Retail: biting the bullet?

Many channel players have capitalized on the retail boom and are steadily moving up the ladder. However, lack of proper strategy, including the lack of enthusiasm to invest in services and manpower training, could imply a retail boomerang in the offing.

It has been the talk of the town for quite a while now. The media and vendors have been shouting themselves hoarse that retail is the next big thing to happen in the IT business as far as the Indian market is concerned. But if one goes by the recent past, all does not seem to be so rosy in the retail world.

In a recent development, Bangalore-based Sogo Computers, one of the largest players in the IT arena, decided to close down many of its retail outlets in Bangalore. Speaking about the move, Jayamuni Rao, CEO, Sogo Computers said, "The move is a strategic one. We have decided to close down some of our non-performing outlets in the city. This has contributed to our expenses and are causing too many overheads. The rest of our outlets will function as usual and we do not see our business getting adversely affected."

The Sogo retail venture was started under the brand name of 'Iceware' chain of technology stores, by Rao along with Anish Srikrishna, former Head-Brand Marketing Samsung. These stores were spread across various locations in Karnataka and were multi-branded, offering customers a range of IT, communication and entertainment products of Samsung, Epson, Apple, Sony, Logitech, Acer, HP, Nokia, LG, Asus, D-Link, and many others.

Warning bells for retail

Is Sogo's decision to shut down some of its outlets an indication that while the retail segment is a lucrative one, it is still not the most viable arena for the channels? While most partners agreed that IT retail is today a high growth area where the share of the pie for the channel is increasing, they felt that like all other seemingly lucrative avenues, this front too has its pros and cons.

Sanath Babu of Sri Durga Computech said, “Even today, customers buy h Babu of Sri Durga Computech said, "Even today, customers buy IT products based on word of mouth. Customer know-how has increased and today people want to have a look and feel of the products before they buy them. Big players like Reliance and e-zone are able to give the customer that experience. Smaller players in the IT space cannot afford so much investment into real estate, infrastructure and manpower."

According to him and other people, this is why sustaining retail becomes an issue. Given the thin margins that partners operate on, retail is a difficult venture. "Players like Sogo are today taking a second look at their strategy. This means more ground work needs to be done and players contemplating on retail ventures need to put on their thinking caps," Babu noted.

Size does not matter

According to Sunil Kukreja, CEO, Kukreja Electronics, another player in the retail space, the success or failure of a retail venture varies form one company to another. While it is technically correct to say that bigger players like the Reliance have an upper hand, smaller players too can survive. Since most of IT buying happens by word of mouth, smaller players can sustain themselves as long as they ensure that their retail outlets generate enough number of footfalls.

Additionally, customers must be provided with good service support because repeat customer visits are very critical in the retail space. "Manpower is another critical factor. At our level of play, we cannot afford people as in MNC or expect to pay them like MNCs. So getting the right kind and right number of people to mange the show is very important," he advised.

Sharing his thoughts, Mohit Hegde, CEO, Creative Infotech, also a retail player, maintained that retail as a concept works on 'small mechanics'. One needs to understand the logistics that operate beneath, which include real estate costs, manpower overheads, the kind of products that would be sold, the rotation and shelf-life of products, how to deal with inventory, the brand equity of the player and above all the ability to provide customers with services at the outlet.

"This means that too many outlets could become a difficulty because managing all outlets is a huge challenge. In an industry like ours where interpersonal relationship with the customer is very critical, one has to be careful to ensure that the customers feel the comfort of bonding with the retailer. At the end of the day we must realize that we are traders and not manufacturers, so unless we understand the business dynamics of retail well, we would not be able to sustain ourselves," Hegde claimed.

Coming back to Sogo, Hegde said that the retailer started out as a sub-distributor who did a lot of reselling and then ventured into retail. "Probably more ground work was needed and maybe too many outlets became an issue," he surmised.

Making investments

For Uday Kumar, CEO, Karthik Business Machines who also operates in retail, what matters is not whether a company is into retail or distribution business, instead, one must understand that each company operates on a different business model.

"As far as retail is concerned, the market in India poses huge opportunity. With the concept of malls and supermarkets coming in, the competition would increase manifold. So people who have the right strategy, the required money and above all the much needed quality manpower are ones who will make it through," said Kumar.

Ultimately, it is upto the partner to opt for single brand or multi-brand outlet. Success of a retail set-up depends on the location of the shop, customer service provider, update as far as technology and service is concerned, and even the shop interior. Above all, the player's brand equity in the market counts the most. Even if all is in place, one must not expect exponential growth as far as retail venture goes and must be more realistic in his expectations.

In summary therefore, it is obvious that there are many who have capitalized on the retail boom and are steadily moving up the ladder. However, a lack of proper strategy, including the lack of keenness to invest in services and manpower training, could imply a retail boomerang. So only a channel member, who has the conviction of handling the challenges, including hiccups like involvement of huge capital to ensure properly mannered demonstration units, should venture into retail.

The vastness of the Indian geography with peculiarity in each region compels partners to look for specialized and different modules for sustaining their retail business in the respective pockets. To be successful, therefore, it is essential for a partner to look at different ways of approaching the customers.

In an era where margins are shrinking, the only way to get closer to the customer is to improve on the services. Also, there are some product lines which require greater focus to sell. For additional margins, partners should invest adequately in manpower training to ensure effective understanding of the vendor products. All these will dramatically raise business revenues and profits, as well as give better coverage to the vendors since partners in retail business serve as a bridge between the vendors and the end customers.

Finally, a reseller has to be accurate and clear about what value-add he is giving at his retail counter, otherwise his outlet can end up becoming an experience zone where a customer would get a feel of the products, enjoy the demonstration and go back to neighborhood shop to purchase the products at heavily discounted prices.

Subbalakshmi BM

DQ channel