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| Retailers rework strategy to bring down costs |
| Pradipta Mukherjee / Kolkata Apr 10, 2009, 00:24 IST |
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Hit by shrinking sales and falling footfalls, retail chains like Spencer's Retail, Future Group, Shoppers Stop, Wills Lifestyle and Levi Strauss, are focusing on consolidation by way of store rationalisation, change of supply chain, consolidation of operations, and improvement in IT infrastructure.
Spencer’s Retail was restructuring the supply chain network, planning increased flow-through and direct receipts at large stores, implementing automatic replenishment for FMCG and staples, as well as reworking the transportation routes to bring down freight cost, informed a spokesperson of Spencer’s.
Wills Lifestyle, the retailing arm of ITC Ltd, is leveraging ITC group synergies with other in-house lifestyle brands, and its customer relationship marketing programme to increase frequency and size of transactions. According to Atul Chand, divisional chief executive of Wills Lifestyle, “We have initiated consumer and trade panels to ascertain feedback on product creation and development, leading to higher range acceptability and sell-through, and consequently lower inventory levels.”
Wills is also using IT and data analytics for deployment and replenishment of stocks, aligning strongly with customer preferences and demand levels, thereby minimizing out-of-stock. Wills is also collaborating with vendors and logistics partners to optimize freight costs and reduce back-mileage.
According to Sanjay Chugh, National Head – Business Development, Retail, Jones Lang Lasalle Meghraj, “Retailers can reduce costs between 15-20 per cent by rationalizing real estate portfolios, pruning store sizes to enhance the productivity, and implementing effective supply chain management. It is different for value and premium retailers because they address entirely diverse segments. The value segment is a mass model based on the theory of driving large consumptions on lower margins. Whereas the premium segment of retailing targets niche segments based on the theory of comparitively lower volumes coupled with higher yields.”
According to Chugh, implementing automatic replenishment for FMCG and staples help to ensure that stores are always well-stocked which is important because they cater to a primary segment of consumers of essential goods. This, in turn, would ensure enhanced business volumes for retailers. Also, reworking transportation routes to bring down freight cost help in rationalising fuel costs and in reducing overheads, input costs and wastages on perishable items.
The biggest area of expenditure for any retailer is real estate cost, followed by the cost of manpower and sales or advertisement expenses.
Real estate prices are already rationalising across India, and this would significantly add to the bottomline of retailers. Multi-branding efforts and online marketing tools would help reduce advertising and sales expenditure, Chugh pointed out.
According to Govind Shrikhande, Shopper’s Stop CEO and executive director, the company is exploring the possibility of joint planning with vendors to improve supply chain to help improve cash flows in tough times like now.
Future Group, which has shut down around 20 smaller warehouses to consolidate into bigger ones spread over 2-2.5 lakh sq ft, is partnering with vendors in the garments and general merchandise segments to reduce inventory holding and distribution points. The company has also initiated talks with transport operators to configure trucks and route networks to optimise the process.
According to an official in Future Logistics, these initiatives have helped the company reduce supply chain costs by 0.5-4 per cent of total sales across retail formats. Also, Future Group is converging its back-end operations to cater to multiple formats as part of cost-cutting and efficiency enhancing exercise.
Other retailers, like Levi Strauss (India), which has shut down 18 stores – five Levis, three Signature and 10 Dockers-- was aiming at improving its distribution channels to reach 20 per cent more customers, upgrade quality of products so that they represent more value for money, and better sevices at stores, informed Shumone Chatterjee, MD, Levi Strauss (India).
In an industry report released recently, KPMG expects the slowdown to last 12-18 months, with recovery depending on the government’s efforts to stimulate the economy. “The organised retail sector has witnessed an 11 per cent decline in sales in 2008,” the report added.
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