'Retail is like riding a bicycle, you can't stop pedalling'

STRATEGY SPEAK/KISHORE BIYANI

Retailing in India has always been a tough business "" for every chain that has succeeded, there have been plenty that closed. So what does it take to succeed?

In the first of a new series on lessons entrepreneurs learn, Kishore Biyani, managing director of the Rs 445-crore Pantaloon Retail India Ltd, talks about the lessons he learnt in setting up four different retail formats in his six years in the business. Pantaloon earned net profits of Rs 11.41 crore in 2002-03.

"In Pantaloon's journey so far, we have made plenty of mistakes but, in the process, we have also gathered some useful knowledge about Indian consumers and products.

These learnings have seen us establish four formats of retailing under two models in less than six years of being in the retail business.

Under lifestyle retailing, we have two formats "" Pantaloon (a department store) and Central (a showcase seamless mall). Under value retailing, we also have two formats "" Big Bazaar and Food Bazaar (food and grocery retailing).

Big Bazaar is a hypermarket discount store "" a self-access retail store, with a minimum floor space of 50,000 sq ft, a cold storage area and, sometimes, a pharmacy.

It stocks everything from apparel to food to electronic goods and offers discounts on bulk purchases. Currently, we have 32 stores "" 14 Pantaloons, one Central (coming up this month in Chennai), seven Big Bazaars and 10 Food Bazaars (of which three are independent and seven are part of Big Bazaar).

Lifestyle retailing is expected to contribute Rs 300 crore and value retailing Rs 350 crore in the current year. We have signed on retail space that will take us to 2.1 million sq ft by December 2005.

Many people ask me two questions. How and why has Pantaloon grown so fast? Is Pantaloon in a hurry?

To answer these questions, I always draw an analogy "" retail is like riding a bicycle. If you stop pedalling, you'll fall. Look at Wal-Mart. It is the biggest chain with a turnover of $ 246 billion.

Even so, it will set up more than 276 stores in 2004. For us, the growth opportunity is big "" in India, organised retail is just at 2 per cent. And we believe we can grow this.

How? By setting up new stores. By getting more customers. By introducing new retail formats. By introducing new products. And by making no mistakes.

Although the external addressable opportunity is large, it is still difficult to do retail in India. India, in my view, is probably the most heterogeneous market in the world, which is why it is so challenging. And it is in dealing with this diversity that we learn everyday.

To map our learnings, I'll provide a glimpse of the past. Pantaloon started in 1987 as a garment manufacturer.

Within a short time, we realised that there were no branded trousers in the domestic market. So we made our debut in branded garments. Pantaloon "" India's first formal-trousers brand "" was born, followed by the first formal-shirt brand, John Miller.

With a strong product portfolio of trousers and shirts, we added some accessories and opened exclusive Pantaloon Shoppes.

Pantaloon Shoppes were mainly high-street stores (at upmarket and high-footfall locations) offering ready-to-wear garments, with a focus on convenience rather than experience; they targeted conversions from stitched fabrics to ready-to-wear.

The response to this was so encouraging that we took the franchisee route and opened 92 stores across 28 cities in India.

There was a big learning there for us. We learnt that smaller retail stores do not have a future and that franchising does not work in the retail business.

The franchisee model has not been able to consistently deliver the high level of customer service that we wanted. Secondly, there was no uniformity in the franchisee stores in terms of looks.

Then, a franchisee is an opportunist and the model works as long as the going is good. It fails if sales dip. Retailing is a very hands-on business and decisions have to be made based on the ground realities.

Sometimes, drastic changes need to be made and, once in a while, additional investments are required. Franchisees cannot be expected to be that proactive and willing to invest.

The franchising experience taught us that you cannot exercise as much control as you would like. That is why we got out of franchising.

Another interesting observation from the franchising experience was that we were losing an opportunity. Indians tend to shop as families.

In the early days, we discovered that a family would walk in, but only the man would shop from our franchisee store "" the others members of the family would go away empty-handed.

We used this learning and when we opened our first Pantaloon store in Kolkata in 1997, it catered to the entire family.

Over the years, we learnt about specific zonal characteristics "" a special aspect that differentiates India from other countries as far as retail is concerned.

This helped us with our entry strategies for different regions. With stores spread over 28 cities, we know how customers behave in each of the cities. That learning has stood us in good stead.

For instance, Pantaloon has a meagre presence in north India, especially Delhi. Our experience taught us that north India is a season-skewed market and getting customers every month is difficult.

This, coupled with high real estate costs, makes entry difficult in this region. This was one of the reasons we chose Kolkata; we did not want to start with a large, established market like Mumbai or Delhi, where competition is intense, property expensive and the scope to make mistakes limited.

In Kolkata, aspirations and income levels were high and there were no departmental stores. The rest is history. This year Kolkata alone will contribute more than Rs 100 crore to the top-line.

Kolkata threw up another interesting lesson. We opened the first store in Gariahat, an upmarket and predominantly Bengali area.

The second store was scheduled to open on Camac Street, around 5 km away. Camac Street is also upmarket but populated mainly by north Indians.

We were warned that opening two stores in Kolkata would be a mistake "" sales from one store would cannibalise sales of the other.

So, instead of going for similar stores, we gave the new store a very different look by way of presentation, although the products and the branding were similar.

We minimised cannibalisation by ensuring that the two stores attracted and catered to different sets of customers.

We quickly learnt that a department store like Pantaloon needed customers with a certain level of income and aspirations; it couldn't emerge as a pan-Indian retail model.

We believe that at the most, based on current demographics and income levels, we can launch only about 28 Pantaloon stores.

We decided to stick to large stores and do away with the small store model (previously we had small stores). [Small stores are less than 3,000 sq ft, while large stores are upward of 15,000 sq ft.]

A larger store provides us with more space for stock-keeping units, so revenues are easier to generate and growth tends to be higher and quicker.

We learnt that the concept of aisles was not suitable for our departmental stores. Unlike other departmental stores, which target mostly individuals and working professionals, our customers are families, who shop together.

This prompted us to change the store layout. To accommodate groups, we switched to L- and U-shaped counters, which made it comfortable for groups of shoppers to stand around.

In the aisle format, by contrast, it would be difficult for four or five people to stand together: they would have to queue. Since we had positioned ourselves clearly as a family store, this turned out to be a positive move.

Another valuable observation was that during discounts and end-of-season sales, customer footfalls and conversions multiply. The learning: India is a value-for-money market. We knew the value retailing segment was going to grow.

This is basically what led to the setting up of Big Bazaar, India's first branded hypermarket discount store, in 2001.

We opened three discount stores in 22 days in Kolkata, Hyderabad and Bangalore, with the smallest store being 35,000 sq ft.

Our learnings from Big Bazaar are quite contrary to traditional hypermarket discount models. In other countries, 70 to 80 per cent of the items that hypermarkets store are food- and grocery-related.

But at Big Bazaar, we've kept food and grocery to just 30 per cent of the merchandise. That's because the food and grocery business in India offers low margins and upsets the return on invested capital.

We couldn't have sustained the discounts under the large-volume format. Moreover, in India, food items are, at most, 30 to 40 per cent of the customer's shopping basket.

So we first focused on apparel and home products at Big Bazaar (with Pantaloon, we had gained some expertise in the apparel business).

To strengthen our revenue model, we ensured that 50 per cent of our sales came from apparel. So when we promised products that would cover 60 to 70 per cent of the customer's shopping basket (excluding food items), it caught his imagination, especially given the ambience, the proposition of discounts and the emotional connect we created through our visual communication.

We believe that we have met with some success in creating a pan-Indian model of retailing. Big Bazaar is a classless store that caters to all sections of society. You will often find the driver and the car-owner shopping side-by-side at Big Bazaar.

Today we have over 300,000 sq ft of area under Big Bazaar and this will cross 1 million sq ft by 2005, thanks to our focus on return on investment.

Having established a non-food model of the hypermarket discount store, we looked at food and grocery retailing. We knew that this was one of the most difficult businesses to enter and one of the biggest challenges we would face.

This business offered gross margins of only 12 to 14 per cent, compared with 30 to 35 per cent in the apparel retailing business and 28 to 35 per cent in departmental stores. And even that came from the last 10 per cent of sales. That's because of the value-added theory.

Let me explain. Food and grocery is the biggest consumption segment of the market. But in India, food and grocery is consumed at its source.

For instance, we buy wheat, then go to flour mill and the atta is delivered, the dough is prepared and rotis are made at home. This offers less scope for value-addition and hence low scope for product differentiation and branding and, thus, insignificant margins.

The same product category internationally is either ready-to-cook or ready-to-eat and thus offers a value-addition opportunity.

Besides, in this business you compete with the local "mom-and-pop" shops, which are low on cost and have built relationships with customers over decades. All this makes the food and grocery business difficult.

To overcome this, we created a food and grocery mandi inside the store. For the first time in food retailing, we offered customers the opportunity to see, touch, feel, choose and pick produce, coupled with safety, hygiene and weight assurance.

We also offered all products at wholesale prices. We ensured that customers' needs "" for fast-moving consumer goods, pulses, staples, oil, bakery, health and personal care products "" were met under one roof.

Consequently, at Food Bazaar we do a stock turn in excess of 30, which makes the revenue model attractive. [On an average, a food retail store does a stock turn of 12 to 14, says retail consultant Gibson G Vedmani.]

From Big Bazaar, we also discovered the importance of visual aids. We couldn't afford to have salespeople everywhere because the floor area is vast and the number of stock-keeping units is high.

Therefore, we invested in posters and cut-outs and put them up at every section. We invest a minimum of Rs 30 lakh to Rs 40 lakh in visual aids at each new store and the recurring investment is close to 5 per cent of sales. Our experience is that visual aids make customers comfortable.

We continue to believe in the policy of growth even today when both chains (Pantaloon and Big Bazaar) are growing.

We are developing a new showcase seamless model called Central "" based on the open mall concept, where restaurants, shops and entertainment sections will be located in one huge hall.

Customers can walk from shop to shop without being hindered by walls. The idea is to shop, enjoy and celebrate within the same premises.

India is an evolving market. As a retailer we have to keep pace with the customer. Indian customers are smart and changing faster than most people imagine.

We have progressed from the typewriter directly to the computer, bypassing the electronic typewriter. That is just a sign of things to come."