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.