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Home town banks on hub-and-spoke model

Raghavendra Kamath  |  Mumbai 

The home solution chain of the Future Group changes tack and decides to open more smaller stores around the larger ones.

When Kishore Biyani- led Future Group opened the 200,000 square feet Home Town store in Mumbai’s Vikhroli early last year, it became a symbol of the group’s giant-sized ambitions in home solutions.

Future followed that up with another similar store in the National Capital Region’s Noida, making everybody sit up. For, the two cities never had any home solution stores beyond 15,000-20,000 square feet.

The chain’s chief executive now says such stores will be few and far between. Future will open smaller stores, which will be linked to the larger stores – a kind of “hub-and-spoke” model popular in transport and telecom sectors.

For instance, next month, the chain is opening 10,000 sq ft express store in Tardeo in South Mumbai which will essentially display kitchen and bathroom products.

The idea is that if a customer wants to buy a product which are not available in the Tardeo store, he or she can choose from the catalogue and that will be supplied from the Vikroli store. The chain also plans to open such express stores in Gurgaon this weekend, which will be linked to the main store in Noida.

Home Town plans to open 30,000 sq ft stores in tier III towns and 20,000 square feet stores in the satellite towns of big cities. So, out of 10 new stores planned for the year, only two or three will be large box stores. Home Town runs 38 stores, a mix of large and small stores, in 18 cities in the country.

Essar Retail, part of Essar group has followed a similar “hub-and-spoke” strategy for its electronics and durable retail chain, The Electronic Store.

“Such stores will be single points of contact for our entire products and services,” says Mark Ladham, president, Home

Division, Pantaloon Retail. Home town publishes 300,000 catalogues every month from where customers can choose and place orders.

Retail experts agree with the chain’s strategy. “Real estate is a real issue all retailers are grappling with. They can readily look at off-store sales and online formats to market their products and save on costs,” says Saloni Nangia, senior vice president, retail and consumer products at consultancy Technopak Advisors,

Home Town has already consolidated its operations under a single format. “We could not have divided our focus among three different formats,” says Ladham, who joined Future Group from UK’s B&Q, one of the largest playera in the UK.

On the back end also, Home Town is consolidating its operations. It is setting up a large national distribution centre in Nagpur, a cargo hub in Maharashtra, to cater to its stores and regional distribution centres across the country. Its three distribution centres in Mumbai will move to Nagpur.

“Instead of our vendors supplying to different distribution centres across India, they can directly supply it to Nagpur, which will save freight costs. For instance, a vendor based in Bangalore supply goods to Nagpur, from where they will be combined with our own brands and go to Kolkata, from where they will be directly supplied to our customers,” Ladham says.

Home Town is looking at a turnover of Rs 700 crore in FY 2012 and over Rs 1,000 crore over the next three years.

Such changes in the strategy is crucial as the home segment was a laggard among the Future group’s three verticals, other being value and lifestyle. The home segment saw a steep fall in same store sales growth every month between November 2008 and November 2009, as shoppers curbed their spending on big ticket items such as furniture and durables to save cash during the slowdown.

Last quarter, the home segment saw same store sales of -4 per cent whereas the value segment saw 7.5 per cent same store sales growth and lifestyle saw 11.4 per cent growth.

But Biyani says the negative growth in home segment last quarter was mainly because the group closed stores of Ezone, its durable and electronic format, in three-four cities. “Now we are posting same store sales growth of 25 to 30 per cent,” he says.

Even other players in home segment agree it is a tough business. “Productivity is much lower in this business. Sales per square feet is at least 25 to 30 per cent lower than what you get in department stores, but rents are similar,” says Govind Shrikhande, chief executive of Shoppers Stop, which also runs home solution chain Home Stop.

Home Stop runs six stores and plans to add two stores every two year. “We do not believe India is ready for large stores where customers buy everything for their homeware needs,” saysShrikhande. So Shoppers Stop opened smaller stores of 1,500 to 2,000 sq ft stores which serve as a complementary to Shoppers Stop.

First Published: Fri, September 23 2011. 00:28 IST