Believing in what you sell is one of the most critical aspect in retail.

David Ogilvy, one of the gurus of advertising is credited with this quote; “I never assign a product to a writer unless I know that he is personally interested in it. Every time I have written a bad campaign, it has been because the product did not interest me.”

Decades later this maxim holds true for not only advertising but actually about almost everything we do in life. If we truly believe in something, we give it our best and the outcome is invariably a positive one.

This reality becomes critical in retail as the shopper is driven and motivated by the trust he or she reposes in the store. In reality, it is not even in the store but in the staff and their service.

It is no wonder that the staff are referred to as the “Face of the Retailer”.

In spite of this, the majority of training initiatives are focused on customer service, smiling and wishing the customer, etc. Very rarely have I come across a retailer who takes the trouble to sell their merchandise to their own staff and make them to truly believe in what they are being asked o sell.

That was the crux of the issue that was mentioned to me by a young retail manager and which led to this “Business Line” article; Do you believe in what you sell?

Apart from the interesting anecdote about my interaction with this your retail professional, the article also captures an essential milestone in the journey of modern trade in India, especially that of food/ supermarket formats.

Replacement Guaranteed!

The recent spate of messaging by the online Retail majors hinges on reassuring the shopper that it is very easy to return or replace what has been purchased.

This is a core shopper expectation which is catered to very efficiently by the stand-alone, neighborhood store.  Interestingly modern retail formats including eTailers  are still struggling to establish trust on this front.  This is a very critical shopper behavior aspect and some of my earlier posts on this topic can be viewed by Clicking HERE

I had a flashback to the late 90s, when the RPG Foodworld chain of supermarkets was trying to redefine the grocery and food shopping behavior. This involved addressing several key mind blocks and shopper resistance aspects; hassle free replacement being one of the most important amongst them.

“Replacement Guarantee” was an initiative to address this important issue and it involved a holistic approach which included messaging, internal processes as well as staff education and training. This had a very positive impact which was reflected in the sales increase as also the basket penetration of several core categories of products.

Coming to the present times the two recent advertisements by Amazon and Flipkart are focusing on the ease of return and replacement. These two advertisements drive home the message effectively.

It is interesting to note some subtle and sublimal messaging in both these advertisements and they do raise two important questions in my mind as a retailer.

1. Both the advertisements show an elderly person expressing concern about return and replacement. They are both reassured by someone who is much younger. Is easy return/ replacement a concern only for Gen X / older shoppers? The counter point could be that this a concern for the Gen Y and Gen Z but the advertisement is trying to drive home a message that their Gen Y and Gen Z customers do not face this problem. In that context are reference groups such a large influence for these shoppers?
2. Retail brand building is built on trust which can happen only during the transactional experience.  Even today, the return/ replacement in most modern formats and eTailers are definitely not up to the mark. In that context will messaging alone work? What process changes have these eTailers instituted to ensure that the real experience lives up to the expectations created through the advertisements?

Retail Idea; 5 Stars for your store staff

The irony of customer service is that the store staff are trained and expected to deliver great service but invariably the systems and processes are counter to this intent. More importantly, the staff are rated, recognized and rewarded largely by the managers and the supervisors instead of the customers.

In this convoluted as also slightly confusing scenario, the high school pass or college dropout staff is expected to deliver customer delight. It is a wonder that they manage to do whatever little that they are able to deliver.

A simple maxim for success and leadership is “Walk the talk”. In line with this thought I suggest a simple and highly effective system of staff recognition which could even be linked to their incentives and other rewards. 

Let the customers rate the store staff on the basis of stars for good service. This is a typical Retail idea in terms of minimal costs, easy to implement and would be highly effective. All it requires is some supervision to ensure that no one is misusing this system. Although some might debate that there would be variances in the expected standards of service from customer to customer, the same variance would also equalize the rating in this system over a period of time.

CLICK here to read about the details of this idea in my ET article and share your views and comments. 

Indian Retail; Learning from a tender coconut vendor

I recently saw this tender coconut vendor in a locality called Mylapore in Chennai. His name is Mr. Rajkumar and when I asked him about the neatly printed price ticket, he said that he decided to put up the same to attract customers as also avoid bargaining with them.

 

 

Apart from his idea of putting up the price ticket, I was impressed by the attention to detail and execution focus. The signage is printed neatly and more importantly it is placed in an eye catching manner facing the traffic flow.

Execution focus is more about common sense and attention to detail. Something this picture clearly demonstrates. Contrast this with what is often seen in the various Retail stores; missing communication, torn posters, slanted price tickets, etc.

That leads me to the topic of ownership. This vendor is clearly the owner/ operators and you can see him standing proud next to his “store”. Obviously his standards of execution are high.

If Retailers work towards creating a similar sense of ownership amongst the staff, they would also take pride in everything inside a store and a customer’s experience would automatically be of a higher level.

Indian Retail; Analytics is dead without Operational Excellence

The hot topic nowadays is “Big Data” and therefore analytics. This promises to have great potential for Retailers in terms of understanding and interpreting shopper behavior and expectations. Thereby enabling the Retailer to develop a more focused and sharply defined competitive advantage.
But, then are we missing something very important here?

 

I think the more important thing especially in the Indian retail scenario is operational excellence and execution focus. However, this does not sound as “cool” and futuristic as “Big Data”. Perhaps this is why I am asked more about “Big Data” and analytics in many of the forums, programs and classes and there is a marked decrease in interest levels when I choose to talk about operational excellence.

 

Analytics and “Big Data” is essentially about interpreting data. What if the underlying data itself was wrong?

 

 

This poster was displayed outside a leading chain of stores recently. Apart from the obvious mistake of printing out the email verbatim and just sticking it on a stand, the entire approach is incorrect and counterproductive.

 

The bonus points have a cost attached to it in terms of the redemption value, the cost of administering the system, etc. The Retailer has started incurring this cost hoping that capturing the birthday and anniversary details of shopper will create a sales opportunity. The bonus points are a reward or can even be called a bribe to make the shopper share this information with the Retailer.

 

You can see the level of operational excellence or rather the lack of it in the picture. In this context, how productive and useful is the cost and effort being expended on such initiatives? More importantly, what would be the accuracy of any analytics done on this? Suppose a report was being generated about the shopper participation in this scheme, it will obviously have very poor numbers and the data would be skewed.

 

Instead, if the Retailer had spent some more in having a better caliber of person who sends out an email with a separate attachment of the poster with the attachment, the impact level improves. Added to that is if the Retailer motivates the staff to implement such initiatives, then the impact and the data coming out of such programs would be far more meaningful.

 

In such a context is it worth it to spend large sums of money on software and skilled people to mine data and analyze the same?

 

Take a simpler example of sales data. The cashier tries to scan a product and when they are unable to locate the product code, they scan it using some other product code with the same price to complete the billing. This directly affects the inventory and sales data. H would such a level of data accucy help in any analysis?

 

At least in the Indian context there exists enormous opportunities for shopper delight and increasing operational productivity which will have a direct impact on the bottom line. Analytics and fascination with “Big Data” is good and should happen but after the operational issues are fixed and execution excellence is a reality.

 

Click HERE to join the debate about whether Retail analytics should wait for execution excellence.

Indian Retail - Point & Counterpoint: What is Customer Orientation?

Change has always been an issue for any Retailer and this is about the change in terms of currency. As shoppers we all tend to hand over large denomination currency and expect the Retailer to give us change. Smaller, stand alone stores handle this by giving small toffees in lieu of change and if we do not want that, it is either give the exact change or live with it!

 

Larger stores especially the chain stores cannot afford the indulgence of handing out toffees or sweets instead of change. It is expected that they give the correct change to the customer. Therefore these chains try and get adequate amount of change from a variety of sources apart from the banks that even include the groups of beggars. Read more about this in my earlier post.

 

This is both a business need which is painful as also a sensitive point with regard to customers.

 

That is the context, when I saw the following poster in a shop and I was very impressed by this initiative and also astute step. In a single stroke this Retailer has combined his business need with a shopper issue and has managed to create value all around.

• Value to the customer because they will benefit for no significant extra effort.
• Value to the business because, for no incremental cost, the Retailer is resolving an issue without having to run around for it.

 

This is what I call as a true customer orientation: a solution to a business need that clearly benefits the customer directly or indirectly.

 

So, customer orientation is not a separate, independent activity or department’s responsibility. It is about ensuring that every business activity of the Retailer delivers an end customer benefit and conversely, that also helps the business.

 

CLICK HERE to join the discussion about “Customer Orientation” on my page and share your perspectives and examples.

Making your VM Visuals more effective

We had been for the mandatory festival shopping of clothes recently to one of the apparel chain stores. The often quoted fact of how visual merchandising influences a shopper by as much as 60% of the time was very nicely validated. Here is what happened and some insights from the experience for Retailers.

 

After having browsed through the various racks of Kurtis and other informal dresses, we had selected a few dresses and it was being tried out in the trial room. Somehow none of the shortlisted dresses were WOW and triggering the final buying decision. When I was walking around waiting to pay the bill (!!) I happened to see a mannequin which seemed to be sporting a very nice and well coordinated dress. It also helped that the mannequin was the right height and size to represent the shopper and gave a very good idea about how that dress would look on a similar person. I asked the customer service staff for the same dress combination, it was tried out and bingo, the sale was through. Great VM work by the Retailer.

 

Now comes the other side of the story. While waiting near the trial room we noticed several large visuals of models in very nice dresses. The sensible part of these visuals was the inclusion of a short description and mention of the price. Instead of just being a feel good factor these VM visuals had become extremely powerful POP and sales promotion aids. We then asked the store staff for one of the dresses and the comment by the staff “We don’t have stock of that dress. A few pieces came and has sold out. Many customers see this poster and ask for the dress. We don’t have stocks.”

 

We persisted and asked about the arrival of fresh stocks and the staff had no idea. She was even doubtful if the stocks of that particular dress would come at all.

 

No doubts, VM and visuals are extremely powerful influence on shoppers and the Merchandising & VM team at that Retailer have done a good job of leveraging the same. However, it could have been even more powerful and the sales impact could have been significantly more if some more basic things had also been done.

 

Some inputs from this experience for all Retailers, especially fashion ones are -

 

• Plan your mannequin displays and make it relevant. It is not only about the ensemble you want on the mannequin but also the size and proportion of the mannequins. A petite, very thin, mannequin might be a great idea to attract younger shoppers. It might be a better idea to use “plus sized” mannequins for stores where the shopper profile is in the older age group.
• Needless to say, accessorize, match and present a holistic solution. We ended up purchasing the complete combination. However, the mannequin did not sport any accessory like a wide belt, etc. Maybe a display of such an accessory would have included that also in our purchase.
• The use of VM visuals as POP and sales promotion aids was very impressive and I don’t see that being adopted by many Retailers in India. It is a great idea and if done tastefully it will not compromise the look and feel factor while having the positive spin off on sales.
• The most important factor is to plan, track and replenish stocks of SKUS used in such display and visuals. It requires some effort but it is not difficult to create a separate inventory and sales tracking mechanism for only these SKUs. In fact, it could even be manual and done at the store level, then consolidated at a region or state level for reordering. Even assuming that this was being done at the store we went to, it was obviously not working and imagine the loss of sales opportunity

 

Lastly, as I often say in my classes and training programs, Retail works like a ball bearing and if each and every component of the bearing does not move freely while being interlinked, the whole bearing freezes and brings the machine to a halt. Good ideas need great, outstanding execution.

Coffee beans and perfume selection, a potent combination

I had recently visited a standalone apparel store in Chennai and as most male shoppers do, was prowling around waiting for my family members to finish their browsing. When I neared the perfume counter, I saw an interesting and curious thing. There was a small container with lots of coffee beans kept there. Coffee, as you know has a string aroma and my first thought was that some new perfume with a coffee fragrance (Like the chocolate deodorant!!! Ugh) had been launched.

As a Retailer at heart, I was curious to know about this and asked the counter salesman. He explained that the coffee beans had been kept there to help shoppers make the right choice when purchasing perfumes. Frankly, this was something new and I asked him the logic. He went on to explain that the aroma of coffee beans were supposed to cleanse our olfactory sense (sense of smell).

While it did sound very interesting and innovative, I dismissed the explanation as a sales gimmick as I have not seen this in any of the large lifestyle stores which have far bigger perfume counters offering a wider range.

When I returned home, this was nagging me and I checked i out on the internet and realised that the salesman had been correct.

One site says “Our sense of smell is really powerful but it tires really quickly. We call this tiring “olfactory fatigue.” So, when you smell perfumes/fragrances, smell no more that 3 at a time before you “reset” your nose by smelling coffee beans. If you were to smell 4 perfumes in a row, you are not smelling the 4th one.  Smell 1, 2, 3 “reset” then 4, 5, and 6, etc. So the next time you are at a fragrance counter that has coffee beans, try it.”

Now the larger question is that why the large chain stores do not implement such a simple and customer enabling idea?

My earlier posts and articles about customer orientation and ownership of the customer experience highlight the lack of such a simple step. Retailers need to step into the stores more often, think like the customers and implement simple but effective customer enabling ideas. This is possible only when any retailer thinks from a customer perspective which is in turn possible on when they walk the store often enough and interact with customers. Sitting in conference rooms and devising grand strategies without the feet being firmly on the ground or rather walking around in the store is a sure fire recipe for failure.

Lack of Urban Planning is a bane for Indian Retail

One of the key costs for any retailer is that of real estate. When too many players fight for the same space, obviously the prices go up and very soon reach levels which are unviable for a Retail business. Retailers operate at a 20 odd percentage gross margin compared to say the IT industry which operates at much higher levels. So, the lack of proper zoning laws and enforcement of the same leads to several issues such as –

• Different businesses with different cost structures competing for the same real estate.
• Over-crowding and congestion, leading to pollution, etc.
• Neighborhood penetration of self service modern formats increasingly becoming a challenge.
• Size having to be compromised and therefore the range. So, in effect over a period of time there is no major competitive advantage over conventional stores.

 And many more such disadvantages and issues.

 

See the following two pictures which show two separate road names for the same stretch of the street. I am confident that each of these streets would have different valuations and therefore varying financial implications in terms of rentals, etc.

 

Forget all this. Should the common man have to suffer such confusion?

Sense and Simplicity

Retail is all about common sense is an adage I have heard and also propounded often enough in my various posts and in my book “The INDIAN reTALEs”. Especially with regard to good execution, the simpler the idea, better the execution.

In this context I happened see a film about a design management firm called IDEO which is a US based one. They were showcasing their design management process to come up with a better shopping cart. It does sound a bit funny. A better shopping cart? What’s wrong with the current ones?

They figured out some of the key problems in current shopping carts and came up with a simple solution of a frame with wheels which can hold two baskets. This solved a variety of problems like pushing the carts into crowded aisles. A family can shop at the same time using the baskets and then put them on this frame. The wheels turned 360 degrees so, maneuvering it was simple, etc.

In the Indian context a similar idea was implemented in a national chain and proved to be successful. However, a problem unique to India because of the store’s smaller size is crowded aisles, especially if there are pillars/ columns in the middle. Even the frame based trolley would be cumbersome, especially during crowded times.

A few days ago I happened to visit a supermarket where I saw this amazingly simple but hugely effective innovation. A basket with wheels. The wheels turned all the way making it extremely maneuverable and it has two sets of handles. A long one to wheel it along and two short ones to carry it. Simply marvelous. It was easy to use and a great idea. Simple and sensible. Exactly the kind of ideas that are needed for Indian Retail. Please see the picture for details.

One can ask what is so great about this. After all a basket is used by shoppers to purchase small quantities of items and why take the trouble to put wheels on them and incur the extra cost. It has been proven that if shoppers are given a basket they end up shopping more. In fact this used to be a SOP in some of the store chains I have worked with. Every shopper was given a basket as soon as they came in. If this study is correct and has merit, the contra is also true. Shoppers stop picking items when the basket becomes heavy and even one PET bottle of any soft drink can make a difference. So, by introducing this innovation, this Retailer has enabled the shooper for an easy shopping experience while eliminating the drawback of using a basket.

As mentioned above, sensible and simple.

Lack of Ownership and Initiative

I have recently been conducting several training programs for store managers. A common theme that I like driving home is the point of ownership. This is a favorite topic of mine since chain stores constantly talk about this, but on a day to day basis, do absolutely nothing at all to ensure that the store staff have ownership.

A case to the point is my experience recently at two stores while doing Diwali shopping.

First is a chain of discount/ value apparel stores. The store was over merchandised with hardly any circulation space. The staff had left cardboard boxes of stock all over the store, including the stairs and one of the two elevators was blocked with these boxes. Bright spot lights with crowds and inadequate air conditioning was a sure fire-recipe for people to faint. Long lines outside the trial room led to shoppers using the wash room as a trial room and there was a line outside that too!!!

To cut a long story short, we were waiting to get billed and leave. The customer ahead of me was caught up in some complex promotion involving discount vouchers and all that. (That’s a different topic about why people have such complicated promotions).

Anyways, here I was standing in the line and sweating. Sweating - because the store had these nice bright spotlights as mentioned before and the air conditioning near the entrance where the cash tills were located was not working. When my turn for billing came, I asked the person who appeared to be in in-charge (who turned out to be the store manager) why something cannot be done to make this experience better. He was lost!

I suggested that he should get a fan at least near the cash till and he gave a half hearted reply. I can bet that if I went there after a few days later, there would be no fan and no change.

Because, the store manager and staff have no ownership! The guys at the head office grill them about sales and reports. But not about ownership! Sad. But true.

Compare this to a store down the road. A stand alone apparel store. The customer crowd was pretty much the same but one did not feel suffocated as the air conditioning worked, there were no boxes of stock lying around waiting to trip someone, staff were helpful, etc.

When I was billing, which was pretty fast given the crowd, my family members were not crowding around me increasing the tensions. They were enthralled by a magic show. Yes, a magic show being conducted near the billing counter.

I don’t know if this is a result of the owners having read my book, “The Indian reTALES” but I was thrilled that someone was directly implementing what I have written about billing and how to handle the same. It was great to experience ownership of the store where customers felt good after having made the purchases instead of feeling like prisoners who have escaped the Tihar Jail.

So, to my moot point - will the lack of ownership of store managers of chain stores be the death knell?

I think so. Wake up guys and change the way Indian Corporate Retail works.

Empower the store staff and make them own the customer experience.

Who is managing the store!

Over the past few weeks or rather months I have been noticing a dangerous trend in the supermarket chains I tend to go to. Barring one as an exception the store manager/ in-charge seems to be missing in action.

Either he or she is nowhere in the store and my guess is that in most instances they have been called for some meeting at the office. Such a meeting would debate at length on why sales are dropping and what can be done to increase the same.

In a few cases the manager emerged from the store back office in response to a request by some cashier to unblock the billing machine. This is a safety or rather security need wherein in certain cases like changing the prices of products, an authorization code is required for the cashier to continue billing.

After unblocking the machine the manager glares at the cashier and customers alike and retreats into his office again, to do God knows what. If I were to be charitable I would presume that he is compiling piles of reports that someone in the office has asked for, which will all finally end up as a bullet point on a presentation.

Why is this dangerous? Simply because others will follow as they are being led.

I have often stated how the staff are the face of the Retailer and they define the interactions which make or break shopper loyalty and hence the viability of the store. If the staff see their store in-charge being more internally focused in terms of primarily pleasing their bosses, having none or very little time for customers, wont they emulate the same?

There is a ritual called store walk which ensures that the store in-charge takes stock of things literally and figuratively. If not done, it is a guarantee that the store will go down the drain in terms of hygiene, display, etc.

Lastly, the staff are on their feet almost through the eight hour shift. Being on the floor with them, guiding them and motivating them is the best form of leadership and is guaranteed to have positive results.

Instead of this routine, which is core to Retailing I hardly see the store in charge interacting with either customers or the staff.

Maybe the change should start with the bosses. They need to leave the conference rooms and be at the store more often. While at the store, have stand up meetings if required.

However, the best bet would be to talk with the staff and customers and they will get millions of ideas to improve sales. More importantly, such ideas will work!

Making a mountain out of a molehill

The “Global Retail Theft Barometer 2009” report has led a flurry of news reports and yet another opportunity for India bashing. Headlines like “Nation of shoplifters?”, “Indians are world’s best at shoplifting” make for attention grabbing news while the more balanced publications still did succumb to headlines like “India No. 1 in Retail theft”, “India tops list of shoplifting nations”, etc.

This is a classic example of misunderstanding or maybe even misrepresenting facts to create a distorted perspective. In that context, let us do a reality check by examining certain facts without colouring them in any way.

First is the study itself. This is based on a confidential survey of only 1069 Retailers, although 4,200 large retailers were supposedly contacted. Which means that 75% of those contacted did not reply or participate in the study. I wonder why?

I have tried to see what kind of a questionnaire was used and am unable to access a copy online. So, will limit my view to the simple fact that one cannot, I repeat, one cannot effectively measure theft. At best it is an opinion expressed. What a Retailer can measure in the difference between physical and system stock. How can this be segmented with precise percentages between theft and other reasons.

There are various components of shrinkage. Wrong receipts, Wrong billing, Inaccurate stock audits, Unaccounted breakage/ damages and of course willful theft in transit or by store staff or customers. Any retailer can first of all only measure the overall shrinkage and even that is a guesstimate in the case of many operators. To expect them to be able to measure the component of shoplifting is incredibly hilarious. I just loved the decimals in the figure of 45.2% of shoplifting and 23.3% employee theft! It does create an aura of absolute accuracy.

So, it means that the entire range of system and process related issues are responsible for only 31.5% (Note the decimal point!) of the shrinkage. Having been in the industry for so long this is incredibly unbelievable. Most Retailers would state that their fill rates hover between 70% to 85%. In a context where system inefficiencies cannot ensure optimum stocking, to state that the contribution of system/ process errors is far lower than theft is at best wishful thinking.

Only the shrinkage figure of 3.2% has some validity because it is objective and is based on reality. In fact even that is suspect in the case of certain operators who do not have a robust stock audit system in place.

Let’s retain some objectivity when reviewing such reports and not get carried away by fancy headlines and provocative reporting.

Interesting experiences of Customer Orientation

Today evening I was searching for some exotic food stuffs to attempt home made pizza's. In the course of my search I witnessed two very interesting customer service experiences and would like to share that and leave you all with some thoughts.

1. Had picked up whatever was available and was waiting in line for billing. It was around 6 p.m. and most staff seem to be on a break basis the comments I heard (Funny time for a break on a weekend). There was only 1 cashier and she seemed to be quite unhappy to be one of the few working and not on break. Suddenly she called out for the duty manager to come. Another staff replied that he was eating to which the cashier petulantly replied; "Tell him his authorisation is required for the billing and he will come". Immediately, a youngster rushed up trying to hide his right hand which was covered with rice. Obviously he had been having a belated lunch. I was impressed with his reaction, including the fact that he did not take time to wash his hand and focused on the task at hand. A true Retailer and he will go far in life. As for the cashier, I am sure she was least apologetic for having created a situation wherein an authorisation is required. I can state this confidently as a retailer since the customer had not changed any of the purchases and so the only reason for an authorisation is an error by the cashier.

Now the question that vexes me is that with the increasing shortage shortage of store staff will the staff be more and more indifferent to the customer while the store supervisors and managers scurry to overcome the service deficiencies? How long will this last? How can this be handled better?

2. Next I landed up in another store and was enquiring where I would find chili flakes. This middle aged store staff called out to another that I was looking for chili flakes. This staff was a youngster and picked out the packet from a carton kept at the lowest shelf of a rack which did not even have shelf edge labels. Now my curiosity was piqued and I went around asking staff for directions to products and was completely amazed with the exact direction I got from each staff for products which were a few aisles away and one was at the other end of the store. I was reminded of the customer service training sessions I would take in the early days where Product knowledge was stressed upon including the location of the various products. Hats off to this team and more importantly to whoever has trained them.

How can such brilliant service be duplicated and replicated across stores? formats?

Worth thinking about.

Delivering a memorable customer experience

This article is the next in the series on how to implement the customer experience element of basic Retail model, in the Indian context. This was published on Sept 17, 2009.

The faith and trust a customer places in a retailer is a function of his shopping experience. Unless a Retailer works towards creating a memorable experience, the chances of success is very slim. There are many ways to achieve this objective. The Kirana stores use a one on one personalised approach which cannot be duplicated by Corporate Retail. So, how should Corporate Retail manage this crucial element?

To read the whole article, please click on this link -

- Delivering a memorable customer experience

Not the end of the rack. Part I

Article written by me for the magazine “Indian Management”, June 2009

There are gloom and doom stories about Corporate Indian Retail everyday and just as it was in the stock market crash, everyone wants to stand up and claim, I told you so! But, is it really the end of the great Indian Retail story? I don’t think so.

Store Level Reality

The stores are being closed for very valid reasons which are linked to making the Retail model viable.

The store is a key OPEX component and as such the cost structure of each store is crucial to the success of any Retailer. In India, the typical margins that a supermarket would realize is in the range of 18 - 19% and three of the biggest cost components are rent, manpower and energy costs. These should ideally be in the range of 12 - 13%. However, over the past years the rental costs alone have risen to as high as 7 - 8% in many cases. Coupled with the other components the top three cost components today typically totals up to 15 - 16%. Which means that the store is either losing money or the positive contribution is not large enough to sustain the other common costs being apportioned.

This steep escalation in the rental component is a direct consequence of supply and demand. With so many mega plans having been announced and location being a supposedly crucial factor, what else can one expect?

So, the first take out is that at a store level, if the cost structure does not make sense no amount of any other corrective action will make up for that.

The downturn and the falling demand in real estate is an excellent opportunity to correct the initial mistake of indiscriminate store opening without regard for high rentals. The chains are renegotiating rentals and right sizing stores to make the cost structure workable.

The cost structure is linked to projected or estimated sales. All the percentages I mentioned before have a common base. That is the optimum sale that is required for a store to be sustainable. Typically supermarkets used to generate an average of Rs. 1,000 per sq. ft. per month and this became the benchmark for developing the supermarket model. However, nowadays the typical average in a supermarket is in the range of Rs. 700 with the lower end of the spectrum touching even Rs. 450.

The simplistic solution is to realign costs to this sales figure, so that percentages remain the same. However, it’s easier said than done, especially for cost components like rentals, which is being done by most Retailers.

The other option is to increase either the sales or the margins which is the tougher thing to achieve, because there are several very valid reasons for low sales, one being oversaturation of similar stores in a locality. So, the closing or down or right sizing of stores is possibly the most prudent activity in the current context and reflects that corporate Retail not only knows what needs to be done, but is acting on that.

Not the end of the rack. Part II

Continuation of the article written by me for the magazine “Indian Management”, June 2009

Viability of the chains

Next is the larger issue of overall viability of these chains and whether they would sustain and grow. Again my view is that it will happen because there are possible solutions to existing operational problems.

At the heart of the matter is the reality that most chains have rushed in to open stores without doing a basic differentiation strategy. As one friend of mine remarked “If the fancy boards are hidden, one would not really know which store it is”. Somewhat similar to the age old debate about Coke and Pepsi and how in a blind test most people can’t spot the difference. Yet, these brands have been able to create well differentiated brand personae’s. Unfortunately food Retail cannot afford these kind of media spends and frankly it is not required.

In Retail, the store experience is the basis for anyone’s imagery of that store. And this can be a powerful tool to create a differentiated branding. At the heart of the experience is the fact that customers come to the store to purchase.

Hence, a well thought out assortment strategy with a noticeable percentage of unique or differentiated products is the first step to success. However, in the Indian context there is a serious constraint to this, in the form of availability. Even a well thought out plan would be ineffective if the customers do not see these products at the store. With fill rates of 75 – 80% from the best of vendors, every Retailer has to manage a situation of empty shelves and therefore a poor imagery in the customers mind.

This is where the private label program of a Retailer plays a crucial role apart from also generating better margins. A comprehensive private label approach which seeks to supplement the offering while providing opportunity to offer alternatives to customers in the absence of stocks is a sure fire winner.

Not the end of the rack. Part III

Continuation of the article written by me for the magazine “Indian Management”, June 2009

Next is the issue of service.

Shopping is a habit, especially grocery shopping. This habit is driven primarily by trust built over years and based on softer service elements. Hence, even with similar stores offering similar products, one tends to have strong loyalties with a particular Kirana store.

In the case of corporate Retail, the structuring of the business model itself makes it very difficult to offer these softer service elements. Hence the need for a very sound value proposition, to the customer. The value proposition can be built around the store design, range and service. However, with similar looking stores with hardly any differentiation, how can anyone perceive a unique value proposition?

This has led to customers constantly shifting between stores either because of availability issues or driven by pricing and promotions. This leads to two things –

• Promotion/ pricing driven purchases lead to lower margins. A promotional sales contribution of 15% is a healthy indicator that the promotions are being perceived to be good and seen to deliver value. When this share goes up significantly it is a surefire indicator that customers are only “cherry picking” at that store.


• Customers alternating between various stores leads to a misleading picture with regards to sales analysis and this in turn could severely impact the forecasting and replenishment of a store. The direct consequence is certain products not being available, which is again a trigger for customers to frequent other stores.
  

Recruiting store staff has always been a challenge because of the perception of Retailing and getting trained people has been a bigger challenge. This is further compounded by the cost cutting orientation which has led many chains to reduce the head count in a store. This not only puts pressure on the staff to fulfill their internal work and yet interface with customers. This is truly a Hobson’s choice because customers come to a store to buy and hence the staff needs to ensure that the products are available and displayed. Yet, the customer would build loyalty and rapport only based on interactions and service, which often is compromised. An even simple thing like smiling and wishing or thanking the customer after billing is increasingly hard to experience. Is it any wonder that customers have little or no loyalty to any store?

Retail chains should look beyond the downturn. Today, these chains are scrambling for the reducing share of the shopping basket, further compounded by overcrowding and without any differentiation. By reducing store staff and thereby impacting the service levels, the chains are only further reducing any chance of differentiation and therefore customer loyalty.

Also, in the coming years when the economy picks up again and expansion starts, getting store staff is going to become increasingly difficult in spite of a slew of training academies being opened by everyone, including the Retail chains.

Perhaps it is now time for the Retail chains to work towards the staffing models of stores abroad, wherein elderly people and students form the majority of the work force and work as temporary staff. India has both these segments of people and youngsters today are increasingly adopting the work and study model. Such people can be used to supplement the store staff’s efforts, especially in customer interface and customer service functions.

Last, is the issue about funding, debt, etc., which is seen as a major factor to doom this sector. Retail, the largest employer in India and also abroad is not an industry in India. Suffice to say that being recognized as an industry would help manage this issue as currently these chains are largely dependent on PE funding.In summary, the store would be a tipping point in the Indian Retail story. Which side of the fence it tips over, is a result of some concentrated action which is required immediately.

The good news is that, this seems to be happening and shortly when the sector resumes its growth story, I can claim that I told you so!.