An Indian retailer faces the unenviable task of operating in a fragmented market. And to top it, he has to deal with other operational challenges like poor supply chain infrastructure, restrictive foreign direct investment policies and complex tax regimes. That said, having seen the positive impact that organised retail has on its economy, India is making more room for the industry to grow.
“It is difficult to keep a day-to-day tab on the operations of a franchise and a single mistake can prove costly as it affects the brand name,” says Jay Gupta, Founder, The Loot
Surely, organised retail is not in its infancy anymore and it is now time for players to take their business to the next level by scaling up their operations. But this comes with a set of challenges. While many agree that manpower and real estate are two things that one needs to get a strong hold on before they scale up operations, retailers – be it in brick and mortar retail, kiosk retail or retail online – stress on tending to the back-end before drawing up extensive plans.
Clearly, for a successful scale up of operations it is essential for the retailer to make sure that there are certain checks that he runs like understanding consumer needs, determining objective and assessing capability to build a strong back-end.
Understanding the market
Before plotting an expansion plan, a retailer must assess his market opportunities with maturity. “The first of two things that a retailer must do is to understand his consumer catchment in the best way possible and the second is to understand his own objective to scale up,” says Purnendu Kumar, vice-president, retail and consumer products, Technopak, a management consultancy with a special focus on retail. Kumar adds that with this two-fold understanding, a retailer stands the best chance to customise his product, increase sales and justify expansion.
“We reached out to the best investors in India at appropriate stages of the business whenever we felt that we can accelerate the business growth with capital infusion and had a clear idea about what will it take to scale up the business,” says Mukesh Bansal, CEO, Myntra
What works for some retailers is to pace themselves according to market response. For instance, when Jay Gupta, founder-managing director, The Loot, introduced Mumbai to discounted branded apparel at his first store, the response was overwhelming. “The people’s response to the store gave me confidence and from having one store in 2004, we had over 30 stores in the next two years,” he says. Now, The Loot is looking to hit the 200-store mark by the end of this fiscal.
Entrepreneurs like Dheeraj Gupta bet on a product that cannot go wrong. In 2001, the founder-managing director of Jumboking Foods gave Mumbai’s Vada Pav a facelift through standardised production and packaging, with hygiene being a point of focus. Two years since its inception, the company had just two outlets; by 2006, the brand’s popularity had warranted establishing over 25 outlets and today, Jumboking Foods has more than 38 outlets only in Mumbai. Even as the management team lays out plans of reaching 100 outlets in Mumbai this fiscal, a significant challenge that lies ahead is for the company to capture the national market. Currently, it has nine outlets outside of Mumbai, in the cities of Ahmedabad and Varodra. Gupta shares that plans are underway to open outlets at Pune, Bengaluru and a few more tier-2 cities so as to get an idea of responses from different belts. “The idea is to retain the quality of our product offering while trying to experiment with the format of outlets elsewhere in India. For instance, in a place like Bengaluru, we might look to provide the consumer a dine-in ambience and experience,” says Dheeraj Gupta.
Back to front
Ask a retailer about the most significant challenge to scaling up and the response is very prompt. The lament is reserved for the state of supply chain infrastructure in India, with several entrepreneurs taking matters into their own hands. For example, The Loot tied up with Tata Consultancy Services (TCS) to implement its SME ERP solution in order to streamline and bring efficiencies into the business. The company’s focus is also on personnel training and great emphasis is being laid on preparing the back end to take growth to about 200 stores by June 2011. “A fully equipped and technologically upgraded warehouse has been set up at Bhiwandi, which can accommodate about 10 lakh pieces of merchandise to meet the growing demand of the expansion,” says Jay Gupta while adding that The Loot also plans on building a dedicated campus for backend support. This campus will comprise of the warehouse, manufacturing unit, design team, fabric bank, training centre and more. As Gupta says, it is the foundation on which the company has based its goal of being amongst the top three Indian retail companies.
Myntra Designs (Myntra), the online apparel and sports good retailer, has also invested in a state-of-the-art e-commerce front end as well as backend ERP and warehouse management technology. “Our technology backbone is mostly developed with an in-house team having expertise in online systems,” says Mukesh Bansal, founder-chief-executive officer, Myntra.
If working out logistics to ensure faultless supply chain management is one significant challenge, there are others that loom large over retail entrepreneurs like that of people management. “In a retail segment like the restaurant business, people are everything. Finding skilled labour to manage the kitchens is paramount,” says Technopak’s Kumar. Dheeraj Gupta says one way of retaining talent is to show them a promising future. “We have many examples of individuals who have joined us as serving staff at an outlet, who went on to become store managers and later, area managers through their merit. It is important to recognise efficiency and reward it,” he says.
In India, a third challenge that manifests itself is that of finding real estate. For apparel and restaurant retail, location assumes great importance and sourcing out the right place to be at could make or break the game. “There is limited availability of quality real estate here and that presents a problem to most retailers,” says Kumar while adding that the mushrooming of several malls across tier-1 and tier-2 locations are likely to help this cause.
Like every other move in business, scaling up requires capital. If a retailer wants to raise money, it pays to constantly generate interest amongst the venture capital community. “We reached out to the best investors in India at appropriate stages of the business whenever we felt that we can accelerate the business growth with capital infusion and had a clear idea about what will it take to scale up the business,” says Bansal. Those retailers who value control and want minimal intervention prefer to generate funds through bank loans, such as Jay Gupta.
A quick way to scale up in retail, where the finance, infrastructure and personnel management rests with a third party is to opt for the franchise route. While this route presents a quick way to scale up, especially to extend reach in tier-2 and tier-3 cities, it comes with its own disadvantages. As Jay Gupta says, “It is difficult to keep a day-to-day tab on the operations of a franchise and a single mistake can prove costly as it affects the brand name.” Kumar cautions retailers by saying, “Do not jump to the franchise option very early in your business as this can dilute your brand value.” One way to minimise risk associated with the franchise route, is to set strict guidelines, like Jumboking Foods has done. Its head office in Mumbai is known as the Support Centre and it supports franchisee networks to run outlets as per its requirements.
While this article serves as a snapshot of the challenges that a retailer will face while growing his business, it is important to remember that once an enterprise has scaled up, it must be capable of sustaining that scale or the exercise will be one in futility.