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Feb, 04 2012

SMALL STRUCTURES TRIGGER BIG SUCCESS

Size does not matter when one counts the growth fuelled by small format stores for franchise brands in specialty retail. Holding immense potential, these stores not only leverage high RoI but also pave way for swift success of brands.

WITH the organised retail industry in India set for a transformation, retailers are leaving no stones unturned to reap rich dividends. One such progress is the growth of small format stores in the specialty retail segment. In the recent years, these small format stores, catering to an area of 500sq.ft, have emerged as the game changer for numerous franchisors. And that's exactly what the players in the field believe. Ashutosh Garg, Chairman and Managing Director, Guardian Lifecare Pvt Ltd, opines: “From big-box retail stores worldwide, the trend is moving towards small format stores that ensure big returns on investment and trigger impulse buying, which is good for the retailer.”

Business potential

Small formats, ever since their inception in the Indian retail landscape, have been making way for umpteen opportunities and emerged as the perfect format loaded with endless potentialities. Speaking on their market potential, Smriti Dalvi, Managing Director and CEO, Florista India Pvt. Ltd, said, “With mall culture setting in tier I, II and III cities, immense opportunities have opened for specialty retail brands to open up through small format segments, where they can have their stores across multiple locations while being visible to a large range of customers.”

Taking a cue from their viability, many franchise brands have followed suit. Chandru Kalro, Executive Vice President (Marketing), TTK Prestige Ltd, elucidates, “After seven years, we can safely say that the model is a grand success. Our same store growth today is a whopping 25%. There is a huge loyalty built up with customers in the respective catchments. More importantly, all multi-brand outlets in the trading area have also grown significantly, making the whole ecosystem symbiotic and conflict-free.” So what made TTK Prestige connect to this format? To this, Kalro adds, “All our stores are neighbourhood stores. None are in the high street. This is the big insight that we had when we asked the customer where he would like to shop for kitchen appliances. This also meant that the entry cost was relatively low.”

Pointing out the growth drivers via franchise format, Garg states, “Small formats have huge potential in our vertical. Going forward, Guardian will have a big percentage of stores in the smaller segment to penetrate the heartland with lesser risk and more returns. Most of our franchisees will have smaller formats of 300 - 400 sq.ft to have a better RoI.” Pawan Gadia, CEO, Retail and Online, Ferns N Petals, says, “Success rate for us has been more than 98 per cent and I am sure it will be on similar lines for other players offering small format franchise stores in India.”

GreenLands, a brand promoting home gardening requirements, vouches for this format. Mittesh Gaiwala, its Creative Head and Proprietor, reasons, “Brands are shifting focus from large to small formats because of the profitability of the venture. As young investors are very much interested in unique and new business, they try to get maximum profit from small formats. Selecting the right retail format is essential in modern retailing.” On a similar note, Subhash Chandra, Managing Director, Sangeetha Mobiles, explains, “The brand has taken the format of small retail formats (50 - 500 sq.ft) for most of the locations. Its success has been in identifying the space demand with respect to the demographics of the locality. This analysis has also led to the basic understanding of product mix and better stock management, which are the key features of the model.”

Upside

For franchisors, the benefits of operating via this small format have been immense. Not only does the small format enhance visibility, it also means faster growth in terms of franchisee success and hence, more dividends. Franchisors believe since this format requires less space, it clears any cloud related to space and brand positioning. Thus, franchise brands operating through this format can be positioned anywhere, be it malls, hotels, educational institutions, airports, railway stations.

For a franchisee, investing in a small format franchise means lesser investment, hence lesser overheads and virtually zero risk. Besides, small store means steering clear out of unnecessary in-store product inventory and associated warehouse costs. Comments Gadia, “The USP of operating from small format franchise is reduced capital investment, which is required to start any business. Small size stores can be hired at low rentals, which is one of the major fixed expenses in profit and loss balances, and also the cost of interiors becomes low as compared to big showrooms.”

Pointing out the rationale behind operating through small format stores, R. Sundar Rajan, Founder-Director and CEO, JustBooks, says, “The objective of satellite libraries is to offer books to a smaller catchment area as opposed to a full format library. As such, the number of books on offer are smaller. Concurrently, the space requirement and other costs are proportionately lesser as well. In our experience, opening a satellite store is conducive to the franchisee in one aspect, it reduces the load of members on the main branch by transfers and indirectly, helps in additional (new) member acquisition.”

Operating a small format store is a win-win formula for both the franchisor as well as the franchisee. And why not, the investment required for these small format franchise stores usually ranges from as low as Rs 5 lakh to as high as Rs 35 lakh, while the return on investment is usually high, keeping in view the modest per square feet requirement. As per franchisors, franchisees can expect tall ROIs from 24 to 45 per cent.

So how feasible are these small format stores for franchisees in tier-III towns? Subhash Chandra explains, “Today, rentals in tier I and II cities are costly. When compared, the brand requires smaller spaces to generate huge turnovers, better product mix can be availed, which yields more profits, and small investments with big turnover can bring in more value.”

Explaining the benefits, Gadia explains, “Marketing your product in a specialty retail setting can be a good yardstick of its potential. You can also use personalised feedback of the store owner to finetune your product before bringing it to the mass market. Further, the fact that your product is selling well in a small market place gives you a selling advantage when approaching large retail chains.”

Talking about training and support aspect, Kalro shares, “There are several periodic programmes conducted on product training, selling skills and tools to manage business.”

Downside

Shortcomings cannot be avoided. Franchisors point out that limited space can be a challenge pertaining to storage of inventory. Besides, space constraint is another factor that indirectly affects supply chain. Several franchisors believe that selecting an apt location for the franchisee continues to remain a challenge in this format.

Road to success

Considering the growth and success that specialty brands are witnessing with these small formats, franchisors are eyeing robust expansion. Guardian Lifecare is planning to enter new markets across India. The brand plans to have 1,000 stores by 2014 with footprints pan India with a mix of company-owned and company-operated and franchisee-owned and franchisee-operated stores. R.Sundar Rajan of JustBooks states, “We are currently in nine cities and aspire to be in all major metro and tier II cities in India over a three to five year period.” Gaiwala concludes, “During the first phase, we are looking for expansion in Maharashtra, areas of Delhi, Pune, Bangalore and Hyderabad. During the second phase, the key targeted areas wi

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