The rise of organized retail is spawning a string of allied businesses in a manner that is reminiscent of the ancillary network that shadowed the growth of the manufacturing industry in the 1980s.
These businesses—ranging from retail design to brand consultancy, sales force training, store space utilization and customer loyalty generation to warehouse and logistics services—are set to emerge as independent entities as the share of the organized sector in the country’s retail industry increases rapidly in the next few years.
By 2012, the organized retail sector will account for 16% of the estimated $590 billion (approx. Rs27.3 trillion) retail market, a more than threefold increase from the current 5% share in a retail market valued at $322 billion, according to a report by the Indian Council for Research on International Economic Relations in May.
Photo: Harikrishna Katragadda / Mint
“As companies expand their scale of operations in a rapidly growing market, they will need to outsource certain aspects of the business that are beyond their core competence,” says Rishi Navani of Matrix Partners, a venture capital fund that invests in start-up companies, including those in the retail sector. Even established retailers such as the Kishore Biyani-led Future Group are outsourcing non-core functions. This company outsourced, for instance, the design and execution of the roll-out of its Home Town stores to Bangalore-based design consultancy firm Idiom Design and Consulting Ltd.
Apart from the pressures of having to scale up operations, the inflationary effect on consumer spending is also driving retailers to seek the advice of experts to refurbish brands and improve back-end functions. In the week ended 30 August, the inflation rate stood at 12.1% compared with 4.24% in August 2007.
“These are good times for support services as relentless cost pressure pushes retailers to invest in improving supply chain and logistics at the back-end, while also offering a differentiated product to customers at the store,” says Anish Tripathi, partner, markets and strategic services, Grant Thornton, a consulting firm.
And as these allied service and support businesses gain traction, more investors are looking to buy in to their potential success. “Some of these businesses can grow to a revenue base of Rs50 crore or Rs80 crore but those that operate in the supply chain and warehousing space can easily scale up to revenues of Rs500 crore and above— these are the businesses that we look to invest in,” says Navani, whose fund has invested in food retailing start-up Yo! China.
India emerged as the second most attractive destination for retail investment in the Global Retail Development Index (GRDI) 2008 anchored by consulting firm A.T. Kearney. The report estimates that organized retail, which still accounts for less than 5% of the overall retail market, will grow at a compounded annual growth rate of 40% from $20 billion in 2007 to $107 billion by 2013. It is the lure of this growing market that is prompting a host of entrepreneurs from sectors as varied as real estate, textile manufacturing and cement to build an interface directly with the Indian consumer.
Also Read Retail special | Brand behaviour
“Most of these new entrants to the retail sector either do not have in-house expertise or prefer not to invest in support services, relying instead on outsourced service providers to get their business off the ground,” says Tripathi. For instance, textile manufacturing company Siyaram Silk Mills Ltd has increased its retail presence over the past year by launching a string of stores, F2F (Fabric to Fashion), that seek to extend its expertise in fabric manufacturing to fashion retailing.
The project, conceived and executed by Idiom Design, included picking cricketer M.S. Dhoni as brand ambassador and creating a new brand of ready-to-wear apparel for men under the MSD (Monday-to-Sunday dressing) label—a handy initialism of the brand ambassador’s name. “Siyaram has a successful history of producing fine fabric since 1978, but we lacked in-house expertise in creating a fashion brand; it made commercial sense to get these inputs from outside experts,” says S.P. Shah, senior president, marketing, Siyaram Silk Mills, who reckons the relationship with Idiom Design will be extended to areas such as an overall transformation of the manufacturing plant and processes.
“The scope of design is now much more than just creating an attractive retail presence; it is an overall strategy which includes corporate identity, designing the workspace and also changing the environment and processes that help create new products for consumers,” says Shantanu Saha, chief executive officer, Idiom Design. The firm lists other projects, such as building a cement retailing brand for Ultratech and overall experience of the 2010 Commonwealth Games in New Delhi, at the top of its portfolio currently. “We will design the entire experience of the city during the Games, from the logo for the Games to the look of the city itself,” says Saha.
Health care and education services company Manipal Group has also used design and concept inputs from Idiom to launch its new retail project, Manipal Cure and Care, which offers clinical, pharmacy and cosmetic care services in a retail format. “As new entrants to retail, we were clear we did not want to ape mature markets in the West, but wanted instead to set up a retail format that would cater to the highly fragmented customer base in India that is really a conglomeration of 30 to 40 countries; for this we needed expert advice,” says Somnath Das, chief executive officer, Manipal Cure and Care. The company has set up seven such stores, each manned by 23 doctors and a support staff of technicians and salespersons, all of whom have a background in science.
Training in-store sales force and franchisees is another area that is often outsourced by retail companies. Particularly when companies run on a franchise model, the need to share best practices and training processes with new partners makes it imperative for retailers to seek out experts. For instance, at Titan Industries Ltd, 90% of the flagship World of Titan stores are run by franchisees who are mid-size entrepreneurs. “When we get an outsourced retail training expert with prior experience of running a store and (who) can understand problems faced by entrepreneurs, such training sessions tend to be more useful,” says Priya Mathilakath, head, training, Titan Industries.
The consumer products company works with a retail training start-up, Retail Biz Pvt. Ltd, that conducts training of store managers, franchisee workshops and has also provided inputs on space utilization for the new prescription eyewear line, Eye+. “The store operations manual that we helped put together combines best practices in retail store management across companies,” says Javeed Ansari, CEO, Retail Biz.
It is not just for the new brand launches that retailers seek outsourced expertise. Even mature retail operations such as apparel company Arvind Brands are engaging brand consultancy firms to refurbish specific aspects of their businesses. “To promote our multi-brand retail chain, Megamart, which is the mother brand, we use commercial advertising, but we also had to figure out how to sell our in-house private label brands within these stores,” says Anindya Ray, vice-president, Arvind Brands. To crack that puzzle, Ray worked with Restore Solutions, a start-up brand consulting firm that helped him redesign the store so that customers who walk in are immediately drawn to, and can interact with, in-house labels such as Edge, Cherokeee and Karigari, none of which are advertised individually.
“If we were to take out hoardings to advertise these brands, it would cost us lakhs (of rupees), which is why we chose instead to use the store itself as an advertorial for these private labels,” says Ray.
Once a store acquires a customer, the next challenge is to engage and retain him. In the last three years, GK Vale and Co., a family-run enterprise that began in 1910 with the retailing of photography services, has grown exponentially from a single store to a chain of 22 stores across Karnataka. In addition, there is now an online business that prints and delivers photographic products across the country.
“As we pushed to acquire new customers, there was too little time and in-house capability focused on retaining customers,” says Anand Sukumar, chief executive officer, GK Vale and Co. To plug that gap, Sukumar tied up with i-mint, the customer loyalty programme that aggregates rewards across multiple retailers by offering customers a single loyalty card they can use for all their shopping needs.
“What we offer is a marketing platform across multiple retailers that can be used to analyse consumer purchase behaviour across industry,” says Vijay Bobba, CEO, Loyalty Solution Research Ltd, which offers the i-mint loyalty card. Set up in 2006, the start-up outfit raised $4.5 million in venture capital funding from investors, including private equity firm ICICI Ventures.
This, it would appear, is just the beginning.
Advising retailers on bringing a ‘brand’ to life
Anirudha P Mukhedkar
Founder, Restore Solutions
Brands are what Anirudha P. Mukhedkar, a former advertising professional, is passionate about. Two years ago, he turned that passion into a business by setting up Restore Solutions.
The firm offers retailers strategic advice on how to design and nurture a brand. “To be sustainable, a retail business must have a driving belief other than profit,” says Mukhedkar, who is clear that every retail business must have a clear and well-articulated brand that stands for something, a particular value or message.
To that end, Restore works with its clients to create a differentiated experience for customers who walk into a retail outlet by using space management, visual merchandising and retail staff training, all aimed at bringing the “brand” to life. An 18-year track record that includes work for the consumer apparel industry as well as stints at some of the country’s leading advertising agencies, such as Ogilvy and Mather, JWT and Grey Worldwide, has placed Mukhedkar in the best position to leverage his brand-building skills in a booming retail sector.
Restore offers clients such as watch retailer Fossil India, apparel makers Arvind Brands, Indigo Nation, Urban Yoga and plantation company A.V. Thomas and Co. Ltd a basket of services, from brand identity, design and packaging to visual merchandising and store design.
For Restore, the trick is to identify a single point of inspiration that will drive the entire retail design and strategy.
For instance, at Megamart, the multi-brand retail outlet from Arvind Brands, Mukhedkar and his team used in-store space to draw the customer’s attention to the company’s private apparel labels that receive no individual advertising and must compete for attention alongside other established brands.
“Using space within a retail outlet to define a brand is something we are also doing for a chain of tea bars that will debut in south India later this year,” says Mukhedkar, who lists his work for a new educational institution, Samhita Academy, as another prime example of how brand design can help clear clutter.
Restore has designed the logo, the space utilization within the school building and the visual aids that will be announced at the opening of the school in the summer of 2009. Samhita Academy is an initiative of the private foundation run by S.D. Shibulal, a member of the founding team of Infosys Technologies Ltd.
Restore also sets business targets for itself, not year-by-year but for every 1,000 days. At the end of this period, the company expects to have built revenues of Rs30 crore. “In our first 700 days, we have achieved a little more than 10% of our target but we are on target to scale up rapidly in the next 300 days,” says Mukhedkar.
The target for this design professional as an individual is to emerge as the preferred partner for all companies, with a strong focus on building brand identity even as Restore Solutions emerges as a complete solutions provider for all design and strategy issues across sectors—not just the retail industry.
Taking the people solutions business to 10 cities
Chief executive officer, Retail Biz Pvt Ltd
He was among the first entrepreneurs to spot the opportunity for allied businesses in India’s retail revolution. Way back in 2000, Javeed Ansari quit Levi Strauss India Pvt. Ltd, teaming up with friends to set up a retail consultancy firm, Integrated Retail Management Consultancy. The start-up provided complete solutions for the launch of new retail operations as well as refurbishment of existing businesses.
Two years later, as the retail industry expanded rapidly, Ansari thought it was better to narrow the focus to a specific segment: the training of in-store staff who would run the retail outlets that were mushrooming across urban India. He launched Retail Biz Pvt. Ltd with wife and co-promoter, Sheetal Agarwala, who brought in experience of running a retail operation. She had been a franchisee for Levi Strauss in Kolkata. The firm, which was formally incorporated in 2004, has a client list that includes Titan Industries Ltd, Central Malls, Dockers, and Levi Strauss. Over the last three years, the firm has expanded to offer a range of solutions from consulting, training and placements to store management.
Ansari has a clear value proposition built around the fact that when a store loses people, it needs to hire and train new staff. Similarly, when a new store opens, there is a need to set up standard operating processes. It is these aspects of the business that Retail Biz aims to take care of for clients who sign up with them. The second line of specialization it offers is total store management services.
“If a store has a problem, we can diagnose the problem and offer solutions, and if a store thinks they are better off without the problem, they can outsource it to us totally; we will run the store,” says Ansari.
For Titan Industries, Ansari and his team developed a best practices manual for store management, and conducted workshops for franchisee training for the World of Titan chain of stores.
“For the next two years we expect to grow by over 100% from a current revenue base that is sub Rs1 crore at present,” says Ansari, who intends to take his people solutions business to India’s top 10 cities in the next five years.
Since its inception, the firm has managed multiple stores for apparel retailers, a business segment Ansari expects will become a focus area for his company. “We are essentially pegging our bandwagon to the growth of organized retail; people solutions for the lifestyle retail business will be worth about Rs30 crore across the top 10 cities (in two-three years),” says Ansari, who aims to dominate that segment given the early mover advantage he now enjoys.
Giving design its due in overall strategy
Chief executive officer, Idiom Design and Consulting Ltd
In April 2005, two design firms in Bangalore merged to form a new company, Idiom Design and Consulting Ltd. An event that would have passed quietly but for the fact that one of the promoters of the new firm was Kishore Biyani, founder and group CEO, Future Group.
By investing in Idiom in his personal capacity, Biyani marked the coming of age of design as a crucial function in the world of business, underlining the critical role it would play in the country’s booming retail revolution.
“Design was emerging as a crucial part of overall strategy for all consumer-facing businesses,” says CEO Shantanu Saha, who joined the firm in 2006. His appointment was part of a concerted move at Idiom to professionalize a firm that was owned and operated by designers. Apart from Biyani, the promoter team comprised Girish Raj and Sonia Manchanda of Esign, and Jacob Mathew and Anand Aurora, both alumni of the National Institute of Design (NID) who had co-founded Tessaract in the 1980s. Saha’s tryst with design came after working for nearly 20 years at leading consumer product firms such as Titan Industries, Siel-Honda, PepsiCo and German retailer Metro, where he helped set up cash-and-carry operations in India.
At Idiom, his main task was to create a new profile for a company regarded more as an in-house design hot shop for the Future Group. To that end, the firm has worked with clients such as Siyaram, for whom it designed the brand strategy for the men’s ready-to-wear line MSD. Top of the work list currently is the design of the overall experience of the 2010 Commonwealth Games in New Delhi. “Idiom will be responsible for the entire spectator experience of the Games, from the design of the stadiums and surrounding infrastructure,” says Saha.
In the next three years, he aims to make Idiom the touch point for the design sector by ensuring that design makes business sense at all times. “For too long design has been an end in itself, we now want to prove that good design can also help companies make money and provide utility to users,” says Saha.
With a client list that includes Infosys Technologies, Cisco Systems and Mahindra Holiday Resorts, Idiom, which employs more than 146 designers, is well on its way to racking up revenues of Rs18-20 crore by the end of March.
“I see design as the next big ‘industry’ in India, akin to the IT/ITeS industry. We are sitting on the next golden egg and Idiom intends being the hen that hatches this one,” says Saha.
Building a biz with ‘coalition loyalty’
Chief executive officer, Loyalty Solutions and Research Ltd
In just over two years, Vijay Bobba, chief executive officer of Loyalty Solutions and Research Ltd (LSRL), has built a new market segment that feeds off the wave of consumer spending across the country.
I-mint, the branded loyalty card offered by LSRL, aggregates all reward points that a customer earns from multiple retail outlets on to a single platform. By signing on as a member of i-mint, customers can pool the reward points they earn at various retailer outlets that have partnered with LSRL.The concept, termed coalition loyalty as it clubs loyalty programmes across retailers, was launched in August 2006. Currently, six companies have partnered with i-mint: HPCL, Airtel, Indian, Makemytrip.com, Lifestyle and ICICI Bank. There is also a network of more than 2,000 merchants in 22 Indian cities who are affiliated to i-mint.
“Every time a customer wants to redeem points, he can buy goods and services of another retailer in the i-mint network itself; this is the multiplier effect that the merchant retailer benefits from,” says Bobba. I-mint has a membership base of 5.2 million people.
Bobba, who moved to India to set up LSRL in 2006, was earlier a partner at technology consulting firm McKenna Group in Silicon Valley, where he helped set up McKenna’s venture capital arm McKenna Capital. Investing in early stage start-up firms clearly built a taste for entrepreneurship that he has used to create a new business category in India.
Earlier this year, the i-mint network was introduced in the business-to-employee segment. Employers can now reward star performers with an i-mint card instead of the traditional method of offering cash rewards or a single voucher. Bobba, who raised $4.5 million (about Rs20.7 crore) in venture capital from private equity firm ICICI Ventures in 2006, expects LSRL to post a growth rate of 80-100% every year for the next five years.
At present, the start-up has a revenue base of “less than Rs100 crore”, says Bobba, adding that by using a coalition loyalty network, mid–size retailers get access to a database they can use to acquire new customers and retain old ones at a highly reduced cost. “We are building a cross-industry database on consumer purchase behaviour that is really unmatched in value,” says Bobba, who expects consumers to redeem Rs300 crore worth of i-mint reward points by the end of March.