opinion opinion

The new contraction Forum Mall in Bangalore for getting

cheaper rentals.
by the fact that many promoters and
professionals were looking at retail
Retailers are realising that a large
store is not necessarily a draw for
large sales. Every square foot of extra

strategy!
Large numbers of formats across as any other consumer products
retail space not only means extra
categories: Future Group and Reliance business. Given the “relatively smaller
rent, but also more CAPEX, CAM,
Retail have competed to open a new size” of the Indian economy, most
deposits, manpower, inventory and
format every quarter so as to offer consumer products businesses have
utilities costs.
every conceivable consumer product to be distributed all over India to have
By Harminder Sahni to their target consumers. However, a decent size of business. And for
many of these formats have either most business houses, their growth
The euphoria about Not too long ago, the euphoria While Future Group, with its been closed or some are still present ambitions could not be satisfied being Instead of saying
expanding quickly – both in India’s modern retail market was legendary leadership, and Reliance at only few locations. in one industry, as the overall industry
the store size and the about how many million square Retail, with its enviable free cash Various store formats within same size generally was small and not
“why not?” to
presence across India – is feet someone has leased; how many from parent company, could execute category: As a complete contrast growing fast enough. Hence, they had expansion, most
gradually dying down and cities one is present in; and how this strategy, not necessarily without to one-size-fits-all, retailers have to look elsewhere and venture into
retailers are realising quickly one is going to be a ‘pan- facing serious challenges on the way, followed whatever size fits the new industries. The idea of being able
retailers are saying
that blindly following the India’ retailer. The idea was that if many others who tried to blindly available space. to do any business in any area may “why should we?”
“expansion first, efficiency resources are available, one should follow them have been left severely Large number of cities and towns have given the confidence to enter
grab as much market share as hurt, only if they managed to survive. under coverage: India’s large multiple formats of retailing and also
later” strategy can do more The strategy to be in numerous
possible. It was also supported by the There are lessons for not only these untapped consumer market is so going “pan India”.
harm than good. As a result, survivors but also for Future, Reliance categories is just not viable for
notion that retailing is a business of attractive and tempting that going Anyhow, we all know there have been
the focus is rightly shifting encouraging consumers to buy the and the international retailers who “pan-India” became the key word pitfalls in this whole exuberance and everyone. On the contrary, each
to one market and one same stuff from ‘our’ stores and not are also making their presence felt in without anyone asking what it means many companies have suffered badly, consumer product category offers
store at a time. from ‘others’. Hence, some Indian India. to be a pan-India player. Does it but overall the industry is much wiser enough opportunities in the Indian
market now.

One Market, One Store

I would give a lot of credit to Bharti
Wal-Mart for focusing on one market
and one store at a time. I expect they
will now move into the next gear and
grow their business much faster. Their
entry, launch and growth path will
be like a hockey curve – starting at a
very slow pace and then picking up
quite rapidly after a few years. Even
players such as Shopper’s Stop Ltd in
India have followed a similar path and
kudos to their management for not
getting drawn into “land grab” during
the euphoric years of 2005-2007. Now,
Shoppers Stop is expected to double
its number of stores in the next two
years.
On the size of the stores, too, retailers
are realising that a large store is not
groups went on a massive expansion The “bigness” idea has many mean being present is all regions or and saner. It has led to emergence of necessarily a draw for large sales.
of their fledgling retail businesses by dimensions and the most obvious all major metros or every town in another trend that is quite healthy for Every square foot of extra retail
launching multiple formats across a ones are: India? the future of the robust modern retail space not only means extra rent, but
large number of urban centres. Future Large size stores: Landmark is a case sector. Instead of saying “why not?” also more CAPEX, CAM, deposits,
Group propounded the theory of study in terms of how they moved A Pan-India Presence? to expansion to another category and manpower, inventory and utilities
“expansion first and efficiency later”, from being only a books retailer to I wonder whether the idea of another format or another city, most costs. In a way, the spiraling costs of
and this was taken to another level by selling all kinds of consumer products being pan India and trying to be retailers are saying “why should we?” retail space have made retailers more
Reliance Retail. when they leased a larger store at everything to everyone was driven conscious of the cost of space – direct

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 opinion

as well as indirect costs. The larger plans with a clear objective of growing over the country than managing the
size stores start getting attractive the business while actually reducing business. We got down to the analysis
on rental economics only when the the geographical footprint. I wonder that whether it will be possible for a
format is seen like an anchor by mall whether we should call it “expansion business to still grow to its projected
developers and offered unfair benefits strategy” or “contraction strategy”. numbers while shrinking it back to
on all commercial terms. But the The basic premise is that when some one or two major regions or clusters.
stores in the middle – 5,000 to 15,000 businesses were launched a few years It did require a bit of reformatting of
sq.ft in area – are always in a very ago, maybe the NCR market did not stores, rethinking of location strategy
difficult position where they don’t have the potential to take more than and, in some cases, even the overall
have the advantages of a large store a few stores or maybe didn’t have positioning was tampered with, but
but have all the disadvantages of a quality space (read malls) to open in all three cases we could suggest a
small one. more stores or just the excitement of plan under which the companies will

Most successful retailers are management to go “pan India” took achieve their overall expansion targets
successful because of various reasons them to many other cities. The overall and will also make money while
and one of the most important cost of management of these scattered actually becoming a regional or even
reasons is the consumer’s perception stores was making it near impossible only NCR player.
that they are dealing with the best in for a business to make money. Senior I reckon that “slower and smaller”
town – best in terms of range, price, executives of the companies were isn’t the right answer for every
service and overall experience. It is spending more time travelling all business just as “expansion now,
just not possible for many companies efficiency later” may work only for
to position themselves as best on so few. All retailers existing or aspiring
many fronts even in isolation; and in must recognise the DNA of their
presence of competition, it becomes companies and their capabilities and
almost an impossible task. Hence the constraints before choosing either of
strategy to be in numerous categories I would give a lot of these strategies.
is just not viable for everyone. On credit to Bharti I am certain whichever strategy you
the contrary, each consumer product Wal-Mart for focusing may choose, there will always be
category, be it food and grocery, many winners and a few losers like in
on one market and one
consumer durables or fashion, any other business!
offers enough opportunities in the
store at a time. I expect
Indian market now. With a growing they will now move
economy, there will be more than into the next gear and
ABOUT THE AUTHOR
enough room for growth for serious grow their business
players. much faster.
Slower and Smaller
Recently, we worked with three retail Harminder Sahni is managing director
clients on redrawing their expansion of Wazir Advisors.

58 . images retail . december 2010