PremiumThe risk is in the demand and ability to engage the customer
Mumbai: Kishore Biyani, founder of the Future Group, is at Crossroads, the Tardeo retail mall and headquarters of his company. In keeping with the times, his group company has begun to scale back its expansion plans. But Biyani is better placed than some of his struggling peers. In the background, the constant drone of drilling and the thwack of hammers can be heard as Crossroads gets a full makeover. Between looking over across the room at SMS-es that beep from his two mobile phones, Biyani spoke to Mint about the group’s plans. Edited excerpts:
Have you noticed any change in customer behaviour in recent times?
There was a dramatic drop in sales in December?
The beginning of December was quite slow...across the board. Secondly, this December, we had four Saturdays and last December we had five Saturdays. Lastly, our shopping festival was extended to 4 January, and so the sales picked up in the last few days. I don’t think there was any major change.
Where do you see customers curtailing spending?
Discretionary items. That will be under stress. That will always be our challenge.
You have been in this business for more than 15-16 years, you are a veteran? Can you give us some perspective on the retail sector in India?
India is a market where goods and services to the tune of $200-250 billion (Rs10.30 -12.88 trillion) are consumed every year. Modern retail is 4-6% of that about $2-3 billion. The consumption growth in India is normally more than the GDP (gross domestic product) growth, which is a growth of about $30 billion every year.
The numbers are impressive. But give us some sense of what you are doing to induce demand and consumption?
The modern retailer has to sell everything, to sell some value-added products and not just the basic items. We must have sold 30 lakh DVD players in the country. We must have also sold some 50 lakh terry towels in the country and 15 lakh Persian carpets. These are categories that would not have got sold had we not been in the sector. So we are creating consumption. India is in an aspirational mode. We (India) might be slow, we may defer purchases but there’s no going back. Growth will slow down but it will still be on the positive trajectory.
Did you spot the slowdown coming? Ram Charan, the management guru, was referring to you when he spoke about an Indian retailer who spends quality time at his stores watching his customers?
That’s my job. We saw it in September, there were blips. We were curious why this blip happened. It was not a slowdown. It was a blip. The markets were down. Our customer was behaving differently. But the good thing about India is that there are nearly one crore weddings every year in this country. It is natural to expect two crore families to get involved. Close to $15-20 billion is spent on such occasions. What’s more, India has 73 days of festivals. About $20 billion is spent on festivals. These sales are not affected by a slowdown. Consumption pattern in India is very different.
The people who are affected are white collar workers in some sectors. Unlike in the US, the number of self-employed people in India is humongous. We have 11 million people self-employed. India is very different. Our demographic patterns don’t reflect the rest of the world. It is two different worlds.
So how do you explain these blips?
Blips in the Indian market are seen more in relation with wedding seasons and festivals. India works on consumption events. There was no wedding season.
Are you beating the slowdown by unleashing several shopping festivals?
We have not increased it. I think people notice this more now. This year it got preponed (advanced) but newspapers and television are empty as there were fewer advertisements. I don’t know why people think this year there are more discounts being offered. Discount is a function of the excess stock retailers hold. We operate always on discounts. So this is nothing new. This year we had a shopping festival which was not discount-led. We actually preponed the sale.
Why did you advance the sale?
We shouldn’t be the last one. Consumption can dry out quickly.
What are the segments that have held out?
Food, fashion and general merchandise...
And the laggards?
Home category and mobile handsets...
Have you made any adjustments? A recent research report mentions that your firm is curtailing expansion plans from 4 million sq. ft to 2.5 million sq. ft ?
So. (long pause and then smiles) There is no single reason for this. The market automatically falls in line. Properties don’t come in line. But we still are adding. Properties are coming late. It depends on whether the properties can generate faster return for us. I think we are seeing equilibrium setting in. Expansion is how much you want to do. We will do it in a modular way. After considering how much money we have to expand.
What’s the progress on ‘own store brands’?
We have been working to achieve size and scale in every category that we are in. We got into butter and edible oil and will continue to increase our own brands in this space. We are introducing 3-4 categories every month. Whichever categories we have entered has given us an average 18-20% of the sales in that category.
Going forward, how much would private labels contribute to your revenues?
Fashion would be 80%. In food we expect to reach 18-20% in 2-3 years .
How often do fashion trends in India change? How do you spot these changes?
Fashion trends change three times a year. Women normally shop 9-10 times a year, whereas men don’t shop that often. There are several occasions when people shop. A wedding, a social occasion, a festival, etc. We have to ensure that whenever anyone comes to our store they should see at least one new product.
How often do you visit your stores?
Our job is in the store. Every week, I visit a store in a new city.
People say you have an innovative mind. As a retailer how does it help?
Retailing is our religion. Its all about principles that you create. Customers are our god and the stores are our temples. It’s a different world. Retailing is all about engaging our customer. Getting them emotionally attached to our stores and treating them as our gods. One has to be humble, You can t live in your own paradise.
India is an unique country. One size does not fit everyone. We are totally community-led, ethnic group-led, different eating habits. Nobody knows this business. You have to learn on the job.
What about of the future of modern retail in India?
Malls are the new temples of India. Where else can people go on weekends. There are no vacant spaces in the cities. They watch cinema and they shop.
A few conglomerates have ventured into your space. They have deep pockets and their other businesses generate the cash to fund their retail venture whereas retail is the only business you have. When you are expanding, free cash flows are difficult to have. Is expansion hampered?
I have to fight for my survival. We have to look at various options to fund our growth. All our businesses have to generate cash. Or we can only grow up to a point. Fortunately for us, we started early.
We are working towards shortening our inventory cycles. We have a shorter supply chain.
We have reduced our imports considerably. Our theme for the group is ‘getting more from the same’. We are looking at ways to increase productivity and sales from the same store. That’s the theme.
What are the major risks in your business and the business models that you think will work?
My biggest fear is that we open a store and nobody walks in. The risk is the demand and the ability to engage the customer…
