Reliance's retail researches

When giants stumble, the world sniggers. Not only is it funny, there is also some schadenfreude.

Reliance's foray into retail has been like that. Five years after its entry into this competitive arena, one is forced to ask: why is Atlas looking bewildered? And what's happening to it now?

There's plenty happening, says Bijou Kurien, Presdient & CEO of the Lifestyle Division of Reliance Retail. To start with the company is changing its strategy.

Again.

Smaller stores for a bigger bang

It has figured out that shops with large floor areas are no good in a country where the supply chain is so unpredictable. As Kurien points out, even the best of FMCG companies have ‘fill' rates of 70-80 per cent.

“If the supplier doesn't deliver on time, for whatever reason, you get empty shelves,” says Kurien, and that looks bad.

The answer to the problem is elementary, Watson. You simply have fewer shelves, which means smaller shops.

Reliance's hypermarket in Ahmedabad launched in 2007 started out with all of 1.4 lakh sq ft, which it took down to 1 lakh sq ft and is now planning to go even further down to 80,000 square feet. This tweaking it is doing across all its formats.

Will it work?

That would also depend on the location. “We don't want to be a weekend shop,” says Kurien, explaining that this is what would happen if they went for large horizontal shops.

“The land is simply not available and if you want to have such single-level shops you would have to go far out into the countryside.”

That, he says, would result in people coming only once a week or a weekend shop. So willy-nilly, in order to stay in town, Reliance stores are going to be multi-level.

But multi-level shops need travelators on which people can take their trolleys up and down. However, they are not like escalators which have a sharper incline. Travelators have flatter inclines which take up more space.

Result: lower productivity per sq. ft. because you also need circulation space for the shoppers.

The way out, says Kurien, lies in innovation. The trick is to offer the customer things that others are not offering — such as auto accessories on the one hand, and tailors to stitch your clothes on the other. In the digital area, Reliance is also offering delivery, installation, maintenance and repair.

The point, in the end, is to make more people come to your shop for more and more things, just as the old general stores used to. The difference is they knew what they were doing.

And there lies the rub.

Heterogeneous preferences

Big retail shops may know customers by socio-economic groups but customising right down to the last shopper is impossible because it would require far too much shelf space. That means betting on the averages, which is always risky.

It is a learning process, says Kurien. Reliance has experimented with several formats and sizes — from hypermarkets to convenience stores to apparel to footwear to wellness — and now finally has some 22 formats. Growth across these formats this year, Kurien says, has been in the band of 10 per cent to 30 per cent, depending on the format.

Even in the smaller metros, leave aside the large ones, you get large micromarkets. Thus, in Mumbai, the Matunga area may have a demand pattern that resembles the demand pattern of Mylapore and Mambalam in Chennai. In the adjoining neighbourhood, you can get a completely different ordering of preferences.

This, says Kurien, poses the very difficult problem of deciding what to keep in which area. In large cities, from a stocking point of view a big retailer can actually end up running the equivalent of several different shops.

This is perhaps where the local kirana merchants have an edge over the big boys of big retail. They know their customers.

Tweak, tweak, tweak

The way out is constant tweaking. You keep experimenting with what you offer.

That sounds fine except for one thing: the seasonality has gone out of the shopping and the customers' preferences keep changing.

Thanks to credit cards, gone are the days when there were huge spikes in spending around Diwali; and gone too are the days when choice was limited to a few product classes.

Today there is a very large range of products available. Not just that: the bottom 10 items in the top 20 spending categories keep changing. “There's a lot of churn there,” says Kurien. The 20 categories contribute to 80 per cent of sales, and so are very important for a retailer.

To stay in the game, Indian big retail will need a lot of capital to build supply chains and homogenise customer preferences around a few brands to suit its own needs.

That will need a lot of foreign investment, and that in turn means that the States have to amend their laws. When that will happen is anyone's guess.

Until then Atlas won't be able to shrug.

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