Amit Bagaria's Blog

This is THE FIFTH 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.

As per research done by Asipac, the CDIT (consumer durables and information technology hardware, including mobiles) market in India is worth about `133,000 crores ($29.2 billion), with consumer durables contributing about 56%, mobile phones about 26%, IT products 16% and cameras 2%. LG is by far the largest player, with sales of more than `19,000 crores ($4.2 billion, about 14.4% of global sales), followed by Nokia at about `16,000 crores ($3.5 billion, about 6.9% of global sales), Samsung at about `15,500 crores ($3.4 billion, about 7.5% of global sales), HP at about `13,000 crores and Sony about `5700 crores ($1.25 billion, about 4.8% of global sales). If Steve Jobs would read this, Apple would certainly not treat India like some banana republic.

Four-year-old Croma (a 100% subsidiary of Tata Sons, with technical and strategic sourcing support from Woolworths of Australia) is already the country’s second largest CDIT retail player with 61 stores in 14 cities of which 25 are in malls, and a 1.2% market share, with sales of `1550 crores ($341 million).  Next is the largest player with sales of about `1800 crores. Croma CEO Ajit Joshi estimates the total market size to be smaller at about `100,000 crores, giving him a 1.5% market share. Joshi expects to open 4-5 more stores this quarter and 25-30 stores in the coming fiscal, taking up the store count to 93 or 94 by March 2012.  About 55% of Croma’s business comes from mobiles, IT and digital cameras, while 45% is from large and small appliances, with the brand’s private label accounting for 11% of the appliance sales.  Croma stores are Juhu and Malad (West) in Mumbai each do annual business of more than `90 crores.

Other national players include e-Zone from Future Group (55 stores in 18 cities, including 29 in malls) and three-year-old Reliance Digital (26 stores in 19 cities, half of them in malls).

Mumbai-headquartered Vijay Sales has 37 stores spread across Mumbai, Delhi, Pune, Ahmedabad and Surat and reportedly does annual sales of more than `1000 crores, but 22 of the stores are in Greater Mumbai alone. There are 9-10 other large regional players, of which seven are located in the South.  This article focuses on four of these South-based CDIT retail giants.

“Since modern retail has come, many of the regional players have got their act together and this is very good for consumers,” says Joshi, “their shops have started to look much better, with modern fixtures and removal of cardboard boxes from the customer areas.”

VIVEK’s ANANDA

Around the same time that I was born in distant Kolkata (then Calcutta), Late BA Lakshmi Narayana Setty (“LNS” for short) from Kolar Gold Fields in Karnataka, then only 20, started a 200 square feet store named Viveks & Co. at Mylapore in Chennai (then Madras). The name came from Swami Vivekanada, whose teachings and philosophy were highly admired by the young LNS.

LNS’s father was a rice merchant at Kolar.  While the first son BA Kodandaraman Setty (KRS) was helping his father in the rice business, the second son, LNS, being very bright in science, was sent to BMS College of Engineering in nearby Bengaluru (then Bangalore). But LNS wanted to quit college and start a retail business at Madras, the city which was home to his guru. Despite his father not supporting this move, LNS dropped out of college and set up the first shop in 1965. The shop started by selling electrical fittings and folding chairs. Slowly, LNS added radios, fans, mixers, irons, heaters and other household equipment.

Seeing quick success, LNS began planning a much larger shop of 3500 square feet to be set up at Purasawalkam in Madras. Alas, his dream did not come true as he passed away in 1969 at the age of just 25.  Elder brother KRS (then 27) took over management of Viveks and opened the Purasawalkam store soon after his brother’s death.

Viveks also became a distributor for Sumeet mixers for Karnataka state and part of Chennai. “Colour TVs were still a luxury for the middle class back then,” says youngest brother and CEO BA Srinivasa, “even buying a refrigerator was difficult, as a bank clerk earned `3000 per month, but a refrigerator cost `10,000.” Viveks introduced a daily instalment payment plan for small traders in the mid 1970s.  Seeing immediate success, Viveks started EMI plans for employees, and then for customers in the early 1980s.

In 1980, Viveks opened the third store at T.Nagar.  This 10,000 square feet store was then the largest consumer electronics retail store in India. The liberalization policies initiated by Dr. Manmohan Singh (then Finance Minister of India) from 1991 onwards led to several global brands setting up manufacturing facilities in India.  In 1992, Viveks spun off its then large and growing consumer finance business to a separate company – Viveks Hire Purchase & Leasing Limited.

The three brothers – KRS, Chandrashekar and Srinivasa – visited USA, UK, Europe, Singapore and Malaysia, and saw many interesting retail formats.  They were most impressed with and inspired by Best Buy of USA (annual revenues: $49 billion) and Dixons of UK.  They started thinking big – they had opened 3 shops in 30 years, could they open 30 shops in the next 3 years?

With this vision, Viveks set up a corporate office and started attracting professionals. In 1995, Viveks opened a 12,000 square feet store at Jayanagar in Bangalore, followed by many other stores over the next few years.

In 1999, Viveks had only 12 stores.  They had to reach 30 quickly. So they acquired Jainson – then a 14 store chain with a turnover of `50 crores, third largest in Tamil Nadu. In 2002, Viveks acquired the old 15,000 square feet Spencers store on Mount Road from RPG Group and continued running it under the Spencers name. The next year, they acquired 2 stores of Premier in Salem. By 2006, they rebranded the Spencers and Premier stores as Viveks.

Today, Viveks has 44 stores – 26 under the name of Viveks and 18 branded as Jainson, together occupying retail space of 250,000 square feet.  All 44 stores are MBOs and the retailer has not yet ventured into single brand stores (see following stories) even though its competitors have. 14 of the stores are in Chennai, 22 in other parts of Tamil Nadu and 8 in their home state Karnataka.  Viveks has an annual turnover of close to `425 crores ($93 million).

There has been no expansion in the last 3-4 years, as the promoters have been busy with consolidation. But expansion is nor firmly back on the agenda. Four to five stores are expected to open in 2011. By 2015, Srinivasa expects to have almost 150 stores spread across Tamil Nadu and Karnataka (Andhra Pradesh and Kerala are not yet on their radar), yielding a turnover of close to `2000 crores, as “consumers today have higher incomes, more exposure and therefore have much higher aspirations.”  That would mean a CAGR of 36%.

Amongst the brands sold at Viveks, LG and Samsung have almost equal share, together contributing about 43% of the turnover.  In comparison, Croma’s No.1 brand is Sony, followed by HP.  At Viveks, flat panel TVs is the largest selling category, followed by refrigerators. IT and mobile phones constitute only 8% of the sales, and Viveks wants to increase this but is finding it difficult because of lack of space. “All sub-categories and various models need to be displayed, as the consumer perception, experience and value proposition has to be strong,” Srinivasa says, “as the number of brands and models in the market increase, the store sizes need to become bigger.”

He feels that national chains such as Croma and Reliance Digital have certainly done a good job of giving consumer experience and they are helping to grow the market.  Although Viveks itself grew by acquiring other retailers, they are not open to an acquisition.  But Srinivasa does not rule out mergers and consolidation amongst regional players. “Consolidation and mergers are the order of the day and whether we like it or not, we have to keep our options open,” he says.

BANGALORE WAS A HILL STATION

In 1970, 22 year old Panna Lal Giria (PLG) from a village in Cooch Behar District of West Bengal came to Bangalore on a holiday.  He liked this hill station with fantastic weather and nice people and decided to settle down in the city.  PLG’s family was in the cloth trading business at Cooch Behar, and he set up a net factory in Bangalore.

In 1971, PLG set up a 175 square feet kitchen appliances shop by the name of Girias in Bangalore’s Gandhinagar market area.  As the product range expanded, a neighbouring shop of 700 square feet was acquired in 1979. Today, the Gandhinagar store has grown to 10,000 square feet.

For several years thereafter, much like Viveks in Chennai, Girias also did not expand. Then, in 1994, they opened a 1500 square feet shop at Coimbatore (Tamil Nadu), which in 2003 shifted to a larger 12,000 square feet space. In 1999, PLG’s younger brother, Hansraj, wanted to open another shop in Bangalore’s popular high street Brigade Road. There was a lot of opposition from other family members. But Hansraj Giria went ahead and this shop was an instant success.  There has been no looking back since then.

Two stores were added in 2001 and the chain’s sixth store was opened at Mangalore in 2003. In 2004, Girias opened a 7000 square feet store at Rajajainagar in Bangalore – today, this store does annual business of `32 crores (ATD of `3800 psfpm) and is No.1 in the chain.

The eighth store opened at Mysore in 2005, followed by the ninth at Salem (Tamil Nadu) in 2006. One store each started at Bangalore’s Domlur area and in Hubli town of Karnataka in 2007. This was followed by three openings in 2008, two at Bangalore and one at Chennai.  In 2009, Girias opened their third store in Chennai, eleventh in Bangalore and a second store at Mangalore.

Last year, Girias added four new stores – 1 at Chennai and 3 at Bangalore, taking up the total store count to 22, including 14 at Bangalore, 3 in the rest of Karnataka and 5 in Tamil Nadu.  In the next 3-4 months, the store count will go up to 25, with 16 in Bangalore and 4 in Chennai.

Girias does an annual business of `500 crores, of which `420 crores comes from pure retail and the balance from wholesale.  Hansraj’s son Rishab Giria (29) expects that, by 2015, Girias will have 50 stores and a turnover of `1500 crores.

The highest selling brand at Girias is LG, which contributes to 16% of its sales, while No.2 Samsung contributes 12%.  In the categories, just like Viveks, flat panel TVs comes out tops and contributes 24% to the top-line, while white goods contribute 16%.  Girias sells about 1500 mobile handsets per month from its 22 stores, which is miniscule compared with the mobile phone shops, some of which are selling as many as 1200 handsets per shop.

There are as many as 10 family members in the business, four in Panna Lal’s generation and six in Rishab’s generation. The youngest, Arihant, is only 23.  “That is the biggest weakness of the national chains,” says Rishab, “the owners are not sitting in the shops.”

Rishab feels that the national chains have many other weaknesses, including little or zero flexibility in pricing, slow decision making processes and high overheads. He firmly believes that E-Zone from Future Group is slowly dying and Reliance Digital is still in an infancy stage. “Croma is the only threat,” says Rishab, “but Croma is also the highest priced and price is key in this business.”

I disagree with his view. With 26 stores already operational, the 3-year-old Reliance Digital is already bigger than Girias in number of stores and will cross Girias in turnover next year.  Besides, Croma’s turnover is likely to touch almost `2500 crores by next fiscal.

PAI HAS HIT A LOTTERY

Rajkumar Pai was in the lottery business and was looking at diversification into something more organized and modern. His friend recommended the consumer electronics retail business. 35 years after the first Viveks store opened at Madras, the first Pai International store opened on Bangalore’s 100 Feet Road, Indirangar, in 2000.  There was a huge difference in size – while the first Viveks store (which opened in socialist India) was just 200 square feet, the first Pai International store (in a now modern and open-for-business India) was a whopping 16,000 square feet. I remember being awed by this store when it first opened.

Pai opened three stores in 2001, followed by two in 2005, three in 2006, including one at Mangalore, three in 2007, five in 2008, just one in 2009 (a 20,000 square foot store at rajajinagar in Bangalore, the chain’s largest), and to catch up after the recession was over, as many as nine in 2010.

Today, Pai International has 27 stores, including 23 MBOs, 2 LG stores and 2 Samsung stores. While 17 of these are in Bangalore, the other nine are in Belgaum, Bhatkal, Chikmaglur, Chitradurga, Hassan, Hubli, Kundapur, Mangalore (2) and Udupi, all in Karnataka.  There are also four Pai Mobile stores which, as the name suggests, sell only mobile handsets and accessories.  The total turnover this year will touch `340 crores.

In 2011, Pai will open 12 more Pai International MBOs in Karnataka plus 30-35 Pai Mobile stores.  By 2015, Rajkumar Pai expects to have close to 100 Pai International stores and 200 Pai Mobile stores, with a combined turnover of over `2500 crores. That will need a CAGR of 49%, a mammoth target. Pai is interested in expanding into the other southern states, but only after he has completely saturated Karnataka.

Like Girias, Pai’s No.1 selling brand is also LG, which contributes `75 crores, followed by Samsung at `60 crores.  In the categories, just like all the other players, flat panel TVs are No.1, contributing 28%, followed by refrigerators at 17.5%. Pai sells 5500 mobile handsets per month and this segment contributes about 8% of his turnover.

Learning from Croma, Pai has just started selling IT products. “If I don’t sell IT and mobiles, the customer will go to Croma,” says Rajkumar Pai.  He seems to be very impressed with Croma. “The national chains have very good back-ends and deep pockets,” Pai says, “Croma is very systematic because of the back end being managed by Woolworths.”

According to Pai, there are very few brands in India and the small number of manufacturers, therefore dictate terms.  He feels that many western brands failed because “they did not have good teams from top to bottom.”  He cites Philips as an example of a failed western brand.

Yet again following Croma’s footsteps, Pai is considering getting into the private label business in a couple of years’ time.  Is Ajit Joshi reading this?

10 NEW stores in FIVE MONTHS

Paras Jain was in the business of watch trading and multi level marketing.  Then in 2004, he leapfrogged into the electronics retail business by opening three stores in Bangalore, under the brand name Adishwar. In the second year itself, Jain opened three Adishwar stores and one Sony store, followed by three more in 2006.

In the next year, as many as seven new stores were opened, including three LG and one Samsung stores. This took up the store count to 17, including one each in Mysore, Mangalore and Belgaum, all in Karnataka. Although only one new store opened in 2008, Jain opened eight new stores in 2009 (including two Samsung stores and one each of LG and Sony) and as many as 12 in 2010. Of these, 10 stores were opened at Hyderabad in just five months last year. “Only when we expanded, then the others started expanding also,” says Jain, “earlier, the gross profit margin used to be 3-5%, today, overheads alone are 12-14%.

The chain now has a total of 38 stores, occupying a total retail area of 1,73,300 square feet, of which 29 are Adishwar MBOs occupying 1,41,000 square feet, 4 are LG brand stores, 3 are Samsung stores and 2 are Sony stores. 21 of the stores are at Bangalore and 10 in Hyderabad.

When he was planning to enter Hyderabad, Jain had discussions to acquire Hyderabad based Shah’s Electronics (see below), but gave up as they were asking too much royalty for their customer database and “I can create my own database for just 20% of that amount.”  Jain feels that another Hyderabad player, PCH, may acquire Shah’s.  He believes that, in another 2-3 years, there will be mergers between regional players within and across regions.

Adishwar expects to clock a turnover of `330 crores this year, achieving an 80% growth over the previous fiscal.  In 2011, Jain plans to add 18 more stores, taking up the total store count to 56. By 2015, Jain is targeting 100+ stores, with a turnover crossing `1000 crores.

Jain says that between Girias, Pai and Adishwar, they have 50% market share in Bangalore, while the national chains have only 18%.  “We (the regional players) are balancing the market between the national players and the unorganized sector,” says Jain.  He is going slow in Tamil Nadu as he feels it is a very conservative market and will take another five years to change.  Jain also shared with me that more than 90% of the markets in cities like Ahmedabad and Indore was unorganized.

Commenting on the national chains, Jain feels that regional players take faster decisions and give much more attention to customers, whereas, in a national chain, “every customer is the same, whether he is buying a one lakh rupee LCD TV or a hundred rupee mobile charger.”  Pai disagrees with this. Amongst the national players, Jain of Adishwar admires Croma, whereas amongst the regional players, he has high regards for Viveks and TMC of Hyderabad.

Unlike Pai, Adishwar does not want to sell mobiles and IT products, as Jain feels that the margins are too low.  He certainly seems to be the most aggressive of the lot in terms of growth. Only time will tell who is right.

OTHER PLAYERS IN THE SOUTH

Vasanth & Co, based at Chennai and started in 1978 by Congress MLA H. Vasanthakumar, has 45+ stores and a turnover of `600+ crores, making them the largest regional player in the South and the second largest in the country.  TMC was started in Hyderabad in 1980, has 11 stores in Andhra Pradesh, including eight in Hyderabad, and an annual turnover of about `200 crores.

Shah’s Electronics was started by GC Shah in Hyderabad in 1971.  Today, it has nine stores occupying 29,000 square feet and a turnover of `50 crores. His sons Neeraj and Nishit Shah run the business now.  Shah’s also does not sell mobile handsets and IT products. Neeraj feels that Adishwar is a bigger competitor than Croma or Reliance Digital. Although Neeraj says that they are growing and plan to add 3-4 new stores in 2011, and 20 stores by 2015, others in the business say that Shah’s is in financial trouble and is looking to sell out.

Other regional players include PCH (25 stores in AP, including 19 PCHezone shops, 5 mobile shops and 2 Sony shops), VGP, Unilet (10 stores in Bangalore) and Kundan (5 stores in Bangalore).

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