Shape of things to come

It’s time for creative destruction. The hoopla surrounding the retail boom notwithstanding, players, both big and small, are feverishly experimenting with newer formats, adopting a few tried and tested ones, tweaking or discarding the old ones—just trying to figure out the immense possibilities open to them.

Branded retail, as we all know, is just about 3% of the overall retail industry in India—far less than China’s 12%. That’s on the opportunity side. On the ground, major brands are still experimenting with the look and feel of their stores—should it be a hypermart, specialty mart, a convenience store, or a discount outlet?—as they try to balance format choice with factors such as catchment profiling, tenant mapping, psychographics of the locals, availability of space, the prevailing real estate/rental value, to name just a few.

The low conversions (from footfalls) is still a cause for worry, 20-25% at best, according to Puneet Khanna, senior consultant, Technopak Advisers, a management consultancy firm that focuses on the fashion, FMCG and retail sectors. “But once the novelty factor wears off, the statistic might improve,” he adds.

Right now, the uncertainties are far too many, as data collated by real estate consultant, Chesterton Meghraj, to assess the success of major malls in seven metropolitan cities testifies. It indicates that in the national capital region alone, as many as 11 brands (including Lotto, Banana Leaf, Sprandi and Finesse) have opted to move out of MGF Metropolitan, which is arguably one of the best performing malls in the NCR. The exodus happened over a period of three years, since MGF’s inception in 2003.

Likewise, in just over two years, SF Jeans and Ao’s chose to move out of East Delhi Mall in Ghaziabad; Crossroads, Hot Breads and Sita Art Jewellery from DLF City Centre in Gurgaon (started in 2003). Unfortunately, in a booming market these are the kind of stories that no one talks about. (See box “Game up” for similar movements across cities.)

The reason for their movement, according to Deepak Bhavsar, senior consultant at Chesterton Meghraj, in most cases was “high rentals and low conversion rates.”

More movements may happen, as location preferences change. “With foreign players entering the market, the format size may increase as most foreign store mangers abroad follow the rule of one million-plus sq. ft. space,” explains Vivek Kaul, retail head and associate director, Jones Lang Lasalle India. “Some brands may choose to move to specialised wedding, luxury or jewellery malls, or to smaller towns which too are witnessing high growth.”

A spokesperson for Pantaloon Retail (India), agrees: “There are over 100 cities and towns in India wherein at least 20% of consumers are waiting to be tapped by modern retail.” Pantaloon, incidentally has straddled most formats to ultimately hit the bull’s eye—a combination of multi-brand formats (over 140 stores in 32 cities), such as Big Bazaar, Food Bazaar, Fashion Station, Blue Sky, Depot, Footmart, Brand Factory, Top 10 etc, along with niche, single-brand specialty stores, stocking aLL, Gini & Jony, Etam, Indigo Nation, Marks & Spencer products, among others.

“India demands a uniquely Indian format,” reveals Pantaloon, in whose case Big Bazaar is a prime example of the way hypermarts can be customised to suit the Indian palate in terms of look, touch and feel, choice and quality thrown in for good measure.

“A mix of supermarket and discount stores would fit the Indian market the most depending on the retailer’s competitive advantage. The key is to switch between formats according to business needs,” observes RC Agarwal, chairman, Vishal Mega Mart, which is again an Indian-version of a Wal-Mart-like chain, with 46 multi-band outlets spread across 34 cities.

In a hypermart, the space division between anchor stores and vanilla stores in the Indian context works out as 40:60, which may be significantly higher than that followed abroad. But then the Indian market is still maturing, and it’s safer for them to repose the maximum trust in the big brands (secured as anchors and big formats). Says Lalit Kumar, CEO, Ebony Retail Holdings. “The hypermarket is emerging as the most favorable format, though convenience stores would be the best way to compete with unorganised retailing.”

This, in effect, implies that the traditional formats, such as kirana stores, weekly haats and village bazaars will remain, along with the City Centres and the Sahara Malls of the day. The cultural and regional differences in the subcontinent are perhaps so strong that it’s difficult to agree upon a one-size-fits-all formula.

The future will no doubt belong to customer centric-formats. “A retailer would also have to undertake regular reviews of brands (and price points) to maintain the optimum value proposition,” adds Kumar. If the experiment doesn’t work, it’s better to cut losses and beat a hasty retreat, as many brands have chosen to do.

Most important, the retail sector has been liberalised partially. Watch out for the bloodbath that will follow. Once that’s over, and when the more dauntless players get a firmer foothold, the market size is expected to double. After all, 97% of the Rs 9,30,000-crore market remains untapped by common reckoning!

Source : Financial Express