CASE STUDY 2
The Role of Targeting in Retail
Retail outlets Westside and Shoppers’ stop both look similar when it comes to retailing but there is a
difference. The difference is that while Shoppers’ Stop has targeted the upper 5 percent of the population
with expensive brands, Westside has looked at the larger base of middle-and upper-middle class
consumers.
Westside: It was with the opening up of the economy, when Trent chairperson Simone Naval Tata, who
then headed Lakme, saw the writing on the wall for Lakme’s cosmetic business. “Foreign brands were
hitting the shelves and to compete we needed strong R&D to launch new products. This sparked off the
joint venture with Hindustan Lever called Lakme Lever,” says Simone, the businesswoman whose name
was once synonymous with Indian cosmetics. “I realized there was no organized retailing and that it
would be the industry of the future. That’s how we got into the business.” Today, well entrenched in the
retail business, Simone takes the 40-minute ride up to Vile Parle in the western suburbs of Mumbai for
meetings or discussions with the Trent staff thrice a week on an average. In 1997 Lakme’s cosmetic
business fitted well within the Lever fold, and the latter bought the Tatas out leaving Lakme with Rs 200
crore in cash. Its name was promptly changed to Trent Limited. Around the same time, the Tatas were
looking at diversification and new projects. The group had appointed a consultant to identify business
opportunities for 2000 and beyond. One of the suggestions was retailing. On the other hand, another
consulting firm was moving around with a mandate from Little Woods International, UK. That firm
wanted an exit from India and was looking for a buyer for its Bangalore store. “We saw this as an
opportunity to make our foray into retailing. By acquiring Little Woods for Rs 5 crore we gained a couple
of years. In April we took over the store, the warehouse, and the entire management infrastructure that
was in place. Five months later we changed the name to Westside,” says Neol Naval Tata, MD, Trent.
Although Simone also says she just dived into retailing with the purchase of Little Woods, a former
Lakme employee says, “she realized her retailing skills when she opened the Lakme outlet in Moscow.
She did a wonderful job with it.”
And there has been no looking back. Over a span of four years, Westside has added seven stores. In terms
of sales and number of stores it is the fastest growing retail chain in India. Most of the other leading retail
chains have taken many more years to add many stores. Today Westside has spacious stores, each ranging
between 10,000 and 20,000 sq.ft.
Trent Limited, which runs the seven (Bangalore, Chennai, Hyderabad, Kolkatta, Mumbai, Pune, and
Delhi) stores has added one more location in Delhi at Alankar, Lajpat Nagar, “Out of the 75 stores we
plan to roll out, the eight marks our breakeven point,” calculates Noel Naval Tata, managing director of
Trent. This 45-year-old Tata operates as a street-smart, single-focused manager who is involved right
from the selection of location, infrastructure, interiors, staffing, to range reviews at the store. Having
identified retailing as a major growth area, the Trent team has set out to establish Trent as a leading
national retailer. But what does breakeven mean? “As we open more stores the losses come down. That is,
corporate expenses (everything except the shop expenses) as a ratio to revenue drop. This year they will
be 5% of sales, down from 10% last year. Eventually they will be a mere 1%,” He explains. As more
stores open it’s pure economies of scale that comes into play, the common overheads like human
resources, finance, marketing, and projects departments, among others, get defrayed. “from now on ,
every new stores that opens will contribute directly to the bottom line,” adds Noel. Compared to
competition, the Westside business model was different. Most other chains have gone for the multi-label
format, but the Tatas decided on its own labels. Ninety percent of the product mix at Westside consists of
apparels and furnishing, sold under the Westside brand name; the other 10 per cent comprises lingerie,
toys, and cosmetics. This was hard work as until then the only brand available were in the menswear
section and there were no brands available for women. But the private label route helped it score over
competition, says Himanshu Chakrawarthy, General Manager (Marketing) of Trent Corporation, “ at the
end or the day you are selling your own product, which is difficult for anyone else to replicate, and you
can develop your unique positioning”, he says. “ Because you have knocked out the middleman, you have
control over the merchandise and pricing, which means your margins are significantly higher”.
Chakrawarty says that the profit margin is “significantly higher” than the 25% that other stores earn. The
economies of scale Westside has built help keep prices well within the reach of the middle and uppermiddle classes, which account for 25% of the population.
Taking a plunge into retailing using the private label as against the time-tested external brand retiling,
when they bought the Little Woods business in India, the Trent management inherited a 100% own-label
business. However, initially the business plan was to go with 50% of own brands and 50% others. Then
looking at the economics of selling, other brands, and margins they offered, they realize they would be
better off with own brands. Barring menswear, there was no established national brands for ladies and
kids in the market. This gave Trent the opportunity to establish a national brand and the best way of
offering value for money. Initially, with one store, the format appeared to be a top. But as others opened
one by one, the model has begun to look profitable. Westside’s success at a time when other retailers like
Shoppers’ Stop and Pyramid are still going through teething troubles - more a result of the confidence the
consumer has in the Tatas who have developed this chain. “They have done a lot of homework and their
systems and processes are in place,” says Hemendra Mathur, a senior consultant with KSA Technopak.
The homework included choosing the right operational strategy for the outlets. Unlike Shoppers’ Stop or
Pyramid, which have targeted the upper 5% of the population with expensive brands, Westside has looked
at the larger base of middle- and upper-middle class consumers. With most of other chains fighting for a
piece of the high-price pie, Trent has the field open for itself. Pantaloons and its sister concern Big Bazaar
also target the middle class, but here is where the Westside philosophy comes into play. “We have three
main points- styling, affordability, and quality,” says Simone. “We have to meet those three parameters
and these will directly relate to customer service.” And customer service is where the company is way
ahead of the other retailers. The “no-questions-asked-not-even-a-bill” returns and exchange policy, for
example”. Research has shown that a customer is more likely to take a risk and purchase something when
he has the assurance that he can return it easily. More often that not such buyers do not change their
minds. On the other hand, this trust in the customer shows the retailer has confidence in his own product
and helps develop customer loyalty. This fits in with Simone’s theory: “I believe if one person out of 100
exploits it, you still make 99 happy as long as it doesn’t go beyond our budgets and beyond what we think
is normal. You must know the customer, you must look at what the customer wants and what makes him
happy.”
Even competition cannot complain about the Westside model. “They focused themselves on doing only
their private label, and it took them some time to develop it,” says K.N.Iyer, of Pyramid. “I really like
their home section and their children’s section. Their women’s section is good, but the men’s wear line is
disappointing,” he says.
The small menswear section has not stopped people from coming in. Today the footfalls differ from store
to store, ranging from 8,00 to 3,000 a day. This sounds small when compared to small or a multi brand
outlet, where footfalls are regularly 3,000 a day, but the conversion rate from browser into buyer is much
higher in a single brand outlet. “The person is already coming in with a decision to try and buy something
from the store. If the other (conversion rates) are x, we would be at least 10-15 percent more,” says
Chakrawarty. Westside rewards its Club West’s 30,000 regular shoppers with invitations to special sales
and wonderful rebates at Taj restaurants and on holiday packages. The key to a successful private label is
merchandise sourcing. This tough task needs the skills of highly qualified merchandisers and buyers who
know the style and keep up with the latest trends, Westside invested in trained buyers and fixed a vendor based unit to produce the superior quality and mix it wanted to retail at its family store. Once in place, the
sourcing gave it control over the suppliers and vendors. Chakrawarty says, “Your own sourcing makes
your business more robust and predictable.” It also gave Westside another unique selling point- its
products are not available anywhere else, unlike those in multi-brand stores. One of the issues the buyers
had to keep in mind was regional differences and sizes. “For instance, in the club-wear merchandise in
ladies’ wear, there is a drastic difference in the demand for ladies’, Western wear between a cosmopolitan
center like Mumbai and a more conservative center like Chennai, sizing patterns are also vary, Bangalore
needs smaller sizes, while Delhi and Mumbai need larger ones”. And while Western wear and Salwar
Kurtas sell well everywhere, sarees are more popular in Kolkata. Along with daily wear, Westside
launched a special section with clothing from Anita Dongre and Wendell Rodrick’s a few years ago. Here
the retailer chose to target the woman who wants designer wear but at affordable prices on the rack.
Rodricks developed a specific range that is exclusive for Westside in terms of range and price, with a
Rodricks starting at Rs. 699, a price not available anywhere else.
Building the Westside brand was not an overnight assignment, but fortunately it started with a small store.
Trent had done it before very successfully with Lakme, and the experience helped, but this was a whole
new venture and there was established competition in the form of Shoppers’ Stop. Heavy advertising
through radio sports and advertorials in English and vernacular magazines helped create brand awareness
during launches and category advertising keeps up the momentum along with seasonal promotions. “The
Westside style” is displayed visually on bus shelters and billboards, totaling ad spend to 8 percent of its
budget.
One of the biggest challenges any retailer faces globally is pilferage. Most stores tend to lose around 6
percent each year from shoplifting and sales manipulation. While the company will not reveal figures,
Chakrawarty insists it is lower than even 1 percent. Westside has a sophisticated electronic system in
place, but he says it is the staff management policies that have kept the staff clean. “One of the important
things in the retailing business is you must motivate your people, and similarly with the customers, you
must be really nice to them,” he says. “To take Westside to the national level and thus make the business
profitable, the other important aspect is the opening up of more stores for which managers have been
visiting sites across the country,” says Noel. By the end of the year (March 2003) he hopes to open three
more stores in Nagpur, Ahmedabad, and Borivili, Mumbai, besides a one-third expansion of the Kolkata
floor space. Opening a store in a particular city is a manor job and is taken very seriously. “ We have an Ihouse team of five senior managers that conduct the survey and research,” explains Noel, who is
personally involved and takes rounds at the site. The team analysis the population, the buying patterns,
purchasing potential, car ownership, and lifestyles in a potential location. “There is a lot of legwork in
the data identification process, the biggest bottlenecks is getting large properties of 30,000-40,000 sq.ft. It
is not readily available at the right location. For instance, at Borivil, we’ve started with a piece of land.
Hence the gestation period is long. The positive side is that we get a tailor-made store, but the negative is
that it takes two or three years to get it going,” says Noel, whose ultimate aim is to have 75 stores with a
representation in the top 50 cities in India. By December 2004 Westside will have 20 stores. “ We are
comfortable with that,” he adds. Perhaps the biggest expense and deterrent to the retail sector has been the
real estate issue. The demand for space ranging from 10,000 to 20,000 sq.ft, can eat into capital very fast,
but the Tatas are very clear about their role- they are not in the business of retailing and not real estate and
so leasing makes sense to them. But the expensive real estate has affected their plans, Simone admits, I
think we would have grown faster if the real estate problem did not exist. What we need really are
premises that are affordable. That has been our biggest handicap to growth.” Trent’s retail business has
benefited by the adoption of the Tata business The excellence model, which is used by most Tata
companies has resulted in consistent profits but the composition of the profits has been the question. In
the early days, with eight stores, the retail side was making losses, but the income from treasury
operations saved the day. This allowed the company to declared dividends as high as 60 percent (when
the shares price was below Rs. 60, it worked out to a 10 percent tax-free yield) to the 44,000-odd
erstwhile shareholders of Lakme who came to Trent. Almost 80percent of the earnings were distributed.
As the retail business grew, it has started contributing to the bottom line. For the year ended March 2002,
while the total income of the company stood at Rs. 90.6 crore, an increase of 37 percent, the retail income
was Rs. 73.92 crore, up 73 percent. Income from treasury was a mere Rs. 9.63 crore. Retail for the first
time contributed Rs. 17 lakh to the net profit. The stock market has recognized the fact that Trent, which
four years ago looked like any non-bank finance company (NBFC), has turned itself into a positive
retailing company, this transition called for a rerating of the company. Just looking at the balance-sheet
numbers Sanjay Kothari, a financial consultant, says Trent is a fantastic investment. “ The market
capitalization of the company minus the liquid assets equals zero, so there is nothing to lose,” he points
out. Meanwhile, periodical reminders in the press, teasers for the company’s future plans in the grocery
business, have sent the stock up from Rs. 122 to Rs. 181. Rishi Biyani, Senior analyst at Span capital
Markets, says: “This the stock market franchises. They have been talking about it for the last two years
and are trying to do something. In between there where rumours that they had acquired a company called
Subhiksha, but nothing has materialized so far”. There appears to have been a slight delay in the launch of
the grocery plans mainly due to a change strategy at Trent. Initially, the plan was to have 100-200 sq. ft.
Now there has been a change of strategy to 1,000-plus sq.ft. “We plan to sell all brands but have a strong
own brand. To start with we will launch in the western region and then move across the country,” says
Noel. But there is no telling the exact date when the first store will open. The hub-and spoke model
should be an able stock shelf with large volumes of fresh and well-sourced perishables.
Shoppers’ Stop: Shoppers ‘ Stop is a family store delivering a complete shopping experience defined by
its mission, vision and values. Its vision is to be a global retailer in India and maintain a no.1 position in
the Indian market in the department store category. It has got its branches at Bangalore, Hyderabad,
Jaipur, Delhi, Chennai, Mumbai (Andheri, Bandra, Chembur, Kandivli, Mulund), Pune, Gurgaon and
Kolkata. Shoppers’ Stop is today recognized as India’s premier shopping destination. With a customer
entry of about 50,000 customers a day, a national presence with over 6,00,000 square feet of retail space
and stocking over 250 brands of garments and accessories, Shoppers’ Stop has clearly become a one stop
shop for all customers. Shoppers’ Stop’s core customers represent a strong SEC A skew. They fall
between the age group of 16 years to 35 years, the majority of them being families and young couples
with a monthly household income above Rs. 20,000 and an annual spend of Rs.15,000. A large number of
Non - Resident Indians visit the shop for ethnic clothes in the international environment they are
accustomed to. The stores offer a complete range of apparel and lifestyle accessories for the entire family.
From apparel brands like Provogue, Color Plus, Arrow, Levi’s, Scullers, Zodiac to cosmetic brands like
Lakme, Chambor, Le Teint Ricci etc., Shoppers’ Stop caters to every lifestyle need. Shoppers' Stop retails
its own line of clothing namely Stop, Life, Kashish, Vettorio Fratini and DIY. The merchandise at
Shoppers’ Stop is sold at a quality and price assurance backed by its guarantee stamp on every bill. Their
motto: “We are responsible for the goods we sell”. Shoppers’ Stop’s customer loyalty program is called
The First Citizen. The program offers its members an opportunity to collect points and avail of
innumerable special benefits. Currently, Shoppers’ Stop has a database of over 2.5 lakh members who
contribute to nearly 50% of the total sales of Shoppers’ Stop. Shoppers’ Stop is the only retailer from
India to become a member of the prestigious Intercontinental Group of Departmental Stores (IGDS). The
IGDS consists of 29 experienced retailers from all over the world, which include established stores like
Selfridges (England), Karstadt (Germany), Shanghai No. 1 (China), Matahari (Indonesia), Takashimaya
(Japan), C K Tang (Singapore), Manor (Switzerland) and Lamcy Plaza (Dubai). This membership is
restricted to one member organization per country/region.
The Organization, in 2000, along with ICICI ventures also acquired the reputed bookstore, Crossword,
which offers the widest range of books along with CD-ROM, music, stationery and toys. Services like
Dial-a-book, Fax-a-book and Email-a-book enable customers to shop from their homes. Crossword
currently has 18 Stores. Realising the role of IT way back in 1991, Shoppers’ Stop was among the first
few retailers to use scanners and barcodes and completely computerize its operations. Today, it is one of
the few stores in India to have retail ERP in place, which is now being integrated with Oracle Financials
and the Arthur Planning System, the best retail planning system in the world. With the help of ERP, they
are able to replicate stores, open new stores faster and get information about merchandise and customers
online, which reduces the turnaround time in taking quick decision. Understanding the importance of
distribution and logistics in ensuring that merchandise is available on the shop floors, has led Shoppers’
Stop to streamline its supply chain. The company has developed process manuals for each part of the
logistics chain. These modules include vendor management, purchase order management, stock receiving
systems, purchase verification and inventory build up, generation and fixing of price and store tags,
dispatch of stocks to the retail floor and forwarding of bills for payment. Shoppers’ Stop aims to position
itself as a global retailer. The company intends to bring the world’s best retail technology, retail practices
and sales to India. Currently, they are adding 4 to 5 new stores every year. Shoppers stop has also
launched a virtual store – shoppersstop.com. The website, apart from selling the usual wares -- apparel,
books, gift articles, toys -- will also hawk flowers and furniture, not stocked by the company’s brick and
mortar chain due space constraints. Shoppers’ Stop, the first retail chain in India to invest in an ERP
package, is again investing heavily on software. This time around, the company is buying a software
package called Arthur Planning, and a data warehousing solution from JDA, USA from which it bought
the ERP package. "Arthur Planning is useful in measuring the stock position at the store shelf level and
for auto replenishment of the shelves," Mr. Shah explains. That aside, the software package helps in
studying sales patterns and identifying slow moving items and the reasons thereof. According to Mr. B.S.
Nagesh, Managing Director and Chief Executive Officer, Shoppers' Stop, the chain enjoys a comfortable
stock turnover ratio of six times. The company’s six stores and three warehouses are networked with the
corporate office at Mumbai. Apart from the virtual shop, Shoppers’ Stop is to open its second store in
Mumbai and Hyderabad next month. "This is to increase our catchment area," reasons Mr. Nagesh.
Though stores of this kind are termed as destination stores, in reality people are not willing to travel
beyond five kilometers to shop, he adds. After registering a turnover of Rs 160 crore for the year 19992000, Mr. Nagesh is targeting sales of Rs 270 crore and a net profit of Rs 16.2 crore in the current fiscal,
on an equity capital of Rs 24 crore. The company had privately raised Rs 60 crore from financial
institutions and venture capitalists. As per the plans on the drawing board, Shoppers’ Stop plans to have
around 23 stores by the end of 2004, with major cities having multiple retail outlets.
The company opened its 50,000-sq.ft store in Chennai. Set up at an outlay of Rs 10 crore, Mr Nagesh
expects the Chennai store -- the company’s sixth outlet -- to break even in 18-24 months time. "We expect
to clock Rs 30 crore sales in the first year of operations," he remarks. One of the unique features of the
Chennai store is the housing of Crosswords, the bookstore, and Music World, the music store belonging
to the RPG group. The company has entered into a revenue sharing agreement with Music World for the
purpose. It may be recalled that the Rahejas acquired 51 per cent equity stake in Crossword store some
time back. According to Mr Nagesh, this format will be implemented in all future stores. In Mumbai,
Shoppers’ Stop has tied up with Planet M (of the Times of India Group) for music retailing.
Responding to the query of why he is not looking at contract management of stores on a profit sharing
basis (similar to the practice in the hotel industry), thereby saving heavy outlays and achieving faster
brand growth, Mr Nagesh replies, "We are still on the learning curve with lot of things still to be
mastered."
Questions:
1. Does targeting is the main aspect to the business?
2. Does Shoppers stop and Westside attracts only upper class and middle-and upper-middle class
consumers respectively?
3. Do people like outlets selling own retail brands?
4. Shoppers’ Stop should not have gone for its own brands, which is diluting the business?
5. Do Westside should think of a virtual shop?
6. What other products can be added to the Shoppers’ Stop?
7. Would Westside’s profit margin remain the same after adding grocery to its products?