Amit Bagaria's Blog

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 entry was posted on Sunday, November 13th, 2011 at 12:57 pm and is filed under Article in Images Retail. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.