Saturday, May 10, 2008

Indian Retail - Expensive Bricks,Elusive Clicks

India, in various fora, is touted as the world's best future retail destination.A destination where you need a presence, to capitalize on as the retail landscape evolves.It is undoubtedly true that India is the finest future retail destination. But, till we get to the future, how do retailers survive?

-Rent in Connaught Place, Delhi and Linking Road, Mumbai is in the region of Rs.600 to Rs.900 per square foot.The story is not very different for Brigade Road, Commercial Street or Vittal Mallaya Road in Bangalore. Good malls don't cost less.Park Street and Camac Street in Kolkata,CG Road in Ahmedabad,Bund Garden Road or Koregaon Park in Pune cost less but this is in line with the business potential in these cities.Rent for a 2,000 square feet store,in Delhi or Mumbai is in the region of Rs.1,200,000 to Rs.1,800,000 per month.

-Interiors costs Rs.2,000/- Rs.5,000 per square foot.

-Retail staffing is not inexpensive.

-A store breaks-even at about 5 times the rent. That is, a store in Connaught Place or Linking Road breaks-even at sales of over Rs.6,000,000/- per month.A store in any other location may cost half as much and therefore will breakeven at say, half this revenue - say at Rs.3,000,000/month.

Now, which retailer can generate this revenue? Apparel,Books,Music or Food cannot.Jewellery,Highend watches, perhaps, can.LV,Gucci certainly can,but only in Delhi or Mumbai.

If this is true, then a vast majority of new stores opening (with the exception of perhaps a few retailers like LV,Gucci etc. who are coveted by landlords and mall developers and therefore get preferential deals) are not anywhere close to a breakeven.Yet, there is a flood of brands opening stores in prime retail space.

Other than rent, the other ails of Indian retail are :
Weekend Affair: Over 50% of retail sales happens during the weekends (Saturdays and Sundays).Thus, expensive real estate and manpower idles during weekdays accumulating costs.An exaggerated example of this in retailing in Goa.Since retailing is dependant on foreign tourists,several stores open only for 6 to 8 months of the year.
Inventory:Whatever meager profits the retailer makes in blocked in inventory.Missing inventory just adds to the retailers woes.
Getting there : Good retail locations are not easily accessible to the consumer.The to and fro journey to a good mall or high street can vary from 60 to 90 minutes.Chaotic traffic,lack of parking makes the entire experience unpleasant.Kishore Biyani is reported to have said,rightly, that the recent reduction in the excise duty of small cars will benefit retailing.In addition to private transport,parking facilities,availability of public transport also affects retailing.
Skewed Tenant Mix : Most malls have a very skewed tenant mix.The mix is skewed toward apparel and food.

Most new malls coming up are mega-sized.Mall Developers assume that their catchment is a radius of 20 kilometers.This is not true in many cases.Family shopping needs are of two kinds :weekday shopping and weekend shopping.If during a weekday,the consumer needs to buy a shirt from his trusted brand he is perhaps better off popping in at the closest high-street brand store rather than driving to a mall,finding parking in its labyrinth underground spaces.If the family enjoys shopping,window-shopping,cinema then they ,perhaps, need go to a mall over the weekend.

So, what is the way out of this imbroglio:

Local Shopping Centers: Shopping Centers which have a good mix of tenants covering most monthly shopping needs.These can be further classified into mid end or upper mid end.These need to be within 5 kilometers from a residential locality. Premium and Luxury,will of course, have to be located separately.

Teleshopping: Grocery stores must have the provision (pun unintended) for teleshopping.Why must the customer travel to buy daily necessities like shaving cream,cooking oil,rice or atta.Home delivery of these items should be only a phone call away.This will not only give the consumer convenience but take away stress from the retail space. Grocery stores must accept orders over fax to get over the issue of engaged phone lines.

Internet Shopping: Why must a consumer travel 5 kilometers to buy a standard shirt from his trusted brand.With high speed internet available easily,brands must now seriously consider this route to retail profitability.Existing bricks can support the clicks.

Till retail space becomes more affordable, retailers must mix bricks and clicks to keep their business in good nick.

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