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May, 01 2007

Big Retailers In Franchising Mode

AS most of the large-scale retailers announce major expansion plans, other retailers too have started

AS most of the large-scale retailers announce major expansion plans, other retailers too have started, experimenting various models so as to remain in the mainstream. One of the fastest and easiest way to expand a business is through franchising. Leaving no stone unturned in experimenting, companies look up today towards this model.

Despite adequate financial resources and announcement of major expansions, it is not always possible for big retailers to meet huge demands of the market. Issues like real estate, management, recruitment and high attrition level come up as hurdles. Franchising is a route towards getting a right partner, who is committed to the day-to-day operations and upkeep of the retail store: various issues like management, stock updates and merchandise are taken care of by the franchisee.

Companies exploring franchising

Whether it is the biggest retailer in the country or a leading Dubai-based group, all the companies are ready to test the waters via franchising. While examining big retailers' plans for nationwide expansion, it will be seen that there is a cut-throat competition especially among top retailers like Reliance, Bharti, RPG and Raheja. Although they have all announced major expansion plans, issues like real estate and high attrition rate make it hard for them to execute their targeted expansion on time. Factors like these have led top retailers to experiment with the franchise model to meet expansion deadlines. Reliance Retail has already disclosed its intention of offering Reliance Fresh franchises to certain kirana stores. Following this, the company is inviting franchisees.

Benefits of franchising

Franchising is one of the best ways by which a company can expand. Big retailers have specific reasons for taking up the franchise route as the expansion model. According to Neeti Chopra, Head Marketing, Trent Ltd, "As we are growing, we felt that it would not be possible for us to cover all cities by our own self, so it was our distribution strategy to look at getting into trading Westside using the franchise model." Being positive about the outcome of this new development in Trent, Chopra goes on to add, "I think franchising will help us to scale up and to lead in India which, probably, we would not have been able to do on our own." Vasanth Kumar, Executive Director, Max Retail Stores, says, "Our company wanted to focus on top 12 cities in terms of manpower manage-ment, and we also wanted to go in for smaller cities, but opening and the cost of managing this one store is very high for us. A reputed franchisee can run it better and we can continue to focus on other 12 cities."

Franchising by top retailers

For franchising, the franchisor must have the systems and processes in place so as to be successful. Companies like Max and Trent that are exploring the franchise route, have established their company-owned stores very well and are now moving towards franchising. Max is a three-and-a-half-year old brand that was launched in Dubai four years back. The company entered India one year back and has opened eight stores in India. Max is a value retail chain of Landmark Group and offers apparel for men, women, and children. It also offers fashion jewellery and footwear and has recently forayed into home décor as well. Trent is experimenting with its Westside brand for franchising. Chopra says, "Now we are a critical mass and we have got 25 stores, therefore, for us the whole venture of how to create a Westside is fairly standard and we now think that we can take this forward and build a Westside using a franchise strategy." She adds, "We have built brand equity where franchisees would like to partner with us."

Is real estate an issue?

Will the retail sector survive the exorbitant real estate prices? This is the biggest question in the retail sector today. While some retailers are experimenting with franchising, others are trying new revenue-sharing models with real estate developers. Chopra says, "We do believe that this is one way of ending the reality problem. Sometimes when franchisees have prior business experience, strong financial capability, and understanding of consumers or market, but might not necessarily be having property, then they can look at acquiring one. So the answer is sometimes yes."

However, Kumar is adopting other ways. He says, "We have been tying up with franchisees and we will also tie up with developers with certain rental-cum-revenue-sharing model so that it becomes viable for the franchisee. We give a minimum rental just to take care of the expenditure. The property is directly signed by us. There is a minimum infrastructure, which the developer has to give us because fixed interiors are required. We, then give the property to the franchisee who then invests in the fixtures and stocks." He further says, "By opting for revenue sharing, we are cutting the risk for the franchisee. The franchisee needs to focus on retail operations."

Requirements for franchisees

Though companies are seeking franchisees in only smaller cities, the requirements and the set up largely remain the same including even those of franchise stores. Companies are planning to tie-up with those franchisees who can, with their business experience, easily run the store. Depending upon type of the company, they basically look for people with similar backgrounds and experience in retail. Chopra says, "We are looking for somebody with prior business experience, as the one who is dealing day in and day out with customers will do better in a retail store." As per the area and investment requirements for franchisees, Kumar says, "We typically need a franchisee who can invest Rs 50 to 60 lakh. He should be aware of fashion retail so that he can manage the store. He should also have the ability to get the right people recruited and retained. We are also looking for a franchisee who can do two-three stores for us, and not a single store, so that he can use his knowledge across the stores." As a footnote he adds, "The franchisee should ensure proper running of the store." The look and feel of franchise stores will be the same for the company, however, as per the space, the companies have decreased the requirement from the general 20,000 sq.ft to 10,000 sq.ft. Most of the top retailers are looking for franchisees in tier III towns and for metro cities, they will carry on with company-owned stores. Cities targeted by Max include Meerut, Salem and Madurai.

Support by franchisors

The companies are ready to offer support and training to franchisees so as to help them in managing the stores better. Kumar says, "We will be assisting the franchisee in terms of end-to-end fit outs, completion of lay-out, training of retail team, sales handling, IT, MIS, product knowledge and customer service. So, we will be doing hand-holding for the franchisee." As for marketing and advertising support, Kumar says, "In the first year, we are focussing on local marketing like hoardings, radio and cinema, and in two years time, we will go national." For Westside, Chopra says, "For franchisees, we would offer the same training that goes in putting our own stores. Fixtures, lighting, the look and feel will be the same. Advertising and promotion and practical training are conducted by us."

Future plans

For most of the top retailers, going for franchising is like experimenting with a new business model. It depends on the profitability of the franchise stores on the basis of which the companies will further plan aggressive strategies for franchise stores. Kumar says, "The first franchise store we are launching in August this year will be in Calicut, Kerala, and based on the response, we will be opening more stores. So, we are testing the franchise stores." Chopra also has her strategy and she says, "We have just started with one franchise in Mysore and we want to see how that goes, we want to look at it for a couple of months before we actually start tying other franchise relationships because, even for us, this is our first one, so we need to see how it works. We will learn from the store because we were never into franchising." However she says, "We are looking at various markets for expansion." For Max Value Retail also, if all goes well, the company plans to open 50 more franchise outlets. Retailing is witnessing a tough competition and will see a major breakthrough in the coming years with only the fittest and the strongest surviving.

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