The Hindu Business Line : Plugging into retail

When the Tata Strategic Management Group (TSMG) was commissioned a research to figure out which sector has the highest potential in retailing, it zeroed in on the consumer durables category. Realising it needed adequate back-end support in the consumer durable business, the Tatas subsequently tied up with Australian major Woolworth to leapfrog into the business, pioneering a national durables retailing chain under the Croma brand.

According to N. V. Sivakumar, Executive Director & Leader - Retail & Consumer Practice, PricewaterhouseCoopers, "The market for consumer durables (including entertainment electronics, communitarian and IT products) is estimated at Rs 32,000 crore ($7.1 billion). The market is expected to grow at 10 to 12 per cent annually and is expected to reach Rs 60,000 crore ($13.3 billion) by 2008. The urban consumer durables market is growing at an annual rate of seven to 10 per cent, the rural durables market is growing at 25 per cent annually. Some high-growth categories within this segment include mobile phones, TVs and music systems.''

The TSMG analysis shows that white goods have a lower penetration in India as compared to consumer electronics products, thus presenting a large potential market. Categories such as air-conditioners, home PCs and washing machines are the least penetrated segments compared to televisions and audio equipment.

"Consumer durables is definitely going to be the next big category in retailing in the country. While the total size of the business is huge, it has the lowest penetration with respect to organised retailing (less than 12 per cent) and that too with no single pan-Indian player as yet,'' states Nitish Tipnis, Head - Operations (Consumer Durables, IT and Telecom), Reliance Retail.

Apart from low penetration, the healthy growth rates in segments such as mobile phones has led lifestyle retailer Shoppers' Stop to dabble in durables' retailing. "We had to get into the mobile phone category since it is a lifestyle accessory,'' says Govind Shrikhande, CEO, Shoppers' Stop. Roping in a partner, Mobile NXT Teleservices, to help with retail, Shoppers' Stop expects to tap into the growth in this segment which has a huge replacement market. Adds Vijay Menon, CEO, Mobile NXT Teleservices, "Mobile phones is a dynamic category with the different models and price points. This category has a CAGR between 50 and 60 per cent. Retailers need specialists in this category as they do not want to get saddled with huge inventories as a result of price drops.''

With its shop-in-shop concept, Mobile NXT has also helped other retailers such as the Tatas' Star India Bazaar and Trent to enter the category. Adds Menon, "We would be helping the larger national stores with a store-in-store model to reach out to the smaller cities.''

The possibility of FDI being allowed in this category has led existing retailers to re-visit this segment with newfound aggression. Recently, the largest retailer in the country, the Future Group, through Home Solutions Retail India Ltd (HSRIL), signed two separate MoUs with Videocon. The MoUs were based on leveraging Videocon's manufacturing strengths to source electronics and appliance products for its in-store brands of Sensei and Koryo, which would be retailed exclusively through retail formats such as E-Zone and Electronics and giving preferred status (due to the higher margins) to stock and sell Videocon products at the outlets.

Consumer experience

Manoj Kumar, Head - Consumer Durable & Electronics, Home Solutions Retail (India), says, "The potential in this category is simply huge and we are looking at growing at 100 per cent on a yearly basis.'' Expecting to reach a turnover of Rs 1,000 crore in the next two years, the retailer will add on new and bigger categories such as LCD TVs in future and expects its private labels to grow between 20 and 25 per cent.

As the source of the durables is going to be crucial in building the brands, the Future Group is ensuring its pact with Videocon would raise the bar for its business. Adds Reliance's Tipnis, "Sourcing is an important element in the value chain to deliver best prices and products. Compelling consumer experience is what will provide the differentiator. A successful retailer has to constantly improvise, think out of the box and constantly keeps raising the bar to stay ahead of the competition.''

Meanwhile, Videocon itself has also moved into the consumer durable retailing business through its NEXT chain of stores. Taking over the ailing Plugin Sales from Raymond and the other promoters, Videocon is now looking at scaling up this venture to a pan-India presence. Playing the margins game, Videocon would have an edge in this business due to the additional manufacturer's margins, which would drive profitability into its retail venture.

Apart from the product sourcing, it will be manpower sourcing which might pose an impediment to the growth of the consumer durable retailing in the country. For instance, lack of talent in consumer durable retailing is making the Tata's Croma brand of stores target professionally qualified Indians returning from West Asia. Instead of hiring expatriates as in the rest of the retailing sectors, the company is planning to hire Indians returning home, having completed their contracts from the West Asian markets, says Ajit Joshi, CEO, Croma.

Besides, the consumer electronics chain is planning to recruit qualified staff from training institutes with technical degrees. Adds Joshi, "In this area it is not possible to get people simply by poaching from the other retailers. We are looking for people who can be qualified supervisors for the consumer durables category. In fact, there are very few good people in this market.'' Setting benchmarks in consumer retailing in the country, Tata's Croma is expected to raise the bar for recruitment for this sector. "The major challenge for us in this category is the changing technology in categories such as mobile phones and transferring this knowledge to our staff,'' claims Joshi, who was Vice-President - Operations at Shoppers' Stop earlier.

Emphasises Reliance's Tipnis, "Talent is virtually non-existent. This is perhaps the only segment in organised retail that involves a high degree of assisted selling, particularly because the customer looks for unbiased help before purchase. Most categories in this business have large life cycles post-purchase and hence are a high-involvement decision. Migration of talent from other retail segments provides very little domain expertise and so is the migration from the manufacturing companies. Talent would necessarily need to be harnessed from ground zero. Anyone sowing the seeds for transforming talent today would emerge victorious in the long run. After all, retail is a people-led business.''

Unorganised market

But consumer electronics is expected to see maximum action with global chains firming up an Indian entry. The US-based chains, Best Buy and Circuit City, already have India on their radar.

Adds Sivakumar of PwC, "Given the large size of the Indian market and potential liberalisation of FDI in consumer electronics, some of the world's largest consumer durables retailers are exhibiting significant interest in India. Their interest is further heightened since the majority of the consumer electronics market is unorganised and is managed by company-appointed dealers. Overseas, consumer durables retailers who are looking at the Indian market are determining appropriate entry modes under the current regulatory framework, and could be looking to tie up with Indian partners. If overseas chains enter the market, there are likely to be mergers and acquisitions, employment generation and the sourcing of durables, parts and components from India. In addition, these players will also likely make investments to build robust supply chains and logistics systems.''

But the entry of the global players will not be that easy as the successful local chains such as Viveks and Vijay Sales could well hold their own. Observes Tipnis, "From a `want to be present' perspective, every sizeable player in the world has their eyes on this segment. It is only time that will decide how successful they would be. It needs huge investments, prime focus and a thorough understanding on `how to adapt' to the terrain. Moreover, values and lifestyles of the Indian consumer are unique and unparalleled anywhere in the world. The market is very large and there's room for everyone. Homegrown regional chains will survive; it's the smaller players who would be under pressure if they do not get organised and more transparent with their consumers.''

More Stories on : Consumer Electronics | Retailing | Insight | Human Resources

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Plugging into retail