Strategic consideration for retail outlets locations in India - an empirical study – Geography can be limited to Karnataka

A framework for developing a retail location strategy plan

1. Invest in the right markets

For a company that is new to a particular market, we start off by asking how attractive the market is to justify potential market entry / investment.

Is there a stable and sizeable market opportunity?

a)Macro-economic and environmental factors

Economic activities such as foreign and government investments or industry development are expected

to generate employment, thereby spurring consumer demand and spending. It is also important to assess the sustainability of economic growth and the stability of drivers that affect the future outlook.

Environmental factors comprise considerations such as infrastructure development (how will this affect accessibility), political stability (any impact on business confidence) and climate change (risk of operational disruptions).

b)Population profile

Population size, disposable income levels and consumer expenditure patterns determine a market’s addressable economic base and spending power.

These aspects need to be examined in the context of consumers’ shopping habits, as higher incomes may not necessarily lead to more purchasing in the home market. For example, Medan has one of the highest GDP per capita amongst Indonesia cities – however due to concerns about the authenticity of goods that are sold in retail stores, many locals prefer to shop overseas (e.g. Penang, Kuala Lumpur and Singapore) for international brands.

How easy / difficult would it be to seize this opportunity?

a)Maturity of the retail sector

Factors such as the availability and growth of retail space, as well as likely developments in the pipeline, will help to determine the presence of viable retail channels for potential entry or expansion. Other considerations include the depth and breadth of retail offerings, average price points, as well as the presence of international brands or retail chains.

For many foreign companies, one of the key barriers to expanding in emerging markets is the lack of retail establishments that have the appropriate size and positioning to house international brands.

b)Competitive intensity

Competitive analysis starts with identifying key players who operate in similar retail segments or product categories. The extent of competitive threat posed by these players depends on aspects such as: firm’s market share, existing retail coverage (and possible expansion plans), connections with major distributors or retail chains, aggressiveness of marketing activities, etc.

2. Establish the optimal retail footprint

Having established a particular market is feasible for entry or investment, the next step would be to proceed to identify the potential retail hot spots.

Where are the existing / upcoming retail locations?

a)Retail mapping

Identify locations with a high level of economic or retail activity; map out the distribution of existing / upcoming retail spots within each zone and select areas for in-depth assessment.

b)Profiling of selected malls / retail areas

The criteria for evaluation would depend on the company’s business profile and objectives. Profile refers to aspects such as product category, target customers, positioning, and merchandise mix. Objectives could be market entry or penetration, establishing a flagship store or new branches, acquiring an existing firm, etc.

Examples of parameters for assessment include:

–Footfall

–Mall / retail area’s positioning and shopper profile

–Expenditure of shoppers (propensity to spend)

–Tenant mix

–Presence of relevant crowd pullers (e.g. anchor tenants, attractions)

–Quality of current / potential catchment areas

–Location accessibility

–Retail occupancy cost ratios

–Competitive intensity within the area or in the vicinity

What is the optimal retail footprint?

a)Benchmark selected malls / retail areas in terms of revenue potential and brand ‘fit’

The findings from the in-depth assessment could be mapped against an opportunity matrix to assess the extent of the mall / retail area’s fit with the retailer’s branding, as well as the current / future revenue potential that it represents.

b)Analyse company’s existing retail presence vis-à-vis the selected retail spots (to what extent is the footprint optimal)

The outcomes of the opportunity assessment should conclude as to whether the company should invest or continue its retail presence in the profiled location.

3. Identify successful store formats

Once the key hot spots have been shortlisted, the next step is to determine the right retail format that would provide the best ‘fit’ with the location’s characteristics (i.e. whether the company should establish a mono-brand store, partner with a multi-brand outlet, set up a factory or discount outlet, etc). This needs to be evaluated in the context of the company’s profile and objectives. For instance, a site that falls under ‘high revenue potential-low brand fit’ could still be an acceptable consideration if the company plans to offer a merchandise mix that caters to this segment (e.g. setting up a factory or discount outlet). Alternatively, a ‘low revenue potential-high brand fit’ site could provide a suitable location for the establishment of a concept store.

The strategy of selecting the right Location

In India, when a customer needs something for the home, a typical thought is to seek it from the bazaar. A bazaar is a place where a complete range of products is always available to the consumer. This is true across India. As the store would offer a large mix of products at a discounted price, the name Big Bazaar was finalized. The idea was to recreate a complete bazaar, with a large product offering (at times modified to suit local needs) and to offer a good depth and width in terms of range. The mind to market for the first was just six months.

Price was the basic value proposition at Big Bazaar. The Big bazaar outlets sold the variety of products at prices which were 5 to 60 per cent lower than the market price. The line Isse sasta aur achha kahin nahin emphasized this! (You will not find anything cheaper or better anywhere else).

The key question faced by the management was whether the low margins on the products would allow the company to sustain growth. With aim of answering this question and in order to help the company decide on the right location, it rolled out three stores in three different locations. In Calcutta the store was opened in a suburban market, in Hyderabad it was in the heart of the market viz., Abids and in Bangalore the store was opened in an up market residential area.

The key learning which came out of this exercise was that for a store like Big Bazaar, a large catchment area was needed. The management decided to stick to the existing market places within the city. It realized that the western model of hypermarket where the store was located in large spaces on the outskirts of the city would not really work in India. The cost of time spent on travel and the cost of period in India would eat into the savings made. Property deals were negotiated keeping this factor in mind. The lease deeds negotiated were or a period of 12 – 20 years and the rentals varied from Rs 30 per square foot to Rs 50 per square foot, depending on the city and location.

The merchandise Mix

The key driver of the footfalls at Big Bazaar was the large product mix offered to the customer. Big Bazaar stocked about 130,000 items in over 20 product categories. For the initial stores the classification was simply done in terms of apparel and non-apparel and shop in shops. In the first year, apparel accounted for 70% of the off take and the price was largely responsible or the success the prices ranged from Rs 99 to Rs 799.

Non apparel which included plastic items, footwear toys, luggage, appliances, white goods and stationery accounted for 30% of the off take in the first year. The shop in shops which were a part of the store added to the product mix being offered to the customer without requiring the company to invest in the inventory.

The buying process for most of the categories at Big Bazaar was largely price driven. The objective was to deliver good products at the best possible prices. A key element of the pricing strategy is to achieve Market Breaking Price. To achieve this price that will offer value to the customer is first determined. An appropriate sourcing strategy is then worked upon to achieve this objective value. Pricing and maintenance of quality are the key factors influencing the pricing decisions.

The management was aware that the food retail sector was one of the fastest growing sectors in the Indian retail market. The fact that food would never go out of fashion and the spending on food stood at 53 % of personal income was a very strong reason for the company to consider entering food retailing. Keeping this in mind and to enhance the footballs at its existing Big bazaar outlets the company launched Food bazaar in the first year of operations.