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Sep, 07 2010

SCALING SPACE CONSTRAINTS

Some of the best things in the world come in small packages and so do business opportunities.

Some of the best things in the world come in small packages and so do business opportunities. You don't need a larger space or an entire shop to do business, a 100 sq.ft area dedicated to a particular brand will do. That's shop-in-shop for you, an opportunity for a brand to have access to a bigger name, more customers and big profits.

RETAIL is all about reaching to the end customer, which is done through various formats. One such format adopted by retailers is shop-in-shop, which provides the exclusivity of a brand to a customer, besides being available in an easy manner. Shop-in-shop means a small space or a corner dedicated to a particular brand in a Multi-Brand Outlet (MBO). The retailer deals with all kind of customers on a daily basis and provides lot of important feedback on preference, price points, further improvisation that helps the company in drafting future strategies. If a retailer is serving grocery, he can also sell some more solutions to customer and that is where a shop-in-shop fits in. It offers the right target group to a company to offer products. In short, a shop-in-shop gives a special place to your product to stand out.

What's exclusive

An exclusive store might promote planned buying whereas a shop-in-shop format tempts unplanned buying, thereby bringing more customers for the shop-in-shop retailer. Sanjay Monga, Marketing Head, Orient Ceramics and Industries Ltd, says, “There is heavy investment in exclusive boutiques, which cannot be done by us. Shop-in-shop (SIS) comes as the right option.”

Exclusive boutiques are opened from branding point of view. A company can't afford its own showrooms in every place, so shop-in-shop comes as an easy option, where the retailer is experienced, has a set customer base and property availability is not an issue.

There are a number of brands in varied industries which are leveraging on this opportunity. Kodak Express, which has been in existence through its traditional 1,200 Kodak stores, is looking at shop-in-shop in modern retail format. According to Sucheta Pereira, Group Product Manager, Kodak Express, Kiosks & Thermal, “Partnering with retailers gives an opportunity to invite customers who will bring in impulse buying.”

The shop-in-shop concept has been well accepted in sectors like jewellery, where major players, Gitanjali and Cygnus, operate through this concept. This has suited the Indian consumer well, who still visits the traditional jeweller but is also experimenting with modern designs offered by organised jewellery retailers. In a way, it adds to the present offering of the jeweller and the retail jewellery company also gets more customers. Cygnus has around 200 shop-in-shops, out of which 30-35 per cent are operated by individual retailers.

According to Vijayant Chhabra, Executive Director, Archies Ltd, “Archies has a great brand pull. If a retailer dedicates certain space to Archies, it benefits both. The brand acts as a major crowd puller.There are people who look out for Archies in a bookstore as well.”

Finding a middle path

The benefits of shop-in-shop for the brand include brand recognition in that particular MBO and retailers' priority to sell that brand more than any other because it is occupying maximum floor space. In shop-in-shop, the customer also gets an opportunity to compare the range of products with that of competitiors.

Though exclusive store has its own identity, there are major benefits of shop-in-shop. Rent is not a concern for the brand, store is managed by store owner, brand doesn't have to worry about sales staff, maintenance of the store, etc. Standalone stores take time to reach out to the audience, making a connect with the buyers.

Monga says, “Tiles industry is getting more fashion-oriented. People want some special segments to be showcased and a variety to be offered. Exclusive stores don't serve this purpose and being a part of an MBO, doesn't give exclusivity. The middle path is of opening a shop-in-shop.” Orient Ceramics has been a pioneer in launching the shop-in-shop concept in the tiles industry. This way, Orient gets a different platform to showcase its offering amidst the crowd.

The shop-in-shop format depends on how much value a company gives to such a concept. Some might initiate it during the start of their retail journey and in a hurry, might open 500 outlets. But once that's done, they will close 300 of them after two to three years.

Mitesh Gagera, Managing Director, Cygnus says, “At Cygnus, our strategy is to open a decided number of shop-in-shop, which we think we will be able to mange in the long run. Chances of failure might also be there where brand synergies don't meet between the retailers and the jeweller. We study the market and work with the retailer to make it a success.”

Talking about the benefits a retailer derives out of shop-in-shop, Deepesh Ranka, Managing Director, Detco Group, says, “Over and above commercial terms, a retailer gets extra margin compared to normal MBO. He also gets priority in terms of placement of every new style we launch.”

Counting on these benefits, Jay Gupta, Managing Director, The Loot, adds, “The retailer gets tied up with various national and international brands sold by The Loot.”

According to Chhabra, “We are presently open to the idea of tying up with individual retailers. We have two such shop-in-shops operational in Chandigarh and Hyderabad, where they have an area of around 3,000 sq.ft and certain section is dedicated to Archies. These retailers have multiple formats operational like a coffee shop or a music store. They have a dedicated space for Archies for 500 sq.ft area. We are open to associate with such retailers who work in different categories, which are complementary to our business. Options like bookstores serve our purpose well.”

Marrying the two

Talking of leveraging on the shop-in-shop concept, Gagera says, “We analyse the retailer in terms of potential before partnering with him. We have our shop-in-shops both in departmental stores as well as with individual retailers. These retailers are existing jewellers, currently buying our jewellery. We give them the option of having a shop-in-shop from us.” While partnering with Cygnus, the retailer gets a commission on the products, which starts from 15 per cent and can go up as per the product he keeps.

The traditional jeweller wants to be a part of the organised retail by partnering with branded jewellers in an easy way like shop-in-shop. It gives the brand the exposure to serve an existing customer. Traditional jeweller/retailer already has the customer base of clients who needs to be offered the branded jewellery. The walk-ins are already there with the retailer, so the company just needs to cash in on this opportunity. Consumers' confidence is already built for a few years with the traditional retailer. So if the same retailer offers the customer something new, the customer is bound to give it a try and that's where the branded jewellery product wins over. According to Gagera, “We just need to convert those existing walk-ins. The consumer wants brand value, as he is more inclined towards brands.”

There are various kinds of tie-ups prevalent in shop-in-shop. Says Gupta, “We have a tie up on revenue sharing basis with retailers to open a shop-in-shop.” Chhabra says, “We have a sale-purchase agreement with the retailer. We provide complete know-how, support and employee selection to the retailer. At places where we are keen to be on that location, we even provide minimum guarantee, if required.” The returns for a retailer are 40 per cent on an average.

Be where the future lies

Kodak is partnering with retailers to open shop-in-shop in various retail segments. The company already has 18 shop-in-shops in place and is looking at opening two to three shop-in-shops each month. Presently the shop-in-shops of Kodak are operational in Mumbai, Hyderabad, Bengaluru and Chennai. The company is looking at metros and mini metros to open shop-in-shops.

Torso Cult has just started with the shop-in-shop concept and aims to target 50 such retail formats. Informs Ranka, “Mumbai is the fashion capital of India and our home ground, so it is our topmost priority. Western India will follow next and then Delhi and Punjab.”

The Loot plans to expand in tier II and III cities, which have population of more than 1 lakh. “At present, we have four shop-in-shops and are planning to open other 10 in next two months,” says Gupta.

Haier is currently looking at all metros/mini-metros and branch office cities. It has also been able to enter a few good counters with this concept in the tier II cities. On expansion, Shanta Roy, Head, Marketing, Haier Appliances India, states, “We have more than 25 Haier experience centres and shop-in-shops. Another 25 should be ready by mid of next month.”

Sharing expansion plans, Gagera says, “We are present across 45 cities and looking at tier II and III cities. We would be opening 40-50 more shop-in-shops by March 2011.”

Monga adds, “At present, we have six shop-in-shops in north and south India. In financial year 2010-11, we plan to open 75 shop-in-shops. For expansion, we are targeting all tier II and III cities. In terms of consumption, south scores over other parts of India. So in terms of our interest, we are looking at south, west, north and east.”

Marketing, shop-in-shop

Since shop-in-shop is a different retail format, marketing strategies also vary. Retailers' name (with logo) is mentioned in Torso Cult regional press advertisements. Kodak has shop-in-shops in metros, as marketing in these cities is done well, thereby making the franchise support easy. Archies does a lot of marketing the whole year round. It also eyes the same 150 cities where it's already present, which makes supporting the retailer with stocks easier. Orient does nationalised marketing and advertising and has shortlisted vendors.

Mom-n-pop retailers can also avail the advantage of shop-in-shop format. They can partner with big retail brands and see their way to profits.

BOX

A look at what leading retailers expect and what they provide

For operating a Cygnus shop-in-shop, 100 sq.ft is the minimum area required. There are various products which form part of the low-cost and high-end jewellery that a retailer can keep. The investment can start from Rs 25-50 lakh and can further go up based on the product the retailer wants to keep.

Kodak generally partners with photographers interested in becoming a Kodak shop-in-shop franchisee. The retailer is expected to manage the shop-in-shop and look after the manpower. The store size of a shop-in-shop is 100 sq.ft and entails an investment of Rs 15 lakh. The profit margins are more in personalised photography solutions, which exceeds up to 30 per cent. While partnering with a retailer, Kodak looks at his/her customer services skills, background and mindset.

For Orient Tiles, 500-700 sq.ft of area is required. That 500-700 sq.ft of space undergoes refurbishment by Orient's team of experts. The initial investment is done by the retailer. There is a target in terms of certain sales to be achieved. The business is done on a cost-sharing basis. Employees are on the payroll of the retailer and Orient shares certain expenses and gives maintenance allowance. For Europa, the profit margin is in the range of 25 per cent and for Orient, it is 10-15 per cent. The term of the agreement is of five years and is renewable after that.

For Archies, one requires an area of 250-500 sq.ft in prime location where one show window is given to Archies. A shop board will be provided by Archies to the retailer. The shop-in-shop concept gels well with complementary products like music store, toy store, etc but the product shouldn't be of the same nature. It has a three-year tie-up with the retailer and the renewal is based on his performance. In the first year, there is no sales target but from second year onwards, the retailers has to meet the sales target.

The Loot does a strong research on the background of the retailer, format of the store, area it is located in and the amount of traffic in that area. The retailer should offer a proper area, maintain a stock of the required value along with stock and stores hygiene and should also keep updating the accounts and other required information.

Haier Appliances provide fixtures and branding while the dealer does the civil work to make sure the area is in sync with the design and standard set by the company. Shop-in-shop is decided on the basis of the potential of a counter, location of the outlet, relationship with the partner and past experience with the party. Since their sales team is well versed with the market and understands the SWOT of all key counters, they go by their recommendation.

For Torso Cult, the retailer's role/responsibilities are maintaining brand staff, replenishment of sold styles/sizes, maintaining proper VM in-store as well as outdoor.

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