The entailing art in retailing by Rajesh Korani

You would barely find an individual who has not heard about the booming opportunity in organised retail industry in India. It has fascinated world’s top notch retailers to spread their footprint in this flourishing Indian economy. So we all know that there is huge opportunity and I’m not going to tell you the same old story. Rather, I’d share some insights, or my analysis that albeit of visible opportunity why retail industry in India didn’t propagate to the estimated levels in past 10 years.

My foremost question would be “Are we trying to reinvent the wheel?”

I’d say a huge ‘YES’ to that question! Although, organised retailing is a new concept in Indian sub-continent but it is a well-practised phenomenon in the west with a penetration over 95% vis-à-vis 6% in India. McDonald’s has experience of running 30,000 successful stores, Wal-Mart  10231 stores, Carrefour 9000 stores, Tesco 6351 Stores. Over a period they have cultured the art of retailing and have developed best practices to manoeuvre each store as a profitable SBU. So what exactly the strategy is? I would say it’s a mix of art, science and technology which has led these retail giants to attain excellence in ‘Art of Retailing’. The core of successful retailing is hinged on four key pillars

• Catchment
• Sourcing
• Footfall
• Conversion

The entire strategy, positioning, merchandise, pricing and service depend on these four fundamentals.

Retail Catchment

Catchment:

McDonald’s spends tons of monies to evaluate the catchment potential contained in 5Kms radius before finalising the store location. In last half-a-century of existence they have shut merely 700 (approx.) non-performing stores. Rest of the stores drive high footfalls and conversion from various strata of the society. All thanks to their scientific analysis of catchment population in the competitive scenario. So what’s involved in catchment analysis?

• Competitive environment: Unorganised retail, low price, highly discounted price, whole seller, counterfeit, cart seller, hawkers corners & organised retail
• Detailed Shopper profiling: Location surroundings, Quantitative segmentation, Income Group, Family type, profession and socio-psycho behavioural patterns of the shoppers
• Selling Situation: shopper affordability, retail characteristics, merchandise mix and unparalleled product mix

Sourcing:

Sourcing strategy for any retail whether food/grocery, fashion, multi-category, electronic should be in a constant state of flux, shifting to take account of changing markets, competition, costs, risks and opportunities. Sourcing Strategy must be aligned to the overall business strategy and its future objectives. A few imperative parameters to be addressed before putting sourcing plan are - 1) the right regions/countries you are going to source it from now, and in five years' time. 2) What are our financial targets (cost vs. price,) 3) what processes (import duties, local taxes, exchange rates or other taxes) can affect the financial performance. 4) What is the lead time to bring merchandise to shelf? 5) Local infrastructure, warehousing, cold chain and local supply-chain.

Retail giant Walmart has unveiled a new global sourcing strategy designed to reduce costs of goods, accelerate speed to market, and improve the quality of products. The strategy involves the creation of Global Merchandising Centres (GMCs), a change in leadership and structure, and a strategic alliance with Li & Fung, a global sourcing organisation. Walmart vice chairman Eduardo Castro-Wright said "By realigning our resources, leveraging our scale, and restructuring our relationship with suppliers, we will enable our businesses around the world to offer even more competitive pricing on merchandise and to provide our customers a clear and compelling assortment of better quality products at lower prices." In India, from past 3-4 years Wal-Mart is strengthening their backend systems, processes, vendor finalisation, local supply chain and warehousing, to ensure once they go full-fledged, there is no looking back.  

Footfalls

Shoppers

Retailers must define “what would be the footfall driver for each store”. Merchandise variety and options, unparalleled product choice, Store planogram, in-store ambience, front façade, in-store service are a few key parameters of footfall drivers. Depending upon the type of retail the ratio of planned shoppers vs. impulse / passer shoppers varies. For e.g. A successful fashion retail experiences 60% passer-by shoppers entering the store whereas 40% planned shoppers unlike grocery retail which is vice-versa. Diesel store at 5^th Avenue NY changes their façade every two weeks to sustain the excitement and new-ness at the store. This ensures increased number of passer-by shoppers. This is Diesel’s one of the key strategy to drive footfalls at the store. One mantra for the retail is “An empty store intimidates the shopper and a store with lot of people invites the shopper" 

Conversions

Wallet Share

This is one of the main issues encountered by utmost retailers. Although, the catchment marketing/advertising drives a lot of footfalls but retailers fail to get maximum wallet share or conversions. Conversion doesn’t function in isolation. Your product mix, pricing and service makes the difference. Conversion happens if shopper spends maximum time at the store. In-store sales staff plays imperative role here, but careful the in-store sales staff mustn’t infuriate the shoppers. Pricing also plays key role in conversion. If a shopper has entered the store due to brand-pull an inviting price ensures conversion. Christian Dior stores experiences huge volumes (conversions) for the neck scarfs which is offered at an attractive price of $25 - $50.

Currently in India, retailers are in a rat race to open new stores. I would say, retailers’ current focus is on real estate rather creating successful retail. This is resulting in closure of stores in a short span to time.

Retailing business is a scientific business which involves joining various dots of catchment, sourcing, footfalls and conversion. I’m sure if the retailers can align these four key pillars they can master “The Entailing Art in Retailing”