Fanchising in home furnishing industry
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Jan, 16 2010

Fanchising in home furnishing industry

The growth of franchising in the home furnishings industry has to be viewed in the light of the tumultuous changes taking place in businesses across the world. Furthermore, any discussion on franchising in the home furnishing industry per se, has to take

The growth of franchising in the home furnishings industry has to be viewed in the light of the tumultuous changes taking place in businesses across the world. Furthermore, any discussion on franchising in the home furnishing industry per se, has to take into account the state of global economy, shifting production bases and rapidly evolving firm strategies in keeping with the changes in the global macroeconomic scenario. Therefore, inherent in this relatively fluid business scenario, is the scope and the need for innovation. Today, franchising as a process of organising business activity has a sectoral spread unmatched in depth and diversity.

I would consider home furnishing industry as a subset of the larger textiles industry and analyse how innovation vis-à-vis products, processes and services could result in more efficient business practices. The article, therefore, would dwell on innovation as catalyst in the entire process. A key to innovation is the spatial organisation of production wherein I would explore Michael Porter’s diamond model of competitiveness in light of globalisation. Drawing on Porter’s model, I would argue that given the current state of globalisation, cluster-based policies on the part of the government could boost productivity in this sector.

Transiting from a general discussion on clusters to a specific instance, I would cite a particular example of one cluster based policy initiative, which  had a telling impact on productivity in the textiles sector. The initiative in question was a UNIDO-led project in the Jaipur region in the Rajasthan, India. As I have argued elsewhere, clusters and cluster-based organisation of production and consumption hold the key to India’s competitiveness. This is especially true for the home furnishing industry, which draws on India’s artisanal skills and entrepreneurial spirit to create competitive differentiation along its product and service offerings. Those artisanal skills and entrepreneurial mindset would be best nurtured in a cluster like setting.

Agglomeration & localisation

Opinions are divided on whether location still plays an important role in the era of globalisation. A concrete articulation of the advantage of location can be seen in the reality of regional specialisation. Faced with borderless markets, hyper mobility of finance and the relentless march of MNEs, various authors have talked about the phenomena of ‘end of geography’ (O’Brien, 1992), the ‘death of distance’ (Cairncross, 1997), and the ‘delocalisation’ of economic and social relationships (Gray, 1998). Academics on the other side of the conceptual divide see a heightened role of specialisation. Aided by falling transport prices and rising volume of global trade due to lowering of trade barriers, firms agglomerate with other similar firms or with firms with complementary skill sets to take advantage of local external economies of scale. (Krugman 1991, Fujita, Krugman, Venables 2000). Agglomeration has the potential to help firms reap the benefits of local endogenous innovation and productivity growth (Martin and Sunley 1998). Due to these reasons one can hear in the academic and policy circles about the ‘re-emergence of global economies’ (Sabel 1994), the ‘localisation of world economy’ (Krugman 1997) and the rise of a ‘global mosaic of regional economies’ (Scott 1998).  Other concepts that are derived essentially from the perspective of location advantages are that of ‘geographical cumulative causation’ and positive feed-backs (Kaldor and others, including Krugman), ‘knowledge workers’ (Moss Kanter 1995; Reich 1991) and ‘systems of innovation’ (Lundvall and Johnson 1994). Cooke’s recent work on the biosciences industry points toward the close association between proximity and knowledge transfers (Cooke 2004a). Cooke’s study reveals that when firms are strongly embedded in regional networks they tend to perform better than firms not similarly placed in other regions. I imagine that a franchisee draws his or her business sustenance from the location knowledge and turns her or his business into a success by exploiting the local conditions to the fullest.

Penchant for a diference

Changes in global business environment have created objective conditions for retailers to innovate. The franchisee, like any other actor in the business ecosystem is not immune to the changing dynamics. A recent report states, “Unprecedented diversity, fragmentation of consumer values and information transparency have polarized the retail marketplace and created an imperative for all retailers to differentiate. In addition, the challenges of an increasingly price-driven world have raised the bar for retailers to create a shopping experience that builds loyalty to brands, channels and services and is not based solely on price.”(Badgett et al 2006)

This has meant that businesses with entrepreneurial approach to customer satisfaction would be uniquely poised to succeed in such conditions. The key to being a successful entrepreneur is to attain sustainable competitive advantage through differentiation.

Home furnishing—a snapshot

Home furnishing has an enormous potential for growth, both in the international as well as the Indian market. The global market size for home textiles is pegged at about $ 70 billion and has been growing at a consistent rate 5 per cent. The US is the world’s single biggest market estimated to be at $ 18 billion followed by the EU at $ 15 billion. The diverse structure of the Indian textile industry coupled with its close linkage with its ancient culture and tradition provides it with the unique capacity to produce, with the help of latest technological inputs and design capability, a wide variety of products suitable to the varying consumer tastes and preferences.

The current size of Indian textiles and clothing sector is $ 36 billion out of which roughly $ 12 billion is contributed by Indian export from this sector. The estimated size of the market in 2010 would be $ 85 billion and exports would be estimated at $ 40 billion. The largest exported item from India is the bedspread, with a global trade share of nearly 3 per cent. Other home furnishing articles account for almost 2/3 of the total Indian exports in this category. Clearly, the room for growth is for everyone to see.

Innovative practices in franchisee retailing

Nowhere, innovation is such a necessity as in franchisee retailing. From product lines, to supply chains, to inventory management and all the way to the customer interface, home furnishing industry could benefit from innovative practices. From the perspective of business competence, we could identify six core capabilities of franchisee entrepreneur in the domain of retailing:

  • Consumer insight: solid understanding of their customers’ needs and wants
  • Personalised dialogues: relevant and customised communications
  • Multichannel execution: consistent customer experience across channels
  • Tailored offers: products and services meet customer expectations
  • Associate commitment: store employees motivation as a winning edge
  • Organisational alignment: one company one vision across the network

Clusters—the competitive edge

Franchise mode of business could greatly benefit from the deepening of cluster conditions. For instance, if one were to apply Porter’s premises and arrive at a policy mechanism that would strengthen cluster conditions in the home furnishing producing hubs in India, quality of the products would presumably improve. As a case in point one could cite the UNIDO project in the Jaipur textile cluster. An SME centric intervention, revived the declining cluster and helped it to become economically robust. In a thematic sense, therefore, innovative practices within cluster boundaries could inject sustainability in the target ecosystem. To understand the process better, a simplified home furnishing value chain could be impacted by innovation in the below-mentioned manner.

The clustering approach in enhancing productivity and bottomlines has been well documented by researchers. Verganti has shown a strong correlation between clustering and growth in Italian home ware market wherein, Alessi, a home furnishing firm has registered an 81 per cent growth in a ten-year period between 1994 and 2003.

Innovations in home furnishing retailing & franchising

To begin with, one has to view innovations in the home furnishing industry from the perspective of the product. The significant point is whether the industry has been able to create products with such technological edge that the potential franchisee inherently feels confident of its retail traction. I can readily recall innovative products such as Lumalive developed by Philips or Electex fabric based keyboard developed by Eleksen. It would be enlightening to know of such product innovations in the home furnishing industry in keeping with shifting consumer tastes and shifting paradigms of habitat planning by architects in India and elsewhere. In a recent conversation with Ms. Virginie Planquart, Design Manager for Castorama, France, Tuhin Sen, a strategy consultant has noted that a lot of ethnic themed Indian products find ready acceptance in the western markets in general and the French market in particular.

Companies like Zara Home also source a lot of Indian wares. I would like to sound a word of caution here. Innovations should be the product differentiator for wares originating in India and not ethnic themes though that’s India’s native strength. For the home furnishing industry, betting on history would be a suboptimal business strategy than betting on the future.

Having dwelt on product innovation, I’d like to point out that another key area where innovation could drive growth would be skill-base development in the geography in which the franchisee operates. By providing the workforce (the associates, in industry parlance) with new skill sets in store and customer management, the franchisee would do a great service to the economy per se. This is apart from the fact that he or she has already taken the entrepreneurial step of generating wealth in the classical sense of the term.

Conclusion

A strong growth in retail, real estate and consumer confidence coupled with a robust GDP figure of 7.9 per cent could mean a perfect spring board for the next level of growth for franchising in the Indian home furnishing industry. However, conservative strategies shorn of innovation could create roadblocks for future sustenance. Indian home furnishing industry should liberally use India’s native strengths in IT to improve retail processes. Badgett et al have shown how IT could  better retailing, qualitatively speaking. This particular study also talks about how another retailer Circuit City has improved the customers’ multichannel experience by using IT extensively. Nordstrom, on the other hand has extensively used the ‘personal book software’ to understand consumer needs better. Walmart, driven by IT, went as far as tailoring store offerings to suit local shoppers’ needs at the Evergreen Park, Illinois market. On a different plane, The Container Store attained annual revenue growth rate of 20 per cent by using innovative practices, which created a committed and growth focussed sales team. Franchisees in the home furnishing industry can ill afford to lose out on innovations of this sort, which often means the difference between success and failure in the fiercely competitive current business scenario.

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