The Oxford dictionary (remember that thick book we used to refer to in our school/college days, when there was no Wikipedia) defines a Department Store as “a large shop stocking many varieties of goods in different departments”.
Wikipedia, which is what most youngsters refer to today, defines a department store as “a retail establishment which satisfies a wide range of the consumer’s personal and residential durables product needs; and at the same time offering the consumer a choice of multiple merchandise lines, at variable price points, in all product categories”. Wikipedia further continues: “Department stores usually sell products including apparel, furniture, home appliances, electronics, and additionally select other lines of products such as paint, hardware, toiletries, cosmetics, photography equipment, jewellery, toys and sporting goods. Certain department stores are further classified as discount stores. Discount department stores commonly have central customer checkout areas, generally in the front part of the store”.
Whoever wrote this definition in Wikipedia needs to visit Indian department stores and think about how to rewrite their definition. What does Wikipedia mean by “satisfies……consumer’s……needs”? I am also a consumer, but (alas) no department store in India has ever been able to satisfy even 50% of my needs. I will explain this in more detail later in this article.
What are we Indians supposed to make of Wikipedia’s statement “certain department stores are further classified as discount stores and these commonly have central customer checkout areas”? Don’t all Indian department stores have this phenomenon? Someone just told me that we don’t even have “department” stores in India – we have “departmental” stores. Huh?
I first visited the Central department store in Bangkok’s Chidlom area (the original Central, not Future Group’s Indian version) way back in 1987. I shall refer to these two Centrals as Thai Central and FG Central in the rest of this article to avoid any confusion.
From what I can recall (it’s been 24 years), the staff at Thai Central displayed a higher standard of hospitality and customer service than the Macy’s or Dillard’s stores that I used to shop at in Cleveland, USA, where I was studying. On the other hand, the store itself was screaming offers and discounts, and looked more like a discount store (not different from FG Central). It lacked a level of sophistication, perhaps not different from other department stores in Asia at that time.
Fast forward 13 years, when Landmark Group’s second “Lifestyle” department store opened on Bangalore’s Richmond Road (I hadn’t seen the first one in Chennai), it seemed that retail in India had finally arrived. The store had a much better look and feel, at least if one compared it with the Shoppers Stop stores of that time. Not yet associated with the retail sector at that time, as an ordinary consumer, I told my family and friends that the day is not far when we would see department stores like Harrods, Selfridges, Nordstrom or Bloomingdales in India. I could not have been more wrong.
Fast forward once again to 2010, now Thai Central’s Chidlom store in Bangkok looked (and felt) as close to the Harrods store at Knightsbridge in Central London (see picture of this Harrods store in all its glory at night), as any Asian retail store has ever been. Not much different from the best in Singapore. In my mind, their Central Food Hall was one of the best on this planet – I am not surprised it has won so many awards.
Comparing the Central Food Hall inside Thai Central stores with the Food Bazaar inside FG Central stores would be probably similar to comparing a Louis Vuitton store and a Holii store. Yes, it is actually that stark. I remember visiting a Food Bazaar store in a Tier-II city shopping centre some time back (on a reconnaissance mission and not a shopping trip) and counting the number of flies (both live as well as dead) as at least three times more than the number of human beings s at that store.
Even the brand new Gourmet West food section of Westside’s Kala Ghoda store at Mumbai is pale in comparison with the Central Food Hall at Thai Central – what a shame, considering that the catchment served by the Kala Ghoda store is not much “poorer” that the catchment served by Thai Central’s Chidlom or other stores.
The “bridge to luxury” Shoppers Stop store at GVK One mall in Hyderabad reminds me of a Robinson store in Bangkok (for those who are not so familiar with the “non-spa” retail scene in Thailand, Robinson is to Thai Central in Thailand what Max is to Lifestyle in India). I am pretty sure that the new Robinson flagship store slated to open in November this year at Bangkok will be far more “evolved” than any Lifestyle or Shoppers Stop or FG Central store in India. Alas, Lifestyle’s stores are slowly beginning to look more and more like (their value subsidiary) Max’s stores, and FG Central more and more like a Megamart.
What do I mean? Well, you get t-shirts for Rs.249 at Lifestyle today, don’t you? Isn’t that the price segment that Max is supposed to cater to? All the major department store chains in India seems to be catering to the “bottom of the pyramid”. There is nothing wrong with doing this, except that at such low price points, you cannot be running chains with just 30-40 stores. If you are playing the volume game (and not the margin game), you need to have at least 200 operational stores, or a turnover of at least Rs.80 billion (Rs.8000 crores).
Let’s step back and examine why Thai Central’s store in Bangkok’s Chidlom (see picture) has evolved so much in these 24 years (since I first visited it in 1987). Are people in Thailand earning much more than us Indians? On the face of it, yes!. Please refer to Table 1 to see the comparisons.
TABLE 1
|
All figures in US Dollars |
Thailand |
All-India |
Urban India |
Only SEC-A,B,C in Urban India |
| Per Capita GDP on PPP basis |
$8700 |
$3500 |
$8550 |
NA |
| Urban Per Capita Consumption Expenditure |
$7600 (Bangkok) |
$1940 |
$3720 |
$5560 |
Thailand’s Per Capita GDP on a PPP basis is US$8700, compared with India’s $3500 (source: CIA World Factbook). However, Urban India’s Per Capita GDP on a PPP basis is $8550, almost the same as Thailand. Since modern (organized) retail is only in Urban India, it would be more appropriate for us to consider Urban India alone and leave “Bharat” out of the equation.
Also, when we discuss retail, GDP (in any form) may not be the right comparison. It is always better to take consumption expenditure. India’s PPP-factored per capita private consumption expenditure (or “PCCE”) is $1940, our Urban PCCE is $3720 and if we stick to only the SEC A, B and C categories of brand consumers (as modern retail really caters to “them”), the PCCE goes up to $5560. The comparative number in Bangkok (more than a third of Thailand’s urban population lives in the country’s capital city) is $7600. In simple words, the brand consuming population in Urban India (not just the metros) is spending 73% of what their counterpart in Bangkok (just one metro) is spending.
Let’s have a look at an interesting comparison between the largest retail groups of four Asian countries in Table 2 below. (Source: Company Annual Reports)
Table 2
| Retailer | Country |
Annual Revenue (US$ Billions) |
Contribution to GDP |
Average Trading Density (INR) |
| Lotte Shopping Group | South Korea |
13.0 |
1.29% |
|
| Central Retail Corporation | Thailand |
3.6 |
1.13% |
Rs.640 psfpm |
| Suning Appliance | China |
24.4 |
0.49% |
Rs.15,400 psfpm |
| Future Group | India |
2.5 |
0.16% |
Rs.383 psfpm |
As Thailand’s largest retailer, Central Retail Corporation (CRC), the owner of Thai Central and Robinson, as well as several other retail formats, has annual revenues of more than $3.6 billion, which translates to 1.13% of that nation’s GDP. South Korea’s Lotte Shopping Group has revenues of $12.97 billion, 1.3% of South Korea’s GDP. It is to be noted that 10% of Lotte’s revenues come from overseas. China’s Suning Appliance has revenues of $24.43 billion, almost 0.5% of China’s GDP. In comparison India’s largest retailer Future Group (FG) has revenues of only about $2.5 billion, or only 0.16% of our GDP.
Shouldn’t Indian retail leaders be worried about these figures. Suning Appliance only runs CDIT (consumer durables, information technology & telecommunications) stores and has almost 10 times the revenues of Future Group which is almost into every facet of retail (see picture). Compared to Future Group’s CDIT format eZone, Suning’s turnover is almost 100 times. While Suning has more than 1200 stores, eZone has less than 60.
PIC-4 WITH CAPTION: “Suning Appliance, China’s largest retailer”
Coming back to the comparisons in Table 2, CRC’s average trading density (ATD) across the entire chain is about Rs.640 psfpm, whereas FG’s was Rs.383 psfpm as per their 2009-10 annual report. So that’s 60% for Future Group vs. CRC, compared to the 73% spending by Indians vs. Thais.
How “poor” are we compared to our brethren in Thailand? Doesn’t look like the difference is too much. I purposely chose Thailand for most of the comparisons in this article, because every time one mentions any country in the west, or even Dubai or Singapore, our retailer friends remind us that we live in a “poor” country. We may be living in a poor country, but are we poor?
I would like to know how the senior management at our national large department store (NLDS) chains Lifestyle, Shoppers Stop and FG Central have mapped the consumption patterns in India. The 2.77% “rich” households of Urban India contribute 20.2% of the urban private consumption expenditure. Since thir average bill values (ABV) range from only Rs.1600 to Rs.2200, none of the NLDS chains seem to be targeting this segment of the population. The key question is, why not?
The Indian “rich” annually buy Rs.1.27 trillion worth of stuff that is (usually) sold by a department store anywhere in the (more evolved) world. That is more than 30 times the combined turnover of the three NLDS chains. So this is not just a huge missed opportunity in terms of the sheer market size, it is an even bigger missed opportunity in terms of bottomline, as it would also be much easier for retailers to make higher margins from “stuff” sold to this population. The consumption of this “stuff” per household is more than Rs.5.00 lakhs per year. If the NLDS chains could even capture even a fifth of this consumption, they would have ABV’s of Rs.4800-5600.
It seems to me that these NLDS chains are all targeting the next economic class or segment of Indian society – the “upper middle class” consumer. Have a look at Chart 1 below.
The “upper middle class” segment comprises almost 7% of the urban population but contributes just 16% of the urban private consumption expenditure. As these people usually shop within a (tight) budget, they are perpetual value seekers. Many other national retail chains (we can call them fashion megastores, as they are not yet fully qualified to be termed as department stores) like Marks & Spencer (in the UK, M&S runs large department stores that also sell food & grocery, which contributes more than 50% of their revenues; see picture), Pantaloon, Reliance Trends, Westside, Max, as well as several regional chains, are also targeting this segment. There must be something about the “upper middle class” consumer segment that I don’t understand – although their combined consumption expenditure is just 79% of the size of the “rich” segment, most Indian retailers seem to be making a play here, gloriously ignoring the “rich” segment. In the case of the NLDS chains, could it be because most of the senior management at these chains belong to this economic segment, and therefore understand it best?
As the chart above shows, the next consumer segment, or the “middle middle class”, comprises 47.5% of the urban population and contributes 49% of urban private consumption expenditure. This segment is quite well catered to by big box discount retailers such as Big Bazaar, Star Bazaar, More Megastore, Brand Factory, Megamart, etc. This population also shops at formats such as Reliance Trends, Fashion @ Big Bazaar, Max, Pantaloon, Westside, Globus, regional department stores and sometimes even at the NLDS chains.
I would like to ask a question to the senior management of Landmark Group, both in India as well as Dubai. Shouldn’t Lifestyle be catering to the “rich” segment, while Max caters to the “upper middle class”? It appears that Lifestyle is catering to the “upper middle class” and Max to the “middle middle class”. If this is deliberate, it is fine, as the “middle middle class” is the largest consumer group. But I would still like to know why Landmark Group is ignoring a segment which buys 26.5% more than the “upper middle class”?.
Obviously, I have an almost similar question for Future Group. If several of their retail formats, such as Big Bazaar, Brand Factory and Fashion @ Big Bazaar, are already catering to the “middle middle class”, shouldn’t Pantaloon be catering to the “upper middle class” and FG Central to the “rich”? In the case of Thailand’s Central Retail Corporation, the Thai Central department stores cater to the rich of that country, while Robinson caters to the upper middle class.
Indian retailers should look at Tata Group’s recently restructured hotel business. They have created four distinct brands – Taj (the flagship brand), Vivanta by Taj, The Gateway Hotel and Ginger – catering to four different economic classes of travelers. Over time, I am sure the Tata management will realize that there is a gap between The Gateway Hotel and Ginger, and create another mid-market brand to fill this.
Most of the large multinational hotel groups and automobile companies have different brands catering to different economic classes of customers. The key question is – when Indian retail groups have multiple formats, why are these formats not DISTINCTLY different from each other in terms of their TG’s, instead of cannabilizing from one another?
In Thailand, Central’s ATD is equal to about Rs.2250 psfpm in Indian rupee terms, while Robinson’s is about Rs.1350 psfpm. Compared to this, Lifestyle’s ATD is at about Rs.810 psfpm, Shoppers Stop at Rs.710 psfpm, FG Central at about Rs.600 psfpm and Westside at Rs.585 psfpm. If we convert the two Thai retailers’ ATD’s to Indian PPP (refer Chars 2 below), Thai Central’s ATD would change to Rs.3228 psfpm and Robinson’s to Rs.1937 psfpm. Based on The Economist’s Big Mac Index, Thai Central’s ATD would go down to Rs.1568 psfpm and Robinson’s to Rs.941 psfpm. The comparison is clear for all to see – our NLDS chains have a lmuch ower sales performance than these Thai retailers – what is the reason for this?
Let us look at these comparisons from another perspective. The world’s most famous department store – the Harrods store at Knightsbridge in Central London – has an ATD of about Rs.6400 psfpm. Applying UK’s PPP to Thai Central would give Thai Central an ATD of Rs.4275 psfpm – not bad for Thai Central compared with Harrods. Our ATD leader Lifestyle would be pared at Rs.2216 psfpm … need I say more?
What is the size of the NLDS chains in India? The largest by turnover, Shoppers Stop, has annual revenues of Rs.19.3 billion last year, which translates to 0.028% of India’s GDP. In comparison, the world’s largest department store company, Isetan of Japan, had annual revenues of Rs.677.1 billion, 35 times more than Shoppers Stop, only from its domestic department stores business in Japan. Europe’s largest department store chain by sales, Spain’s el Corte Inglés, had sales of Rs.564.5 billion, again only from its domestic department store business. USA’s largest, Nordstrom, had sales of Rs.423.6 billion. South Korea’s Lotte Department Stores (only domestic sales, excluding international business) had sales of Rs.290.6 billion in 2010.
Table 3
| Department Store | Country |
Annual Revenue (in INR Billion) |
Contribution to GDP |
| el Corte Inglés | Spain |
564.5 |
0.880% |
| Lotte Department Store | South Korea |
290.6 |
0.634% |
| Isetan | Japan |
677.1 |
0.273% |
| Nordstrom | USA |
423.6 |
0.064% |
| Shoppers Stop | India |
19.3 |
0.028% |
See Table 3 above for a comparsion of these department store companies in terms of a percentage of each country’s GDP. So we see that el Corte Inglés is 29 times larger than Shoppers Stop in terms of real sales, but 31.4 times larger in terms of share of national GDP. Alas, our retailers have a very long distance to cover. Can they do it?
So, what (really) ails the national large department store chains in India? This question has been bothering me (and making me think, as well as analyze) for a very long time, and I have come to the conclusion that it is “lack of confidence”.
Firstly, I believe that they don’t have the confidence to open stores of a global size – they still prefer stores of 45,000 square feet to 65,000 square feet, compared with the global average of 150,000 to 200,000 square feet. The exception here is FG Central, which is now setting up stores of this size, excluding a multiplex cinema. Alas, their trading density is the poorest amongst the three NLDS chains.
The world’s largest department store – Macy’s at Herald Square, New York City (see picture), has more than one million square feet of retail space. The Harrod’s store at Knightsbridge (London) is almost one million square feet. While there is no reason to blindly copy international retailers (especially the failing American ones), 45,000-65,000 square feet is too small for the size of the population in most of our cities.
Secondly, the Indian NLDS chains seem to lack the confidence (or is it something else?) to widen their merchandise mix – the bread & butter apparel category still constitutes 58%-65% of their revenues, compared with 31%-54% for most global chains.
The furniture and home accessories that one sees at Thai Central’s Chidlom store in Bangkok is stuff that I would actually buy. In comparison, the collection that I see at Home Centre by Lifestyle is something that I would not even consider – remember what I said at the beginning of this article that no department store in India has even satisfied 50% of my needs.
Even the Robinson stores in Thailand have a much wider merchandise mix than any of our department stores, and Robinson is definitely not more “upscale” compared to a Lifestyle or Shoppers Stop.
Thirdly, and perhaps most importantly, the Indian NLDS chains just do not seem have the confidence to sell higher priced merchandise. Just have a look at Table 4 below.
Table 4
| RETAILER |
Men’s Shirts |
Men’s Denim Jeans |
||
|
Lowest Price |
Highest Price |
Lowest Price |
Highest Price |
|
| FG Central |
Rs. 325 |
Rs. 2,999 |
Rs. 999 |
Rs. 3,999 |
| Shoppers Stop |
Rs. 399 |
Rs. 3,999 |
Rs. 1,199 |
Rs. 8,999 |
| Lifestyle |
Rs. 499 |
Rs. 3,999 |
Rs. 1,299 |
Rs. 6,999 |
| Levis |
NA |
NA |
Rs. 1,990 |
Rs. 11,500 |
| Diesel |
Rs. 6,000 |
Rs. 14,000 |
Rs. 8,000 |
Rs. 21,245 |
| The Collective |
Rs. 3,500 |
Rs. 13,200 |
NA |
NA |
The price range of men’s shirts at Shoppers Stop is Rs.399 to Rs.3999 and denim jeans are Rs.1199 to Rs.8999. At Lifestyle, shirts are Rs.499 to Rs.3999 and jeans Rs.1299 to Rs.6999. In FG Central, shirts are Rs.325 to Rs.2999 and jeans Rs.999 to Rs.3999.
On the other hand, Diesel (in India) sells men’s shirts priced at Rs.6000 to Rs.14,000 and jeans priced between Rs.8000 and Rs.21,245. Even Levi’s has jeans priced up to Rs.11,500, but these are not available at any of the NLDS stores. The Collective (Aditya Birla Group) sells men’s shirts priced between Rs.3500 to Rs.13,200.
Senior management at the NLDS chains may argue that Diesel is catering to a very small market or that The Collective is a failure. And this is the very reason I have chosen to bring these brands/retailers into the picture.
Even if I agree that Diesel is catering to a very small population, at a mean price of Rs.14,623 (I don’t know their average) for a pair of jeans, they would need to sell just 31.6% of the quantity as Shoppers Stop and Lifestyle to achieve the same revenues from this merchandise category. Need I argue that their margins would be higher. Obviously, Diesel cannot sell these many pairs of jeans as a standalone EBO format. But if Diesel jeans were available at Shoppers Stop or Lifestyle, the sales volumes would definitely go up.
Look at it another way – if Shopper’s Stop and Lifestyle moved up their mean pricing for men’s denim jeans from Rs.4624 at present to Rs.6499, they would achieve the same revenues by selling 28.8% lesser quantities. But that is not the purpose here – the real purpose (of upping the average or mean selling prices) is to take up the overall revenues, the margins and the trading density – in order to achieve better bottomlines.
There are buyers for brands such as Diesel, BCBGeneration, Quiksilver, Timberland and Steve Madden in India. That is the reason why Reliance Brands has got them into India. But why is it that these brands, or the brands brought in by Apparel Group Dubai (better known as Major Brands in India), have to come in through standalone stores? Globally, whenever any brand wants to launch in a new market (country), the brand’s first choice is always to launch within that country’s major department store chain. Why is this not applicable in India?
Let me also talk about The Collective. Even though this retail chain is not (yet) a department store format, it is important to bring it in here, as it is probably the only born-in-India MBO which has proven that the “rich” do shop in India. I would strongly argue that The Collective cannot be termed as a failure.
The 10,000 square feet Mumbai store at The Palladium is averaging sales of Rs.20 million a month, with an ABV of Rs.12,000 and ATD of Rs.2000 psfpm. The newer Delhi store (8000 square feet at Ambience Mall Vasant Kunj) is already averaging Rs.14 million a month, with an ABV of Rs.13,000 and ATD of Rs.1750 psfpm. Yes, the Bangalore store did not do as well as expected, but that’s due to several factors: firstly, it is on a high street, compared with the Mumbai and Delhi stores being inside malls; secondly, the Bangalore store is much bigger, while the Bangalore market is smaller than Mumbai or Delhi.
The Collective has not yet been able to do justice to most of its non-apparel offerings – for example, in its Bangalore store, it was averaging less than Rs.2 lakhs per month in sales of men’s skincare products, whereas sales of these products in the neighbouring UB City are more than Rs.10 lakhs per month. I am quite confident that The Collective will fix these problems over time and be able to reach ATD’s of Rs.2500-3000 psfpm. The shopping experience is awesome and one feels like going back to this store. As more and more people experience this, The Collective will “collect” loyal high spending customers.
My friends in the NLDS chains will still argue that this kind of ATD is possible only in the top 4-5 metros and that too in “such” smaller stores – my counter argument is that the Lifestyle store at High Street Phoenix (within the same complex as The Collective’s Mumbai store) could have captured this Rs.20 million of sales, thus increasing both – it’s ABV and ATD – at this store. That’s a missed opportunity!
Every time I go to the USA, I spend $350 to $500 in buying clothes (mostly formalwear) at a Nordstrom or Brooks Brothers store. I also spend an average of $700 in buying jeans – at my secret store in New York City. If the same choices were available in India, I would most definitely buy only in India. And the ABV would be Rs.15,000 to Rs.32,000, wouldn’t it? Alas, the choices are not available. How I wish that stores like Nordstrom or Brooks Brothers come to India.
Believe it or not, I don’t get 42” waist sized denim jeans in India. Not even at Diesel. And even The Collective rarely has shirts that fit me. Why don’t the Indian retailers realize that those who can spend more are probably a little older (say 35+) and are more likely to have waist sizes of 32” to 42” rather than 22” to 32”? And why don’t they want customers who spend an average of Rs.23,500 – 12 times their current ABV? Huh?
Last, but not the least, the Indian NLDS chains are not able to deliver the quality of in-store service that the growing (in spending, taste and expectations) Indian consumer is looking for. Why can’t the retailers learn from the Indian domestic airlines, which are amongst the best in the world in terms of in-flight service? Service does not necessarily have to come at a very high cost – Indigo has proven this.
Look at the experience one faces at Indian retail stores. The picture of the broken fixture given here is that of a Biba store at Bangalore. The sales associates at this store actually put the broken flap back with cellotape each time they take out the merchandise they want from this storage place located just below the visual merchandising displays and therefore imminently visible to customers. It is life as usual. Even though the picture is not from a NLDS, the point is that Biba is a company astutely mentored by Future Ventures, as their advertisements have been screaming out for the past few days. Is customer experience not part of this mentoring? Perhaps not, going by the experience one has even at a Food Bazaar located within FG’s Central stores. One should visit the beauty sections of some Pantaloon stores to understand the “meaning of beauty”. The customer service is no different at Tata Group’s Westside or Star Bazaar stores.
I may be wrong, but it seems to me that Indian retailers just don’t seem to care. They seem to ignore the phrase “if you pay peanuts, you will get monkeys”, because they can’t afford to pay more than peanuts – because they don’t make money – but that’s because they are only catering to value conscious customers. But that’s exactly the problem, isn’t it?
In my mind, there are only two ways that the NLDS chains will fix all of these problems. The first will be by hiring top managers who have been brought up in “rich” households, and can thus relate better to the needs of the 2.33 million “rich” households in urban India. After all, let us not forget that these people – no matter how small they are in numbers – collectively spend 26.5% more money collectively than the 5.85 million “upper middle class” households.
The second – which is perhaps (sadly) more likely to happen – is that foreign department store chains will come in once FDI opens and these foreign retailers will raise the bar, in size, in merchandise mix, in average bill value, and in trading densities. They will (obviously) start hurting the Indian chains – and they will then (hopefully) wake up. (see picture of Saks Fifth Avenue, an American department store chain that is likely to enter India soon, according to media reports)
As an Indian who is as concerned about this country’s future as Anna Hazare or Kiran Bedi, and as a well wisher of the very people that I have criticized in this article, I sincerely hope (and pray) that it will be the first – and soon … very soon!
Before signing off, I would like to say something. I hope that the constructive criticism in this article (and my other frequent articles in this publication) are taken in the right spirit. I neither claim, nor pretend, to know more than the leaders of the Indian retail industry, who have far more experience and insights than me. I just want to try and play the small role of a catalyst for change, reminding my fiends in the industry from time to time that we can do much more.
ABOUT THE AUTHOR
Amit Bagaria is Founder Chairman of shopping centre development consultants and managers Asipac Group and retail chain MEN & BOYS.