Amit Bagaria's Blog

“Growth in our organised retail business is reflective of the changing habits and increasing aspirations of millions of fellow Indians who seek modern conveniences without losing focus on value. In a short period and as a reflection of consumer preferences, Reliance now has leadership positions in food, apparel and consumer electronics retailing in the country. With over 1,300 stores operational and more being opened, Reliance is positioned to be India’s premier retailer even as organised retailing becomes a more meaningful part of the changing consumer preference in the country,” says Mukesh Ambani’s in his Letter to Shareholders published in the 2011-12 Annual Report of Reliance Industries Limited (RIL), India’s second largest company (by sales), after the public sector Indian Oil Corporation.

In the first time in six years since Reliance entered the retail business, this business has managed to get almost 10% share of Mr. Ambani’s Letter to Shareholders and more than 15% share of the Business Performance portion of the Management’s Discussion & Analysis section in the latest Annual Report. More importantly, RIL has invested Rs. 5027 crores ($967 million) in the retail business last fiscal – more than it ever did earlier.

Does this mean that the time has come for Reliance Retail to shed its diapers and start taking big boy steps? After all, a six year old cannot be considered a baby any more.

With a sales turnover of Rs. 7599 crores ($1461 million) in FY12, RIL’s retail business is a small drop in the ocean for this megacorp, representing just 2.24% of its total turnover, not even finding a separate mention in RIL’s segment wise revenue.

And if RIL itself continues to grow at a CAGR of 30.2% (like it has grown over the last five years), then a growth of only 25% per annum in the retail business will just make the share of the retail business smaller by the year.

Despite being present across several formats, Reliance Retail now ranks as only the fifth largest Indian retailer, after Future Group (Pantaloon Retail India Limited), Malabar Gold, Kalyan Jewelers and Titan Industries Limited.

It is senseless comparing Reliance with other Indian retailers, as it is bound to become No.1 in the next 2-3 years. But we all know that this will not satisfy Mukesh Ambani’s ambition. For him, the real competition is not Future Group – it is Walmart.

So how does Reliance’s retail business compare with Walmart and other global retail giants?  The table below shows Reliance’s turnover compared with the Top 4 global retailers and the Top 4 Asian retailers – with additional comparisons based on the purchasing power parity (PPP) index, as well as the Big Mac Index.

 

 

RETAILER	HOME COUNTRY	ACTUAL REVENUE ($M)	PPP-CORRECTED REVENUE ($M)	REVENUE PER BIG MAC INDEX
Walmart	USA	446,950	446,950	446,950
Tesco	UK	115,778	104,998	127,295
Carrefour	France	104,995	82,785	99,544
Metro	Germany	86,172	73,255	81,698
Seven & I Holdings	Japan	63,767	47,825	64,380
Aeon	Japan	59,885	44,914	60,461
Yamada Denki	Japan	26,940	20,205	27,199
Suning Appliance	China	24,749	39,979	42,601
Reliance Retail	India	1,461	3,538	3,788
	Asipac Research, Data based on published information available

 

Obviously, Reliance is currently nowhere on the radar. Even on a PPP basis, Reliance’s revenues are less than 1% of Walmart’s, just about 3.4% of Tesco’s and less than 9% of the revenues of China’s largest retailer Suning Appliance. Can Reliance therefore do a Pearl Harbour on the American behemoth Walmart? Seems highly unlikely for the next 30 years, even on a PPP basis.

However, if Reliance continues to grow at a steady 25% p.a. for the next several years, it can probably cross Asia’s largest retailer Seven & I Holdings (the operator of 7-Eleven stores, Denny’s restaurants and other retail formats) on a PPP basis in 16 years and on real revenue terms in 22 years, assuming that Seven & I will grow at only 4% p.a.  With the same growth rates, Reliance can also overtake Europe’s largest retailer Tesco in 20 years on a PPP basis, and 25 years on real revenue terms.

What will make Reliance a global retail giant and make all of us (Indians) proud? For this, we need to do an analysis of the company’s different retail formats and predict what may be a winning strategy going forward.

The Annual Report says: “Despite challenging macro-economic conditions most of the retail formats have delivered well over 20% same store sales growth. Same stores sales growth has been well above the growth declared by peer retailers in respective formats which indicates the robustness of the business model.” Let us take a close look.

Reliance Fresh, Reliance Super and Reliance Mart

The food & grocery (F&G) business contributed more than 51% to Reliance Retail’s revenues in FY12. With sales of almost Rs.4000 crores, Reliance is now clearly No.2 in F&G retailing, behind Future Group, which was estimated to have sales of more than Rs.7000 crores from its four F&G formats (Big Bazaar, Food Bazaar, KB’s Fairprice and Food Hall) during the comparative 12 months (Future Group’s listed flagship company, Pantaloon Retail India Limited, has its fiscal year from July to June, compared to the standard April to March fiscal year for Reliance).

It will probably take another three years for Reliance to overtake Future Group as India’s largest food & grocery retailer.  As it is probably quite well known to most of the readers of this publication, Reliance has had three major changes at the top layer of management in this business and this is perhaps the main cause that Reliance is still more than 40% behind Future Group in F&G retailing.

At the time of commencement of operations, the F&G business was led by former Unilever executive Gunender Kapur, who ran it for the first three years. He was reporting to the Late Raghu Pillai, who was with Reliance Retail from inception.

In December 2009, Reliance brought in four senior executives (two Thai nationals and two Britishers) from Tesco Lotus (Thailand) to spearhead this business. Tesco Lotus operates 660+ F&G stores in Thailand, including 88 hypermarkets. Both Pillai and Kapur quit Reliance Retail within a few months.

About 21 months later, the top management was rejigged again. This time, perhaps realizing that it needed people experienced in a far bigger market than Thailand, Reliance brought in Rob Cissell, former COO of Walmart China, as CEO, and Shawn Gray, vice president of store operations of the same company, as COO. Walmart China has around 333 outlets, generating $7.5 billion in revenues. Cissell was responsible for store operations, merchandising, marketing and supply chain at Walmart China. Before going to China, Cissell held senior positions in different British retailers. Gray was with Walmart for over 19 years, having spent nearly 13 years in China where he led the team that opened and integrated hypermarkets.

It perhaps makes better sense for Reliance’s F&G business to be led by senior executives from Walmart China, than by people from Thailand. However, it has (unfortunately) taken five years for Reliance to realize this. And this has hurt the company.

The change is already becoming visible to consumers – the foods sections and the FMCG section of the new (or revamped) Reliance Marts (hypermarkets) are amongst the best in the country. Now Cissell and Gray must revamp all the Reliance Fresh stores and start opening new ones at underserviced locations. They must follow Sam Walton’s strategy of servicing small towns and semi-urban areas instead of concentrating on the Top 30 cities, as Reliance has done in the past. They must identify new locations from a chopper or small aircraft rather than from a car.

As the chart shows, as per Asipac’s estimates, Reliance already has a 12.7% share of the organized food & grocery retail market, but only a 0.5% share of the total market. This is the opportunity.  China’s largest F&G retailer, Bailian Group, had revenues of RMB 141.5 billion ($22.4 billion) in 2011, giving them a 2.3% share of the $975 billion Chinese F&G market. If Reliance can replicate this in India in the next five years, its F&G business alone can have revenues of Rs.33,000 crores.

I would like to point out that RIL’s annual report states that the Indian F&G market is worth Rs.16,25,000 crores, which translates to about 68% of the total Indian retail market. A correction is needed here. We have been reading about food & grocery being 65-70% of the total retail market for the last two decades, if not more. India has moved on. The share of F&G in total retail is not as high today, as it used to be 2-3 decades ago. At that time, mobile phones and laptops did not exist, there were no branded apparel and lots more that we consume today.

As per Asipac’s research, the personal automobile retail industry alone is estimated to be worth Rs.2,33,500 crores, and the CDIT (consumer durables, IT and telecom) retail sector is estimated to be worth Rs.1,89,300 crores.

The total consumption of food & grocery (including FMCG products) in the country is estimated at Rs.11,30,000 crores, or about Rs.9200 per capita. However, the retail market comprises just about 73% of consumption (or Rs.8,26,600 crores), as the rest is accounted for by farmers or fisherman consuming their own produce. Thus, the F&G retail market accounts for only 33.4% of the total Indian retail market, and not 65-70%, which was the case 20-30 years ago. Reliance should be happy that it has a smaller market to conquer.

Before I move on to the next format, I would like to suggest that Reliance should look at the possibility of creating an Indian equivalent of 7-Eleven, the small neighbourhood convenience store which is ever so popular across the rest of Asia. There are more than 42,000 7-Eleven stores in 16 countries worldwide, with 13,300+ stores in Japan alone and more than 6500 in Thailand. The chain has global revenues of approximately $112 billion, putting it at almost the second spot amongst global retailers, if all franchisee sales were consolidated with the Japanese parent, Seven & I Holdings.

Given the size of India, there is easily a market for 20,000+ such stores in the country. Being much smaller in size compared with Reliance Fresh, finding real estate will not be such a challenge. Like in other countries, 50-70% of the stores could be franchised. The average sale of a 7-Eleven store in Thailand is 31.7 million Baht. In India, such stores can easily achieve sales of Rs.25 million apiece. Thus, 20,000 stores would translate to sales of Rs.50,000 crores. If Reliance does implement this idea, I will send them an invoice for the advisory services.

Reliance Digital

Perhaps, the most successful amongst all of Reliance’s retail businesses is its CDIT format – Reliance Digital. This business achieved a turnover of Rs.1249 crores, including its servicing business resQ, in FY12. From a total of 48 stores (31 Reliance Digital and 17 iStore) at the end of FY11, the CDIT segment almost doubled total store count to 94 (75 Reliance Digital and 19 iStore) at the end of FY12. Opening 44 Reliance Digital stores in a year – one every 8.3 days – was a feat in itself.

The credit for this stupendous growth goes to Brian Bade, an American who joined Reliance Digital as its CEO in August 2010. Bade had worked at the now defunct American CDIT retail giant Circuit City for more than 17 years, starting as a District Manager in 1991, and rising up in 2007 to the position of vice president responsible for sales development and merchandising for all of Circuit City’s 712 stores. For a year before joining Reliance, Bade also served as vice president at Big Lots Stores, a $5.2 billion discount retailer in USA.

While Reliance Digital is now the No.1 large format (average 7500+ square feet) CDIT retailer in India in terms of number of stores (compared with 72 stores of Croma, a joint venture between Tata and Woolworth of Australia), it still lags behind Croma in revenue terms – Croma had revenues of Rs.1970 crores in FY12. Further, Croma’s revenue per store is almost 70% higher than that of Reliance Digital.

The Indian CDIT retail market is estimated to be worth Rs.1,89,300 crores, as per Asipac’s research. The organised sector has just 19% market share. In a category where consumers would like to buy from a “reliable” source, there is no reason why the organized sector cannot capture 50-60% of the market.

The total market is estimated to reach Rs.3,90,000 crores in five years. So, if the organized sector can capture 60% of this market in five years, this would translate to revenues of Rs.234,000 crores. And the market leader should ideally have a 15% share, or revenues of Rs.35,000 crores. (Note: Croma already has 5.5% share of the organised market)

Japan’s Yamada Denki has 2700+ stores and revenues of more than Rs.1,40,000 crores. China’s Suning Appliance has revenues of Rs.1,28,700 crores from 1300+ stores. There is no reason why Reliance Digital cannot reach revenues of Rs.35,000 crores in five year or even lesser time. Will Reliance reach this milestone first or Croma? This will truly be a battle of the titans.

Reliance Trends

The apparel arm of Reliance Retail has also been an above average performer. In terms of number of stores, Reliance Trends (with 91 stores) is now larger than Max (68 stores), Pantaloon (65 + 21 factory outlets), Westside (62), Shoppers Stop (51), Globus (35) and Lifestyle (33). This in itself is a commendable feat, considering that all the other retailers named here have been in business much longer. As many as 48 stores were open during FY12, rivalling the pace of Reliance Digital in terms of expansion.

However, while Reliance Trends may be No.1 in terms of stores, its per store sales are much lower than most of its peers – namely Pantaloon, Westside and Max.

Japanese value fashion giant Uniqlo, whose business is similar to that of Reliance Trends, has 1700+ company operated stores worldwide, with sales of more than Rs.55,000 crores. Value fashion retailing has huge potential in our country, given that urban India alone has more than 120 million consumers who like to shop in modern retail outlets, but are also seeking value. In comparison, Japan’s urban population is just 85 million.

So, if Uniqlo can have 1213 stores serving 85 million consumers (one for every 70,000 persons), why can’t Reliance Trends have at least 857 stores (one for every 140,000 persons, or half the ratio of Uniqlo stores in Japan)? If it manages to reach that number in five years, with an average per store sales growth of 12% p.a., this value fashion retailer can achieve revenues of more than Rs.11,000 crores.

Uniqlo is not the only example. American retail group TJX has 1753 stores of TJ Maxx and Marshalls (both discount fashion retaiers) in USA, and 215 stores of Winners (also a discount fashion retailer) in Canada. Its European subsidiary TK Maxx has 307 stores. As per TJX’s 2011 Annual Report, 37% of Americans shopped at a TJ Maxx or Marshalls store in 2010.

The total apparel and fashion (A&F) retail market in India is estimated by Asipac to be worth Rs.5,95,000 crores. Of this, the organised sector is estimated to have just 5.77% share. With deeper pockets than others in the business, Reliance can take the leadership position. However, it cannot address a Rs.5,95,000 crore market with just one format which averages a store size of 16,000 square feet. Uniqlo’s largest store occupies 53,400 square feet. TJ Maxx has an average store size of 30,000 square feet; Marshalls and TK Maxx have 32,000 square feet each.

In RIL’s annual report, it is stated that the overall apparel market in India was estimated at Rs.175,000 crores in 2011. Without knowing the source of this estimate, I wish to categorically state that it is way off the mark. A total market size of Rs.1,75,000 crores would put average per capita consumption at just Rs.1423 per annum. How can this be believed? This figure is close to the bare minimum spent by the 400 million deprived people in India on must-have clothing.

If Reliance has to capture a substantial chunk of the Rs.5,95,000 crore Indian A&F market, it must come up with more formats in this segment. And there are opportunities galore.

Reliance Trends, along with Lifestyle, Shoppers Stop, Pantaloon, Marks & Spencer, Westside and Max, are all catering to the 22 million “urban upper middle class” population.  As per Asipac’s research, this section of the population is estimated to have a total consumption expenditure of about Rs.4,65,000 crores, of which apparel & fashion is estimated at about Rs.40,000 crores. The 167 million “urban middle class” either shops at discount formats (such as Big Bazaar or other hypermarkets or Brand Factory) or at unorganised retail outlets.

In comparison, the 10.5 million “urban rich” are estimated to have a total consumption expenditure of about Rs.5,03,000 crores, of which apparel & fashion is estimated at about Rs.65,500 crores. Even though this market is 64% larger than the “urban upper middle class”, no retailer is catering to this segment.

What I am suggesting is that Reliance should seriously consider opening department stores to cater to the “urban rich”. Not pseudo department stores like the ones we have in India (where more than 80% of the merchandise is apparel), but proper department stores, which sell apparel, furniture, home appliances, electronics, hardware, toiletries, cosmetics, jewellery, toys and sporting goods, merchandise that is generally sold in department stores worldwide. If we include all of this, the “urban rich” buy Rs.2,20,000 worth of such merchandise annually. If one includes some amount of food & grocery (which many department stores sell), we are talking about a market of almost Rs.2,50,000 crores.

Since there is no competition in this segment, the task is not difficult. As the rich don’t mind traveling a bit (most have chauffer driven cars), Reliance would only need to open 3-4 stores of 150,000 – 200,000 square feet each in NCR and Mumbai, 2-3 each in Bangalore, Chennai, Kolkata, Hyderbad and Pune, and 1-2 each in Ahmedabad, Jaipur, Surat, Nagpur, Lucknow, Ludhiana, Indore and Vizag. So we are talking a total of 30 stores in 15 cities, occupying a total of about 5 million square feet.

This “upscale” department store chain should contribute revenues of about Rs.12,000 crores. Together with the value fashion format Reliance Trends, Reliance can look forward to achieving sales of Rs.23,000 crores in the apparel & fashion segment.

Reliance Jewels

What could have been a jewel in Reliance Retail’s crown is perhaps its biggest failure. With sales of just Rs.475 crores, Reliance Jewels does not even figure amongst the Top 30 organised sector jewellers in India. Compared to market leader Malabar Gold & Diamonds (estimated sales Rs.8800 crores in FY12 from only Indian stores), its turnover is just 5.4%. Compared to its more comparable peer Tanishq (sales of Rs.7064 crores in FY12), from where it poached most of its senior executives, its turnover is just 6.7%. In fact, Reliance Retail’s total turnover from all formats is less than that of these two jewellery retailers.

Skeptics may argue that Malabar Gold & Diamonds and Tanishq have been in the business much longer. But then, so is the case of Future Group vs Reliance’s F&G formats, or eZone vs Reliance Digital, or Westside vs Reliance Trends, or Titan Eye+ vs Vision Express.

Apart from other factors, one of the most important factors for the success of a jewellery retail business is the ability to invest – and who better than Reliance as far as this is concerned? It is therefore inexcusable that Reliance Jewels has manged a turnover of only Rs.475 crores, in a total market size of almost Rs. 2 lakh crores, where the organised market comprises Rs.82,730 crores.

Reliance Jewels’ share of the organised jewellery retail market of just 0.6% is much lower than the market shares of other Reliance Retail formats in their respective segments, and less than a third of Reliance Retail’s market share of the total Indian organised retail sector.

China’s Chow Tai Fook, with 1450+ points of sale across 320 cities in China and 60+ stores in Hong Kong, and sales of about Rs.23,000 crores, is the world’s largest jewellery retailer.  Tiffany & Co., with global sales of about Rs.19,000 crores, is the second largest jewellery retailer in the world.

But we don’t need international comparisons in a segment where as many as 18 Indian jewellery retailers have turnovers of more than Rs.1000 crores each, and the Top 5 more than Rs.3000 crores each.

Malabar Gold & Diamonds will most likely cross a turnover of Rs.10,000 crores this fiscal within India. There is no reason why Reliance Jewels should be aiming at less than this figure in five years. In order to achieve this, it will have to get its act together.

Reliance Footprint

This is another of Reliance’s formats that has done reasonably well, by carving a niche for itself in a sub-segment not addressed by any others – of being a sort of multi-brand value superstore in the footwear segment.

With a turnover of Rs.155 crores giving it a 3.2% share of the organised footwear market, Reliance Footprint has done reasonably well. However, eight other retailers/brands (Bata, Reebok-Adidas, Metro-Mochi, Khadims, Woodland, Liberty, Nike and Sreeleathers) are ahead of Reliance Footprint in terms of turnover.  Of these, the legendary Bata, with a turnover of Rs.1659 crores (12 months ending March 2012) from 1300+ stores, is almost 11 times larger.

Like Reliance Trends and Reliance Digital, this Reliance format also added 50 stores this year, more than doubling its stores to a total count of 88. But Reliance Footprint has a long way to go, as Bata has 1300+ stores, Khadims has 630+, Liberty and Woodland about 350 each, and Metro-Mochi 215 stores.

Internationally, a similar format to Reliance Footprint is Famous Footwear in USA. Part of Brown Shoe Co., this 1089-store chain had a turnover of about Rs.7600 crores in 2011. Average store size is 6900 square feet, compared to about 4000 square feet in the case of Reliance Footprint.  Another American retailer Designer Shoe Warehouse has 335 stores averaging a size of 22,000 square feet. UK’s Shoe Zone has 570 stores. The world market leader in this segment is Payless ShoeSource (PSS), with a whopping 4300+ stores in 34 countries across the world. The average size of a Payless ShoeSource store in USA is 3200 square feet and in international markets 2800 square feet. Payless’ domestic operations had a turnover of about Rs.10,300 crores from 3642 stores in USA. Their international operations had a turnover of about Rs.2440 crores from 661 stores.

So, whether we compare it with international value footwear retailers or with Indian footwear single brand or multibrand retailers, Reliance Footprint still has a long way to go, both in terms of the number of stores and turnover. There is no reason why this retailer cannot aim for a turnover of Rs.5,000 crores in five years, by when the Indian footwear market would have crossed Rs.1,00,000 crores.

Reliance Timeout

With a 5.3% share of the organised retail market in the segment it caters to, Reliance Timeout comes second only to Reliance’s F&G business in terms of market share capture. However, a turnover of less than Rs.100 crores in a Rs.89,000 crore total market means it still has a long way to go.

This retailer grew much slower than its counterparts – perhaps due to the fact that, globally, retailers in this segment are facing challenges due to eBooks, MP3 downloads and all kinds of other impediments brought about by the internet. Only time will tell whether Timeout will survive – after all, many global giants in the books & music retail segement are floundering.

Other Formats

Reliance Living, Reliance Home Kitchen and Reliance Wellness have all been disasters and it is not clear if Reliance will continue these businesses.

Reliance Brands has done reasonably well by bringing to India such iconic brands as Diesel, Timberland, Steve Madden, Brooks Brothers, London Fog, Quiksilver, Paul & Shark, Roxy, Thomas Pink and Ocean Pacific. This business could easily give Reliance revenues of Rs.3000+ crores in five years.

Hamleys has been somewhat of a disaster in the country. Three years after Reliance got this iconic British toy retailer to India, only two stores have opened – one each at Mumbai and Chennai – while the opportunity exists to open stores in at least five other cities. Dubai alone has two Hamleys stores.

Marks & Spancer has done much better in India after forging a joint venture with Reliance, compared with its earlier avataar of franchising the concept to Planet Retail. This retailer is likely to do even better by shedding its inhibitions and opening larger stores – after all, its average store size of 15,000 square feet in India does not do justice to the fact that M&S is opening stores of 70,000 – 180,000 square feet in the UK.

The Vision Express joint venture has done very well, with 155 stores now operational across India.  At its rate of growth, this retailer is on track to surpass Titan Eye+ and become the largest eyewear retailer in the country.

Conclusion

In summary, what has been presented here is not just an in-depth analysis of Reliance Retail’s performance, but also a potential roadmap for the company to achieve a sales turnover of Rs.1,60,000 crores in five years – 21 times its present turnover.

If the parent RIL continues to grow at 30.2% p.a., it will have a total turnover of Rs.12,71,000 crores in FY17. At Rs.1,60,000 crores, the retail business will contribute 12.6% to the parent’s topline and will thus be a part of the segment-wise financial reporting of RIL.

 

 

The 24^th of November 2011 was a historic day for Indian retail. The cabinet of ministers of the Government of India cleared the commerce ministry’s proposal to permit 51% foreign direct investment (FDI) in multi-brand retail (with several riders), as well as 100% FDI in single-brand retail (51% was already allowed in single-brand retail).

On a panel discussion on CNN-IBN, serial consumer activist Bejon Misra was shouting at the top of his voice that FDI in retail is not good for Indian consumers.  When being asked by R.Subramanian, founder of Subhiksha, to explain his logic, Misra retorted that his kirana, Guptaji, gave his family goods on credit, while organized sector hypermarkets and supermarkets did not.

“I don’t need credit, I need the choices that hypermarkets offer me, which kiranas don’t” said Sriram Khanna, Managing Trustee, Consumer Voice, “while no one is stopping you from continuing to shop at Guptaji’s kirana store, how can you stop me from getting the choices I want? After all, India is a free-market democracy, so let 1.2 billion consumers decide where to shop, instead of you deciding for all of India.”

This probably sums up the mood of the Indian consumer – GIVE US CHOICE. As one travels through Rishikesh in the North, Ajmer in the West or Mysore in the South, you can see more and more consumers flocking to neighbourhood supermarkets which are giving them a choice of brands and products at different price points, allowing them to participate in India’s consumer boom. How can anyone representing a small section/segment of society decide how 1.22 billion people should shop?

Raj Jain, MD & CEO of Bharti Walmart said: “We are grateful that the Government has realized and appreciated the value that Wal-Mart will bring to strengthen the Indian economy.   This will positively impact the Indian market and will also contribute toward India’s image as one of the world’s fastest growing economies and a welcoming destination for international businesses. We are willing and able to invest in back-end infrastructure that will help reduce wastage of farm produce, improve the livelihood of farmers, lower prices of products and ease supply-side inflation.”

Bharti Walmart Private Limited is a joint venture between Bharti Enterprises (better known for their telecom brand Airtel) and the $405 billion Walmart, the world’s leading retailer, renowned for its efficiency and expertise in logistics, supply chain management and sourcing.  Walmart employs over 2.1 million people across 9826 stores under 60 different banners in 28 countries. The joint venture has wholesale cash-and-carry and back-end supply chain management operations in India. The JV has nine Best Price Modern Wholesale stores which employ 3,372 people. Bharti Retail, wholly-owned subsidiary of Bharti Enterprises, operates neighbourhood stores called Easyday, compact hypermarkets called Easyday Market and hypermarkets called Easyday Hyper.

Kishore Biyani, MD of Future Group (Pantaloon Retail India Limited) agrees: “Its a big win for the agri-sector as investments in back-end in the agri-sector will result in better prices for the sector and reduce inefficiencies, thereby getting better prices for the farmers.”  Pantaloon Retail had sales of Rs.122.12 billion ($2.35 billion) in fiscal 2011, with operational retail space of 15.24 million square feet, with more than 50% of that space occupied by its hypermarket format called Big Bazaar.

“It will help at the farm level by improving productivity and possible better earnings for farmers, as well as investment in food processing. It will also help in generating employment at the farm level as well as in the supply chain,” commented Saloni Nangia, SVP Retail, Technopak Advisors.

Adds Goldie Dhama, Associate Director, PwC India: “Increased investment in back end (supply chain and cold storage) infrastructure will help in reducing the wastage percentages of 30-40% of food produce from farm to fork. Technology transfer to Indian companies will enable best practices in crop management and food safety and hygiene – thereby improving the quality of food products across the board.”

One needs to ask how kiranas will get affected differently by foreign food & grocery (F&G) players, compared with Indian giants in this business (Reliance, Tata, Aditya Birla, Raheja and Future Group) and by foreign retailers such as Wal-Mart and Spar, who are operating through licensing or similar arrangements. What can new foreign retailers do (to harm kiranas) that these players cannot?

“This is a very progressive step and consumers will get a far wider range of quality products at better prices,” said Viney Singh, MD of Spar’s licensee Max Hypermarkets, part of the Dubai-based Landmark Group, “it will also benefit farmers and the industry that feeds into retail. Currently, many states do not permit us to procure directly from farmers, as these state governments feel that farmers will get exploited with so few organized F&G retailers in India. With many more players (with the capital, scale and organizational capabilities) now coming in and building the scale required at the front-end, the same state governments will understand that the farmer will get the best prices, as he will have many organized buyers to choose from. So I expect a lot of change in local APMC laws going forward.” Spar currently has 10 operational stores in India and Singh expects to close the current year with a turnover of Rs.5.8 billion ($0.116 billion). In 2010, Spar worldwide had retail sales of $39 billion from 12,136 stores in 33 countries. Singh does not believe there will be any change in the Spar – Landmark Group relationship, as Spar does not invest in most foreign markets, where it follows a licensing/franchising model.

By 2015, Urban India will have a population of 423 million people. They will need 635 million square feet of total space for food retailing (includes grocery, pharma, beauty & FMCG), at 1.5 square feet of per capita food retail space, compared to about 511 million square feet today, including space occupied by modern trade as well as traditional retailers and neighbourhood kiranas. The western world has an average of 3.1 square feet and South-East Asia 1.82 square feet.   If we assume that the organized sector (including existing players) will capture only 7.5% market share in four years, we will have an estimated 47.63 million square feet of hypermarkets, supermarkets, convenience stores, pharmacies and drugstores by 2015, compared to about 15.3 millon square feet today.

The main opposition party BJP and the permanent opposition left parties say that foreign retailers will cannibalise the business of kiranas. Even if foreign retailers capture 50% of the organized sector’s total market share (which itself is a tall order) and thus have 23.82 million square feet of retail space, at an average ownership of 1200 square feet of retail space per small business (kirana) owner, this will only affect 19,850 businessmen and not crores of businessmen, as has been hyped by some politicians.

Most discussions about opening up multi-brand retail only talk about food & grocery, but there’s much more to retail than just food & grocery.  423 million urban Indians will need 3680 million square feet of space for non-food retailing, at 8.7 square feet per capita. Assuming 20% market share for the organized sector in non-food retail, the organized sector is estimated to have 736 million square feet of non-food retail space.

Let us look at how many jobs will be impacted. “My initial estimates are that it will create over 4 million jobs in the country and in logistics about 5-6 million jobs in three years,” Commerce and Industry Minister Anand Sharma told reporters.

At one direct job for every 180 square feet of retail space (across formats), an estimated 4.354 million people will be employed across the 783.63 million square feet of space occupied by organized retail.  With 1.5 indirect jobs (in supply chain and logisitcs) per direct job, it adds up to a total of 10.89 million jobs.  Therefore, Anand Sharma is bang on.

A vast majority of the employees will be those who have studied only up to primary school.  What other job opportunities (of this magnitude) are there for such people, who either cannot afford to finish high school, or just don’t have the IQ required?  They will have benefits such as PF and ESI, thus bringing them lot of stability and security.  More importantly, the organized sector is not just giving these people employment, but is augmenting their skills through training and personality development, thereby making them more marketable.  So what does the kirana do to increase India’s Human Development Index?  In other words, more FDI = better HDI.

“Today, about 90% of children do not pursue education beyond schooling. With a large number of new stores opening, modern trade will become a preferred choice of employment to them,” says Sanjiv Goenka, Chairman of RP-Sanjiv Goenka Group, which runs 220 retail stores including 30 Spencers hypermarkets.

Why would any political party would want to favour 19,850 small businessmen over 10.89 million youth who don’t have many other other job opportunities? The left parties and left-leaning regional parties should be at the forefront of supporting FDI, if they really stand for the upliftment of the economically weaker sections of society.

Let us look at the fine print in the announcement made by the Government of India. In allowing 51% FDI in multi-brand retail, the following restrictions apply:

1. Minimum investment of $100 million.
2. 50% of the investment (or minimum $50 million) has to be in back-end logistics, not including investment in property.
3. At least 30% sourcing from SMEs or small-scale industry.
4. Stores can only be in cities with a population of more than one million people. (Please see chart with list of these 39 cities)
5. Government will have first right of procurement of farm produce.

 

 

Indian Cities with >1 million   population
Rank	City	State	Population (2011)
1	Greater Mumbai	Maharashtra	19,130,565
2	NCR	Delhi	15,828,138
3	Greater Kolkata	West Bengal	9,209,301
4	Bangalore	Karnataka	8,425,970
5	Hyderabad	Andhra Pradesh	6,809,970
6	Chennai	Tamil Nadu	5,751,981
7	Ahmedabad	Gujarat	5,778,884
8	Pune	Maharashtra	4,844,790
9	Surat	Gujarat	4,462,002
10	Jaipur	Rajasthan	3,073,350
11	Lucknow	Uttar Pradesh	2,815,601
12	Kanpur	Uttar Pradesh	2,767,031
13	Patna	Bihar	2,405,421
14	Indore	Madhya Pradesh	2,250,069
15	Raipur-Bhilai-Durg	Chhattisgarh	1,904,463
16	Bhopal	Madhya Pradesh	1,795,648
17	Visakhapatnam	Andhra Pradesh	1,730,320
18	Nagpur	Maharashtra	1,683,200
19	Vadodara	Gujarat	1,666,703
20	Ludhiana	Punjab	1,613,878
21	Agra	Uttar Pradesh	1,574,542
22	Nashik	Maharashtra	1,486,973
23	Meerut	Uttar Pradesh	1,309,023
24	Rajkot	Gujarat	1,286,995
25	Varanasi	Uttar Pradesh	1,201,815
26	Srinagar	Jammu and Kashmir	1,192,792
27	Aurangabad	Maharashtra	1,171,330
28	Dhanbad	Jharkhand	1,161,561
29	Amritsar	Punjab	1,132,761
30	Chandigarh	Chandigarh	1,125,397
31	Allahabad	Uttar Pradesh	1,117,094
32	Ranchi	Jharkhand	1,073,440
33	Coimbatore	Tamil Nadu	1,061,447
34	Jabalpur	Madhya Pradesh	1,054,336
35	Gwalior	Madhya Pradesh	1,053,505
36	Vijayawada	Andhra Pradesh	1,048,240
37	Jodhpur	Rajasthan	1,033,918
38	Madurai	Tamil Nadu	1,016,885
39	Kota	Rajasthan	1,001,365

“Although the announcement has taken away the uncertainty, the number of clauses make it quite difficult and very serious concerns remain about state-level decisions,” said Mark Ashman, MD of Hypercity Retail.

“This will definitely help the SSI sector, as they will have a wider choice of buyers,” says Kabir Lumba, MD of the Rs.28 billion Lifestyle (part of Dubai-based Landmark Group), “import duties are very high, so manufacturing will get a boost.”

Darshan Mehta of Reliance Brands had a different point of view. “To source locally, you need to buy minimum 1000 metres shirting of the same colour and design. This will produce 833 shirts, which will require at least 30 stores to sell them from – how long will it take for new entrants to get to 30 stores – so imports (even though costly) will continue for a few more years.”

So what does all this actually mean?  $50 million in front-end by the foreign 51% partner translates to Rs.5.1 billion in total investments by the entity, including the Indian partner’s 49% investment. It will be a similar amount for the back-end.

Of the Rs.7000 per square foot investment required in front-end infrastructure, about Rs.4500 per square foot will be done by the landlord and Rs.2500 per square foot by the retailer. Thus, a retailer has to create 2.04 million square feet of front-end retail space to meet the Rs.5.1 billion minimum investment requirement.

This completely rules out a specialty retailer like the $1.46 billion Sephora (the LVMH-owned world’s largest beauty retailer) from coming in, as they will need to open 680 stores of average 3000 square feet. With only 750 stores worldwide (17 countries) and 400 stores in USA (including 150 shop-in-shop counters at JC Penney), Sephora is certainly not going to open 680 stores in India anytime soon. Bijou Kurien of Reliance Retail should be happy, as Sephora will still need a capable Indian partner (read licensee) and Reliance is reportedly a front-runner.

However, the UK-based Boots ($31.3 billion health & beauty retailer with a presence in 25 countries) may come in. With an average store size of 10,000 square feet, Boots only needs to open 204 stores. With 3,280 Boots stores worldwide, opening 204 in India is certainly not a tall order.  Similarly, the $72 billion American health & beauty giant Walgreens (7,779 stores) can come in.  So can the Hong Kong based $18 billion AS Watson, which has 9,400 stores globally, and will need to open 510 stores of average 4000 square feet each, which is quite feasible in the 39 cities.

The Indian health & beauty retail market is currently at $36.5 billion and is growing at 17% per annum. Organized sector penetration is only 3.2%, compared to >23% in jewellery & watches and >15% in CDIT (consumer durables, information technology and telecom) – this should be exciting enough for any global health & beauty giant.

Let us look at another popular and fast growing multi-brand category – CDIT. With an average store size of 15,000 square feet, a new foreign entrant only needs to open 136 stores (Croma has 73 stores and Reliance Digital 51 stores).  The $32.7 billion Indian CDIT market can easily absorb 850 CDIT megastores doing annual business of $7.7 million each, which will give these types of retail formats a 20% market share.

However, there is another problem here. How will they source 30% from the SME/SSI sector? Surely, Indian consumers will prefer buying LG, Samsung and Sony products, compared to those made by Kumar & Sons or Venkatchalam Industries. Perhaps they will be able to work out the maths by sourcing accessories, components and the like from the SME/SSI sector, but this will need further and deeper study. This may lead to some global players coming in.

“All SME and SSI vendors of the automobile industry became billion dollar market cap companies, so we will see the same benefits coming to retail industry vendors now,” said B.S. Nagesh, Vice Chairman of Shoppers Stop, who now runs a trust called TRRAIN, which is committed to upgrading the lives of people in retail both at work and home,  “Ikea is already sourcing from several Indian vendors for exports, now they will start sourcing for selling in India.”

Most retail experts agree that global bookstore or leisure store chains will probably not be able to take advantage of this policy change, as they will not be able to invest 50% in the back-end.

That brings us to the largest non-food multi-brand retail category – department stores. At an average size of 120,000 square feet, a foreign retailer only needs to open 17 department stores. Shoppers Stop has 46 stores and Lifestyle 34 stores.  Nagesh says that department stores cannot invest the minimum amount for the back-end, as they do not require huge back-end investments. He felt the policy was more oriented towards food retailers. Lifestyle’s Lumba agreed.

This can be looked at from another perspective. To open 25 department stores of 120,000 square feet each, a chain will need 10,000 retail staff and at least 1200 other staff.  At just Rs.150,000 per employee to be spent on recruitment and training, they could invest Rs.1.68 billion on training alone. With 30% sales from private labels and minimum one month’s inventory, they will need Rs.1.08 billion in inventory. That takes care of Rs.2.76 billion of the Rs.5.1 billion minimum back-end investment, leaving Rs.2.34 billion to be invested. This could be easily deployed in investing in other brands’ inventory and negotiating far higher margins than what they are getting from brands under their current business models of “sale or return” or “consignment sales”.

For the $15.5 billion Isetan or $10 billion Takashimaya (both from Japan), the $12.83 billion El Corte Ingles from Spain, $7.74 billion Galeries Lafayette from France or $5.94 billion Lotte from South Korea, $100 million is not difficult to invest. Even Central and Robinson from Thailand are strong contenders. Growth opportunities are restricted in their home markets and the Indian market growth offers a compelling story. All these chains are already present in multiple countries.

 

Company	Origin	Stores	Countries present	Total sales FY 2010
Walgreen	US	7,779	2	$72.2 billion
Lotte	South Korea	164	5	$54.2 billion
Isetan	Japan	50	11	$33.4 billion
Boots	UK	3,280	25	$31.2 billion
IKEA	Sweden	332	42	$31.3 billion
AS Watson	Hong Kong	2,300	11	$24.0 billion
H&M	Sweden	2,300	36	$18.2 billion
Gap Inc	US	3,248	90	$14.7 billion
El Corte   Ingles	Spain	70	5	$12.0 billion
Uniqlo	Japan	2088	12	$10.6 billion
Takashimaya	Japan	23	4	$10.5 billion
Galeries   Lafayette	France	63	4	$3.4 billion
Central	Thailand	18	1	$2.2 billion

Now let us look at where FDI in multi-brand retail will really come in from – the food retailers – actually the hypermarket/supermarket operators.  The Indian market size is $154.4 billion, with less than 3% organized sector penetration.

If 80% of the 47.63 million square feet of total organized sector food retail space is comprised of hypermarkets, at an average size of 70,000 square feet, we are talking about 544 hypermarkets.  India currently has 240 hypermarkets. Of the new 304 hypermarkets, if foreign retailers have to capture 50% market share, they need to build 150 hypermarkets – so there is space for 6-8 players. Who are these going to be?

There is no doubt in anyone’s mind that Wal-Mart, Carrefour and Tesco will be amongst the players. In all probability, the others would be out of the following 11: Rewe from Germany, Auchan from France, Aeon from Japan, Le’clerc from France, Ahold from Netherlands, Groupe Casino from France, Intermarche from France, Shinsegae from South Korea, Shoprite from South Africa, Lotte from South Korea and Giant from HK/Malaysia. Details about these chains are given in the table.

 

Company	Origin	Stores	Countries Present	Total Sales FY 2010
Rewe Zentral	Germany	13,148	13	$70.6 billion
Groupe Auchan	France	1,339	12	$56.6 billion
Aeon Co	Japan	5,000	9	$54.0 billion
E Leclerc	France	108	6	$41.0 billion
Ahold	Netherlands	2,970	10	$39.3 billion
Groupe Casino	France	10,783	25	$38.7 billion
Intermarché	France	2,000	8	$38.1 billion
Shinsegae	Japan	164	2	$11.2 billion
Shoprite	South Africa	331	17	$8.5 billion
Lotte	South Korea	31	5	$7.3 billion
Giant	Malaysia	206	4	$4.9 billion

“Several Japanese, Korean and South American retailers have retail business models suitable for India. I see someone like Pao De Acucar of Brazil coming in.  Even American retailers like Home Depot and Best Buy may consider coming to India. Carrefour may either buy into an existing Indian retailer or move from B2B model to a B2C model,” said Bijou Kurien, President Lifestyle Business, Reliance Retail, a company which is expected to have a retail turnover of $2.7 billion in the current fiscal, and part of the $50 billion Reliance Industries Limited, India’s largest private sector company.

“There are 25 regional hypermarket chains in the US alone, bigger than most Indian hypermarket chains,” said Mark Ashman, MD of Hypercity retail, part of the Rs.23.8 billion Shoppers Stop group. “The Tata Trent – Tesco arrangment may become a joint venture now,” says Nagesh. Singh of Spar and several others echoed the same sentiment.

Now let us look at the impact of the government allowing 100% FDI in single brand retail.  Four things will happen in this space:

(1)    Retailers who are running 51% owned operations in India with the balance 49% being held by sleeping/silent Indian partners will most likely take 100% ownership. These include the likes of Louis Vuitton, Tod’s and Christian Dior. “There are many 83 year olds in places such as Coonoor and Dharamsala who have facilitated such JVs,” says Darshan Mehta of Reliance Retail, “many global retailers will still prefer to have Indian partners, as the market here is very complex.”

(2)    Some retailers who normally operate internationally only with 100% ownership, and have thus been operating in India through licensing/franchising, will come in with some own stores, while they may parallely continue with the existing licensed/franchised stores. The first name that comes to mind is Apple. Lumba of Lifestyle feels that brands like Mango – where the franchisee has only opened 12 stores of approximately 2000 square feet each – may come in directly. Mehta disagrees: “Mango is here as a franchisor, because they didn’t want to invest; they didn’t take 51% when it was allowed.”

(3)    Retailers such as Ikea, H&M, Uniqlo and Gap/Banana Republic, who have patiently waited for 100% FDI, will now come in. “Ikea will impact Home Centre’s business – we compete very well in seven countries in the middle east region; they will help expand the market, as more people will buy readymade furniture,” says Lumba.

(4)    There are likely to be some investments in the F&B space. Entrants in this space are likely to include Wendy’s, Starbucks, Dairy Queen, Hardees, Popeyes, Quiznos, Chipotle, Panda Express and dozens of others. Many of them would be coming in through the franchising route, so would have come in any case even without this policy change. The Indian F&B market is already at $40.4 billion and is growing at >15% per annum. Organized sector penetration is less than 4.5%.

The action on single brand retail is likely to happen much faster than in multi-brand retail. In single brand, we should start seeing announcements from as early as March or April 2012. In multi-brand, we will probably have to wait till at least July-August to see any major announcements.

“The impact will be seen from the third to the fifth year,” said Nagesh. Reliance’s Kurien says that “the early bird catches the worm, as this is a property grab business”, suggesting that those who take faster decisions will benefit.

“Retailers like Ikea, H&M, Prada and Dolce & Gabbana will come in,” says Timmy Sarna, Chairman of DLF Brands, “and many developers will now start building malls all over again.” Adds Lumba “brands like Uniqlo, which are extremely relevant for India, should come in; H&M is also likely; Gap will probably come through 74% or 100% ownership – this will all lead to a lot more choice, excitement and energy for Indian retailers and consumers.”

Apart from foreign retailers entering India, FDI is also likely to come from overseas PE/VC investors who may invest in established Indian retailers. This will happen in both, multi-brand as well as single brand space, including online retail. We have already seen PE/VC investments into retailers such as Nilgiris, Nirulas, Lilliput, Kimaya, Spykar and Fabindia.  Several more old & established Indian retailers are ripe for investment.

“FII was constrained by FDI in India,” says Kurien. Ashman agrees. “Indian groups got few years to establish themselves in retail and now they will be ready to offer their platform to foreign investors to come in and also get good valuations,” adds Nimesh Shah of Equirus Capital.

There is also likely to be M&A activity. “This will certainly be met with open arms by several domestic retailers. In particular, players such as Pantaloon Retail and Vishal Retail need to ease their current debt levels. Foreigners looking to capitalise on this new policy may help support them. Vishal Retail has around Rs 70 billion of debt as of June 2011, Pantaloon Retail is also carrying a debt burden of Rs 40 billion,” says Parita Chitakasem of Euromonitor International.

At estimated sales of Rs.2000 per square foot per month in 2015, the 783.63 million square feet of organized retail space will generate annual revenues of Rs. 18.807 trillion and taxable profits of Rs.564 billion (assumed at only 3% of revenues). This translates to Rs. 2.594 trillion in GST collections (@ 16% GST) and Rs.174.28 billion in corporate income tax. The government is losing minimum 50% of this potential tax revenue because half of the business of the unorganized retail trade is probably escaping the tax net.

The organized retail sector will have at least 780,000 managers earning an average taxable salary of Rupees one million per annum. This will generate at least Rs.195 billion of additional personal income tax collections.

The total Rs.1576 billion in additional tax collections (Rs.1294 billion in GST [50% of total] + Rs.87 billion in corporate income tax [50% of total] + Rs.195 billion in personal income tax) translates to an increase of more than 11% in the tax collection of the centre and states, wiping out the revenue deficit and making India a revenue surplus economy.

Of the 783.63 million square feet of organized retail space, about 103.9 million square feet already exists – so we are talking about 680 million square feet to be added anew. This will need infrastructure investments of Rs.4.76 trillion (at an average Rs.7000 per square foot at 2012-2015 costs, for building construction, interiors and shop fit-ins) and Rs.1.904 trillion in inventories (@ Rs.2800 per square foot), or a total investment of Rs.6.664 trillion ($128 billion).

If 50% of this is foreign investment (by foreign retailers as well as financial investors), we are talking about FDI of $64 billion in four years, or $16 billion p.a., 80% increase over the actual inflows of fiscal 2010-11.

“We will get around $8 billion to $10 billion of fresh investments coming into the country over the next 5 to 10 years,” said Kishore Biyani to many TV channels and to this magazine.  “I expect at least $15-20 billion of investment over the next 10 years. Initially it will be smaller, but will pick up once international players get a hang of the market,” said Harminder Sahni of Wazir Advisors. According to the BBC, foreign retailers have said that investments will be closer to $40 billion. Certainly, these foreign retailers have done their homework.

“India has been a very exciting market and all this just adds to the excitement,” says Martin Jones, CEO of Marks & Spencer India, “we will not do anything different – we are happy with Reliance as a partner, as both parties bring different skills to the table.”

To sum up, if Dr. Manmohan Singh can make the state Chief Ministers and opposing party leaders (including some UPA allies) understand the tremendous impact that this bold move will have on the Indian economy, he will take Vijay Mallya’s recently vacated position of “the king of good times”.

Almost 11 million youth will have new (or better) jobs.  That’s almost 7.5% of the youth population of urban India. FDI will go up almost 80%, hopefully leading to the rupee bouncing back against major world currencies. The budget deficit will be wiped out, thus putting us ahead of China in this decade. Most importantly, about $180 billion will get converted from black market economy to accountable economy, and we may need a much smaller Lokpal authority.

RBI Governor Dr. D. Subbarao said on 25^th November: “For India to regain its growth momentum and indeed accelerate it further, the country has to address key challenges – raise agricultural production and productivity; expand employment; bridge infrastructure deficit; promote financial inclusion; and provide a stable and predictable macro-economic enironment.” FDI in retail takes care of most of this. Can this UPA government do it?

 

ABOUT ASIPAC

Asipac undertakes strategic research on the retail as well as the retail real estate sectors. In retail real estate, Asipac has provided development strategy, planning and lease management on reail/shopping centre projects of more than 17 million square feet, including seven of the 15 largest shopping centres in India. The company has leased more than 8.5 million square feet of retail real estate in South India alone in just six years. Asipac has current leasing mandates for nine malls in five cities, with combined GLA of 8.2 million square feet.

 

Everyone talks about them, but most don’t have a clue about the real size of their business. I am referring to the traditional Dravidian retail giants who have dominated Tamil Nadu’s retail landscape for decades, and don’t seem to be affected a bit with the onslaught of modern department stores or malls in their home turf.

Saravana Stores does annual business of Rs.510+ crores from a 7-floor store (that’s more than what any single Lifestyle, Central or Shoppers Stop store does).  From four stores, Saravana does Rs.1200+ crores. That’s two-thirds more than the Rs.717 crores turnover reported by Tata’s Trent, which includes Westside (54 stores), Landmark (18 stores) and Star Bazaar (12 stores). The Chennai Silks is estimated to be doing business of Rs.1150+ crores (excluding jewellery) from nine stores, Nalli Rs.700+ crores from 22 stores, Pothys Rs.650+ crores from four stores and RMKV Rs.510+ crores from four stores. These five Tamil Nadu retailers do sales of Rs.4200+ crores, more than the turnover of Shoppers Stop, Lifestyle, Westside and Reliance Trends put together.

This is the power of regional retail. Modern retailers are still trying to figure out how to make it happen. After months of efforts, Asipac’s research team finally got hold of two of these giants – let’s read what they have to say.

 

WHY DOES RmKV TRADE THREE TIMES’ LIFESTYLE OR SHOPPERS STOP?

Back in 1924, with India under British rule and organised retail non-existent, Rm.K.Vishvanatha Pillai set up a 1000 square feet women’s wear shop in Tirunelveli named RmKV after his initials. With silk sarees as its core product, the shop operated from this location until it shifted to a much larger 35,000 square feet megastore elsewhere in Tirunelveli in the 1950s. As it turned out, that market was to grow by leaps and bounds, positioning RmKV at the centre of a thriving retail hub.

According to Rm.K.Sivakumar (Siva), a third generation family member now running the business, “It was no coincidence that RmKV became the brand it is today. From day one, my grandfather worked with a mission of being honest and transparent, while focusing on efficiency at the back-end. In the 1920s he had a system to identify each product through a Unique Numbering System. With the advent of computers in the 1980s it became much easier, but the transition was smoother for us because of the system he had put in place, and we follow the basics of that system till date”.

For 80 years, RmKV operated a single store. Eventually, the market became so big and so crowded that, as per Siva, “the customer experience started deteriorating”. Access had become a problem, and there was hardly any parking for the increasing number of shoppers with private vehicles. With organised retail emerging at the turn of the century, RmKV decided to expand and take the brand outside Tirunelveli. A 35,000 square feet store was opened in Chennai in 2004. Four years later, RmKV opened its biggest store, a 100,000 square feet outlet in Tirunelveli. The original shop in the old market area continues to operate.

As a sign of RmKV’s desire to move with the times, the fourth store (58,000 square feet) was opened in 2010 inside a mall – Brookefields Plaza, Coimbatore. “We did a survey before we took the decision. Normally, silk sarees are sold in traditional markets, and we were unsure of the turnover we could achieve in a mall. We were pleasantly surprised with the results of the survey, with a majority of people saying if the price and quality of product stayed true to the RmKV brand, they would shop with RmKV in a mall”, says Siva. Asipac estimates RmKV’s sales at Brookefields Plaza at Rs. 14–16 crores per month, three times that of the similar sized Lifestyle in the same mall.

Another example of RmKV adapting to change was the online sales platform. A catalogue of almost 1500 sarees is currently online. Says Siva, “Weddings is our main business, and with weddings now planned, it helps a customer to visit the website and identify the products that fit their taste and budget. Even if they do not buy online because they want to touch and feel the product, by the time they visit our store, they pretty much know what they want, making the process that much easier”.

With a turnover that crossed Rs.510 crores in the last fiscal, RmKV’s ATD is an impressive Rs.1865. This is almost three times that of Shoppers Stop. This is noteworthy because their ABV is just Rs.1250, not exceptionally high by industry standards. With an average (four stores) 7500 daily footfalls and 11,000 on weekends and holidays, I estimate RmKV will cross Rs.700 crores this year.

“Competitive pricing and quality have been our strength. From the beginning, our business model has been one of ‘low margin and high turnover’, with margins usually in line with prevailing interest rates”, says Siva. During World War II, a quota system put a ceiling on the amount of merchandise a retailer could sell to each customer. “Retailers used to make a killing, selling at 2-3 times the normal price. Even then, my grandfather used to sell at 6-7% margin, equal to the prevailing interest rate”.

When asked about entering market segments other than silk sarees, Siva said, “Silk sarees define our brand. It is who we are. We are open to other segments as long as the parent brand is not diluted. We have diversified into RTW, dress material, artificial jewellery, women’s accessories, innerwear, synthetic sarees, but silk sarees is where we focus most of our energies on”. Maybe it was due to this unyielding focus that RmKV was not heavily impacted by the recent slowdown. Infact, they expanded in that phase, and ended up benefitting from lower sourcing costs during the slowdown.

I wondered why RmKV opened three stores in six years when it had taken them 80 years to open the second. RmKV has also signed a store of 60,000 square feett at the upcoming Forum Mall in Chennai. “We believe that growth is important, but so is sustainability and turnover. Planning and controlling the back-end process is critical. We did not want growth for the sake of growth, and it was only after a thorough study of new locations, competitors as well as customer behaviour that we decided that the time was right to expand”. As for future expansion, Sivakumar felt that the biggest challenge lay in managing multiple stores spread across a wider geography, and getting their formats right. He said that Nalli’s is a great example of a regional competitor that had successfully expanded across the country. When queried about how he plans to fund future expansion plans, Siva said that he would be open to external funding, although “it might be too early to think of an IPO”. I couldn‘t agree more, considering that RmKV has not yet stepped outside Tamil Nadu. PE investors will give RmKV a valuation of Rs.900-1000 crores. That’s more than listed companies such as Brandhouse (S.Kumar’s Group) and Provogue. If FDI was allowed in multi-brand retail, the valuation would be above Rs.1250 crores.

 

While on the topic of Nalli’s, Sivakumar gave them credit for spreading awareness about Indian ethnic wear amongst India’s youth, especially at a time when the general trend is towards western wear. “It is one of the challenges we face – getting younger women to wear sarees more often”, he says.

Like most businesses, identifying, recruiting, training and retaining high quality manpower remains a challenge for RmKV too. “Our frontline staff are from modest academic backgrounds and we conduct weeklong training sessions three times a year, outsourced to a professional agency, thereby ensuring that the staff’s product knowledge and customer service is top notch. Our senior management, on the other hand, comprises of educated professionals from reputed institutions. Overall, we strive to instil in our employees a sense of ownership and belonging towards the brand – it makes a positive impact on customers and it helps us counter attrition issues to some extent”, says Sivakumar.

So what makes RmKV achieve three times the trading density of Shoppers Stop and four times that of Westside? Is it because they are 87 years old? Or because they work on lower margins? Or is it because a majority of Indian women still wear ethnic? I believe it is a combination of all three. I see RmKV crossing a turnover of Rs. 1000 crores by FY 2013. Surely, a retailer of this size cannot be ignored by the industry.

 

CAN THE CHENNAI SILKS GO PAN-INDIA WITHOUT BEING IN A MALL?

Born into a family of weavers at Tirupur, in 1962, A.Kulandaivel Mudaliar set up a 100 square feet shop in Madurai, selling khadi products. Over the next 30 years, he set up 12 more “khadi vastralays” across small towns in Tamil Nadu, gradually increasing the range of products and carrying on wholesale as well retail operations.

In 1991, Mudaliar set up a 25,000 square feet store named The Chennai Silks (TCS) at Tirupur selling textiles, silks sarees and RTW garments. “At that time, it was one of the biggest stores in the area”, says P.A. Ravindhiran, General Manager – Sourcing & Operations. A store of that size in Tirupur 20 years ago (with economic reforms in India yet to be introduced) had to be a rarity.

In 1996, Mudaliar opened a 45,000 square feet store in Coimbatore. Another store of the same size opened in Erode in 1999, followed by a 125,000 square feet store in Chennai in 2001 and a 100,000 square feet store in Trichy in 2004. Two stores opened on the same day in 2007 – 100,000 square feet in Karur and a second 80,000 square feet store in Coimbatore. This spate of aggressive expansion continued, with a 75,000 square feet store opening in Coimbatore in 2008 (the third in the city), and TCS also started selling jewellery.

Another 125,000 square feet store was opened in Ernakulam in 2009, spread across nine floors. This was also TCS’ first foray outside Tamil Nadu, and an indicator of their confidence in the brand, business model and market conditions. A 150,000 square feet store is under-construction in Tirunelveli and is expected to open by end-2011.  This will take up TCS’ total retail space to over 870,000 square feet.

All TCS stores are located on high streets – not one in a mall. What’s more, TCS owns all stores, including the land under them, and has an in-house project division to identify suitable land parcels and carry out construction. Surely, they must be using third-party agencies in some form? What about market/location analysis? “Although we do have an in-house research division, they usually work in conjunction with third-party agencies, especially for customer preference surveys”, says Ravindhiran.

 

The development of all stores has been self-funded, and Ravindhiran maintains that TCS might not look at external funding for their short-term expansion plans.

This reminded me of my father’s generation, where debt was often considered ‘bad’. Leveraging, or using one’s own capital to generate higher returns while borrowing at relatively lower rates to fund income-generating assets, cannot really be considered bad, can it? But who’s to question convention wisdom, especially if it’s successful?

Ravindhiran claimed that he was not aware of the latest turnover of TCS, and was unable to provide the same by the time this article went to press, but Asipac’s research arm estimates that TCS currently does an annual business of Rs.1150+ crores (excluding jewellery). Since the TCS stores covered in this article also sell jewellery, an ATD calculated using these figures would be inaccurate; nonetheless, doing a business of Rs.1150+ crores from nine stores is impressive. This figure will increase if we consider jewellery as well.

According to Ravindhiran, TCS has managed to diversify considerably within the apparel segment. Although silk sarees is the core segment, supported by sub-categories like designer sarees and wedding silks, they also sell cotton sarees, kidswear and western wear for men and women. Ravindhiran stated that in the near future, TCS is planning to target “all segments, age groups and income levels”. That’s a mighty ambition, considering that even national players like Lifestyle and Fashion@Big Bazaar operate at opposite ends of target income segments. TCS caters to a wide variety of income levels but within a restricted range of merchandise, and how it manages to expand along both axes needs to be seen.

With more than half of their merchandise designed and manufactured in-house and separate directors for production and retail, Ravindhiran sees TCS as a trendsetter. One of the things that struck me was that they have had an online sales platform since as early as 2000. “Although it was slow to take off, it has been doing very well in the last few years and now we have a large team to handle our online operations”, says Ravindhiran. Online sales in India have become commonplace only in the last 5-6 years, and I see this as one sphere where they have indeed proved to be early adapters.

On manpower, TCS, RmKV and a lot of other regional players seem to have a similar model – fresh graduates are recruited as store staff and then trained, professionals with corporate experience are recruited for middle management positions and then groomed for more responsibilities, and people who are either from ‘the family’ or who have been with the business for a long time normally occupy the top management positions. Ravindhiran himself is related to the Mudaliar family and joined the business in 1996. Syed Mushtaq, GM – Operations, has been with the business for 30 years.

The third generation has now entered the business, handling segments like men’s western wear and designer sarees, and young blood has led to fresh ideas and strategies to take the TCS footprint further. “We will be pan-India very soon”, claims Ravindhiran. Funding (especially for expansion) is where most regional retailers seem to stumble while on their expansion plans, and TCS does not appear to have that problem.

And then there’s the precedent of Nalli’s. It’s a bit like the four-minute mile. Athletes globally tried to run a mile under four minutes for decades, and it was considered ‘almost impossible’. Finally, Roger Bannister ran it under four minutes in 1954. Once proven possible, Bannister’s record was bettered in the same year and another four times in the next 10 years. Nalli’s has already set an example by metamorphosing from a regional to a national player in a very short while. So, while a pan-India presence for TCS might take a while, I am not willing to bet against it.

Mudaliar passed away a few years back, but when he sat in his 100 square feet Khadi Vastralaya in 1962, could he imagine TCS will be one day where it is today – a $250 million turnover company with a valuation of not less than Shoppers Stop’s market cap of Rs.1710 crores? Unlikely, but he was fortunate to have lived long enough to see this success. Only time will tell whether his successors will make a national giant out of The Chennai Silks, but they sure are sitting on a solid launch pad.

Westside’s website boldly claims that “Westside is one of India’s largest and fastest growing chain of retail stores.” I wonder whether equity analysts and investors who give Trent a market cap of 4.3 times its annual revenues or 71.5 times its net profit are even aware of the existence of The Chennai Silks and RmKV, and the threat regional retailers could pose to the highly overvalued national chains.

 

ABOUT THE AUTHOR

Amit Bagaria is Founder Chairman of shopping centre development consultants and managers Asipac Group and retail chain MEN & BOYS.

 

This is the first in a new series of stories initiated by Images Retail about successful local retailers spread across urban India, who continue to expand and grow, despite tough competition from national (and in some cases, even international) retailers.  If you know about such a retailer in any Indian town (including Tier-II and Tier-III towns), please send the name of the retailer and the city (with contact details, if available) to ab@asipac.com.

“Our top management does not change every 1-2 years.”  This emphatic statement by Niyas K.N., Chief Information Officer and one of the owner family members of M.K.Retail, a `80 crore Bangalore grocery store chain, sums up (according to Niyas) the key difference between local family-run retailers and national corporate chains.

The original M.K. Ahmed & Sons was founded in 1927 at Bangalore’s Mysore Road by Niyas’ grandfather, Late M.K. Ahmed, who originally belonged to Kerala.  Although Ahmed died in 1947, his sons managed and grew the business.  Son Abdul Rahman, current Chairman of M.K.Retail, set up a kiraana store in Malleswaram in 1963.  The business was split up in 1983 between his five sons, and Abdul Rahman, inherited the kiraana shop on Bangalore’s CMH Road.

In 1985, when Foodworld (then a JV between RPG Enterprises and Dairy Farm, part of the Hong Kong headquartered Jardine Matheson Group, which also owns iconic grocer 7-Eleven) opened right next door with a modern, international ambience and feel, Rahman soon realized that customers were changing their loyalty, and converted his CMH Road store to replicate the supermarket experience.  In the next 15 years, Rahman only opened one more store and the two-store chain did a business of `4 crores in 2000.

In the early 2000s, Rahman’s five sons joined the business in quick succession. They changed the name to M.K.Retail and began expanding. The 17,000 square foot flagship store opened further up on the same road, in 2002.  This store even stocks stationery, appliances, crockery and furniture. Today, M.K.Retail has six stores (the seventh is opening soon) occupying total retail space of about 60,000 square feet.

Each of Rahman’s five sons looks after a vertical.  While the oldest, Shakir, looks after finance, Anas runs operations, Niyas handles IT, Shamim heads purchases and Hishan, the youngest, is responsible for marketing.  The brothers meet once a month to discuss strategy and take important decisions by consensus. There are no external board members or advisors.  Niyas says that MBAs can’t so the job as well, as they are not flexible and can’t take quick decisions, as everything has to be analysed.  He argues that their six family members (including dad Rahman) in the business, is what differentiates them from the national corporate chains.  “We have a common vision, mission and goals,” he says.

This point could be easily argued.  Future Group today has as many as seven Biyanis involved with different functions within the group. In less than one fourth the time as M.K.Retail, Future Group has grown to over 1000 retail stores spread over more than 16 million square feet in 138 cities and rural locations.

So what really is the difference?  Niyas argues that, while retail is the core business for his family, for many of the corporate retailers, retail is just one of their businesses.  According to him, the sale of eggs from his six stores equals the combined sales of eggs from all 40 stores of a corporate-owned competitor.  He is proud that M.K.Retail has never shut a store. Each one of their stores is individually profitable and sustainable on a standalone basis. Their focus is more on profitability than the number of stores.

Niyas reminds us that retailers such as Aditya Birla Group’s More, RPG’s Spencers and Reliance Fresh have been forced shut several underperforming stores.  He says that focus on growth rather than profitability is most likely to lead to another Subhiksha story.

Subhiksha, founded in 1997 became a 150 store company by the year 2006. Then, with infusion of private equity, and the irrational exuberance witnessed at the time across businesses and sectors, it grew unmindfully into 1600 stores by 2008. Within a year, the company went bankrupt and had to close down.

Another notable difference is that employees of national retailers stay with one employer for an average of less than three years, while M.K.Retail’s employees have an average career span of 15 years in the organization.  They provide accommodation to most of their long-serving employees, which results in loyalty.

The most important difference is obviously in consumer perception or acceptance. From the consumers’ perspective, while an average Food Bazaar stocks 40,000 SKUs, M.K.Retail’s flagship store has 60,000 SKUs.  According to Rasika Lumba, the wife of Kabir Lumba, Managing Director of department store chain Lifestyle, who shops in M.K.Retail on a regular basis, “their fresh produce is always very fresh, they stock good quality fruits, vegetables and flowers, including exotic items, offer the widest varieties of mangoes in the season, they have a wide range of Indian mithaais and gourmet foods, they sell unique and usually high-quality bakery products and desserts, they are usually first to launch new branded food products in the market, carry a good range of crockery and other household gifts and also carry an excellent variety of gifts for all budgets.”

There could not be a better testimonial, coming from none other than the wife of a seasoned retailer, whose parent Landmark Group also runs Spar Hypermarkets and Supermarkets in India under license from the Dutch retail giant Spar.  Founded in 1932, Spar had worldwide retail sales of `168,000 crores (€28 billion) in 2009, from their 12,169 outlets occupying 65 million square feet in 33 countries.

One thing does strike me here – despite operating in a low cost economy such as India, M.K.Retail’s average per store sales of `13.33 crores equals that of Spar’s global average and is 80% higher than Spar’s UK average of `7.41 crores per store, or 36% higher than the `9.81 crores average in Spar’s home country Netherlands.

Viney Singh, Managing Director of Spar’s Indian operations, says “M.K. Retail is a classic example of a home grown convenience store which has built up a reputation of catering well to the needs of the local catchment. Apart from the convenience, I hear a lot of positives on their service levels. My Malayaali friends living in the Indiranagar area tell me that they get a lot of their Kerala delicacies at M.K. Retail.”

So, can M.K.Retail ever become a Spar?  Maybe not, if one goes by the current ambitions (or plans) of the owners.  Niyas only sees M.K.Retail as a 30-store chain with a `500 crore turnover by 2027, the year when it celebrates its 100^th anniversary.

“The variety of products they offer is amazing. Their billing is super fast and there is always a pair at the counter, one to bill and the other to fill up the bags,” says Priya, another frequent shopper, “The staff is always talking a lot, but a supervisor keeps an eye on everything.”

“They are a good bunch of people. They try hard and they have a good offering,” said a senior official of an international supermarket chain who did not wish to be named.

Younger brother Shamim attributes superior merchandising to the fact that people in his sourcing team have been with the retailer for 15-20 years, and so understand the consumer pulse, compared to national retailers, whose sourcing managers keep changing. “We do merchandising based on what customers demand, rather than based on margins or profitability,” he says, “Many of our SKUs don’t make money, but they still make business sense because our customers want them.”

“What is unique about them is their personal touch with customers, something which is missing in modern organised retail. They are faster in adapting to customer trends and habits,” commented a senior official of one of India’s biggest supermarket chains who also did not wish to be named.

“Any retail experience can be measured on four counts,” says Anas, “how long one waits in the check-out queue, the attitude of the shopfloor staff, the product mix, and pricing. As long as you succeed on these four fronts, the rest takes care of itself.”

One of their biggest weaknesses seems to be on the shrinkage front – Niyas claims that they have 6% pilferage.  That translates to almost `5 crores per annum, a very high figure for any local retailer.  Globally 2% is the norm, and Spar averages less than 3%.

M.K.Retail’s seventh store at 4000 square feet will be the smallest in the chain.  They are experimenting with this size because they believe that this is the size that could be its growth engine for the future.  A smaller sized store can be replicated across several more locations, either on their own, or even through franchising.  It is difficult to set up 15,000 to 20,000 square feet stores, or even to run them, says elder brother Anas.

As things stand today, M.K.Retail does not see itself expanding beyond Bangalore and Chennai, a city it is eyeing very closely. The metros offer far greater potential than smaller towns such as Mysore or Mangalore, they feel.  They also prefer to continue with the high street route, rather than malls, as they feel malls charge very high rentals.

This 6-store chain is open to growing by acquiring other chains, even standalone shops.  Although they have tried many acquisitions, no deal has gone through, because of unrealistic valuation expectations of the owners, according to Shakir.

M.K.Retail is open to external funding and could even consider an IPO for growth capital.  However, despite several offers from various PE funds, they have not really moved forward on the funding front. They are worried that Nilgiris ran into trouble after the family sold its stake to private equity investors.

Nilgiris is a Bangalore headquartered supermarket chain, with 90 stores across South India.  It was founded in 2005, near Ooty, in the Nilgiri hills of Tamil Nadu. The flagship store on Bangalore’s Brigade Road opened in 1936. Nine years later, in 1945, this store was converted into what was (perhaps) India’s first real supermarket.  By 1982, it had a presence in five cities, including Chennai.  In late 2006, UK based PE Fund Actis had acquired a 65% controlling stake for `300 crores and started running the chain with professional management. In 2008-09, the second year of operations run by Actis, Nilgiris made a loss of `22 crores. This led to a spat between the original owner family (which still has a 35% stake) and Actis, which is ongoing for 18 months now, and has thus restricted any further growth of the chain.

“For family run businesses, survival is more important than valuation,” says Niyas cheekily, “We cannot afford to operate on a business model that allows breaking even after two or three years.  Each store has to make money from day one.”

M.K.Retail does not subscribe to Kishore Biyani’s theory of “is se sasta aur sasta kahi nahin”.  The cheapest price is not important, according to them. Their experience across different neighbourhoods of Bangalore, with different mix of SECs, shows that economy brands do not last long and premium brands are far more sustainable. Even with their private labels, they have had better success with premium priced (and high quality) products than low budget offers.

Future Group’s value formats Big Bazaar and Food Bazaar together have more than 510,000 square feet of retail space in Bangalore.  Many other national retailers have between 100,000 to 250,000 square feet each. M.K.Retail has just 60,000 square feet, but has same store growth of 30% per annum.  Only time will show who is right, and who will sell more eggs.

While M.K.Retail is definitely one of the most well known, trusted and successful local retailers in Bangalore, I must say a few words about some other successful “local” Bangalore retailers. While I have already written about Nilgiris (which may not even fit into the classification of “local”), here are a few others definitely worth a mention:

C.Krishniah Chetty & Sons is a 141 year old fine jewellery retailer with three outlets in Bangalore and one in Hyderabad, with a turnover of more than `160 crores.  Three family members run the business.

Favourite Shop Group comprises three retail formats Favourite Shop (multi-brand unisex apparel), FS Man (men’s apparel) and Soch (ethnic fashion), which together have 20+ outlets across South India and a turnover exceeding `125 crores. The chain, run by a father and his two sons, is expanding rapidly (with new stores mostly in malls) and will perhaps be the subject of an article in this series in the future.

Showoff is a unisex western fashion apparel MBO with five outlets in Bangalore and a turnover of more than `40 crores. Run by four brothers, this chain is now fast expanding, mostly in new malls.

Girias is a CDIT retailer with 20 stores across Karnataka and Tamil Nadu, occupying more than 180,000 square feet of retail space and a turnover of almost `500 crores.  Four family members run the business.

Pai International, established in 2000, is a CDIT retailer with 25 outlets spread across Karnataka, with annual turnover in excess of `200 crores. As many as seven family members run the business.

Mirrors & Within is a growing chain of beauty salons, run by two sisters and a brother.  They have seven outlets across Bangalore, including several major five star hotels and a flagship opening shortly in The Collection at UB City.

Amit Bagaria is founder Chairman of award winning Asipac Projects, India’s leading mall planning and leasing consultant, which has conceptualized and marketed six of India’s 15 largest malls, Asipac Mall Services, a mall management company and Arus Retail, which owns Men and boyS, India’s first retail chain exclusively selling men’s cosmetics, skincare & hair care products, fragrances, which also provides specialized treatments for men.

India’s Next PM Likes Chicken

This is THE FOURTH PART OF ‘YESTERDAY ONCE MORE’ – A series of stories initiated by Images Retail about successful local OR REGIONAL retailers spread across urban India, who continue to expand and grow despite tough competition from national and international retailers.

RAHUL MEETS RAHUL

India’s crown prince (or should I say the country’s next prime minister?) Rahul Gandhi recently enjoyed chicken 65, chicken kathi rolls and crunchy chicken at the legendary Aryan restaurant opposite the Uttar Pradesh Governor House on Lucknow’s M. G. Marg, in the state capital’s well known Hazratganj area.  When Aryan’s owner Rahul Khanna tried to convince his namesake that the lunch was on the house, the young Gandhi insisted on paying in full.  Gandhi even chatted with some young ladies attending a birthday party at Aryan and posed for photographs with them. “He (Gandhi) is a very decent man,” comments Khanna.

Rahul Gandhi is not the only celeb to have dined at Aryan.  The list includes film writer-director Shyam Benegal, ghazal singer Jagjit Singh, actor Vivek Oberoi and recipe book author Tarla Dalal.

Coming from a family in the institutional catering business, Rahul (Khanna, not Gandhi) started his first restaurant when he was only 29, back in 2001.  The catering business continues to thrive and parent company Yash Foods even caters to the Chief Minister of Uttar Pradesh.  I’m wondering if Rahul Gandhi would have still dined at Aryan if he knew Mayawati eats the same food.

Today, there are nine Aryan restaurants, eight in Lucknow and one in Allahabad.  The tenth – a restobar under a new brand name “ZINNG” – will open early next year, coinciding with the chain’s tenth anniversary.

The second and third Aryan restaurants both opened in 2004, the fourth in 2005, fifth in 2006, sixth in 2007, seventh in 2009 and the last two (a pure vegetarian restaurant and the one at Allahabad) this year.  Put together, the nine restaurants have a seating capacity of 720, plus additional banqueting space for 600 people. Zinng will have 120 seats.  The original restaurant on M. G. Marg still remains the group’s flagship, with 150 seating and banqueting capacity (under the name of “Essence”) for up to 500 people. While all eight restaurants at Lucknow are company operated, the newest one at Allahabad is franchisee run and is located in a mall.

Aryan does home delivery throughout Lucknow city. That should not be difficult, considering it has eight locations to cater from. Annual turnover this year will cross `18 crores, excluding the franchised restaurant at Allahabad, which will do almost `3 crores of business. The ABVs in Aryan’s QSR formats is `90, while it touches `200 in the casual dining formats.

Apart from the restobar, 2011 will also see the opening of franchised restaurants at Varanasi and Gorakhpur.  Next on the agenda is Agra, followed by ……  hold your breath …… London. Yes, Khanna is seriously working with London’s official FDI agency “Think London” to open a restaurant in the city’s well-known upscale West End area, which includes Mayfair, Park Lane, Oxford Street, Regent Street and Bond Street, the most expensive properties in the board game Monopoly. At Lucknow, a Chinese restaurant will also open very soon.

The multi-cuisine Aryan restaurants already serve Chinese food, apart from North Indian and South Indian.  Someone on the website TripAdvisor complains about the restaurant not serving Lucknowi food. Lucknow resident Sonal Gidugu says, “This is the best restaurant in the city. Whenever I have to go out for dinner with relatives, Aryans is the most preferred. You get a very pleasing ambience with good music.”  Loyal customer Asha Adlakha adds, “I cannot remember the number of times I had lunch or dinner at Aryans. It’s a perfect place for birthday parties and also for family get togethers.” Kapil Bansal, who was raised at Lucknow and nor lives in Bangalore calls Aryan “a fusion between a Nirula’s and Shanti Sagar, with pretty decent food and consistent quality.”

Even though Rahul Khanna was born in Kanpur, this neighbouring city is not on his radar, because “it has people of much lower income levels.”  Hmm…I wonder when the Gandhi scion is scheduled to dine next at Kanpur?

In the next five years, Khanna expects to have 20-25 restaurants, mostly spread throughout Uttar Pradesh. Delhi is not on his radar, “as it is overcrowded”. He is also considering larger banqueting facilities, starting a packed food business and even a foray into 4-star hotels.  Younger brother Ruchir also helps him run the business.

Even 12 restaurants for a local restaurant chain is certainly impressive. While international F&B chains such as McDonald’s (160+), KFC (100+), Domino’s Pizza (300+), Pizza Hut (140+) and Subway (180+) have all opened more than 100 outlets each in India, no Indian chain has managed to reach even 75.  Blue Foods has less than 70 outlets, Nirula’s has <60 (excluding ice cream kiosks and pastry shops), BJN <40, Mainland China <30 and Haldiram’s <25.  McDonald’s, KFC, Pizza Hut, Domino’s Pizza, Café Coffee Day and Barista are all present in Lucknow.  Costa Coffee, Nirula’s and Blue Foods opened outlets but had to shut them down due to low performance.

Khanna is not impressed with the international chains. “McDonald’s, Pizza Hut and KFC are assembly lines – they do not manufacture food like we do, as Indian food is always made-to-order,” he says.  He claims that while his M. G. Marg outlet does annual business of more than `3.5 crores, the neighbouring Pizza Hut is struggling at less than `1.5 crores.  His inspiration originally came from Nirula’s and now he is learning from Haldiram’s.

I’m looking forward to dining at Aryan whenever I visit Lucknow next – who knows, I may even bump into Sonia Gandhi there.

KANPUR IS NOT A BAD MARKET

Even if Rahul Khanna of Aryan thinks that his birthplace Kanpur does not have good market potential, Kanpur-based Raj Ratan is experiencing a monthly ATD of almost `3500 psf in one of its stores. This is more than four times the ATD of Westside or Pantaloons.

Apparel retailer Raj Ratan has four stores at Kanpur and one at Lucknow.  The first (and at 10,000 square feet, the largest) opened at Nayaganj in 1999.  The family was already in the womenswear wholesale business, which was started by Ratan Chand Khatri back in 1964.  Other businesses of the group include real estate, BPO, castings, healthcare and a club.

The second store opened five years later in the city’s posh Swaroop Nagar area.  A third opened in 2006 at P. Road, followed by a fourth in Lucknow (on the Kanpur highway) in 2008 and a fifth in Kanpur’s Lal bangle area in 2009.  The chain expects to close this year with a topline of `100 crores from 37,000 square feet of total retail trading area, giving them a monthly ATD of `2250 psf.

Expansion plans include several more company operated stores in Lucknow, as well as new places such as Varanasi, Allahabad, Gorakhpur and Rae Bareli.  Raj Ratan expects to be a 20-25 store chain in 5-6 years.  They are not interested in franchising and do not believe in malls. “We like to be apart (away) from the market,” says CEO Preet Singh. When I informed them that Tamil Nadu based retailer RMKV does more than `10 crores of monthly business from its 55,000 square feet anchor store at Brookefields Plaza mall in Coimbatore, Singh and his boss Raj Kumar Khatri (Director of Raj Ratan), did not seem to be too impressed.

In fact, neither Khatri nor Singh were aware of the fact that local/regional retailers in the South have single stores as large as 125,000 square feet.  “Ours is the largest store in Kanpur,” was Khatri’s response. Singh expressed surprise and commented that he would visit the South with his team to see these stores and study the South Indian market.

In this context, the Images initiative of organizing Regional Retailers Conclaves at the IRF and the Images Regional Summits needs to be applauded, as it will give much needed exposure to local retailers based at cities such as Kanpur and Guwahati, who seem to be disconnected with what is happening around India. Asipac is happy to be associated with these conclaves.

While Raj Ratan started and grew primarily as a womenswear store, men’s apparel now comprises 30% of the business. “Men used to come with women to buy sarees, so we thought we should convert ourselves to a family shop,” says Singh.

Sarees comprises 42% of the total business, while salwar-suits and lehengas make up the balance 28%.  Their saree offerings include cottons, silks, crepe-de-chines, chiffons, Benarsis and Kanjeevarams.  Frequent customer Beena Batra says, “They have the best variety in sarees at Kanpur. I generally shop there for myself and my daughter and have also recommended others for purchasing sarees and suits for various occasions.”

Khatri is proud of the fact that Raj Ratan treats all customers equally and that his shops are “fixed price shops” whereas other Kanpur retailers have huge and never ending negotiations.  Well, that is the first step towards becoming an organized retailer.

LORD SHIVA ON MONDAYS, HANUMAN ON TUESDAYS AND SATURDAYS

Standing on the western bank of India’s holiest river Ganges, Varanasi is the oldest surviving city of the world and the cultural capital of India. Deen Dayal Jalan started wholesale apparel trading business there in 1974. In 25 years, the business was flourishing, with 4000 regular customers and almost 6000 ad-hoc customers.

That prompted his son Krishna Kumar Jalan to start a 4000 square feet retail store in 1999, under the name Jalans at Gyanvapi, close to the famous Kashi Vishwanath Mandir (Shiva temple). This 4000 square feet store does annual business of `30 crores, with a monthly ATD of a whopping `6250 psf. Sales here are highest on Mondays, the day most devotees/pilgrims visit the Vishwanath temple.

Six years later, in 2005, the second store – a much larger one at 25,000 square feet – opened opposite the Sri Satyanarayan Tulsi Manas Mandir, at Durgakund.   This store does annual business of `60 crores, with a 30% y-o-y growth. Here, sales are highest on Tuesdays and Saturdays, due to its proximity to the Sankat Mochan Mandir (Hanuman temple).  This flagship store also has an economically priced Indian fast food restaurant.

Another four years later, in 2009, a small 2200 square feet store was set up half a kilometre from the first store at Gyanvapi.  This year, the fourth store opened at Kuccheri.  This 18,000 square feet store will also soon have a restaurant.

The three locations (Gyanvapi has two stores) of Jalans form a triangle in Varanasi.  The four stores together do an annual business of `150 crores, with a monthly ATD of a whopping `2550 psf.  Next year, Jalans will open their fifth store at Allahabad.  In the next five years, they expect to have 8-10 stores, with a turnover of more than `300 crores.

Three years ago, Krishna Kumar Jalan had sent his son Bhagirath Jalan for training at Future Group (he knows Kishore Biyani very well).  Young Bhagirath worked under Future Group Director Damodar Mall for one year, and returned in November 2008 to join the family business.

“This experience gave me confidence to expand the business and to add categories,” says Bhagirath.  He quickly converted the Durgakund flagship store from a 100% apparel store to a department store format, adding categories such as footwear, cosmetics, mobile phones, cameras, watches and fashion jewellery. The Kuccheri store was started as a department store.  Jalans sells over 450 pairs of footwear per day across its stores.

Jalans customer Anju Taneja says, “Shopping at Jalans is surely value for money and this is one of the very few stores where you get products of all ranges. I generally shop there for clothes. This is the best department store in Varanasi.”

Apparel still constitutes 85% of Jalans business, with sarees accounting for 40% of that 85%. The range starts from a saree with blouse piece for only `65/- to a lehenga for as much as `30,000/-.  The price range is displayed through shelf talkers, so that customers do not get embarrassed in asking for products within a price range. Winter wear is amongst the fastest growth categories.

Compared with the people at Raj Ratan in Kanpur, Bhagirath Jalan is much more aware of similar retailers around the country.  He visits Chennai every year to see the T Nagar market there. “It’s a very good place to learn retailing,” he says, “the retail stores there get customers from across the region and customers are very loyal to the retailers in South India.”

Today, Bhagirath runs the retail business, while his father and uncle run the wholesale business. The training under Damodar Mall seems to have had another effect on young Jalan – he wants to add supermarkets adjacent to his two large stores. He is also working on professionalizing the organization. “We need to change mindsets,” says Bhagirath, “1-2 stores can be run by family members, a chain has to be run professionally.”

Did Kishore Biyani help create a formidable future competitor? Let us wait and watch.  Au revoir till next month.

ABOUT THE AUTHOR

Amit Bagaria is Chairman of shopping centre development consultants and managers Asipac Group and retail chain Men and boyS.

This is PART OF a series of stories initiated by Images Retail about successful local / REGIONAL retailers spread across urban India, who continue to expand and grow, despite tough competition from national (and in some cases, even international) retailers.

Big boys don’t party in Aurangabad

As I write this story, the grandson rises in Maharashtra.  Yes, the third generation of Thackerays, Aditya, photographer and poet, son of Uddhav, grandson of the legendary Bal Thackeray, is now in politics.  So why is this relevant to this article?  Just like the regional Shiv Sena has given national political parties a run for their money in the western Indian state of Maharshtra, so has Sapana Supermarkets beaten back the national retailers out of Aurangabad. 

V.B. Gupta, erstwhile schoolteacher and younger brother of Dr. D.B. Gupta (of pharma giant Lupin fame) started Sapana Polyweaves in 1984, with a factory in Aurangabad to manufacture polypropelene mats (plastic carpets). Today, Sapana mats are sold in 25 countries, including USA and most of Europe.  Sapana has been the top Indian exporter of mats in 2003-04, 2007-08 and 2008-09.

Inspired by Amway and another company in the Philippines, in 1993, Gupta started the business of multi-level marketing (MLM) in Mumbai, under the name of Sapana Asha Kiran Network Marketing.  His son Nishith Gupta, then aged 24 and fresh with an engineering degree from Pune, was given charge of this business in 1999. Around the same time, both father and son read the book “Made in America” by Sam Walton, founder of Wal-Mart, the world’s largest retailer.  This was a game changer.

Obviously inspired by Sam Walton’s success, and not very happy with the value proposition of the MLM business, the Guptas decided to shut down the MLM business and use their experience in dealing with FMCG products and consumers to start a food and grocery (F&G) retail business.  They chose Aurangabad because the mat manufacturing plant was already there and real estate costs were a fraction of Mumbai.  Young Nishith was put in charge of the project.

The first Sapana Supermarket opened in 2000 at Samarth Nagar in Aurangabad.  The next year (2001) saw the opening of four more stores, at Bajrang Nagar, Ulkanagri, CIDCO’s N3 Sector and Dashmesh Nagar.  This was followed by one new store every year for the next five years.  The sixth store opened at TV Centre in 2002, followed by Shahganj in 2003, Waluj in 2004, Beed Bypass in 2005 and Aurangpura in 2006. The 10 stores (four owned four on rent) together occupy about 22,000 square feet of retail space.  At an average of 2200 square feet per store, the format is more of a convenience store, even though it carries the name Sapana Supermarket.

Since then, there was a four year long hibernation. Nishith explains this was because several national chains opened their convenience stores in Aurangabad – Sapana saw high staff attrition across levels, rentals in the city went up, there was a drop of up to 20% in some store sales, as customers wanted to try the novelty experience offered by these national chains. “We served as a training ground for many retailers in and around Aurangabad,” says Nishith.

The mahabharat battle lasted less than three years.  All seven stores of Subhiksha shut down. The 16,000 square feet Vishal Megamart closed in February 2010 after operating for 3½ years. Spencers has closed all five Spencers Daily neighbourhood stores and is concentrating on its hypermarket format – there is one Spencers Hyper at Aurangabad.  Reliance Retail has shut two of the five F&G stores it had opened.  Aditya Birla Retail only set up three MORE stores and one More Megastore in Aurangabad.

In the last two years, the honeymoon is over and customers have started returning to Sapana. “The national chains did not survive because they were paying as much as 10% of revenues as rentals – in the F&G business, gross margins are just 14-16% and one cannot afford to pay more than 3% as rent,” commented Nishith Gupta.  The smile is back on his face and he is now actively looking at expanding Sapana once again, although in a cautious manner, so as to not make the same mistakes the national chains did.  Although Sapana had also planned to open a 40,000 square foot hypermarket, it has shelved those plans as of now.  Since the 10 existing stores are located within 1½ km of any point in Aurangabad, the home base is pretty well covered and future growth is likely to come from neighbouring cities such as Nashik and other smaller towns across Maharashtra. “We had no pressure to grow,” he says, “we only opened a store if and when we got the right place at the right price.”  Perhaps, the MBAs and CAs at the national chains need to learn from this young engineer.  According to Nishith, many prime retail properties in the city are vacant as they are asking for too high rentals.

Sapana has a topline of `19 crores, with an ATD of `720/sft/month, about 20% lower than the national average. Not all 10 stores are performing to capacity – while the N3 store does business of `29 lakhs a month, Shahganj is still struggling at `5-6 lakhs a month.  Nishith says that even the N3 store was doing just `5-6 lakhs a month just four years ago. He sees Sapana as a 30-35 store regional chain by 2015. He is exploring several possibilities to raise funds for expansion.

In early 2008, Sapana was in talks with external investors and larger retail players for a tie-up or stake sale.  Although Sapana did get some offers, the valuations were very low, as a result of the financial market meltdown in 2008. One player with whom talks had progressed was Spinach.  It was a godsend for Sapana as, earlier this year, Wadhawan Retail shut down all 45 of its Spinach stores.

Nishith believes that Sapana has most of the systems of a large company.  Don’t forget he learnt the tricks of the trade from Sam Walton himself – so what, if it he didn’t follow it “by the book”.  Nishith is particularly proud of his 9600 square feet DC (distribution centre).  “It’s a true DC and not a warehouse, as nothing stays there more than 48 hours,” he says, “purchases and logisitics is the backbone of retail business.” Shrinkage is less than 1%, much better than industry standards. In fact, the level of shrinkage plays a big role in staff appraisals, especially of store managers.  Sapana also puts a lot of emphasis on the assortment and range of products, as well as pricing.  Nishith feels this is another area in which the national players are going wrong. Although Nishith believes that his stores have a great layout, some of Spana’s regular customers feel that the stores are overcrowded.

“Retail has been thriving across India without the organized sector for decades,” says Nishith Gupta, “organized retail will find it very difficult to survive in India.”  Was I wrong in comparing this young Maharashtra warrior with Shiv Sena?

Jai Maharashtra or Jai Hind?

We move on from the 1.5 million people strong Aurangabad to its three times larger regional big brother, Pune – India’s seventh largest city.

If you live in Pune, you cannot ignore Jaihind, especially if you are a man.  Every man that I spoke with in Pune knew about this retailer – such is its popularity.  Even men such as Kabir Lumba, Govind Shrikhande, Vishnu Prasad, Gaurav Mahajan and Arun Sirdeshmukh should not ignore Jaihind.

In 1980, Jivraj Jain started a 1000 square foot retail store for men’s clothing by the name of Jaihind Collections (Collections has now been dropped from the trade name, which is now just Jaihind) in Pune’s Laxmi Road, in the retail hub of Sadashivpet.  In 1988, the store quadrupled in size.  After another nine years, in 1997, the store grew to 9000 square feet.  Fast forward to seven years later, and you had a sprawling 28,000 square feet four-level department store, selling men’s readymade apparel, fabrics, ethnicwear, sunglasses, perfumes, ties and belts, and even offering customized tailoring.

By this time (2004), Jain’s nephew and current MD, Dinesh Gupta, was running the business, assisted by his two younger brothers, Pravin Jain and Vinod Jain.  In the same year, Bollywood icon Salman Khan launched Jaihind’s Mewar section (department) dedicated to selling ethnic and bridegroom apparel.  By 2007, Dinesh’s son Preshit also joined the business. Addition of young blood led to improvements in systems and processes.  It also led to the opening of the second store – of 15,000 square feet – at Karve Road in Kothrud.

While many national retailers were busy in shutting down or downsizing their operations in 2009, Jaihind opened its third store of 20,000 square feet at Aundh.  Footwear was now added as a category.  The fourth store of 22,000 square feet opened in early 2010 at Pimpri. Gupta adds that Jaihind’s business has not been affected with the advent of the national retail chains, or large department stores.

Recently, the family has also diversified into real estate development and Vinod Jain looks after this business.

Jaihind is planning to open two more COCO (company owned company operated) stores in Pune within 12-15 months.  One of these may be at a mall. It is also planning 4-5 new FOFO (franchisee owned franchisee operated) stores (with an average size of 15,000 square feet) in 27-30 months, at places such as Nagpur, Aurangabad, Kolhapur and Nashik.  “Our brand is very well known over a 200km radius and we want to capitalize on this,” says Gupta, “Jaihind serves 1.4 million customers per year, including more than 100,000 NRIs.”

A little more than half the business comes from readymade apparel, with a majority contributed by formalwear.  Jaihind has a department named JC Studio especially for clubwear, eveningwear and partywear and this business is also growing.  Brands like Colour Plus, Van Heusen, Louis Philippe, Zodiac, US Polo, Allen Solly, Pepe, Levis, Mufti and Spykar are the most popular.

About 21% of business comes from fabrics – Jaihind is Raymond’s second largest retailer in the country, in the MBO category.  5-6% of the business is made up of ties, belts, footwear, sunglasses and fragrances.  The average age range of the customer is 20-40.  Almost 40% of the men shop alone – that is, without an accompanying female companion.

Each of the stores either has a floor or an area dedicated to the Mewar ethnicwear department. These departments have catwalk ramps with focus lighting, to help soon-to-be-married bridegrooms to see how they will look on their big day.  Hmmm, I wonder how many Pune brides walk the ramp before their big day.  According to Gupta, there are now weddings during eight months out of 12.  Ethnicwear contributes to about 22% of Jaihind’s topline.  The retailer is also contemplating the possibility of opening Mewar EBOs on a standalone basis.  It has recently tied up with the famous Bollywood ethnic fashion designer Shahid Amir to launch a signature collection.

Gupta sees the scope for a national retail chain dedicated to men.  He is ready to tie up with a national player to open 100+ stores.  Other players in this category who come into immediate recall are Ahmedabad based Jade Blue (which has seven stores in five cities of Gujarat, as well as Indore in Madhya Pradesh) and Prestige The Man Store (which has two stores in Bangalore).  So are men finally getting their rightful 50% share?

`30 crores turnover from retailing 25 paise paperclips

Six years before Jaihind Collections was set up, a couple of blocks away, Kishan Chand Arya set up a small 225 square feet stationery products shop named Venus Traders at Pune’s AB Chowk (not named after the author, nor after Amitabh Bachchan), where many books and stationery shops already existed.  Arya’s family already owned an established stationery manufacturing business by the name of Sudarshan Stationery.

Nine years later, in 1983, the store size more than doubled to 500 square feet.  In 2002, the Pune Stationery and Cutlery Association gave the Best Shop Award to Venus Traders.  In the early 2000s, Arya’s nephew, Surendra Karamchandani took charge of the business and in 2004, he opened a 6000 square feet shop on Pune’s famous Fergusson College Road.  Surendra says he was inspired by William Penn’s first shop in Bangalore.  This new store, aptly named Venus Traders Stationery Superstore, stocked more than 25,000 SKUs.

While Venus sold IT items such as laptop computers and digital cameras from this superstore, after a couple of years, it decided to stop selling IT products, as most people preferred to buy these from specialized shops.  “Staples carries 50 types of laptops, whereas we only had four,” said Surendra Karamchandani, “so we decided to concentrate on our core business of stationery – we have a much wider range of school, college and office stationery than Staples.”  He claims that no other shop in India has the depth of merchandise that Venus has in stationery products.  The range of merchandise includes a 25 paise paperclip to a high-end pen costing `15,000.  The range includes almost 200 art related books, which bookstores don’t carry.  Venus decided to sell these books for the benefit of many of its artist customers, who frequent their stores to buy art materials.  Venus does not retail any other types of books.

In 2006, the Pune Municipal Corporation gave an Ideal Dealer Award to Venus Traders.  In the same year, the original store at AB Chowk expanded to 3000 square feet and a third store of 1800 square feet opened in Nucleus Mall in the Camp area.  Two years later, the fourth store in the chain, measuring 1600 square feet, opened in Kothrud.  Except the FC Road store which is owned, all other shops are in rented properties. A fifth store has been booked at Eon Matrix Mall coming up in Kharadi – one of the 300-odd malls coming up in Pune.

Surendra believes in the mantra that margins are secondary and the best choices must be offered to customers.  His younger brother Pramod and son Vinod are now part of the business.  The manufacturing business (Sudarshan Stationery) is now with another faction of the family, but Venus retails their products also.  Venus is proud to be a member of the Council for Fair Business Practices (CFBP), whose membership is only granted after strict reference checks.

Venus does business of `30 crores from total retail space of 12,400 square feet, yielding an ATD of a healthy `2106/sft/month.  About 25% of the business comes from supplying to offices and colleges.  The ABV (average bill value) is `325.  Venus uses Retailware software and is happy with the product. Unlike most other retail categories, average sales on weekdays are higher than on weekends.  Surendra attributes this to the fact that offices are closed on weekends.

On expansion plans, Surendra says that they get many franchisee enquiries from cities like Nashik and Kolhapur, but they are not very clear about whether they want to adopt the franchising route for further growth.  A couple of years ago, the `530 crores stationery manufacturer and publisher Navneet Publications approached Venus to set up a JV to open more than 100 retail stores across India, but this proposal did not fructify due to differences in business projections.  Recently, Navneet has set up retail outlets named FundoO (currently in Ahmedabad and Surat) to market a range of innovative learning products catering to the segment of kids aged between 3 to 10 years.   Is Coke interested in buying a stationery business? Just kidding.  Au revoir till next month.

Amit Bagaria is Chairman of shopping centre development consultants and managers Asipac Group and retail chain Men and boyS. If you know about such a retailer in any Indian town (including Tier-II and Tier-III towns), please send the name of the retailer and the city (with contact details, if available) to ab@asipac.com.

This is the SECOND in a new series of stories initiated by Images Retail about successful local / REGIONAL retailers spread across urban India, who continue to expand and grow, despite tough competition from national (and in some cases, even international) retailers.

The grandson rises in the East. This statement would not be very unrealistic in the context of two out of the three retailers from Eastern India in this story.

Little Shop is growing up

Founded in 1967, for 36 years, there was just one Little Shop in Kolkata, selling children’s garments in the iconic New Market – India’s oldest enclosed mall.  The retail business was not given too much importance, as the family concentrated on their main business of exporting children’s garments.

Then, in 2003, Shiv Daswani, the 26 year old grandson of the founder, armed with a MBA from the UK, opened the second store – an 850 square feet “little” shop at The Forum Mall on Kolkata’s Elgin Road.  The shop was very different – it had a modern, self-help format, compared with the traditional counter service format of the New Market store. “Our export business exposed us to international environments and best practices,” said Daswani.

Following another five year hibernation period, in 2008, the now 31 year old and more experienced Daswani opened a 2700 square foot flagship store on the Ground Floor of South City Mall. Based on extensive in-house research, the (much) larger store had an expanded merchandise mix, including books, toys, basics for newborns and infants, nursery furniture, footwear and a wide range of accessories for children. “I made a list of everything required for a child, from a parents’ perspective,” Daswani says proudly, “If you came with a list of eight things and couldn’t find four of them, you would never come back to Little Shop.”  The gamble paid off and there’s no looking back ever since.

Regular customer Payal Himatsingka says “It is very good for newborns up to the age of three. It stocks toys and accessories, apart from clothes. It is like a one stop shop for children.”

The not-so-little flagship store at South City Mall today clocks estimated annual sales of `12-15 crores (Daswani declined to disclose the numbers).  The store has witnessed 7500 footfalls on a single day. Another 2100 square foot store opened the same year at Mani Square Mall, followed by an 1800 square foot store in 2009 at Ambuja Realty’s City Centre New Town (Rajarhat). The sixth store opened in August on the Ground Floor of Forum Courtyard, the brand new annexe of Forum Mall.

“(Mall developer) Rahul Saraf had the choice of giving the shop to Next, The Body Shop or some other international retailer, but I persuaded him to give it to us, based on my being able to convince him that we had done very well with our first store at Forum Mall,” says Daswani, beaming with pride. While this new format store at Forum Courtyard – branded as Baby Little Shop – caters to 0-2 year olds, the older and smaller store in the adjacent Forum Mall caters to the 3-14 age group.

“Little Shop is very well known since the last generation. My mother tells me that she used to buy clothes for me as a child from Little Shop. They have been one of our best tenants, especially the manner in which they maintain the store. They have great visual merchandising and are the only retailer who keeps their show window lights on until the last movie goer leaves the multiplex,” comments the promoter and developer of Forum Mall and Forum Courtyard.

Little Shop is amongst very few local retailers in India that have strategically chosen to grow only through the mall route, as opposed to the more popular choice of high streets. “At New Market itself, we had realized that malls were better and more convenient for families, especially in extreme weather conditions,” says a confident Daswani, having tasted success in malls.

Daswani is emphatic (and very emotional) about his conviction that he will not sell the business to a Reliance Retail or a Mahindra Retail, even if they offered him a high valuation, but he is open to a minority stake sale, if this brings in the capital and the bandwidth required to experiment a national model. He believes that there is no real direct competitor to his multi-category format today, although he is watching out for Lilliput World, as and when it opens at Kolkata.

By 2015, Daswani hopes to have 10-15 stores in Eastern India.  He has no plans to go national, as he feels that he neither understands other regions as well as local retailers in those regions, nor would mall developers in other regions give him the right locations, as they don’t know him or his business. Although he has more than 20 franchising offers from people who are continuously chasing him, he is in no hurry to grow. Micky Jagtiani also started with the Baby Shop, didn’t he?

Sreeleathers is NOT FOR SALE

Manoj Modi does not seem to have too many acquisition opportunities, at least in Kolkata. Just like his fellow “city”zen Shiv Daswani, Kolkata based Sushanto Dey of Sreeleathers also won’t sell his `140 crore footwear retail business, even if someone offered `75 crores to buy him out.

Daswani and Dey share the same initials (SD) and are both grandsons of the founders of their respective businesses.  That’s where the similarity ends.  Malls do not feature in Dey’s dictionary, he is already franchising (Dey calls them dealers) and Sreeleathers has gone national.

Sreeleathers’ first store opened in 1952 opposite New Market. Today, the chain has 31 stores, of which 26 are franchisee owned and operated. Apart from eight stores in Greater Kolkata, there are stores in Delhi’s Connaught Place, Varanasi, Raipur, Bhubaneshwar, Cuttack, Jamshedpur, Ranchi, Dhanbad, Bokaro, Patna, Muzzafarpur, Gaya, Bhagalpur, Guwahati, Asansol, Behrampur, Purulia, Naihati and Malda. While researching Sreeleathers, I refreshed my high school geography with my son’s help. A new 8000 square foot store is opening in Jaipur this year and a 10,000 square foot one in Chennai next year.  All stores are on properties owned by the family or by individual franchisees. “We don’t believe in paying rentals,” Dey says, “so we cannot be in malls.”

He sees everyone from a Bata and a Reliance Footprint to a footpath vendor as competitors. “We take Reliance Footprint very seriously,” comments Dey. Last time I looked, there were no footpath shoe vendors in Bangalore at least, thank goodness.

Regular Sreeleaethers customer Cheryl Ann says “They have shoes, chappals, belts, bags and leather accessories which are durable and suitable for rough handling.  Shoes are priced `200 to `800 while chappals are available even below `200. The most expensive shoes at Sreeleathers cost less than the cheapest shoes of its rival shops.”  Nishant Kumar Pandey adds “Sreeleathers is known for durability and economic cost, if they could work out on varieties and style, they will be the No.1 in India.”

This 58 year old pure retail business (Sreeleathers does not manufacture any products) sells all products only under in-house brands.  Four family members are involved full-time in the business.  One of Sushanto’s uncles has diversified into the hospitality industry.

Sushanto Dey believes that The Loft – a retail chain promoted in the early 2000s by the well-known real estate developers Hiranandanis – failed because they only had premium offerings.  “Bally is the Porsche of the footwear retail sector, Metro is like Audi and we are the Maruti,” Dey says, “see who is the biggest amongst them in India.” I’m still trying to figure out where Bata and Reliance Footprint figure in this analogy.

Sreeleathers has been instrumental in the establishment of many footwear retail hubs across the country. After they opened a 2500 square foot store in the basement of a building at Patna, four other footwear retailers opened shop in the same or adjacent building. A similar mushrooming effect has been witnessed across other markets too, but Dey is quite humble about the phenomenon and does not want any credit for it.

G. Sankar, Chief Executive of Reliance Footprint, says “They are a good value retail player. They do well in the eastern parts of the country, especially in Kolkata. In footwear circles, we talk about their crowd pulling ability during the pujas in Kolkata which is almost surreal – thousands of people wait in long queues outside their shops. This is very impressive – how many other businessmen can boast about customers standing in a queue to buy their product?”

Shoppers Stop of the North East

Variety is the spice of life, the popular 18^th century English poet William Cowper wrote. Manohar Lal Jalan of Assam’s retail chain Sohum Shoppe – winner of the Images Retail Award for the Most Admired Regional Independent Fashion Retailer 2009 (East Region) – is not the grandson of the founder. He is the founder.  He does not speak in English as well as Shiv Daswani or Sushanto Dey.  In fact, he does not speak as much as them either.  And he is ready to sell his business, if he gets a good price, of course. Is Kishore Biyani reading this?

Guwahati (Assam) based Jalan, 54, came from a family in the business of sarees, operating under the regionally popular brand of the 1980s Assam Silks.  In the early 1990s, Jalan recalls that, following the success of Kishore Biyani’s John Miller shirts – then retailed at `110 – he also started a readymade shirt brand named after a West Indian cricketer (he couldn’t recall the name) and priced it at `90 per piece.  This business did not do as well as anticipated.

In 1996, he was visiting his cousin in Mumbai.  He wanted to buy some socks and handkerchiefs for himself, as these were not easily available in his home town – Guwahati.  But he was too embarrassed to tell his cousin this – instead, Jalan asked his cousin where he could buy readymade shirts and trousers. His cousin directed Jalan to the only Shoppers Stop outlet at Andheri – India’s first modern department store.

He reached Shoppers Stop at 4pm and left at 9pm, but did not buy any socks or handkerchiefs in the five hours he spent there – not because they didn’t have any, but because he was so mesmerized with the shop, he completely forgot what he had come there for. He went back the next morning and spent the entire day there, followed by the same routine the next day. By the third day, he was convinced that “I can also open this type of shop back in Guwahati.”

Jalan spent almost 25 extra days in Mumbai, during which he went to Shoppers Stop each day. Fascinating, isn’t it? Well, it was for me, when I heard the story from the man himself.

Back home, this 40-year old entrepreneur starting assembling the blueprint of his own Shoppers Stop. The only high street area of Guwahati in those days was Fancy Bazaar.  A “shop” of 10,000 square feet was available for `3.00 crores. Jalan calculated that the interiors would cost him another `50.00 lakhs and he would have to stock at least `1.50 crores of merchandise.  So, the total investment required was a little over `5.00 crores. He figured that, with such a high investment, it would take 5-6 years to break even – so the business was not viable.  Instead, he bought a 12,000 square feet “shop” on the fourth floor of the building for just `72 lakhs, saving himself more than `2.20 crores.

It was a decision he regrets today, in retrospect.  The first Sohum Shoppe at Fancy Bazaar (named by his guru Sri Sri Ravi Shankar of The Art of Living Foundation) opened in 2000. It had sales of only `15,000 to `20,000 per day in the first five months.  By the third year, the business was still bleeding. He then went back to Shoppers Stop at Mumbai and immediately realized that most people were actually buying well known brands.  He decided to start stocking genuine brands. He got Mont Blanc pens, Swarovski crystals and Lladro porcelain figurines, amongst other well known brands in several categories. And I always thought the places to buy these brands were New York, Paris or Dubai. Anyways, it was then that the business really took off.

When Jalan selected the site for his second store – today the flagship – he did not compromise on the location.  The 28,000 square foot store on G.S. Road opened in 2005. By then, his older son Sandeep (then 24) had joined the business. Sohum Shoppe had arrived.  Three years later, the third outlet opened at Pan Bazaar of Guwahati.  By now, his younger son Siddharth had also joined the business.

In 2009, a 15,000 square foot Sohum Shoppe opened at Dibrugarh.  In just a few months from now, a 22,000 square foot store – the fifth in the chain – will open at Jorhat. For the time being, the Jalans have abandoned plans for a shop at Shillong in Meghalaya state, because of insurgency in that state.  They are looking at Nagaon and Silchar towns in Assam, and are also eyeing Ranchi and Jamshedpur – both cities in Jharkand state – for future expansion. “Business is good, but not in the Northeast,” says senior Jalan, “insurgency is a big problem.”  He considers Pantaloon and local retailer Goenka’s as his main competitors. “Agar maidan bada ho to koi bhi khel sakta hai,” he adds.

Bijan Deka of Guwahati says “One of its kind, Sohum Shoppe is the buzz of town. Its wide range of products and trendy collection of cosmetics, apparel and accessories defines its escalating popularity.”  College student Rakesh Sharma adds “It is the big thing in the world of style and comfort for people of Assam, an exclusive shopping extravaganza at nominal prices. It has a glamorous feel and ecstatic aura to boot. A recommendable treat called Sohum Shoppe.”

Young Sandeep Jalan feels that the future is very bright. Sandeep has brought in many changes in the business. By installing a modern specialized retail software package, he is able to control his inventory better. He has also initiated several activation programs almost on a daily basis to increase footfalls at the Sohum Shoppes.  Let us see what the grandson does 25 years from now, if I’m still writing then.

Amit Bagaria is founder Chairman and CEO of Asipac Projects. If you know about such a retailer in any Indian town (including Tier-II and Tier-III towns), please send the name of the retailer and the city (with contact details, if available) to ab@asipac.com.