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Feb, 03 2011

BIG BOOSTERS

Large format stores, typically called as big-box stores, are the focus for retailers this year. Reason, for one, renting larger spaces in malls gives companies better negotiating power. Then, large stores can also generate additional incomes through sub-l

BIG formats announce big names and big games. That's why a clutch of Indian retailers plan to increase the number of bigger stores in their portfolios this year. As per a report, retail firms like Aditya Birla Retail Ltd, Spencer's Retail Ltd, Pantaloon Retail (India) Ltd and Bharti Retail Pvt. Ltd, plan to open stores which are between 30,000 sq.ft and 100,000 sq ft. Next Retail, Tanishq, Crossword and Snowmax are some specialty players eyeing large formats. While the presence of such stores was just 10 per cent in 2005, the number has catapulted to a whopping 35 to 40 per cent in the recent years.

Business potential

Franchising in this format has given an impetus to expansion and revenue returns. Snowmax, Asia's only brand to offer franchise for snow-based entertainment concept, operates in large format. Speaking of the rising prospects in this format,

K. Srinivas Gupta, CEO, Snowmax, states, “Even though our format requires huge space but once the equipment is installed, it is relatively easy to maintain and the franchisee can operate it with the support from franchisor through remote assistance 24X7.” Sivaraman Balakrishnan, Marketing Manager, Crossword, is all praise for this format. Crossword, at present, has seven large flagship stores across India.

Growth areas

Given better brand visibility and a convenient shopping experience, specialty retailers have aggressive plans for expansion. Jewellery giant Tanishq is scheduled to open 15 new retail stores across India by 2012. Out of these, five would be large format stores of 10,000-15,000 sq.ft. The company is also planning to launch a 22,000 square-feet showroom in Mumbai soon besides large stores in Kolkata and Delhi. Next Retail, India's largest electronics chain, has launched several new stores in various cities. Next Retail has large format stores of around 15,000 sq.ft mainly on the high streets. The company has 15 large format stores and is planning to set up 70 more in malls across tier I cities within six months. Sunil Mehta, CEO, Next Retail, states, “We want to reach to customers with 600 stores across India. Our mission is to have 2,000 franchisees across India in the next two years.”

Gupta informs, “We are planning to establish Snowmax franchises in all metros, popular tourist destinations and tier I and II cities. In short, any city which has a population of more than 10 lakh and with a good business potential is on our cards.” Snowmax presently has two snow entertainment concepts in large formats and the most successful ones are in the range of 4,000 sq.ft and above.

Upside

What is it in the large formats that is wooing retailers? Real estate experts are of the view that upswing in retail real estate spaces is propelling brands to shift to the larger formats. Generally, retail rents take away a formidable sum of a franchisee's revenue. Hence, larger the format, lower is the cost per square feet. Besides, it leads to franchisee bagging a better deal in rents. Industry experts are also of the view that opening of bigger format stores is a feasible way of achieving profit in volume and then shifting focus towards zip formats. Gupta explains, “A large format is preferable because it fetches a high RoI and has low gestation period. Besides, it also grants better visibility and there is always a hype that can be associated with a large format facility.”

The franchise support rendered by specialty brands range primarily from store selection to visual merchandising and franchise orientation. Talking of the supervision rendered to Crossword franchisees, Balakrishnan says, “Support to franchisees is provided basically in selecting location, stocking of merchandising, staff training and recruitments, store launch, marketing income, alliances and tie-ups.” Evaluating the success of Next Retail, Mehta affirms, “There has been a consistent growth in the number of franchise stores over the years. This growth has mainly taken place in small towns and cities, where it may not be possible for the company to set up its own store. At the same time, we have developed a sustainable model for the franchise stores, so that they are able to reap benefits of the arrangement. In the current business scenario, it is suggested to have appropriate mix of company-owned stores (to build brand experience) and franchise stores (to expand brand penetration).”

Downside

While a large retail space is advantageous for a brand's profit and identity, it often becomes a drawback in terms of investment. Leasing or renting a large format can usually become a constraint for a franchisor and a franchisee. Several franchisors believe that it sometimes becomes an arduous task to convince a franchisee for a large space, as it literally doubles up investment cost. This eventually turns out to be a deadlock for a franchisor looking to expand his brand on a larger platform. Besides, mounting rentals often eat up a fair share of returns. This is evident specially across numerous potential locations like tier I and II cities, hindering expansion plans and forcing franchisors to settle for zip format stores.

Conclusion

With the great Indian retail progressing to dole out larger options for consumers, the shift has been made from the traditional kiryanas to large formats. The growth and widespread preference for specialty brands is adding further momentum in the growth of bigger and better stores. After all, size does matter when it comes to making big profits.

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