Tanvi Kaur in Ludhiana plans to upgrade to a split air conditioner and scouts around for the perfect balance of technology, price and after-sales service. After several rounds of all the big outlets at the city centre, Kaur comes back confused as every dealer is pushing a different brand as the ‘best’. Finally, she steps into a multi-brand store of a retail chain, where the salesman hands over the fixed price list, informs her about competing features of different models and brands, as well as the extended warranty, exchange offer and free home delivery scheme available on all purchases. Satisfied, Kaur makes her choice and signs on the dotted line. The deal is clinched.
At the other end of the town, 27-year-old Harish Mehta swears by ‘X’ brand. So when he decides to buy a full HD television, he straight away heads to the exclusive store of ‘X’ brand, where the company salesperson helps him decide on which model to buy. As he waits for the paperwork to be completed, the showroom personnel takes him through the attractive customer loyalty programme that the brand offers.
aur and Mehta are among the few lucky ones who can ignore the mom-and-pop stores dotting the main markets of every Indian city to pick up their favourite brand of television, air-conditioner or washing machine. Even after the rise of big retail chains such as Big Bazaar, Spencer’s, Reliance Retail, etc., as well as specialised consumer electronics retail chains such as the Tata Group’s Croma, Chhabria Group’s Jumbo Electronics or Future Group’s eZone in the last one decade, around 90% of retail in India remains unorganised, controlled by small-time dealers. While consumers may lament that they are deprived of a wider choice, better bargains and a more enjoyable shopping experience, for the consumer electronics brands it has been a double whammy. Even as dealers dictate what margins they should get, the consumer electronics makers helplessly watch their brand exclusivity getting lost.
Let us try and understand why and how. Today, most players in the consumer electronics space, especially those selling durables, import a sizeable chunk of product units from China, Japan, Thailand, Malaysia and Taiwan. The cost at this stage is known as cost of procurement (COP). After this, based on the outcome of a dealers’ meet, a dealer margin is added along with the advertising and marketing costs which together becomes the product’s market operating price (MOP). Usually MOP becomes what we call maximum retail price (MRP). At times, for the convenience of dealers, a lowest market operating price (LMOP) is also agreed upon. Dealers are not allowed to sell below this price and can sell at LMOP only in specific situations.
The real story is very different. Dealers scattered across the length and breadth of India have the power to make or break a brand by word of mouth. A senior spokesperson from a consumers electronics company, who did not want to be named, shared how once a dealer had started selling a product on LMOP to increase his sales. The incident was reported to the company by another dealer in that locality, he says.
Says Manish Sharma, director, sales and marketing, Panasonic, ?We constantly educate our partners from the unorganised channel. In the past three to four years, dealers have been receptive to the working style of organised retail. However, in spite of all our best efforts, we can only track 35% of the overall unorganised channel.?
Dealers, however, say they have to deal with the constant pressure of clearing the inventory. ?Though we do get support from the companies in terms of marketing, it is not a smooth sail round the year. The pressure to clear inventory reaches the peak when a company comes up with a new range even when we have not been able to sell the existing inventory,? says a dealer from South Delhi’s Lajpat Nagar area, who did not want his name to be disclosed.
Given this scenario, it was but natural that retail chains would enter this segment. In the last five years, multi-brand chains such as Croma, Reliance Digital, eZone, Vijay Sales, etc., have mushroomed across India. Harminder Sahni, founder and MD, Wazir Advisors, a management consultancy firm, believes that today brands are not scared of the competition and do their homework well in advance before getting into a multi-brand format. These outlets provide some of the best deals to customers without compromising on margins. The biggest advantage that such organised retail formats offer is the centralised inventory management ystem that makes it possible for a brand to track what’s selling when. This allows them to audit their inventories, know which model is flying off the shelves, identify the laggards and tweak their promotions and discount offers accordingly. ?Consumer durables is not that durable anymore as more people want to replace these items frequently and organised retail formats allow that by offering attractive deals. Though penetration level is still low when compared to the US and other European countries, organised retail will continue to grow in India,? he says. According to the latest Business Monitor International (BMI) India Retail Report, by 2015, 40-50% of consumer electronics sales are expected to happen through organised retail.
Even as the retail chains are spreading their network across the country, consumer electronics brands are taking it upon themselves to sell directly to the consumer by setting up their exclusive stores. One big reason is that it is definitely cheaper to sell through exclusive outlets than selling through modern trade, which extracts huge money from brands.
One of the first consumer electronics players to set up its exclusive outlets was Sony India. As Sunil Nayyar, general manager, sales, Sony India, explains, exclusive outlets are a controlled form of retailing and can be organised and designed as per the company’s guidelines and directives. ?It is an extension of our brand image and hence it?s important to build presence through our Sony Centers. A consumer today looks at a complete shopping experience which includes a wide variety of product line-up, informed sales staff, comfortable in-shop ambience, warranty services, among many other factors. An organised retail outlet promises all these services and automatically pulls consumers towards it,” he says. Sony India today owns over 270 Sony Centres across India.
For Shantanu Dasgupta, vice-president, corporate affairs and strategy, WhirlpoolIndia, the reason for having exclusive outlets for selling his brand is threefold: First, to showcase the full range of products; second, to provide a holistic brand experience and third, to decide the location for a store thus building the brand’s footprint. “For instance, Whirlpool is launching a number of kitchen appliances to augment its range of cooking products, from hobs, hoods and ovens to dishwashers. Exclusive outlets allow one to design the layout of the shop-floor to deliver the best merchandising impact and thereby enhance shopper experience,” he says. Currently, Whirlpool has 75 exclusive outlets and plans to take this number to 125 by the year-end. At the same time, its products are available in 20,000 outlets across the country and 700 modern trade outlets.
Korean consumer electronics giant Samsung runs 300 exclusive stores by the name Samsung Plaza across India and the company plans to increase this by 40% by year-end. According to Mahesh Krishnan, vice-president – home appliances, Samsung India, both the multi-brand outlets and their own exclusive stores are equally relevant. ?While the traditional mom-and-pop stores help us in terms of their footprint, our own Samsung Plazas help us give our consumers a complete retail experience. We are using the Plazas to not only retail our products in an interactive environment with trained demonstrators to educate consumers on the products, but we are also using these stores to display our complete range of hi-end products,? he adds.
The other Korean player, LG, too has massive expansion plans for its exclusive stores known as LG Shoppe. ?Currently we have 1300 exclusive outlets and we aim to take this number to 1,600 by year-end.? says Y V Verma, COO, LG India.
For a brand such as Panasonic which has products ranging from LCD television sets and air conditioners to personal grooming products and cameras, an exclusive store is the only place where it can display its entire range. According to the company, even if its products grab one-fifth of the space in a multi-brand outlet, it will not do justice to the entire range. Therefore, the need for Panasonic Brand Shops. Still the brand is available across organised multi-brand chains. While 12% of its sales come from multi-brand chains, 18% come from the Brand shops and the rest through independent multi-brand outlets.
Brands such as Godrej have preferred to take a different path. Around 50% of Godrej’s sales is contributed by television sets and the rest by other products such as refrigerators, air-conditioners, microwave ovens, etc. ?Though we do not have a large portfolio to display in exclusive outlets, some of our trade partners have shown interest in opening exclusive stores,? says Ramesh Chembath, assistant vice-president, sales and marketing, Godrej Appliances. While the brand is available in multi-brand stores like Croma, eZone, Reliance Digital, More and other 18,000 small retailers; it has refrained from opening exclusive stores so far. It is only now that it is looking at setting up its own stores. ?Soon we will be coming up with exclusive outlets in 8 cities across the country,” says Chembath.
As opposed to this, Haier is not present in any of the big multi-brand retail chains and uses its 165 Haier Experience Centres in metros and tier 2 cities as the primary sales channel. Also, the brand is sold by 4,000 dealers and sub-dealers. Eric Braganza, president, India operations, Haier, observes that his brand does not enjoy the consumer pull as compared to other markets across the globe. “Multi-brand outlets have space constraint and there it’s more about consumers’ preference with limited scope to display any one player’s entire portfolio.? Haier plans to increase the number of experience centres to 200 this year,” he says.
The Videocon Group has gone a step further, launching its own multi-brand retail chain ? Digiworld. Unlike big multi-brand chains that take pride in providing lots of space to brands, an average Digiworld outlet is between 2000-4000 sq ft and sells products of around seven brands including Videocon, Kenstar, Sansui and Philips. Interestingly, the 235-store chain has recently forged an association with Panasonic, and is in talks with Sony and Toshiba to market their products in its stores. “The main objective behind setting up our chain is to have 50-60% of sales of Videocon’s group of brands from here. We are focusing on increasing our footprint in smaller towns as customers there grapple with the unavailability of organised retailing,” says Jaideep Rathore, chief operating officer, Digiworld.
Several brands are also following a differentiated product strategy ? exclusive, premium models are made available at retail chains while baser models are supplied to the neighbourhood stores. This strategy enables them to increase the average selling price in modern retail, thus ensuring their margins while avoiding price comparison with the rest of the channel. ?The actual spread of modern retail outlets are mostly in metros where awareness to technology is high and introduction of technologically superior products are critical for the over all brand perception,? explains Videocon director Aniruddh Dhoot. He says that the model mix with respect to retail is purely driven by the market dynamics of the place and catchment of any particular store and city.
The multi-brand chains are also stepping up initiatives to provide a better consumer experience and build stickiness. Ajit Joshi, CEO and MD, Infiniti Retail, (which operates Croma) says, “We want to be known as solutions provider rather than functioning like yet another store with a pushy sales force. In India, buying a fridge or a TV still remains a family decision and the customers want to be sure of what they are buying. We provide this satisfaction without resorting to a discounting format.” To attract customers, the store offers an extended warranty on all the products it retails. This is over and above the warranty period offered by the manufacturer.
With 51% FDI in multi-brand retail set to be a reality soon, it is imperative that consumer electronics brands as well as homegrown retail chains spruce up their act. ?With FDI flowing into retail, the competitive scenario would be very exciting for both the customers and also the Indian retailers. We are excited about this development and feel that with healthier competition the overall benchmarks in the industry with respect to consumer experience, satisfaction, quality and assortment of products will improve,? says Videocon?s Dhoot.