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Jan, 03 2011

Mom & Pop Stores to Organised formats

The retail industry in India has evolved from mom and pop stores to large format shopping complexes over the last one decade. Franchising has played a very significant role in this evolution, providing huge opportunities to aspiring entrepreneurs in reali

THE Indian retail industry is predominantly occupied by apparel, footwear, FMCG and jewellery retailers. The fashion retail industry is opening up as a competitive apparel retail market with the increasing presence of international brands. This tremendous growth in retail can be attributed to large number of retailers, small as well as big, opting for franchise route. Retail franchising has, thus, evolved during the last decade.

Evolution

The initial years of the decade were identified with mom and pop neighbourhood stores with organised retailers making their presence felt in metros and big cities. Realising the market potential, lot of international retail giants like Walmart, Tesco and Carrefour showed their keen interest in entering the Indian market. As a result, the Indian Government allowed up to 51 per cent FDI in single brand retailing by foreign companies in 2006. With this emerged organised players and various new formats like supermarkets, departmental stores, hypermarts, shopping complexes, malls and lately specialty malls. At the same time, the growing preference of the affluent and upper middle classes for convenience which the new retail formats offered (like shopping ambience, variety and a single-point source for purchases) further gave a boost. However, the global recession in 2008-2009 forced the retailers across the world to put their expansion plans on hold. It was during this period that retailers found refuge in franchising to multiply their stores and sustain business. Describing the evolution of retail in India, Smriti Dalvi, MD and CEO, Florista India Pvt. Ltd, opines, “Considering all leading global brands are choosing India as their target market, retail franchising is definitely on a high growth path. Home-grown brands adopting franchising as an expansion route is also become very common.” Initial months of 2010 indicated that 85 per cent of all small businesses in India operated on the franchise model. As per Pradeep Hirani, MD, Kimaya Fashion Pvt. Ltd, “There are 1,200 active franchise concepts and over 1.1 lakh franchisees in India and apparel retail tops the list with 210 concepts, both domestic and international. Of them, 125 franchise concepts are for apparel, 35 jewellery, 30 footwear and 10 each for lingerie and accessory.”

Business potential

Majority of the retailers have realised that franchising not just bring in the capital but also helps the retailers to save 4 to 8 per cent on the point of sales. It encouraged them to join the bandwagon of retail franchisors. As a result, big brands like Westside from Tata's retail format Trent, Next and Planet M from Videocon, newu a health and beauty retail format from Dabur have also opted for franchise route for expansion. Most recently, Spencer's Retail, a part of RPG Group, has tied up with Unltd and Ladybird, two international brands, for their expansion. Elaborating on their franchise venture, Dalvi informs, “Initially we experimented with a single retail outlet in Mumbai for almost two years. Over the years, our store formats, products, services and franchise systems evolved too.” Says Hirani, “We are looking at having around 30 stores across the country in the next three years with emphasis on tier II cities like Ludhiana, Surat, Chandigarh, Kolkata and Hyderabad.”

Franchisability

The growth of organised retail will definitely be driven by the franchise model in future. Dalvi says, “We started franchising in year 2008. We were running three retail outlets in Mumbai when calls started coming to us for franchising.” Florista provides to franchisees training in store operations and management, products and services, order management software and soft skills training on managing staff. As for support, we initiate local radio promotions, provide general distributing pamphlets/brochures along with banners to be put across strategic locations in an around the store. Elaborating on Samsonite's franchise venture, N.P. Singh, Director (retail projects), Samsonite South Asia Private Limited, said, “We started franchising in 2001 and opted for franchise route because we wanted to expand at a very fast pace. We provide all kind of training and support to our franchisees.”

States Hirani, “All kind of support is given to the franchisee in terms of start-up, interiors, merchandising and operations. An orientation programme for the franchisee and his team is organised.”

Expansion

Retailers have huge expansion plans across the country. Informs Singh, “We plan to open 75 more outlets via franchise route. Our focus for future will remain on franchise expansion.” On expansion plans, Salvi says, “We have now merged retail operations of Karuturi Global Ltd, which is world's largest producer of roses. Karuturi Global is a Rs 700-crore firm deriving 95 per cent of its revenues from rose exports. With this merger, we plan to grow to 100 retail outlets by 2012.”

Flip side

Just like other franchise businesses, retail franchising also has some challenges. States Hirani, “Kimaya franchisees are not free from initial challenges but Kimaya commissions a dedicated team of its members to assist the franchisee in setting up a store. The team of experts eliminates the probability of any difficulties that a person might face, especially if the franchisee is new to the industry.”  According to Salvi, “The biggest challenge is finding a suitable location with economical rentals.”

Similarly, Singh informs, “Finding an appropriate location having relevant brand mix is quite difficult these days. The other challenge could be finding skilled professionals.”

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