Shoppers Stop, a speciality chain of garment and accessory retail stores, has been a pioneer of organized retailing in India.The first Shopper's Stop store was set up at Andheri in Mumbai in 1991. Today the company's outlets are located in all major cities like Mumbai, Bangalore and Hyderabad, New Delhi and Jaipur. The company expects to open about 20 stores and will have a presence in almost 15 cities by the Year 2005. In an interview with Tushar Pania and Toral Modi of Indianfoline, Mr B V Nagesh, CEO - Shoppers Stop Ltd, talks of the retailing business in India and his experience in setting up one the country's most successful retail chain store.
Retailing has attracted a lot of attention in the last one year. However development of retailing started very late and has been slow in taking off in India, compared to even other Asian countries? What have been the main reasons for the slow growth? What is the potential market size? What is the present market size?
In India retailing is an established business and has been around for decades, however not in the organized form the way we do it. In India there are 5mn retailers and 18mn people are employed in the retail business.
There are three factors that drive this business
a) People, b) Property and c) Product
Organized retailing, however, has been a recent phenomenon. There are several reasons for this
What has been your experience in setting up Shoppers Stop ?
When we started our first store in Mumbai, we were asked questions like how will a professional run a shop? When the Bombay store succeeded, things did not change. People thought it was a one time pull-off, that the land was already there and the business could profit as no investment needed to be made in real estate. But in 1995, when we opened the Bangalore store with 35,000 sq ft, it was the turning point. Then, in 1997-98 both McKinsey and A.T.Kearney came out with report describing the retail business as a sun-rise industry. That is when every one got attracted to this business and big industrial houses started looking at this business.
What has been Shoppers Stop strategy for success?
Our success has been built on - brand building, investing in technology and retaining people At Shoppers Stop we have projected an image of aspirations - as a seller of life style goods. However we are selling aspirations at a reasonable price. We have been a step ahead of others. We started as a fully air-conditioned store, parking facility, computerized cash counters, goods exchanged without any questions asked and self service. We have been selling at fixed MRP from a property worth Rs25 crore.
In the last few years we have picked up lot of experience. Worldover, supermarkets survive on international existence and products quality, however we have been consciously building brand. We use technology that is world class and is used by only 300 retailers world over. Soon we will be upgrading our systems to a level that is used by only 100 retailers in the world.
We were the first to professionalize retailing. Employee turnover in this business used to be very high. Today we employ 835 people and have managed to stem employee turnover to 10-15%. Our success lies in the fact that we are a very open and a flat organization. We have no secrets in the organization. All our employees right from the sales person to myself are called Customer Care Associate. If you compare vocations such as Airhostess, Flight Steward or a Retail Salesman - the job profiles of all three are similar. Each one of them has to serve customers and make them comfortable. Each of them have to associate with people of a higher standard of living. However a salesman's job was considered to be the least glamorous of the three. It was also not a well paying vocation. We have managed to change the perception of a salesman 's job. Earlier we used to appoint who ever walked in as salesman but in 1995 we decided that we will only appoint graduates as salesman and between 1995 and 1999 we have appointed over 500 graduates. This was never done in the retailing business before. Today we are able to attract experienced people from abroad with 10-15 years of retailing experience to manage various aspects of our business.
Do you train your employees for customer service?
We have started training programs that are oriented towards customers. This has had a good impact. We have two HR professionals in each store plus a team of six at our services office (corporate office). We call our corporate headquarter service office as the job of this department is to serve those who are in the business of selling.We have a loyalty club where customers are made members. We have 55,000 members in the club and 35% of our sales are to these customers.
For a retailing business, supply chain management and logistics would be a critical success factor. How do you manage your logistics network and supply chain management system?
There is no one in India that offers logistics, so we had to develop our own logistics department. We have linked every office in the country via leased lines and V-SATs.
What are the major cost elements and typical margins earned in this business?
Property cost is the highest, this is followed by working capital costs, employee costs, marketing costs and energy cost. We pay Rs1 crore a month as energy bill for our Andheri store.
Globally retailers run their business on a margin of between 1-3%. This is not a high margins business. It is a volume driven business. The business is of managing cash flows and building assets. We normally breakeven at operational level in 18 - 24 months and the pay back of initial investment is 4 - 5 years.
Do margins vary between branded products and your own in-house brands?
Yes, margins are higher on own brands. Currently, 14% of our sales are through private labels, which are designed by us and manufactured by contractors. We have in-house designers who are selected from the designers contest that we hold every year. Stop and I are our main brands. We will have a new head for the designing section from January 15th, who is joining us from the UK. We plan to increase sales from our own labels to 25 to 30% of turnover in the next two years.
Is Shoppers Stop planning a horizontal expansion in terms of product range offerings?
We will have a very sharp focus. Focus is the essence of growth and we will continue with our focus on apparel, accessories and cosmetics, targeted at the middle & upper middle class consumer.
How do you see the advent of shopping malls like Cross Roads and likely entry of global leaders like Walmart affecting your business? Who are your direct competitors ?
I don?t anticipate the foreigners entering the Indian market before 2003 when the duties on imported consumer items will be brought down. For the foreigner who is coming to India, it would/t make sense coming here if he cannot import products from abroad. There is no other area where he can add value. There is no area where we cannot bring in similar expertise. The only benefit that a global player can bring is his portfolio of products/ brands. And this will be profitable only after duty rates are eased.
Running a shopping mall is a different business than retailing - it means managing the space, managing the leases. I see a number of malls coming up in the second level metros and also a number of them are likely to come up in cities like Calcutta or Delhi rather than Bombay which is a linear city. However shopping malls are not direct competition.
Direct competition is from other departmental stores, if it is in the same catchment area. We define the catchment area as one in the radius of 5-7 kms, which would be about half an hour driving time.
Given that 70% of our population still lives in villages, a vast majority cannot afford basic food, how do you view the growth potential of this industry?
No economy can grow without increase in consumption and consumption cannot grow without retailing. In fact if you look at the economies of Singapore, Dubai and Thailand they have in the past few years emphasized on retailing and that has helped these economy recover. Dubai and Singapore?s shopping festivals have become very popular.
In every developed country, there are large retailing stores and one which is No 1 - like the Walmart in US, there is a Marks & Spencer in the UK and a Kartsart in Germany. We feel that we can be that retailer which will be amongst the top five in India. And the customer segment that we are targeting is a huge 50mn households - ie almost equal to the entire population of UK.
Also, the propensity to hoard and save amongst Indians is the highest. We are the biggest buyer of gold. At the same time India has the largest savings rate in the world of over 25%. In UK, the highest spenders in retail stores are Indians. A lot of Indians have the ability to spend. Besides, this industry has the potential to provide employment to a large number of people. Of course in the rural areas, low priced retail outlets can only be successful. It would be extremely difficult to manage logistics and supply in the remote areas.
Why have retail chains been more popular in the South? Shoppers Stop has a presence in almost all regions of the country. What has been the experience in terms of regional differences in shopping trends?
There are a couple of reasons First of all the real estate prices in the south are lower than in the north and west. Most of the departmental stores that are in the country started in south - like Nallis, Vive & Co, V G Paneerdas. So the concept was easily understood in the south. Also the fact that Spencer of RPG is based in Chennai. Also, in the last few years most of the capital intensive industries have come up in the South, which means a lot of money has been poured in the city, this has led to higher salaries which results in higher spending. With new car companies and Citibank shifting its base to Madras there has been a surge in consumer spending.
Another reason could be that in cities like Bombay and Delhi the risk return ratio is very high which is not so in smaller towns. However disposable incomes are higher in the metro cities. The per sq ft sales in the smaller towns in very low. Metros are certainly a larger market in terms of footfalls which is the measure of growth used in the retailing business.
How do you see the retailing business shaping up in the next few years, What are Shoppers Stop's plans for the future?
Competition will have a positive impact as with more and more players coming in this business the size of the market will grow exponentially and the size of the pie will only increase. Retailing will do well in everything that has to do with the youth - sale of books, music etc. I think that the food market should boom over the next three to five years. Foodland has been doing well in south and they have just opened in Pune.
We are planning to set up 17 stores in the next two years. Roughly we will have two new stores every six months. Two new stores will come up in the next half - The Chennai store will commence in June, and another one is coming up in Central Mumbai. This year we are expecting a turnover of Rs160cr. We plan to achieve a turnover of Rs1000cr by 2005.
What are Shoppers Stop's plans for E-tailing?
We think that E-commerce will pick up in the country only after the next three to five years. Shoppers Stop will be launching its site in April where we will offer E-Commerce.