A chain store that promises year-round discounts is sure to be a success in bargain driven India. Yet, success did not come easy for the Mumbai-based The Loot India Private Limited (The Loot), a multi-brand discount store that offers 25 per cent to 60 per cent discount to its consumers, 365 days a year. Despite being the unique selling proposition of the venture, the discount schemes initially left customers doubting the quality of merchandise at the multi-brand outlets. “I had to fight the preconceived notion amongst people that I was selling second-hand apparel, fakes or defective merchandise,” says Jay Gupta, founder and managing director, The Loot. In the first few years, their promotional campaigns had a single-minded focus of dispelling these very doubts. Their consistency in both product offering and promotion seems to have paid off as The Loot has seen a growth rate of close to 55 per cent in the last five years. Today, the company has 145 outlets across 82 cities in India, making them the pioneers of this format.
The retail bug
Before establishing The Loot in 2004, Gupta, a second-generation entrepreneur, dabbled with franchising for other retail brands. However, he saw that the price of branded apparel often came in the way of a potential purchase. And this is when Gupta surveyed the sales patterns of more than seven premier retail brands. He found that their numbers during eight months of regular sale equaled that of four months of discounted sale. Fuelled by this finding, he set up a basic discount store. However, there were other limitations such as the lack of a trial room, no exchange policies and no guarantees on the merchandise. Through his method of trial and error, Gupta struck upon the perfect formula – a discount store with the amenities of a brand outlet. Thus, was born The Loot.
Gupta asserts that the discount chain store is able to offer discounted prices as it engages in opportunity buying, basically, purchasing excess production from retail vendors. Unlike other retailers, The Loot makes an outright purchase of its merchandise in cash and takes on the risk of selling the same. In this model, there is no return to vendor policy for unsold merchandise. Following such a business model allows the company to avail large discounts from the vendors, which they pass on to their customers.
This apart, a strong supply chain management system allows The Loot to get better pricing from manufacturers. Interestingly, the choice of location for The Loot stores has helped keep costs in check. “We found that stand-alone rentals were a lot more affordable than malls,” says Gupta. He adds that a deliberate attempt was made to steer clear of popular locations and this in no way has affected their conversions as those heading to their stores come with a clear purchasing focus.
Being the first of its kind, the challenges that The Loot faced were myriad. Firstly, retail brands were reluctant to sell their surplus to the store as they share a similar target audience. This made it difficult to compete with the unorganised retail sector and ultimately, it was only with the rise in volumes of their sales did The Loot surge ahead.
For the current fiscal, we are looking at a realistic turnover of close to Rs. 150 crore,” says Gupta, founder and MD at The Loot
Another significant challenge has been keeping pace with the latest in terms of stylish design, since their supply chain provided them with a limited choice in this regard. In order to address this, The Loot resorted to introducing in-house labels, ‘Eccentrics’ and ‘Bus Stop’. At present, 25 per cent of their sales come from these labels. “Given a choice, we do not want this figure to grow beyond 30 per cent as we still want to be recognised as a discount store offering branded merchandise,” says Gupta.
Changing people’s initial perception of The Loot paved the way for its progress. Their promotional campaigns which were through word-of-mouth, advertisements, outlet presence and celebrity walk-ins drove home their credibility. Their most notable campaign features Bollywood baddie, Gulshan Grover. When quizzed about the choice of Grover as brand ambassador, Gupta says, “Gulshan Grover’s association with The Loot gave us an instant brand recall, breaking past the existing clutter.” “He is like the Indian Robin Hood, he loots the brands and gives to our customers,” adds Gupta.
As for spreading the word to get people to join him, Gupta does not claim to have always gotten it right. Initially, he experimented with hiring a mixed bag to help him run The Loot stores. This included management graduates, experienced executives and rookies, but, the strategy did not yield the best results. Over time, Gupta realised that unlike those individuals who thrived within a set framework, those with an entrepreneurial streak were the right people for the job. “Those who work for us understand where they flourish the best. This is a two-way street where both the person and the company grow together,” says Gupta.
The money train
As is the case with several start-ups, Gupta and The Loot faced constant financial struggles. Unlike those who chose to gain investment and support from venture capitalists (VC), Gupta went to the banks. In addition to his personal capital, Gupta raised Rs. 4 crore through bank loans to help set up the first outlet. Gupta is of the firm opinion that banks do not interfere in the way a business is run. “I did not approach any VC as I wanted key decisions to be taken by those involved in running The Loot. Also, I did not want any delays on the account of waiting for their approval at every step,” says Gupta.
In 2009, The Loot was poised for an initial public offering (IPO). However, this did not take place as the financial markets were unable to provide a supportive environment. When asked if these plans would be put in place by the end of the current fiscal, Gupta is positive, “When the index hit a 20,000 points, we will definitely go in for an IPO.” In the event of a successful IPO, Gupta has big plans for the money it will generate. In addition to clearing his debt with bankers, expanding his retail presence and launching a promotional campaign through national media, Gupta intends to integrate his infrastructure to optimise on resources. Currently, the operations are fragmented, but, Gupta seeks to bring the corporate office, warehouses and training centres, all under one roof.
As for the future, Gupta is clear that The Loot will play to its strengths. He identifies certain apparel categories such as casual clothing, especially denim and men’s clothing, on which the focus will remain. Gupta and his team have no plans of diversifying into other categories in the near future. “For the current fiscal, we are looking at a realistic turnover of close to Rs. 150 crore,” says Gupta. With its straightforward approach towards business, The Loot seems like a place that does drive a believable bargain.