'Offers may be at the cost of margins, but they are important'
Rising prices and interest rates, falling markets and slow economic growth have reduced the disposable incomes of consumers. Retailers say there is a slowdown in categories like apparel and durables, which are discretionary in nature. Raghavendra Kamath talks to Ajit Joshi, chief executive officer of Tata Sons-promoted Infinity Retail, which runs durable and electronic chain Croma, about the slowdown and his company's strategy to come out of the crisis. Edited excerpts:
You have an agreement with Australia's Woolworths, which helps you to source goods for your stores. Would the change in foreign direct investment (FDI) rules alter that partnership?
I can not comment on that, as our parent, Tata Sons, has an agreement with them. Infinity has a supply agreement with them, and that would continue.
What kind of traction do you expect in consumer durables and electronics retail, owing to the change in FDI norms in multi brand retail?
Western economies are not growing, they are saturated. The whole world is looking at India and China. I think most of the global durables and electronics chains would look at India now.
What is the kind of slowdown you have seen in consumer offtake?
So far, we have not seen any slowdown in sales. We have beaten the market in 2008, and we want to do the same this time as well. I am not a palmist who can look into the future and say whether we would be successful or not. But we would work on strategies that would make us successful. Since 2006, we have grown more than 51 per cent year-on-year. There were years when we grew at 60 to 70 per cent as well. Even during 2008-09, we grew more than 51 per cent. We have done two things: We increased the number of sales, along with same-store sales.
What impact would the rising rupee have on consumer durables retail?
The rising rupee would have an effect. If you look at large side-by-side refrigerators, they are made in China and other countries, and the rising rupee would now make imports expensive. We will wait for brands to communicate with us. As far as our private labels go, luckily, our stock is in and we need not change the prices now. For the next stock, I have to go and negotiate with our manufacturer. I might have to increase prices. If you look at aluminum and copper, two vital metals, have seen a substantial increase in prices.
Aren't you scared of a further decline in consumer spending, if you raise prices?
There might be resistance if we increase prices. That is where we need to be innovative and think of what finance schemes we offer. It might be at the cost of margins, but you would have to maintain certain things. This (pick-up in volumes through finance schemes) is the trend we have seen since Diwali. So far this year, volume from such finance schemes stood at around eight per cent. During Diwali, we saw a four per cent rise in offtake from finance schemes. Almost 12 per cent of our customers chose such schemes.
There were two reasons for this. First, we had a scheme with ICICI Bank: Maximum Rs 1,000 off, or five per cent back, whichever was higher. Shoppers also used easy monthly installment schemes. People had gone for both. Why pay interest when retailers and manufactures are absorbing that? Shoppers understood there would be a time when retailers would offer easy schemes. There could be bundling of products. If a laptop is required, how do you give a complete solution to the customer? You bundle it with a printer, or a cartridge. By doing this, you increase the ticket size as well. The consumer is getting a good deal. Such things would continue till we come out of the slowdown.
Recently, you opened a 150 sq ft store under Croma Zip. What is the idea behind that?
The orientation of Indians to technology is huge. We noticed the youth want to adopt technology. Be it the Samsang Galaxy or a notepad, what they launched, the youth want to buy it today. Already, there are a lot of inquiries coming for the Apple iPhone 4S. It shows people want to buy new things today, and technology is something the youth want to adopt quickly. They would cut down on fashion or stop going to restaurants, but they would not compromise on technology.
Is it your answer to the slowdown?
Not necessarily the slowdown. This is our answer to growth. Through Zip, I can easily assemble and set up a store in three days in a big-city mall. We also have to look at the ratio of sales to investment. In a Zip store, we have Rs 25 to Rs 35 lakh of inventory and Rs 6 to 8 lakh is the actual cost of fit-outs, and the returns are much faster.
In smaller formats, supervision, stock turns and the interaction with customers is better. We are tracking the inventory turns of global retailers such as Best Buy and JB Hi Fi, which are profitable. We are very close to these. In a couple of contexts, we are better than these.
Would you tweak your expansion plan if you see a slowdown ahead?
Yes, but it depends on the situation. It is very early to say. We have large shops opening now. We are selective about which mall we go to. The last five years have shown us we cannot go to anybody and everybody. We do not want to go to developers who ‘build and sell’. We want to be with professional mall developers.