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 sieable market opportunity!
a"#acro$economic and environmental factors
%conomic activities such as foreign and government investments or industry development are
e&pected
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.
%nvironmental 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"(opulation profile
(opulation sie, disposable income levels and consumer e&penditure patterns determine a
market)s addressable economic base and spending power.
*hese aspects need to be e&amined in the conte&t of consumers) shopping habits, as higher
incomes may not necessarily lead to more purchasing in the home market. For e&ample, #edan
has one of the highest +,( 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.
(enang, .uala /umpur and 0ingapore" for international brands.
1ow easy / difficult would it be to seie this opportunity!
a"#aturity 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
e&pansion. 2ther 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 e&panding in emerging markets is the
lack of retail establishments that have the appropriate sie and positioning to house international
brands.
b"3ompetitive intensity
3ompetitive analysis starts with identifying key players who operate in similar retail segments or
product categories. *he e&tent of competitive threat posed by these players depends on aspects
such as4 firm)s market share, e&isting retail coverage 'and possible e&pansion plans", connections
with major distributors or retail chains, aggressiveness of marketing activities, etc.
5. %stablish the optimal retail footprint
1aving established a particular market is feasible for entry or investment, the ne&t step would be
to proceed to identify the potential retail hot spots.
6here are the e&isting / upcoming retail locations!
a"7etail mapping
Identify locations with a high level of economic or retail activity8 map out the distribution of
e&isting / upcoming retail spots within each one and select areas for in$depth assessment.
b"(rofiling of selected malls / retail areas
*he criteria for evaluation would depend on the company)s business profile and objectives.
(rofile refers to aspects such as product category, target customers, positioning, and merchandise
mi&. 2bjectives could be market entry or penetration, establishing a flagship store or new
branches, ac9uiring an e&isting firm, etc.
%&amples of parameters for assessment include4
-Footfall
-#all / retail area)s positioning and shopper profile
-%&penditure of shoppers 'propensity to spend"
-*enant mi&
-(resence of relevant crowd pullers 'e.g. anchor tenants, attractions"
-:uality of current / potential catchment areas
-/ocation accessibility
-7etail occupancy cost ratios
-3ompetitive intensity within the area or in the vicinity
6hat is the optimal retail footprint!
a";enchmark selected malls / retail areas in terms of revenue potential and brand <fit)
*he findings from the in$depth assessment could be mapped against an opportunity matri& to
assess the e&tent of the mall / retail area)s fit with the retailer)s branding, as well as the current /
future revenue potential that it represents.
b"Analyse company)s e&isting retail presence vis$=$vis the selected retail spots 'to what e&tent is
the footprint optimal"
*he outcomes of the opportunity assessment should conclude as to whether the company should
invest or continue its retail presence in the profiled location.
>. Identify successful store formats
2nce the key hot spots have been shortlisted, the ne&t step is to determine the right retail format
that would provide the best <fit) with the location)s characteristics 'i.e. whether the company
should establish a mono$brand store, partner with a multi$brand outlet, set up a factory or
discount outlet, etc". *his needs to be evaluated in the conte&t of the company)s profile and
objectives. For instance, a site that falls under <high revenue potential$low brand fit) could still be
an acceptable consideration if the company plans to offer a merchandise mi& 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
baaar. A baaar is a place where a complete range of products is always available to the
consumer. *his is true across India. As the store would offer a large mi& of products at a
discounted price, the name ;ig ;aaar was finalied. *he idea was to recreate a complete baaar,
with a large product offering 'at times modified to suit local needs" and to offer a good depth and
width in terms of range. *he mind to market for the first was just si& months.
(rice was the basic value proposition at ;ig ;aaar. *he ;ig baaar outlets sold the variety of
products at prices which were ? to @A per cent lower than the market price. *he line Isse sasta aur
achha kahin nahin emphasied thisB 'Cou will not find anything cheaper or better anywhere else".
*he key 9uestion faced by the management was whether the low margins on the products would
allow the company to sustain growth. 6ith aim of answering this 9uestion and in order to help
the company decide on the right location, it rolled out three stores in three different locations. In
3alcutta the store was opened in a suburban market, in 1yderabad it was in the heart of the
market vi., Abids and in ;angalore the store was opened in an up market residential area.
*he key learning which came out of this e&ercise was that for a store like ;ig ;aaar, a large
catchment area was needed. *he management decided to stick to the e&isting market places
within the city. It realied 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. *he cost of time spent on
travel and the cost of period in India would eat into the savings made. (roperty deals were
negotiated keeping this factor in mind. *he lease deeds negotiated were or a period of 15 - 5A
years and the rentals varied from 7s >A per s9uare foot to 7s ?A per s9uare foot, depending on
the city and location.
*he merchandise #i&
*he key driver of the footfalls at ;ig ;aaar was the large product mi& offered to the customer.
;ig ;aaar stocked about 1>A,AAA items in over 5A 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 DAE of the off take and the price was largely responsible or the
success the prices ranged from 7s FF to 7s DFF.
Gon apparel which included plastic items, footwear toys, luggage, appliances, white goods and
stationery accounted for >AE of the off take in the first year. *he shop in shops which were a
part of the store added to the product mi& being offered to the customer without re9uiring the
company to invest in the inventory.
*he buying process for most of the categories at ;ig ;aaar was largely price driven. *he
objective was to deliver good products at the best possible prices. A key element of the pricing
strategy is to achieve #arket ;reaking (rice. *o 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. (ricing and maintenance of 9uality are the key factors influencing the
pricing decisions.
*he management was aware that the food retail sector was one of the fastest growing sectors in
the Indian retail market. *he fact that food would never go out of fashion and the spending on
food stood at ?> E of personal income was a very strong reason for the company to consider
entering food retailing. .eeping this in mind and to enhance the footballs at its e&isting ;ig
baaar outlets the company launched Food baaar in the first year of operations.