India?s single-category retail chains, known as speciality retail in industry parlance, are scoring over multi-category retail as companies earn higher gross margins, turn around faster and face less competition from unorganised players.
Gross margins for food and grocery retail chains like Food Bazaar, Reliance Fresh and Spencer?s are 18-20%, while that for speciality retail chains like Tanishq, Zara and Levi?s are between 35% and 45%.
?For some categories like furniture and luxury clothing, it is as high as 60-70%,? says Arvind Singhal, chairman, Technopak Advisors, a retail consultancy. ?Most categories in speciality retail are doing well.?
Rising inflation and an impending economic slowdown have brought down consumption in discretionary categories like electronics and fashion accessories, but speciality retail is poised for a healthy growth in the next two years, say companies and retail consultants.
?The future will see a more aspirational, brand aware and internationally integrated India, which will lead to a boom in speciality retail,? says Bijou Kurien, president and chief executive officer of Reliance Retail ? Lifestyle.
The drivers of speciality retail are different from value retail, feels Kurien. He says, ?Some formats will grow organically, while some, where business is driven by the brand than by the category, will see more partnerships.? Reliance Brands has joint venture partnerships with high-end global brands like Paul & Shark, Diesel, Timberland, Steve Madden and Quiksilver.
Speciality retail can break-even in 12 to 18 months, while a department store or hypermarket may take up to 5 years.
?A Titan store turns profitable within a year,? says Bhaskar Bhat, managing director of Titan Industries, one of the largest speciality retailers with a turnover of R6,000 crore. ?For jewellery, it can be faster because of the large ticket size.?
Titan?s jewellery division, Tanishq, has more 50% share in the organised jewellery market, with sales amounting to R5,000 crore. ?Speciality retailing is all about providing value-added services to customers,? CK Venkatraman, chief operating officer ? jewellery division, Titan, had said in an earlier interaction with FE. ?No one wants to shop in a cramped store today.?
Tanishq, which opened its first large-format store of anywhere between 15,000 sq ft and 20,000 sq ft in Mumbai last year plans to open more stores in Pune, Hyderabad and Bangalore with lounges, kid?s zones and cafeterias, besides jewellery browsing areas.
Books and music retail chain Landmark, owned by Tata Group?s Trent, says customer experience holds the key. ?While in a hypermarket, consumers look for convenience and better prices, in speciality stores they look for a wholesome experience and a wide range of products,? says Ashutosh Pandey, chief operating officer, Landmark. The stores, anywhere between 15,000 sq ft and 30,000 sq ft, consists of reading areas, cafes and playzones.
?Speciality retail stores make profits faster because as they need to achieve only 50% of the sales from a square foot of a food retailer,? says Abheek Singhi, partner and director at Boston Consulting Group. ?Rental costs are also lower than for a Big Bazaar or Hypercity.?
The size of a speciality retail store makes land readily available to companies. ?Real estate is the biggest challenge for any retailer and finding a 1,000 sq ft patch of land is easier than a 10,000 sq ft space,? says Technopak?s Singhal. Hence, speciality retailers expand more aggressively than large-format retailers.
For example, Timex Group, India?s second largest watchmaker after Titan with a 21% market share, opened 28 stores last year. It plans to add 40 outlets this year. ?Our stores require about 300-400 sq ft area,? says VD Wadhwa, managing director, Timex Group. ?We also have a conversion rate of 62-65%.? Conversion rate stands for the translation of footfall into sales.
In the past two months, cosmetics and toiletries retailer The Body Shop, Italian furniture brand Arredo Classic, French luggage manufacturer Delsey and New York-based maker of skin and hair care products Kiehl?s have opened stores of sizes from anywhere between 500 sq ft and 5,000 sq ft in the country.
Consumer impulse rather than necessity drives speciality retail sales. ?Transforming impulse into purchase is a challenge,? says Reliance?s Kurien. ?Store design, shelf display and consumer interaction is crucial as it aids in heightening the consumer impulse.?
Experts say speciality retail has established itself in modern formats and all existing Indian retailers want to get into this space. ?It?s because the path to profitability is more well-defined here,? says BCG?s Singhi.
