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Oct, 22 2009

Retail adopts low-cost options

Considering the aspirations of young entrepreneurs who aspire to become their own bosses, the retail sector offers them the best option to excel in their chosen field.

According to recent media reports, the retail industry in India is worth $14000 crore currently, of which about $ 2000 crore is in modern retail, which includes malls and chain stores. The factors that are leading to the success of retail industry are - rising disposable income and changing lifestyle pattern among the urban population, which have contributed to around 8 per cent annual growth of this sector.

Retail a profitable business

The questions asked by entrepreneurs before delving into a retail business are:  Is this a viable option? How much investment would it entail and how much time would it take to reach the break-even point?

Some franchises could cost you higher than expected. Within the retail sector, initiating a low-cost business in no small deal. Since the retail industry is already diversified, it opens up a lot of substitutes from which an investor can choose. Whatever the statistics may say, the current economic downturn has not affected the entrepreneurial zeal in India. And, this is the reason that has encouraged many aspiring entrepreneurs to enter into low-investment businesses. Some opt for their own business, while others choose the franchise route to reach the target customers in a short period of time.

Low investment business ensures better reach and penetration, and higher degree of control since in most of the cases the investor or owner runs the business. In the low-cost retail business, one can start the business with as low as zero investment to a few lakhs of rupees, and within this range, one can set up a shop of flowers, fashion accessories, branded jewellery, apparel, discount stores, writing instruments, health and beauty, home furnishings, and can also opt for small formats such as retail kiosks too. If anyone aspires to succeed and achieve good footfalls in a small format concept it is imperative to choose niche business concepts to attract consumers.

Initially, investing a small capital, one can start with a small format retail business and then take it forward to a large format business. Talking about the benefits of starting cost effective business Pawan Gadia, Vice-president, Ferns ‘n’ Petals, clarifies, “There are many advantages of franchising in low-cost business opportunities in specialty retail. The low-cost business opportunity attracts and encourages more and more people to take up the opportunity; it encourages the easy and fast growth of new franchise outlets, it helps the company to grow with a better franchise structure and the company gets the opportunity to choose the franchisee as there are more number of people who want to take up the franchise as the investment is low.”

In the retail sector, a great number of opportunities are available for investors to start a low-risk business which are retail formats like shop-in shop or exclusive outlet. The franchisee can open a shop-in-shop outlet, if he/she wishes to invest less with a limited stock of brands. The franchisee can also open a retail kiosk in a mall or in a high street to get better brand visibility and more footfalls every day.

Retail segments

Apparel is, by and large, a very big sector which is further divided into various segments such as, kidswear, women’s wear and men’s wear. Starting a large apparel store would cost higher but if a small-format is also an option. It will cost between Rs 5-10 lakh. Cantabil Retail India, Zudaas France, Leela’s Studio and Cornerstone are a few companies which offer their franchise to the interested investores who are ready to serve the fashion conscious market.

Discount stores are also an option, like Vishal Retail, US Dollar Store, Om Daily Needs, Koutons and LOOT, that offer the maximum discount on merchandise to attract customers and generate sales for the competitive market. Plethora of brands flooding the marketplace is accompanied by rapidly changing trends that have created a huge demand for higher number of multi-brand discounted stores. Discount stores in general sell a wide variety of products at reduced prices and this attracts a large number of customers. In the discount store segment, US Dollar Store fits in well because it retails its products with a starting range of Rs 99.

Gifts, flowers and writing instruments segment is a cost-effective alternative for the investors as it allows a small format business. Archies, Hallmark cards, Ferns ‘n’ Petals, Luxor writing instruments, Linc pens are a few options available in this sector.

Health & Beauty retail is another segment wherein Lal Path Labs, Medplus and Kairali Group offer options to investors to start business in the wellness sector. Investment are in the range of Rs 3-5 lakh with a space requirement of 150-300 sq.ft.  Dr Danny Devasy, Manager Franchise Development Kairali Group adds, “As per our take low-cost franchising is not only popular in the western world, but is also catching up in India, and as far as the status of low-cost franchising opportunities goes, we feel that it is really a prime market for such business, and we have our best hopes for the future.”

Challenges in retail trade

In the retail sector, starting any business is easy but taking up the challenge to convert it into success is difficult. Explaining his experience Vijay Bansal, MD, Cantabil Retail India Pvt. Ltd says, “Risks such as competition, low initial income, need for creating awareness among the masses are challenges but one should work with patience to overcome the challenges.”

Similarly, Ferns ‘n’ Petals, a few years back ventured into organised flower business. The company faced many challenges. Gadia reveals, “The first aspect was that we were not flower growers, but we wanted quality and a wide variety of flowers, which was not available at a constant price; to overcome that, we tied up with a few leading growers in the country.” Other challenges could be availability of retail space on higher price and ineffective supply chain management. Survival of small brands is becoming difficult because of the un-organised market, presence of established players, less brand awareness and lack of customer satisfaction. As managing own outlets can be expensive, the investors can try out small formats by taking up the franchise route. Since the established brand name is with you, it will help you reap profits within the break-even  period of six months to a year.

Franchise – a better option

In recent times, many retailers in the Indian market have got  into franchising to explore the untapped markets. Apart from metros, the companies are strengthening their businesses in tier II and tier III cities too. Bansal says, “Franchising helps brands to penetrate to almost all the cities or towns, be it metros or tier II or III tier cities. It helps in  expansion of the company and meets the demands of the people. Franchising is a better option of doing business over establishing an independent set up, because it helps us to connect to the masses and also to explore new markets. Franchising also helps to establish a brand name and do business in an organised way.”

Franchisee selection is of prime importance to make the brand a success. Gadia adds, “We select a franchisee after being sure that the person would give proper time to the business, would take up business seriously as a source of income and work hard to maintain the standard of the product.”

With the entry of organised players, the retail market is becoming very attractive as it is offering a number of cost-effective opportunities to aspiring entrepreneurs who have a strong passion to set-up their own business. Small companies are successful only because of their low-cost structures and their faster responsiveness to the changing market conditions. Franchising is a lucrative industry which offers multiple benefits not only to those who are first time entrepreneurs, but also to those who have the passion to establish  their own identity in this rapidly growing economy.

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