The retail boom or bane?

Bangalore



July 19th, 2007

It has been the talk of the town for quite a while now. That retail is the

next big thing to happen in the IT business as far as the India market is

concerned. But if one goes by the recent past, all may not be so rosy in the

retail world.

In a recent development, Sogo computers, one of the largest players in the IT

arena decided to close down many of its retail outlets in Bangalore. Speaking

about the move, Jayamuni Rao CEO, Sogo said, "The decision is a strategic

one. We have decided to close down some of our non-performing outlets in the

city. These have contributed to our expenses and are causing too many overheads.

The rest of our outlets will function as usual and we do not see our business

there getting adversely affected in any way."

The Sogo retail venture was started under the brand name of "Iceware"

chain of technology stores, by Jayamuni Rao along with former head of brand

marketing at Samsung, Anish Srikrishna. The stores were spread across various

locations in Karnataka and were multi-branded in nature offering customers a

range of IT, communication and entertainment products that belonged to the

brands of Samsung, Epson, Apple, Sony, Logitech, Acer, HP, Nokia, LG, Asus,

D-Link, and many others.

Given the above said what impact would the move have on the market as far as

partners contemplating retail are concerned? DQ Week spoke to a section of

partners across the city on the issue.

While most partners agreed that IT retail is today a high growth area where

the share of the pie for the channel is increasing, they felt that like all

other seemingly lucrative avenues, this front too has its pros and cons. Said

Sanath Babu of Sri Durga Computech, "Even today customers buy IT products

based on word of mouth. Customer know-how has increased and today people want to

have a look and feel of the products before they buy them. Big players like

Reliance and e-zone are able to give the customer that experience. Smaller

players in the IT space cannot afford so much investment into real estate,

infrastructure and manpower. That is why sustaining retail becomes an issue.

Given the thin margins that we operate around, retail is a difficult venture.

Players like Sogo are today taking a second look at their strategy. This means

more ground work needs to be done and players contemplating on retail ventures

need to put on their thinking caps."

According to Sunil Kukreja, CEO, Kukreja Electronics, who is another player

in the retail space, "The success or failure of a retail venture varies

form one company to another. While it is technically correct to say that bigger

players like the Reliance have an upper hand, smaller players can also survive.

Since most of IT buying happens by word of mouth, smaller players can sustain

themselves as long as they ensure that their retail outlets generate enough

number of walk-ins. Additionally customers must be provided with good service

support because repeat customers visits is very critical in the retail space.

Manpower is another critical factor. At our level of play, we cannot afford

people from MNC kind of outlets to work for us or expect to pay them on par. So

getting the right kind and right number of people to mange the show is very

important."

Sharing his thoughts, Mohit Hegde, CEO, Creative Infotech, also a retail

player said, "Retail as a concept works on what is called 'small

mechanics'. One needs to understand the logistics that operate beneath which

include real estate costs, manpower overheads, the kind of products that would

be sold, the rotation and shelf-life of products, how to deal with inventory,

the brand equity of the player and above all the ability to provide customers

with service at the outlet. This means that too many outlets could become a

difficulty because managing all of the above said, at all outlets is a huge

challenge. In an industry like ours where interpersonal relationships with the

customer is very critical, one has to be careful to ensure that the customers

feel the comfort of bonding with the retailer. At the end of the day we must

realize we are traders and not manufacturers, so unless we understand the

business dynamics of retail well we would not be able to sustain ourselves. As

far as Sogo is concerned, he started out as a sub-distributor who did a lot of

reselling and then ventured into retail. Probably more ground work was needed

and maybe too many outlets became an issue."

For Uday Kumar, CEO of Karthik Business Machines who also operates on retail,

whether it is retail or distribution business, one must understand that each one

operates on a different business model. "As far as retail is concerned, the

market in India poses huge opportunity. Add to that with the concept of malls

and supermarkets coming up, the competition would increase manifold. So people

who have the right strategy, the required money and above all the much needed

quality manpower are ones who will make it through. That said, just because

there is opportunity, reckless expansion and opening of too many outlets could

turn counteractive," says Kumar while adding, "It is really a choice

of the partner whether he wants to opt for single brand or multi-brand outlet.

Success of a retail set-up depends on the location of the shop, customer service

provided, update as far as technology and service is concerned, and even the

shop interior. Above all the player's brand equity in the market counts the

most. Even if all is in place, one must not expect exponential growth as far as

retail venture goes and must be more realistic in his expectations."

In summary therefore, it is obvious that there are many who have capitalized

on the retail boom and are steadily moving up the ladder. However a lack of

proper strategy, including the lack of keenness to invest in services and

manpower training, could imply a retail boomerang. So only a channel member, who

has the conviction of handling the challenges, including hiccups like

involvement of huge capital to ensure properly manner demonstration units,

should venture into retail. The vastness of Indian geography with peculiarity in

each region compels partners to look for specialized and different modules for

sustaining their retail business in the respective pockets. To be successful,

therefore, it is essential for a partner to look at different ways of

approaching the customers innovatively.

In an era when margins are shrinking, the only way to get closer to the

customers is to improve on service. Also, there are some product lines which

require greater focus to sell and partners involved in retail ought to

understand they are not merely cosmetic or of chocolate variety which would sell

off the counters on their own.

For additional margins, partners should invest adequately in manpower

training to ensure effective understanding of the vendor products. All these

will dramatically raise business revenues and profits, as well as give better

coverage to the vendors since partners in retail business serve as a bridge

between vendors and end customers.

Finally, a reseller has to be accurate and clear about what extra value he is

giving at his retail counter, otherwise his outlet can end up becoming an

experience zone where a customer would get a feel of the products, enjoy the

demonstration and go back to neighborhood shop to purchase the products at

heavily discounted prices.