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Thursday, Feb 19, 2004

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Scaling the Summit

Vinay Kamath

More malls, consolidation and much more potential - this is the forecast for the country's retail business. Catalyst does the rounds of the KSA Retail Summit held last week in New Delhi.

Scenes from the Images Fashion Forum, held concurrently with the KSA Retail Summit.

NETWORK and natter, power lunches and Barista cappuccino, svelte and slick rampsters, glitz and glamour, dashing displays and swell clothes, raucous parties and smashing awards, CEOs and humble managers, warm winter sun and gajar halwa, mini-skirts and stiff upper lips, stupor and stimuli ... as the three-day KSA Retail Summit, held concurrently with the Images Fashion Forum at New Delhi, wound down, the 500-odd delegates who gathered in droves to imbibe the latest from retail and fashion gurus, went away sated, high on hope that retail is booming and growing, what with figures of robust growth and surging consumer spends thrown at them. Never mind that the reality check could well come at the tills.

Nobody could be more gung-ho than V. Vaidyanathan, Managing Director (Retail Asset Product group), ICICI Bank, who trotted out figures mined from the huge proprietary database of ICICI Bank. The super bank, he reminded the audience on the second day of the Summit, had two million credit card consumers and dished out loans to one million. So, he says, with ICICI hogging 30 per cent of the retail banking in the country, the figures and inferences from its data could well be representative of Indian consumer spending habits. In a stirring presentation, brimming with unassailable data, Vaidyanathan pushed for retailers to look at co-branding with credit card companies as that fuelled retail growth. What's more, he says retail growth would go the way of the malls.

Here's how. The overall retail market, according to him, is Rs 13,13,900 crore (at this point, a smart alec from the audience yelled, all figures of 13 on Friday the 13th, inauspicious, what?). Organised retail is a mere Rs 15,200 crore of this and the share of spend from malls is a mere Rs 2,900 crore. But, here's the prognosis. By 2010, while the retail market would grow to Rs 20,85,000 crore, organised retail would be Rs 52,400 crore and the share of malls in it would be Rs 38,447 crore, an increase from 20 per cent to 73 per cent. The study projects that 600 malls would have sprouted around the country by then.

The `mall-ification', if you can call it that, of organised retail is irreversible, he explains. Here's why: a shift in consumer psyche, a more Western outlook, openness to credit, decreasing interest rate regime, aggressive lending strategy of banks, increasing income levels and changing demographics - a high segment of people in the younger age group; 69 per cent of the population is under 35 years of age. Organised finance, says Vaidyanathan, which was available in 50 cities a few years ago, is now available in 400 cities and will reach 1,000 cities soon. "Disposable incomes are increasing, giving opportunities to retailers to sell more," he says.

The figures for credit card spends the ICICI Bank honcho revealed are even more mind-boggling. There are 90 lakh cardholders in the country who swiped almost Rs 12,000 crore worth last year. Of this, Rs 9,600 crore was spent on retail and only Rs 1,080 crore of this spending was through malls. Vaidyanathan's logic is that malls have that much more spend available for retailers to tap the organised retail market. "More retailers should tie up with credit card companies to grab share of spends through malls," is his exhortation. In the last three years, he points out, the extent of business from co-branded cards has gone up from five per cent to 40 per cent.

More interesting for retailers is the index of attractiveness that ICICI Bank has come up with based on spends and potential for growth. Based on that, in order of ranking are Bangalore, Hyderabad, Chennai, Mumbai, Pune, national capital region, Kolkata, Indore, Chandigarh, Ludhiana.

Kolkata's low ranking prompted a riposte from the feisty Kishore Biyani, Managing Director of Pantaloon Retail and also promoter of Big Bazaar and the forthcoming `showcase mall', Central. "If I had gone by Vaidy's study and rankings, I would never have opened a large mall in Kolkata!" was Biyani's comment to much laughter from the audience. However, the fact is, he did, and quite a successful one at that, he claims. Pantaloon has aggressive plans and intends to be a value player, offering his consumers the best of ambiences with no price penalty. "To quote Mother Teresa, we will `give till it hurts' and consumers say don't give us anymore," is Biyani's assurance.

Micky's story

Mr Micky Jagtiani, CEO, Landmark group, Dubai

A much-awaited session was that of Micky , CEO of the $500-million, Dubai-based Landmark group. While one expected a hard-as-nails, aggressive businessman, given his rags-to-riches story, Jagtiani, instead turned out to be an avuncular, soft-spoken businessman. Not the kind you would expect to head a chain of 320 stores, which includes the successful LifeStyle retail chain in India. Born in Lebanon, Jagtiani went to England to study accountancy - "but I flunked all my exams!" he said. After working as a taxi driver for a while, he returned to West Asia, Bahrain, to kick off the beginnings of the Landmark group 30 years ago. Given his vast experience and status, when Micky spoke on the important trends he thought would impact retail in the coming years, everybody listened. Retailers and manufacturers will have to start thinking global as that's the way the world is moving. Secondly, deflation, he says, will impact the world retail environment. Prices are coming down, led by China, and India will follow. China leads in almost all categories of goods and its price drops will see closure of industries elsewhere. The Wal-Marts and Carrefours of the world would be the driving force to bring down prices world over.

Cheap money, he says, will force smaller retailers to consolidate themselves with larger groups to be part of a stronger environment. The retail business would be increasingly volume-driven. Speed of implementation is another factor which will impact the retail business. Jagtiani explains that in some South-East Asian nations there are agents who strip, analyse and manufacture duplicates with such speed that it's almost on the shelves before the original hits them. "This trend is putting pressure on the Western design industry," says Jagtiani.

On India, Jagtiani sees the mall environment growing with speed. However, this growth is haphazard as they are mostly realtors who are developing them with no idea of mall management. The other encouraging thought he left marketers with is that India's time has to come to create brands and look at positioning them in the global markets. "Western brands may be outpriced and unsuitable. Brands in India need to develop total capability," he elaborated. He had the audience's ears on that one.

Best Buy

As happens in such Summits, there are the high and lows, some scintillating speakers and then the ho-hum ones. One of the speakers who pretty much stole the show was Kal Patel, Vice-President (Strategy), Best Buy, US, as much for the ease with which he walked the stage as the content of his presentation. Best Buy is the largest consumer durables retailer in the US, 91 on the Fortune list with $24 billion in sales, 600 stores in the US and 120 in Canada. "We've got to always stay paranoid in the business," said Patel, as he strode around the stage with nervous energy.

Explaining some of the strategies that Best Buy follows, Patel says: "It's tough to be a customer these days - more choice, complexity, technology, confusion, risk ... there's more at stake for consumers today; they can be disabled if technology does not work. We are in the business of de-risking people's lives with technology." Customers, he says, want choice, but want help in making that choice.

Elaborating on one of the learnings that Best Buy began with at one of the stores, Patel says that it created a `geek squad'. The picture was complete. Service staff were dressed as geeks with coolers, their Volkswagen Beetles were emblazoned with `geek squad' all over it. This increased the comfort level of customers when service staff were called home to fix electronic gadgets. That experiment was so successful that Best Buy now plans such squads in all its stores.

"As a company the market expects us to grow 10-15 per cent every year; we can only do that by innovating for our customers," explains Patel. One more instance of one of the Best Buy stores kicking off an idea that found instant appeal: customers, he says, often have old stuff lying around the house, be it outdated computers or refrigerators. It put up a tent outside a Best Buy store with the board `Idle Tech' where customers can come in and trade in their stuff for a gift voucher. Old stuff is auctioned on eBay. Now, the concept has been extended to 50 stores.

Best Buy revels in its contradictions, which also explain its success, says Patel. Strong and compassionate, conformity and diversity, courage and prudence, timeless and contemporary, hope and fear, is the essence of its growth story!

One of the highlights of the Summit was the Consumer & Retail Outlook 2004 unveiled by KSA Technopak's Chairman, Arvind Singhal (Report published in Business Line dated February 14, page 6). The implications for Indian retail, he says, are quite clear. Consumers today seek cheaper options in grocery, apparel and in eating out. However, in a contradiction, they are looking to upgrade in mobile phones, housing, automobiles, durables and education. The writing on the wall is clear: Value formats and bargain-seeking categories are needed. "The opportunity is clearly there for new value formats and brands that can come up with them can be winners," says Singhal.

The Summit also featured other stalwarts of the Indian retail industry, without whom a retail summit wouldn't be complete. The ebullient B.S. Nagesh, CEO of Shoppers' Stop and the articulate Raghu Pillai, CEO, RPG Retail, as well as Bijou Kurien, COO, Titan Industries and Bhaskar Bhat, Managing Director, Titan, were in the thick of things across the Images Fashion Forum and the retail summit. With all the coordinates pointing to higher consumer spends, the industry is gung-ho for now. Till next year, then!

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