The Hindu Business Line : Retail stores rework value propositions

THE retail sector may be attracting large-scale investments, but some retailers are closing down ventures to rework either the value proposition or the retail format.

While some are moving away from malls to start their own exclusive stores, others are in search of niche businesses that will be commercially viable.

A case in point is the Turner Morrison Group's home retail venture, Arcus. It started out as a single store in Delhi five years ago, targeted at the rapidly growing home improvement (home furnishings as well as other stuff needed around the house) segment. But trouble began when Turner opened shop in Mumbai. "The second store spelled doom for Arcus. Neither did the promoters put enough marketing muscle behind it, nor were investments needed for sustained expansion forthcoming. Till March last year, only Rs 15 crore has been invested. This was obviously not enough," said a senior retail industry professional.

When contacted, the Arcus CEO, Mr Vikas Gupta, told Business Line, "We regret having to close down Arcus. Despite positive results in the last few months led by a fresh business approach to fix the basic economics, the scale of the business continued to remain an issue requiring significant investments. This level of investments deterred us from being in the home category."

He refuted reports that another of Turner's retail ventures - Lacoste - is also shutting down.

"Lacoste is high on the profitability curve, far from being saturated. We have seen three-digit growth over the past few years and hence it makes sense for us to continue investing effort, time and resources towards further growth of the brand in India," he said.

Some other well-known retailers have also learnt the hard way. For example, Shoppers' Stop decided to curtail the area of each of its stores after it worked out the optimal store size needed for a break-even. And food chains such as McDonald's, Café Coffee Day and Barista have, on several occasions, opted out of malls, in favour of stand-alone stores since business inside malls was dull. Experts point out that retail is a long-term game, requiring careful investment planning and economies of scale, but many retailers still feel that the number of footfalls is directly proportional to the business being generated.

"Footfalls do not automatically mean business. Each retail concept has to be nurtured with adequate investments, right location and a five-six year gestation period," said a retail veteran.

Retail consultancy KSA Technopak's Mr Arvind Singhal is quick to point out that the closure of retail stores, "shows that the retail business, much like any other, needs to have a clear value proposition. The retail market in India is still at its nascent stage, where the trial and error method will be used for more time."

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