who currently buy from unorganized and semi-organized wholesale markets and distributors of Fast Moving Consumer Goods (FMCG). These wholesale markets and distributors operate with a differential pricing strategy, charging more  for those who avail unsecured credit and charging less for those who pay cash for their purchases. Often credit customers may not be able to avail of FMCG company initiated quantity purchase schemes and they are usually offset by the wholesalers for the interest costs they would incur on credit supplies/sales. The B2B model of Bharti Walmart is a distributing wholesale format that comes with a mock-store in the premises for training small retailers on stocking, shelving, planograms, etc. Walmart has also enabled credit purchases via a tie-up with a bank to offer credit and the retailer can use the authorized credit card. It has a 3PL (3rd party logistics) arrangement which helps the small retailers to avail of door deliveries at less than the standard transportation costs.

The organized B2B wholesale model may soon become commonplace across India with even domestic retailers from India, getting into it. The format is being set up by a dynamic retailer in Tamil Nadu,  Shri Kannan Departmental Stores (www.shrikannan.com) with the first large wholesale format already established in Singanallur, Coimbatore in Tamil Nadu. The extended format of Big Bazaar, the Big Bazaar Wholesale Club offers customers bulk deals at wholesale prices operating in a membership model. The bulk of the wholesalers in the Indian towns yet deal with small retail buyers in an unorganized manner that often results in higher landed costs and the resultant squeezed margins. If small and medium retailers have to grow in India, a modernized wholesale set up could support it undoubtedly.

Small retailers can focus their energies to get cost advantages through alliances, collaborations and obtain the needed scale in purchasing power by forming retailer cooperatives. The Government can support small retailers by providing exclusive infrastructure support like building strip malls and organized municipal markets in small towns. The creation of special bazaars in Hyderabad by the State's tourism department to promote arts and handicrafts through a 'night bazaar' is a typical example of what a state government can do in terms of infrastructure support for small artisans, traders and retailers. In large cities the need of the hour is exclusive parking facilities to enable customers to walk the high streets peacefully when they shop!

Each State in India can have its own say with regard to allowing foreign retailers to operate and in that scenario it should prevail on the minds of those intending companies like Walmart to focus first on the favourable ones, which is a no-brainer. Why the heck does one have to invite trouble even with a wholesale format, when one has enough ground to cover and operate peacefully?

                                                                                                   - Dr. Gibson G. Vedamani

Percolating Starbucks!

The expansion of the retail market in India can be mapped in direct proportion to the expansion of its infrastructure – a town expands and proportionately its retail market too, into its new areas and markets. A small town like Tumkur in Karnataka had only one shopping area - the Mandipet main road market, until a few years ago. But soon came with the expansion of the town and its infrastructure, the new high streets like the SIT Main Road, SS Puram Main Road, that have now become the shopping haven for the Tumkur customers. The town of Tumkur is just one example and in the case of any Indian small to mid-sized town, as rapid infrastructure growth is registered during the current decade, shopping high streets have been emerging at a frenetic pace. These are tier three and tier two towns with population spanning from three to five lakhs and from over five to ten lakhs respectively. The real estate market has been witnessing a distinctly higher percentage of growth than that of the economic growth rate of the country. A larger supply of retail space is also projected by analysts due to an expected increase in the Floor Space Index in towns and smaller towns are expected to have a good supply of quality real estate spaces at affordable prices. Therefore one expects retail to grow by a good measure that is by double digits, in tier two and tier three towns this year (2013). That said, the growth of modern retailing in cities is on a different pitch. It has been estimated by industry experts that in larger cities like Bangalore, Delhi and Mumbai retailers may continue to ‘actively lease space in superior quality malls due to the limited availability of new space and the low vacancy rates in existing prime malls’. 

While seriously growth-seeking retailers and new retailers may aim to grow in affordable smaller towns, those that come with great investments – like the Starbucks kind – may continue to look for establishing presence in key established markets at higher occupancy costs. As I was hunting for a small retail space for a proposed new retail venture recently, I came across an interesting landlord who had a 300 square feet space in a prime location in Seven Bungalows and he said that he was keen to have Starbucks as his tenant! When I asked him whether he would come down on the quoted lease rental of Rs.500 per square foot per month, pat came the reply that he might consider a considerable discount. Therefore, many landlords may be willing to forge a joint venture with reputed brands being ready to settle for a percentage of the topline without even demanding a minimum guaranteed return every month on their leased premises. The situation seems to be hunky dory for big brands seeking to enter the country. The homegrown big brands do not seem to have such good luck! We are yet to see a Shoppers Stop open in the SOBO (South Bombay) region! This trend shows that the reputed retailers entering India may fill even the limited vacancies that may emanate in established malls in big cities. There may not be a huge threat to small retailers in small and mid-sized towns as the big guys from abroad may not immediately rush into these markets as they might take time to establish in big cities first. Strategically while domestic retailers may seek to grow outside cities, debuting foreign retailers of say, categories such as food and apparel, may logically look within the big cities first!

It may be a rat race and a race for the survival of the fittest, as domestic retailers may keep moving fast outside cities into the smaller and smaller towns while foreign retailers who may seek to spread their wings into these markets closely following their heels.  But the foreign retailers may have to become Indian completely. The question of expansion feasibility of Starbucks into smaller towns to give a tough fight for Café Coffee Day that has already achieved scale of expansion in India having established in many small towns, may be answered within just the next two to three years and both the brands may compete on a level playing ground soon! After all they say that Starbucks in India has indigenized itself completely with its entire foodstuff sourced from Taj Stats and the coffee beans from Tata’s very own estates in India though the brand identities may only remain Starbucks!

- Dr. Gibson G. Vedamani

STALE SALE!

Sales in retail stores in India peaked on 26^th January. Newspapers carried full-page advertisements announcing even an unbalanced offer of ‘Buy 4 Get 7 Free!’. Reputed companies advertised their offers in their supermarkets and hypermarts, competing with each other! It was as though the world was coming to an end and there could be no other opportunity for these stores to clinch sales! A few years ago the Future Group hit upon its most popular annual Republic Day Sale. The maiden event was scheduled only for one day - on the Republic Day (sabse sasta din) - and it may yet remain green in our memory that there was a big scramble to gain entry into the Big Bazaar stores, almost resulting in a stampede. Later the event was planned to span over a period of a few days (sabse saste 5 din). 

Competing organizations I felt have run out of ideas and opportunities that they had to respond immediately too, to counter competitive moves! I often think that competing organizations like Reliance are so big and rich with retail talents that they do not have to toe the line with competition but could create many innovatively differentiated events to achieve greater sales in various time frames. Now the Republic Day has come to be more associated with SALE than with parades and celebrations. Gone are the days when people gathered in public places to celebrate the Republic Day but now they gather in queues in front of retail stores and malls expectantly waiting for their doors to open! This 26^th January, newspapers carried full-page advertisements that were very similar to each other in body copy and one could hardly remember or recall to memory which store carried the sale items and in what prices!

I walked into a few malls in the last two days to check out offers. The bargains were great! A couple of reputed apparel brands sported signage at the entrance like this: ‘FLAT 50% OFF’. In my humble understanding, everything that was sold in the stores was at 50% off. But when I was browsing I was disappointed to know that majority of the items were sold at 20% off and 30% off! Only a kids’ brand lived up to its claim of selling all the merchandise at a flat 50% off! Some genuinely made an announcement that the items on sale were ‘up to 50% off’ and some others said that ‘a lot of stuff were at 50% off’. I left the malls with a sad feeling failing to understand why reputed brands needed to con customers into entering their stores!

There were a very few other stores who stood out from competition, having either gone on sale earlier or waiting to go on sale later. M&S is one such store that did not go on sale during this period of heavy clearance of merchandise but was quietly cashing on the footfalls the malls were bringing to the store as a result of price promotions in other stores.

Quality accidents, shop-soiled merchandise, line close-outs and wrongly bought and accumulated unsold merchandise were always the reasons for organizing SALE in retail stores, but now it has become a strategy to pump up the topline a couple of times in the financial year to achieve budgets and so careful merchandise planning is done to organize merchandise for sale.

Has SALE overtly become a gimmick and a strategic move to increase sales more than being an attempt to clear unsold merchandise or overcome merchandising and operating failures?

- Dr. Gibson G. Vedamani

Leasing Troubles!

I had the opportunity to walk the high streets of select Mumbai suburbs throughout the last fortnight, seeking to assess retail spaces for a proposed small format retail store chain. The format is a concept that needs only around 250 square feet of carpet space. It has been a new experience for me to study the suitability of retail spaces of such 'petite' size! Examining market potential, understanding catchment profiles and their purchase behaviour, studying store adjacencies, visibility, signage significance and bill-board value, traffic patterns and footfall flows, and applying parameters to ensure easy accessibility, etc. - all being carried out as a routine practice during the process of store premises selection that brings in a good deal of excitement.

Every high street market is visibly punctuated with a few vacant shop premises here and there. On looking into the reasons why store premises are available in such busy high streets, it was a revelation that small store lease agreements are made usually for just a one year period with no option to renew the lease! Premises are available for fresh occupancy mainly for two reasons - either the landlord becomes greedy  and demands an unaffordable increase in monthly rentals that the store owner decides to call it 'quits' or the store is unable to do adequate business to sustain the rental amount agreed and decides to vacate. In very rare cases the reason attributed to vacating the premises is the fact that the store has outgrown its space by doing thumping business resulting in moving to larger spaces to operate from! However  the crevice in the location consistency created so soon as within a one year period, sets the store back in time in its business leaving a lot on the part of the store owner as burden to shoulder in order to bounce back! Many successful small retail stores in high streets like Andheri, Lokhandwala, Seven Bungalows, Oshiwara, Thakur Village, etc. operate from their own premises and others do struggle considerably to make both ends meet as rentals in these markets are in the range of Rs.300 to Rs.400 per square foot depending upon the significance of the store location. 'Solus' positions demand even more rentals! So, the rentals when mapped on the proposed store P&L along with the humongous deposit equivalent to six months' rental value render many premises unviable, which brings in challenges in a large measure.

They call themselves 'retail consultants' and show vacant retail premises to prospective lessees. They are real estate brokers who say that the rentals are often 'lump sum figures' and cannot be calculated on a per square foot basis! They often keep hiking the rent as their remuneration/commission is based on a fixed rate of one month's rental from both sides - the lessor and the lessee. The more the rent, the more the earnings! Further, as the vacant premises to be fixed are many nowadays and the 'consultants' too are many, the income from the deals, though within practised norms, are shared by more than one 'consultant'! There are 'cross-area consultants' who specialize in specific high street markets and they refer clients to their 'partner consultants'! In many cases one does not get to see the owner of the premises until the final leg of negotiations (sometimes one does not get to meet the owner at all) and such rental negotiations often happen for long, through such middle-men alone and that brings in a frustrating experience!

Finally the writing on the wall is quite clear: There are more reasons in the sector for fearing small retailers to vanish into thin air, than just FDI !

- Dr. Gibson G. Vedamani

2012: Marked in the annals of Indian retailing!

Seeing in retrospect, the year gone by, 2012, was very significant to retailing in India. FDI opened in multi-brand retailing amidst a great deal of furore from various quarters. In a turn of dramatic events, the decision to allow FDI in multi-brand retailing was voted into reality by a clear winning majority in the Parliament. Though notified clearly that states would take a call on allowing companies with FDI to operate in their territories, it is expected that soon many states may relent, giving way for the entry of multinational retailers.

As we are aware, agitations went off across the country by a section of the scared Small and Medium retailers. Whether FDI is allowed or not in a state, big domestic retailers are set to open their doors in the cities and key towns of India. I was addressing a group of Small and Medium retailers at a national level Food Forum in Mumbai and I was amazed to see their own realization that their key strengths could sustain them under any competitive circumstances. Support for Small and Medium retailers in order to motivate them and help them realize their potential was the only thing felt as required immediately. So the RETAIL INDIA TRANSFORMATION EMPOWERMENT Foundation (RITE Foundation) is being established now in India with a clear mandate to train, help upgrade or even rehabilitate Small and Medium retailers across the country besides advocating their issues and concerns wherever and whenever required.

During the middle of the year, Aditya Birla Nuvo bought a controlling stake of Future Group’s Pantaloon Retail de-merging the format business from Pantaloon Retail India Limited and that has gone into the annals of the history of modern retailing in India. Rapid expansion of Future Group over the past few years with investments in a diverse portfolio of companies resulted in mounting losses and the group had to consolidate its operations exiting from a few non-core businesses of the group. As the group quickly bounced back on track, the lesson learnt points to the fact that one should stay focused on growing one’s core businesses leveraging one’s strengths and not be rapidly experimenting in unrelated sectors, however bright their prospects of growth could be.

Last fortnight as I was walking down the busy shopping lane of Hiranandani Gardens in Powai, I came a cross a shop premise, which used to house a popular bookstore and it was being renovated aggressively. Curiosity got the better of me and I asked the security guard outside the premises what new shop was going to open. He informed me that it's none other than the new sensation of Starbucks coffee shop! The entry of Starbucks in India a couple of months ago with the opening of its first store in the Horniman Circle in South Mumbai made waves in the Indian consumer and shopping circles! The welcome sign that it sports in six languages – Marathi, Hindi, Gujarati, Tamil, French and English, points vividly to the company’s expansion plans in the near future.

As Christmas celebrations began, the Church At Powai (CAP) organized a Christmas Carnival in the open grounds in Raheja Vihar, Mumbai and in the precincts of Norita in Hiranandani Gardens, Mumbai. Carols rent the air in full throttle and the food stalls and entertainment counters were busy ringing in business.  A member of CAP that I am, I walked into the Rajeja Vihar carnival to listen to the carols but managed to land myself at the cash counter that was selling coupons in various denominations which customers could exchange for products and services. Someone recognized my retailing experience and asked me to do the cashiering there. I was continuously busy for a good three-hour stretch in the evening without a break, when even a couple of big retail professionals among a few CEOs of companies walked into the carnival too! There was every reason at the fag end of the year for me to believe that the New Year has all the promises for brighter retailing in India!

Wish you all a Very Happy and Prosperous New Year 2013 and May God Almighty bless you abundantly!

- Dr. Gibson G. Vedamani

Big-Boxers: How Big, Big could get?

For the large food retail stores like the huge Wal-Mart kinds, the challenge may remain in merchandising the humongous spreads of shelves on the shop floor appropriately when they try to establish their presence in India. The shelf space may be about 3 to 4 times more than the carpet area of the floor, depending upon the space between shelves and the height of the fixtures. True ‘big-boxers’ may find it difficult to come by enough listings to merchandise all the shelves. Food categories need to be planned well in terms of accurate considerations of space for every category, sub-category, brand and SKU mapped in a planogram. When international hypermarkets establish their business in India, the size and scale of each store may have to be shrunk to fit the country’s needs and conditions. The average size of such hypermarkets cannot be the same as we find in the USA or UK. Would they trade their DNA off as hypermarkets? Or, would they continue to have the same large size and try to meet the challenges successfully?

I call it the ‘big-boxer’ because the format may need to fight with the complete merchandising and supply system to get the store to operate in well-oiled precision without being stuck for want of replenishments on time. These big-boxers as they establish their business in India may ask the valid question whether there is a local service support available for products sourced from other locations than the one the store is located in. India is a composition of many states, which behave like different countries, but at the same time many major cities of the country house a cosmopolitan mix of people from all states and for regional products with strong local flavor may find it difficult to gain distribution pan-India. For such regional products the network of distributors may be scant and often may not have the required capabilities to replenish stocks as when needed. Truly big hypermarkets when they open their stores in various town locations may insist on merchandise supplies from the company’s local distributors and not from manufacturers directly for many products. So, ‘middlemen’ who are the distributors may still have a strong presence in the supply chain in the retail supply chain. Would these ‘big-boxers’ want to enjoy the benefit of availing maximum margins and yet insist on supplies to be made from local distributors, ignoring the incidence of high supply chain expenses and squeezed margins?

Recently a premium mall management company conceived the idea of opening a large ‘Outlet Mall’, where a mix of premium brand outlets, which could be strategic clearance outlets functioning throughout the year. On the strengths side, it was a good strategy to drive footfalls. If done well in a premium brand mix, it could even stand out as a first-of-the-kind outlet mall in India. The widest and deepest merchandise overruns exclusively retailed in premium brand ‘outlets’ in the mall may be of great interest to customers. On the flip side, it may be a challenge for brands to continuously merchandise outlet stores given the limited merchandising seasons that typical Indian retailers adopt. The risk one may foresee is that while premium brand partners may not be adequately available in number, currently to partner, many may also prefer to clear bargain merchandise from their own stores twice or even thrice a year. In course of time, premium brand partners may wean in number if they don’t find adequate quantum of merchandise to clear and mediocre brands may find space in the mall if the mix is not controlled over a period of time. The idea was instantly dropped as infeasible.

Would globally successful BIG retailers make a BIG BANG in India? After all, BIG is just relative!

- Dr. Gibson G. Vedamani