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Strategies for Success – Part – II

June 1, 2010


You are Reading this First HereIn continuing our research post on Winning Strategies for Retailing in India here are the last 4 commandants as come up by our in-house research team.

Is there a Fixed Business Model for Success ? The answer is NO. While Pantaloon successfully added 7msf from FY06-FY09, Trent and Shoppers Stop remained conservative due to the lack of availability of quality retail space at reasonable rentals and did not expand aggressively. While many tried to go the aggressive way like Pantaloon, but only to scale back, Trent and Shoppers Stop evolved their business model even as capital was scarce and footfalls dropped. Both Pantaloon and Trent have managed to buck the trend of losses in the organised Indian retail sector. Interestingly enough, both retail majors followed differing business models. While Pantaloon had the first-mover advantage, Trent’s focus on back-end integration, backed by funding from the Tata Group, proved to be success factors for both retail major.

Conservative in Spending, Preserve Capital:India Retail Inc. consumed Rs 98bn of capital (equity as well as debt) to fund its growth plans from FY06-09. Interestingly, of this amount, Rs 47bn resulted in the opening of 6.9msf of retail space at accumulated losses of Rs 19bn, ultimately resulting in the closing of stores and scaling down of operations by various players. Players, such as Trent, who preserved capital during these years are in a more dominant position due to their superior Balance Sheet strength as well as sound operations.

Small is not big, until now:Many of the store closures reported over the last year have been small stores (500sq.ft-2000sq.ft) which offer essential food and grocery items and do not really push fashion or general merchandise due to space as well as target market. Hypermarkets need size to offer food, fashion and general merchandise (with the latter two being the high margin items) and attract a larger market with the intention to make high-ticket purchases. Spencer’s Retail closed down 157 stores due to losses emanating from small stores. Big Bazaar of Pantaloon and Star Bazaar of Trent are examples of successful hypermarkets, which have been based on relatively large box formats. Even Hypercity of Shoppers Stop focuses on large box formats.

Compete for Space before Customers:We believe that it’s a fallacy to compete for the consumer at this nascent stage of organised retail where the actual competition is for space. The importance of location is paramount as ceteris paribus, a good location will draw the consumer to the store. Understanding of real estate is what sets apart the leading players, namely Pantaloon (over 25msf of retail space locked in), Shoppers Stop (space for 25 stores locked in) and Trent (tie-up with Xander Real Estate Fund).

What is your take / experience about retailing in India ?

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