May 1986: Ram Chandra Agarwal opens a 100 sq ft shop in Calcutta's (now Kolkata) Lal Bazaar. The 21-year-old Agarwal has scraped together Rs 1 lakh from his family's savings and loans from local moneylenders for the shop, which will sell readymade garments. June 2004: Agarwal, now 39, is readying to open a 100,000 sq ft hypermarket on Delhi's Mathura Road. His company Vishal Garments "" of which he is the chairman and managing director "" posted a turnover of Rs 89 crore in 2003-04, a growth of 39.73 per cent over the previous year.
This year, he hopes to cross Rs 185 crore, which is a 121.19 per cent jump. He has 15 showrooms "" Vishal Mega-Mart and Vishal Garments "" across north India (five in Delhi alone) and plans to open at least six more this year.
Two of these will be hypermarkets, which sell everything from garments to electronics to fast-moving consumer goods, under one roof. "Our hypermarkets will stock everything that's available in a market," says Agarwal.
Compared to Shoppers' Stop, Big Bazaar and Lifestyle, Vishal Garments is still small. But what's remarkable about its growth is that it is contrary to all the learnings of business management.
He has over 2,000 employees on his rolls "" not one is an MBA. The highest qualified are the chartered accountants "" all five of them (Agarwal himself is a graduate).
Vishal Garments has never employed a market research firm to understand consumer needs and spending patterns. No professional agency has ever been hired to scout out locations suitable for opening new stores.
Before Vishal opens a new retail outlet, someone from the company (generally Agarwal himself) goes to the city, looks around its main shopping areas, and checks out what is available and at what price. Then begins the hunt for cheap real estate close by.
Essentially, only two factors matter: the catchment area should be large and adequate parking facilities should exist. It's as simple as that. No feasibility studies, no due diligence reports. "We've gone by gut feel. Instinct is often more important than studies and reports," Agarwal declares.
That same instinct led Agarwal to open the first big outlet in Calcutta's Esplanade area in 1997. Like Shoppers' Stop in Mumbai, which started its Andheri outlet in a converted cinema theatre, Vishal Garments, too, was housed in a made-over theatre, Tiger.
Over Rs 50 lakh was invested in this venture, most of which came from Agarwal's own funds. Two other stores were opened in quick succession within the city and then Vishal looked further. In 2000, the company went to Bhubaneshwar with a 6,000 sq ft store.
Agarwal's logic for the choice of city is simple: "It was next door. I took a trip there and checked out the stores. I liked what I saw, decided I could make a go in this city and so I opened a store." The north Indian bias (a franchise store opened in May in Hyderabad) is just as easily explained "" higher spending power.
He makes it sound so easy. But there is more to Vishal Garments than just intuition and a knack for business. The Vishal stores cater to a specific clientele: the middle-class family.
The focus is on providing value for money, so Vishal's prices are roughly 10 to 15 per cent less than other mass market garment labels. The Vishal stores aren't household names "" probably because it hardly advertises "" but the rate at which the company is expanding speaks for itself.
Of course, the competition is growing too. The Pantaloon group's Big Bazaar chain, the RPG group's Giant stores and single-outlet stores in Delhi such as Salasar and Gokul, all of which operate on the value-for-money, are in expansion mode. Agarwal welcomes the competition.
"India is a barren market with tremendous scope for organised retail. There's place here for 10,000 Big Bazaars," he declares.
Certainly, the scope for retail in India is enormous. Organised retail in India is worth about Rs 25,000 crore at present, and is growing at 30 per cent a year (source: KSA Technopak). Most of this will be in the value-for-money (VFM) segment in future.
"There's a growing segment of consumers who aspire to being fashionable, but want VFM "" even if price is not a constraint," points out Anil Rajpal, manager at retail consultancy KSA Technopak.
It's not been difficult for Vishal to keep prices low, yet stay in step with the latest trends. The company's practice of buying stock in bulk for cash ensures that it gets newer stocks, at cheaper rates, from suppliers.
More importantly, about three years ago, when the company shifted base to Delhi from Kolkata, it set up a manufacturing unit on the outskirts of the city. Retail analysts believe the backward vertical integration is a smart move.
"Globally, these types of retailers are more profitable because they are more flexible and their reaction time to market is much shorter," explains KSA's Rajpal.
Vishal's garment factory churns out about one to one-and-a-half lakh units every month, which accounts for roughly 40 per cent of its inventory. "We cut out the middle-man wherever possible. And we pass on that cost benefit to our consumers," explains Agarwal.
Buying in bulk hasn't always been a successful strategy. Earlier, Vishal often bought surplus stock from export houses and garment manufacturers. But stock lots did not ensure quality, nor was there any guarantee that the products would move equally fast.
"If you go for bad merchandise it doesn't sell. And dead stock just blocks ready money," says Agarwal. Now, the company has stopped that practice.
Other changes, too, have been made based on actual experience. For instance, when store managers pointed out that queues outsides the trial rooms deterred potential shoppers, Vishal doubled the number of trial rooms on each floor.
Agarwal believes that's converted a number of visitors to customers, but adds "You can never have enough trial rooms."
Early problems with missing inventory and shop-lifting, too, have been tackled. All 15 Vishal stores have been computerised; the stores are centralised and inventory is updated daily.
Every store maintains a stock sheet, which helps keep records as well determine what garments are moving and what aren't "" naturally, the counters that record higher sales get more space allotted within the store.
The stores themselves are no-frills places. Unlike more upscale department stores like Shoppers' Stop and Westside, Vishal doesn't spend too much on appearances.
There's no dearth of space "" the average store is about 7,000 sq ft and spread on three levels (the Delhi stores are bigger, about 10,000 sq ft) "" but the real estate isn't owned (except for the Cuttack store); all properties are taken on nine- to 11-year leases, ensuring continuity for the store. And you won't find uniformed attendants who speak only English; Vishal makes no promises of a shopping "experience".
All the brands it stocks are in-house "" no big names here. But then, as KSA's Rajpal points out, north Indian consumers are cash rich, but price sensitive; and they're more likely to place their trust in the retail outlet than in a brand.
"People still seek the right stuff at the right place for the right price," agrees Agarwal. "I went to Europe and saw the huge stores there, like Wal-Mart and Tesco's. I wanted to provide the same international shopping quality for Indian, middle-class shoppers," he adds.
It is telling that Agarwal speaks of recreating the Wal-Mart experience in India; internationally, that chain is known for its low prices and decent (if not outstanding) quality "" much like Vishal.
Agarwal takes the concept of hands-on management to extremes. His office has glass walls, no blinds. Employees walk in an out, never bothering to knock or wait for those already inside to finish their discussions.
An hour-long discussion with Agarwal is constantly interrupted: designers bring samples of women's wear ("I asked you change the white piping on that skirt," the CMD reminds them), someone seeking a job (Agarwal directs him to a junior executive, and promptly calls that executive to tell him what salary to offer), another executive who hasn't managed to get the right travel bookings. Agarwal deals with all of them in quick succession, exhorting each one "Kaam aage badhaiye" (Take the work forward).
As Vishal Garments expands, it's not going to be possible to remain so deeply involved in the day-to-day running of the company. Agarwal understands that. He says the process to "professionalise" the company has already begun. Finance and marketing professionals are to be hired over the next several months.
Still, his native caution and instinct remains. One way Vishal will stay ahead of the competition, Agarwal says, is by keeping a check on the costs. So he's not going to hire "expensive" professionals "" "We don't need IIM graduates". And no, market research firms won't be on the rolls, either.
| NOTES FROM THE MARGIN The Vishal Garments success story isn't unique. Several other retail chains, especially in south India, have prospered by working on similar strategies. One of the most interesting experiences has been that of the Margin Free Market, a food and grocery chain in Kerala that offers products at lower-than-market rates. Margin Free had its origins in a charitable organisation, the Consumer Protection and Guidance Society, which set up the first store in 1994 to provide employment to less-educated girls from poor families. At last count, it had more than 240 "super speciality" stores across Kerala and neighbouring states, and had a turnover of over Rs 600 crore. Margin Free's battleplan is notable for its simplicity. Infrastructure and operating costs are kept to the minimum and margins are "" as the name suggests "" wafer-thin. Prices at the Margin Free supermarkets are lower than market rates by anywhere between 1 and 40 per cent. Profits come from doing away with the traditional supply chain (manufacturer-stockist-wholesaler/dealer -retailer). Instead, Margin Free sources products directly from manufacturers at ex-factory prices, to which a pre-determined percentage is added for taxes, transportation, other overheads and profit. Margin Free also gets an average credit of 20 to 22 days from its suppliers; stock turnover, though, is only about 10 days. That means the company earns a notional interest on its sales also. Costs have also come down since Margin Free now franchises its outlets "" initially, though, the chain made substantial investments in real estate and infrastructure. All franchises outlets are computerised and have to use the in-house software for billing. The system's worked, perhaps too well. Of late Margin Free has faced problems with its franchise stores. One, since pulses, grain and sugar are purchased centrally and despatched from company-owned warehouses, the redistribution costs are borne by the franchisees. And obviously, they're not too happy about the freight costs eating into their margins. Also, at some places, franchisees set up several Margin Free stores and started negotiating directly for bulk purchases. The company's now looking at reworking its model "" it's setting up more warehouses across Kerala and is also exploring the possibility of joint ventures for its future expansion. |
