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February 06, 2004

Lessons in retail

With the boom in consumer spending, VCs have begun to show keen interest in funding organized retailers in India. ICICI Ventures has been especially proactive in this sector with investments in companies lilke Shoppers' Stop, Pantaloon, Subhiksha and Trinethra.

But unlike IT and BPO sectors (the "traditional" destinations for VC money), retail requires significant investments before profitability can be achieved. For instance, according to media reports, Shoppers' Stop--which was started in 1991 and has also received investments from IL&FS VC--continues to make losses.

So, how attractive a business is retailing in India? Kishore Biyani, managing director of Pantaloon Retail India Ltd (which reported a profit of Rs.11.41 crore for 2002-03), provides some clues in an article in Business Standard.

Some extracts:

On Pantaloon Retails' multiple formats
"Under lifestyle retailing, we have two formats—Pantaloon (a department store) and Central (a showcase seamless mall). Under value retailing, we also have two formats— Big Bazaar and Food Bazaar (food and grocery retailing).

Big Bazaar is a hypermarket discount store — a self-access retail store, with a minimum floor space of 50,000 sq ft, a cold storage area and, sometimes, a pharmacy. It stocks everything from apparel to food to electronic goods and offers discounts on bulk purchases. Currently, we have 32 stores — 14 Pantaloons, one Central (coming up this month in Chennai), seven Big Bazaars and 10 Food Bazaars (of which three are independent and seven are part of Big Bazaar)."

"...Although the external addressable opportunity is large, it is still difficult to do retail in India. India, in my view, is probably the most heterogeneous market in the world, which is why it is so challenging."

On why Pantaloon aborted its franchisee model
"The franchisee model has not been able to consistently deliver the high level of customer service that we wanted. Secondly, there was no uniformity in the franchisee stores in terms of looks."

"..A franchisee is an opportunist and the model works as long as the going is good.... Sometimes, drastic changes need to be made and, once in a while, additional investments are required. Franchisees cannot be expected to be that proactive and willing to invest."

Click Here to read the full article.