Thursday, February 7, 2008
Definition : Organized Retail(ers)
Defined as those companies engaged in retailing which have a network of retail outlets, compared to the stand alone format characterized by the traditional sector, and those who adopt professional management for day to day operations.
Wednesday, February 6, 2008
Book Review : It Happened in India -Kishore Biyani & Dipayan Baishya
Its Scary..!At this juncture when an optimist about the retail sector in India reads this book, he would hate it(both the book & retail). Cause this book begs to prove that the largest retail company in the country was formed by...fluke. The book is full of tales of Biyani's hits and misses vouching for his anarchist approach in the whole gamble. People like Rama Bijapurkar, Ushir Bhatt, Sameer Sain have been penned as mere bystanders to the whole roulette. From a literary perspective, this would go down as an Indian take on - Made in America- Sam Walton. But as Biyani writes about his denial of regret for the premature listing of the company on the stock exchange, i feel even the book is a little premature. Biyani talks about the concept of Sabse Sasta Din and you would think he invented it, but actually ask any large format retailer and the would say Biyani just discovered it. (Anyways, he's the first to pen it down). The book gives you a sneak peek into varied subjects like Memetics, Observational Research, Jonathan Livingston Seagull which sounds very clichéd of this genre of Business auto/biography. Biyani has tried to invent new concepts like India One,India Two which to me are very abstract, irrational and blur. At a certain point during the end somewhere the book looks like a PR initiative for the National Institute of Design and a certain design firm called Idiom Design. Biyani takes a dig at his critics in the press as well as the competition in terms of Shoppers Stop, The Piramals, Westside. But in his mention of FDI and about the FDI entrants in 1997 he mentions Dairy Farm-RPG, Nanz-Marsh Supermarkets-Escorts, but conveniently ignores the mention of the 3rd major entrant, Lifestyle which looks intentional. Overall the book is a good read for a person who's new to Indian Retail, its also at a good price point of Rs 99, which i feel is a good tactic. But comes no where close to Made in America, which IHII tries to emulate. i feel as though i just heard Anu Malik's take on Pink Floyd.
Monday, February 4, 2008
Share of Organized Retail in India
There are 12 million retail outlets in India, of which only 900,000 or 7.5% are in the organised segment. This is expected to surge by 40% in ’08.
Naval Bir Kumar
Managing Director, Standard Chartered Mutual Fund
Naval Bir Kumar
Managing Director, Standard Chartered Mutual Fund
Did you Know?
It's not 90210, but the new shoe department at Saks Fifth Avenue's New York flagship has its own zip code. The zip code, 10022-SHOE, an advertising strategy, has nothing to do with processing or delivery, according to the U.S. Postal Service.
Retail is a game of multiplication
Nirmalya Kumar
Professor of marketing and co-director of the Aditya Birla India Centre at London Business School
One of the most dramatic changes taking place in India is in the retail sector with the emergence of organised retailers. As a result what used to be a local, unsophisticated, ‘mom-and-pop’ business is being transformed into a national, technology-intensive, growth sector. This transformation has also excited foreign retailers seeking to enter India in their own quest for globalisation.
The past three decades has seen unprecedented growth of global retailers in the developed markets. Retailers like Aldi, Body Shop, Carrefour, Hennes and Mauritz, IKEA, Toys R Us, Wal-Mart, and Zara are adorning the streets of several countries. Global retailers combine their finely tuned value proposition with superior retailing skills, global sourcing, and access to capital to create value for both their customers and shareholders.
Global retailers may be classified according to Figure 1.
Experience suggests that it is easiest for retailers in Quadrant A to expand globally. Since they control the brand, they have fewer problems with obtaining supplies as they expand. And, because they have relatively small stores, the acquisition of sites is much easier. They can situate themselves in existing malls and high streets.
However, because of their private label focus, it is not entirely clear whether their primary activity is retailing or manufacturing. For example, Zara which has more than 1,100 stores in 68 countries supplies 50% of its merchandise from its own factories, primarily in Spain. However, to succeed, they have to support their own brands with extensive advertising, product innovation, and attractive packaging to develop a distinct brand image and customer franchise. Given that the regulatory regime favours them, many such foreign retailers will successfully enter India.
It is significantly more difficult for Quadrant B retailers to succeed internationally. Those who focus on targeting a small segment of the population in foreign markets such as Marks & Spencer can succeed.
For example, Marks & Spencer sells its St Michael brand of clothing, food, and home furnishings through 240 stores and franchises world-wide. However, more traditional mass market supermarkets who focus on private labels in their home country, such as Sainsbury of UK or MIGROS of Switzerland, have traditionally found international expansion difficult.
They have to convince the customers in India to switch both stores and brands which requires a significant change in everyday consumption patterns.
And, if they do decide to carry manufacturer-branded products in India, they do not have the same leverage with brand manufacturers that retailers who carry branded products in their own domestic markets do. However, Aldi has more recently demonstrated that even this type of retailer can succeed in international markets if the price advantage they bring to a market is significant enough to stimulate a change in customer habits.
Quadrant C retailers are primarily category killers such as Blockbuster Video, Toy R Us, and Virgin Stores.
To succeed in India, they must out merchandise the local competition and overwhelm the customers with assortment depth while offering competitive pricing.
The latter requires exploiting global sourcing advantages vis-à-vis the local retailers. The challenge for such retailers in developing countries such as India is to find enough volume to make the large format viable without expanding beyond their core categories. Given the scarcity and expense of large sites, it seems difficult for these retailers to bring their format to India without significant adaptation.
Perhaps the most exciting area of organised retailing is in Quadrant D with retailers such as Carrefour, Dairy Farm, Makro, and Wal-Mart going overseas with their formats. Since the merchandise they offer is often already available in India, one of the main distinctive competencies they bring is distribution excellence.
It is through their supply chain advantage that they are able to offer better customer service and/or cheaper prices. However, the supply chain advantages of these global retailers cannot be reproduced in India in the short run. The current poor state of infrastructure makes it relatively hard to run the efficient trucking operations in India.
The past three decades has seen unprecedented growth of global retailers in the developed markets. Retailers like Aldi, Body Shop, Carrefour, Hennes and Mauritz, IKEA, Toys R Us, Wal-Mart, and Zara are adorning the streets of several countries. Global retailers combine their finely tuned value proposition with superior retailing skills, global sourcing, and access to capital to create value for both their customers and shareholders.
Global retailers may be classified according to Figure 1.
Experience suggests that it is easiest for retailers in Quadrant A to expand globally. Since they control the brand, they have fewer problems with obtaining supplies as they expand. And, because they have relatively small stores, the acquisition of sites is much easier. They can situate themselves in existing malls and high streets.
However, because of their private label focus, it is not entirely clear whether their primary activity is retailing or manufacturing. For example, Zara which has more than 1,100 stores in 68 countries supplies 50% of its merchandise from its own factories, primarily in Spain. However, to succeed, they have to support their own brands with extensive advertising, product innovation, and attractive packaging to develop a distinct brand image and customer franchise. Given that the regulatory regime favours them, many such foreign retailers will successfully enter India.
It is significantly more difficult for Quadrant B retailers to succeed internationally. Those who focus on targeting a small segment of the population in foreign markets such as Marks & Spencer can succeed.
For example, Marks & Spencer sells its St Michael brand of clothing, food, and home furnishings through 240 stores and franchises world-wide. However, more traditional mass market supermarkets who focus on private labels in their home country, such as Sainsbury of UK or MIGROS of Switzerland, have traditionally found international expansion difficult.
They have to convince the customers in India to switch both stores and brands which requires a significant change in everyday consumption patterns.
And, if they do decide to carry manufacturer-branded products in India, they do not have the same leverage with brand manufacturers that retailers who carry branded products in their own domestic markets do. However, Aldi has more recently demonstrated that even this type of retailer can succeed in international markets if the price advantage they bring to a market is significant enough to stimulate a change in customer habits.
Quadrant C retailers are primarily category killers such as Blockbuster Video, Toy R Us, and Virgin Stores.
To succeed in India, they must out merchandise the local competition and overwhelm the customers with assortment depth while offering competitive pricing.
The latter requires exploiting global sourcing advantages vis-à-vis the local retailers. The challenge for such retailers in developing countries such as India is to find enough volume to make the large format viable without expanding beyond their core categories. Given the scarcity and expense of large sites, it seems difficult for these retailers to bring their format to India without significant adaptation.
Perhaps the most exciting area of organised retailing is in Quadrant D with retailers such as Carrefour, Dairy Farm, Makro, and Wal-Mart going overseas with their formats. Since the merchandise they offer is often already available in India, one of the main distinctive competencies they bring is distribution excellence.
It is through their supply chain advantage that they are able to offer better customer service and/or cheaper prices. However, the supply chain advantages of these global retailers cannot be reproduced in India in the short run. The current poor state of infrastructure makes it relatively hard to run the efficient trucking operations in India.
And the idiosyncratic state taxation regimes require state by state warehousing and distribution solutions rather than optimising cost efficient national operations. It is an open question as to how long it would take before their global distribution efficiency can be successfully replicated. Yet for reasons I take up next, these retailers will be seduced by the India opportunity.
What is driving global retailers to India?
First and foremost is the opportunity available in India. Besides the United States, there are only two (India and China) or three (perhaps Russia) countries where retailers can imagine opening large numbers of stores. Retail is a game of multiplication. Economies of scale and distribution excellence are driven by the number of stores in a country. One can easily envision a chain of 5,000 supermarkets in India or China in the near future. No wonder, the Wal-Marts, Carrefours, and Makros of the world get misty-eyed when talking about India and China.
Second, going international is one of the primary growth strategies available to a retailer when its domestic market is saturated. Many developed countries have strict restrictions on opening large new stores (e.g., Spain, Italy, and Japan) or over-stored environments (e.g., France, Germany). Even if there are still growth opportunities locally, prime locations may be unavailable or the store concept and size cannot accommodate anymore locations in smaller and smaller catchment areas. This is probably why European retailers with smaller domestic markets have gone international faster than US retailers.
Third, information technology makes it easier to manage thousands of stores spread all over the world. For example, by introducing advanced information system and logistics, Marks & Spencer can have its clothing ranges appear in Manila stores two weeks later instead of the six month time lag it took a decade ago. Real time information from the stores also keeps the headquarters informed of what is happening in each store. Technology makes it easier to open stores as well as develop systems to aid local store managers.
What challenges do global retailers face?
Most retailers are still struggling to develop competencies to succeed in global markets. To what extent should the “original” format and merchandise be adapted is a major issue. Wal-Mart learnt this the hard way when its initial entry into China had the wrong merchandise. On the other hand, Mexican customers were disappointed when they did not find enough imported US merchandise in the Wal-Mart stores. Toys R Us has learnt that there are differences in consumption patterns. The Japanese demand electronic toys, other Asian consumers demand educational toys, Europeans favour traditional toys, while American kids prefer television and movie endorsed toys.
To protect against currency fluctuations, to comply with local sourcing requirements, and to serve local tastes, most “big” retail formats increasingly rely on local suppliers. But often as Wal-Mart discovered in Brazil, local suppliers are unable to meet exacting specifications for easy to handle packaging and quality control. Furthermore, if 90% of merchandise is locally sourced, as is the case for Wal-Mart and Carrefour, then these retailers start to lose some of their global sourcing leverage against the manufacturers and advantage against local competition.
Since local joint-venture partners are often mandated or necessary, who to select and what should be the role of each partner is a crucial question. Clearly, Carrefour as the late entrant in Mexico ended up with a relatively weaker local partner because Wal-Mart already had Cifra, the best Mexican retailer tied up in a joint venture. In contrast, the situation was reversed in Brazil where Carrefour had the first mover advantage.
Managing joint ventures is never easy and Wal-Mart and Thailand’s Charoen Pokphand partnership to enter China and Hong Kong broke up in 1995 after only a year with each partner accusing the other of wanting too much control. Other joint ventures fail because each partner has a different view of the speed of development, and thus, of the cash infusion necessary. India has traditionally been the graveyard of foreign partnerships.
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