Catalyst

The makeover to a New U

Chitra Narayanan | Updated on September 28, 2011 Published on September 28, 2011

Makeover man: Parikshit Sharma, COO, New U, Dabur India

After a scarred start, Dabur's retail venture went for a facelift. Will it work?



In the beauty business, nothing works better than makeovers. Dabur's retail venture New U is trying to capitalise on this insight in more ways than one. Not only has it got itself a complete makeover, it has used it as a powerful lure to get more people into its stores.

On weekends, from 9 a.m., a stage is set up near a New U retail outlet for the Makeover Marathon. With brands such as L'Oreal, Maybelline and Lakme participating, shoppers enjoying an outing at a mall can indulge themselves, experimenting with cosmetic changes and more.

“We do 300-400 makeovers in a day,” says Parikshit Sharma, COO, New U, Dabur India. At the end of the makeover session, he says, it's natural for many of the shoppers to drift into the New U store and buy products.

Changed Orientation

For a company that was seriously thinking of downing its shutters a couple of years ago, it's been quite a turnaround. Sharma says he is further encouraged that two stores in the southern region — Hyderabad and Bangalore — have broken even for the first time. “It's only individual stores breaking even now, mind you, the whole operation is still to come out of the losses suffered from the earlier faulty start, and overall break-even will take time,” he cautions, as he says, “New U went through a very bad patch indeed.”

A veteran in the retail industry with stints with the Landmark Group, when Sharma took over in 2010 his brief was simple — to put New U back on track.

New U was set up in 2007 and the first store was opened in 2008. At the time of the launch the format comprised 2,000 sq. ft.-plus stores stocking beauty, wellness and health items — which had a fit with parent Dabur's product lines.

As Sharma explains, there were several factors why the venture did not take off in its initial avatar. For one, the beauty segment four years ago was not as well developed as it is today. “Two, the large format worked against us. If you open 2,000-3,000 sq. ft. shops, there are not enough categories you can put into it, so you end up stocking double the merchandise. There was no sales throughput,” says Sharma.

According to a retail analyst BrandLine spoke with, the start was faulty also because the Burmans of the Dabur group got into the retail business for the wrong reasons. At that time the price to earnings multiples of retail firms were 50 to 60 while FMCG firms' PE multiples were just 25 to 30.

But only once they were in they realised that retail was a very low-margin business at 4-5 per cent, unlike manufacturing which had 15 per cent margins. Retail ventures also have a high gestation period of five years. “It was quite dilutive from a financial viewpoint,” he says.

To compound its problems, Dabur hired an expat consultant who had no clear understanding of the Indian market and the initial few stores were opened in inopportune locations – crowded high streets with limited parking. It was also a time when property prices were at their highest. Not surprisingly, the red ink on the business was significant.

New Avatar

In its second coming, New U did three things — rationalise space, price, and change the product mix. To begin with, it changed the store format, switching to small, 500 sq. ft. outlets and store-in-store (SIS) formats as well. It took a conscious decision to open stores only in malls. “Malls have a protected environment and have a steady footfall, whereas on high streets, we would have had the onus of creating walk-ins. And frankly, we didn't have that kind of marketing budget,” says Sharma.

What helped them at this time was the fact that most mall developers were now willing to go from pure rental arrangements to revenue-sharing arrangements, says Sharma. So, rather than cough up huge sums as rentals, the arrangement was to give 12 per cent of sales to the developer. The second big change was the decision to opt out of healthcare products and stop being an extension of Dabur's line of products.

“We realised that beauty was the mainstay of the store and decided to phase out all the other products, including Dabur's ayurvedic range,” says Sharma. A decision was also taken to go after private labels. “We found that in our earlier launch, with too many public labels, our prices were completely off track,” says Sharma.

When they found that the fastest moving items in the store were nail enamels, nail polish removers, and cotton balls and so on, the company quickly started private labels.

Now, Sharma says they will also be moving into private labels for personal care products, which are fast-movers. “We are getting into it slowly and steadily. We have a full R&D centre. And once the formulations are ready, we will invite third-party manufacturers to make these products,” he says.

On the product front, New U has also got into exclusive arrangements with labels from the UK and Turkey. For instance, it has brought in Turkish brand Flormar, which is a fairly affordable brand. It has also expanded into fashion accessories and silver jewellery.

A slew of marketing initiatives

New U has focused aggressively on below-the-line promotions — but customers have predominantly been enticed into the stores through campaigns such as the Festival of Beauty and concepts such as GWP (gift with every purchase).

The store has also started a non-card based consumer loyalty programme where points are credited on the mobile number of the customer. “Card-based loyalty programmes are not very practical as very often you forget to carry them,” says Sharma.

Expansion through franchise route

Now, that it is 45-stores-strong, mostly following the cluster route, New U will be getting into the franchise model to expand. “The products in our stores are impulse purchases — 99 per cent of shoppers are walk-in customers and there is 95 per cent conversion into buys, so we feel it will be attractive to franchisees,” says Sharma.

As the company itself will stick to the malls, he says, franchisees could be on the high streets. Will they get into beauty services, a la Marico's Kaya venture? Sharma does not rule that out, but says that once they reach a critical mass — 90 stores at least — which they hope to achieve by the year-end, they will take a call on that.

But, the big question is will the second coming prove successful for New U? Analysts feel Dabur should stick to its knitting and opt out, but retail experts feel as the beauty niche only has a limited number of players such as Health & Glow, so it could work.

Published on September 28, 2011
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