Thursday, December 9, 2010

Aggregate Buy: A Tool to Augment Buyer Power

Imagine yourself shopping for 1000 Kg of rice … 5000 Kg of rice! What price & attention would you expect to get compare to the one who is there to buy 5 Kg of rice?

One of the tools to achieve the benefits of bulk buy while still purchasing in small amount is ‘Aggregate Buy’. This article deals in detail with various aspects of ‘aggregate buy’ as an option with small buyers, specifically an individual household buyer, to lower the overall procurement cost. We will also propose a model to implement this concept, analyze the associated risk & returns and support it with case studies.

Traditional Procurement Process

Traditionally, the individual units of large organizations were given the authority to decide on what to purchase, and from to which vendor, and at what price. Once the purchasing manager of this unit gets an indent from the user / stores, the manager will typically float an enquiry to the set of known vendors (generally local vendors) and get the quotations from each of these vendors. The quotations will then be compared and the order is given to one or many vendors depending on various factors like criticality of the item being sourced, relationship with the vendor, policy of the organization etc. A typical traditional process of procurement is as depicted below:

One obvious shortcoming of this process is that the organization as a whole would not be in a position to use ‘volume leverage’ to drive the cost further down. To understand this better, let’s take an example of a large automobile manufacturer with its units located in eastern and western parts of the country. Both these units will definitely be purchasing various common goods & services like office supplies, IT equipments, mechanical hardware, security services etc. However, because each of these units are procuring the goods & services in isolation they are either not aware or are not able to leverage the benefits which they might have got by aggregating their requirement and negotiating with the vendor for this aggregated quantity.

Majority of the matured organizations have by now realized the shortcomings in their existing traditional procurement process and have either started or are in the process of leveraging technology to achieve substantial cost reduction.

‘Aggregate Buy’ for Small (Retail)

Now with the advent of technology, the same concept of aggregate buy for industrial segment has been extended to retail or small buyers as well. The business works something like this - A shopping web site which puts a number of people together, all of whom want to buy the same item, for example a mobile or refrigerator or specific grocery etc. The site keeps track of how many people want to buy a certain item and then use this information to drive the price down with the company selling the product. The more people want to buy the item the further the price is driven down. “The More the buyers in the group, the lower the price”

Closing Statement:

This is definitely a great business model but the associated challenges in managing the supply chain, gaining critical mass of customer and need for huge marketing effort is a big concern. Deep pocket and ability to maintain continuous cash flow is the key to success. My take is we will see lot of consolidations in this field and only top few will survive and flourish. We may also see few aggregator website popping up which will give best deal from all sources…At the end it’s a great win-win situation from all stake holders.

I would appreciate if you can give me your comments / suggestions here or mail me your queries to my mail id

PS: Your clicks on the google advertisements displayed on this page will help me earn revenue and will be the additional motivation for me to keep writing.

Aggregate Buying Site

India Centric: (acquires (closed)



Living Social



WeGiveToGet (Chicago)






3oClockClub (Chicago/Las Vegas)

SoWhatsTheDeal (Washington DC)

GoNabIt (Middle East)

DealPerk (Orange County)

Groupolitan (France and Belgium)

CrowdClick (San Francisco)

DealsForDeeds (Washington DC)

ClubDeal (France)

PlumDistrict (CA Bay Area)


YouSwoop (Chicago)

TownHog MyDailyThread

TwoBuckDuck (Chicago)


DailyDeal (Germany)

Adility CoupMe



Joffer BloomSpot (LA, SF, NY)

Zozi SavvyAvenue

PromoPipe (CA Bay Area) Liquor (Alcohol)

GroopSwoop (CA Bay Area)

SpecialDeals (CA)

YouveGottaGetIt (Chicago, Bay Area)

SwoopOff (Los Angeles)

CircleBuzz (San Diego)

TheDailySave (San Diego)

ReaderSteals (San Diego)

Grooster (Vancouver, Calgary)

WagJag (Canada)

StealTheDeal (Canada)

TeamBuy (Canada)

WowCher (UK)

Wahanda ScrumBuy (London)

ScoopSt. (New York)

LifeSta (Re-Sell)

DealsGoRound (Trade, Re-Sell)

Yipit (Aggregate)

DealRadar (Aggregate)

8Coupons (Aggregate)

TopTownDeals (Israel) (mexico) (mexico) (mexico) (France) (USA)

From publically available sources:

Groupon is the market leader in the online “group buying” industry, and according to Crunchbase Groupon has raised a whopping $172.8M in funding to date. Available in 140 cities world wide, Groupon offers deals in more cities than any other group buying company. For every city, every day, Groupon presents a discount for a niche market item (such as a spa, restaurant, or a paintball outing), and if enough people sign up for the deal, they get the discount. The coupons are sent to the buyers by email. Conversely, if the quota is not reached, the deal is off, and no one is charged for what they promised to buy. Of course, if the deal doesn’t work out, the company that Groupon was “advertising” through the discounts, and the people who signed up to buy them will be a little bummed.

Because the success of each deal relies on getting enough people to sign up, Groupon has created some incentives for their users to spread the word about the discounts they offer. Groupon encourages its customers to share news about deals through email, Facebook, and Twitter, and promises that if one of their users sends a Groupon link to a friend, and the friend buys a Groupon (coupon) within 72 hours, the one who sent the link gets $10 worth of Groupon credits in their account. Also, if a user sends a referral to a friend, who then subscribes within 72 hours, the person who sent the referral will get $10 worth of Groupon credits in their account when their friend buys their first deal on Groupon.

Living Social is Groupon’s main competitor, and they serve in 26 cities across the U.S. and have received about $44M in funding. LivingSocial’s model is somewhat different from Groupon’s, as there is no minimum number of people needed to make the deal valid. But like Groupon, the discount can only be activated, and then used, after the deal’s run-time has ended. LivingSocial offers each deal for exactly 24 hours on weekdays, from 5am-5pm.

Additionally, LivingSocial uses a different incentive to encourage more people to sign up for their deals. If a LivingSocial user shares a deal through a link provided by LivingSocial, and then three people join the deal through the link, then the person who shared the link gets their deal for free.

Gilt City, which was recently created as a subunit of Gilt, is only available in New York City so far. Unlike many of its competitors, each of Gilt City’s deals lasts for seven days, and are updated once a week, rather than once a day. Also, rather than trying to sell as many of their deals as possible, Gilt City’s inventory for each of the discounts appears to be limited, and can become sold out, much like the rest of the sales on Gilt.

Like LivingSocial, Gilt does not require a minimum number of people to sign up for the deals to make them valid.

BuyWithMe has essentially the same setup as Groupon, with a new deal on display each day, with each the time limit for each deal set for about a week. Though they bring up a new deal each day on their main page, they do run a number of deals in each city (the number of deals running varies from city to city). BuyWithMe operates in 5 cities in the U.S, and has so far received $21.5M in funding.

Tippr is another group-buying site, and offers deals in 25 major U.S. cities. Tippr is owned by Kashless, which has raised $5 M since starting up.

Unlike Groupon, LivingSocial, and BuyWithMe, Tippr proudly shows off three deals each day on their main site, with at least one new deal each day. As an incentive to get more people to join the deal, the discounts that Tippr offers get larger for everyone who signs up, as more people sign up for the deal, though there is a limit to how much the discount increases. A somewhat unusual aspect of Tippr is its army of ten patents, which are kept quietly on display at the bottom of the website (though it isn’t clear that these will actually help them beat the competition).

Juice in the City is a niche group-buying site that caters to mothers. This aspect of JITC is what differentiates it from the other companies in this roundup, as each deal that is offered on the site is meant to appeal to women with young children. JITC so far only serves a single deal each day within the San Francisco Bay Area and the Seattle-Tacoma area, and has not yet received any outside funding.

They promise incredible, money-saving deals like the rest, but JITC does not require a certain number of people to sign up for each deal. Each coupon is sent to the buyer via email after being purchased, though they can’t be used the day they were purchased.

We Give to Get is available only in Chicago, and offers a new coupon (which they call a GO-GO) each day. What makes WGTG special, is that when you create an account on WGTG, you are also signed up automatically for the charity website; As a result, whenever you buy a GO-GO, 10% of the money that is spent on the coupon will be donated to a charity of your choice, as long as it is listed on It seems like an unusual idea to connect a money-saving action to a money-giving one, but as they say, “opposites attract”.

Similarly to Juice in the City and LivingSocial, WGTG does not require a minimum number of people to sign up in order to make the deal valid, and the coupon is sent to the buyer by email after the purchase is made.

Snapdeal is launched by Jasper India in First week of Feb, 2010, presently offering discounts in Delhi, Mumbai & Bangalore and planning to scale it up to 25 Indian cities by end-of-this year.

Currently, this portal is self funded by Jasper. SnapDeal has been welcomed by Facebook users and have around 13,138 Fans.

MyDala , operating since Nov ‘09. Based on group buying process – Deal is posted on site and people bid for the deal, if deal doesn’t grap enough people then its cancelled else people avail the deal. Mydala has more than 19000 fans on Facebook. MyDala has tieup with iMint for shooping rewards.

Wanamo, is also launched very recently in March itself and grapped good audience. Have more than 500 Facebook Fans. Currently offering deals in 9 cities.

Mobstreet - operates in Mumbai only. Have 100 fans on facebook. Product offering includes Best Deals and Mandi. Best deal (i assume you all understood now) and Mandi will feature exclusive sale for few days. However, no recent deal is available on site.

Grabbon - Operates in Bangalore only. Grabbed more than 2000 fans on facebook. Deals are quite ok but from Bangalore only.

Friday, September 19, 2008

Retailing of Luxury Goods

(Article written for RetailBiz)
Let’s start off with a story, a flash back, in the far end of the 19th century India’s Maharajas discovered a Parisian designer called Louis Vuitton and flooded his small factory with orders for custom made Rolls Royce interiors and leather picnic hampers however post independence when India’s princes lost most of their wealth, the orders dried up. Coming back to recent times, almost 100 years later, Geeta, an IT executive, spends a large amount of her high seven figure annual salary on a range of Louis Vuitton hand bags and Channel cosmetics.
What we are referring over here is that the concept of Luxury is nothing new to the mindset of the Indian consumer. Geeta’s spending on luxury products is not just a one off case. More and more of today’s new generation love shopping and do not mind spending big bucks on luxury items. These are consumers who are not affluent in the traditional sense of originating from wealthy families as the Maharaja’s of yore, but are successful in their chosen profession and bearing the fruits of their hard work have a large disposable income in their hands.
This has led to the evolution of a new generation of luxury consumers, who we would term as the “because I’m worth it generation”. Hence people like Geeta are no longer at a financial distance from luxury and are trading up to meet their current aspirations.
In this article, we would try to explore the current status of the luxury goods market, the key drivers for growth and some of the challenges and the future outlook for retailing of luxury goods.

Luxury Brand
Indians associate luxury with perceptions of not just ‘quality’ and ‘performance’ but with ‘comfort’, ‘beauty’, ‘pleasure’ and ‘style’. Luxury goods in fact evoke strong emotional reactions like feeling ‘I am perfect’ or ‘I am walking on air’.
Today in India, luxury is no longer just about buying western-influenced values and lifestyles. It therefore becomes imperative that the luxury retailers should understand the relevance of the brand not only in global but in local context as well. These brands should construct an identity that amalgamates western influences with local insight.
When compared to an retailing in general, luxury goods' marketing is a different ball game as the type of customers involved fall in a different class altogether. These customers are influenced more by glamour and style and want to stand out in a crowd. They do not bat eyelid when they buy a Vuitton bag costing Rs 50,000 or a Mont Blanc diamond-encrusted pen for Rs 50 lakh, Ermenegildo Zegna's top-of the-line, custom-tailored suit costing Rs 6 lakh or a mid-range Louis Vuitton briefcase priced Rs 1.27 lakh.
As these figures suggest, luxury brands are prestige products characterized by high-involvement decision-making that is strongly related to the person's self-concept. Sensory gratification and social approval are the primary factors in selecting a prestige product. Cutting prices or giving discounts can be detrimental in case of luxury brands. A higher price implies a higher level of quality and also suggests a certain degree of prestige. Similarly, distribution should be restricted. Status-sensitive consumers may reject a particular product if the feeling of exclusivity goes away.

India – the next hub for luxury goods
Turning its back on Nehruvian socialism and Gandhian asceticism India has become a luxury destination ever since Louis Vuitton Moet Hennessey (LVMH), among the biggest luxury players in the global market started the trend in 2002 with the entry of their watches and jewellery line.
A Technopak study puts China's top end luxury market contributing to an estimated 12% of global sales. The report also predicts that China will also account for 30% of luxury goods sold globally by 2014. India, on the other hand, accounts for less than 2% of total market spends on luxury products. Experts however believe that the country has a huge potential in coming years as it develops and stabilizes its retail market further.
With the total number of consumers for luxury goods in India exceeding the adult population of several countries, the Indian luxury retail market is estimated to leap-frog from around US$ 3.5 billion currently to US$ 30 billion by 2015, according to a survey done by AT Kearney. India's luxury market, estimated to be the 12th largest in the world, has been growing at the rate of 25 per cent per annum. Already Indians splurge US$ 2.9 billion on luxury assets, spend another US$ 953 million on luxury services and top it by buying luxury goods worth US$ 377 million. Consequently, a number of foreign brands including French Connection, Sanrio of Hello Kitty fame, Jimmy Choo, La Pearla and Calvin Klein among others are looking forward or have already infused foreign direct investment through the single-brand retail window.
India with the fastest growing high net worth individuals (HNWI) in the Asia-Pacific region, is being perceived now as the next hub of luxury goods consumption. India led the world in HNWI population growth at 22.7 percent, driven by market capitalization growth of 118 percent and real GDP growth of 7.9 percent. Although India’s real GDP growth decelerated from 9.4 percent in 2006, current levels are considered more stable and sustainable.
It is however the emergence of ‘mass affluence’ combined with aspirational mindsets and lifestyles that are helping stimulate consumer demand. The rapid growth of the Indian middle class means that a larger number of consumers are able to afford luxury goods than ever before. McKinsey forecasts that the Indian middle class will increase from approximately 5% to 41% of the population and hence might propel India to become the world’s fifth largest consumer market by 2025.
According to technopak study, in India there are 420 million people under the age of 25, 22 million people who join the ranks of the middle classes every year and 67 million who have an average annual income of $25,000. These young shoppers, who aspire to acquire a lifestyle that is international and the best that the market offers is what is going to take this segment to the next level of growth.
The Changing Consumer DynamicsGovernment has recognized the fact that India’s traditional heritage and inherent strength in craft, design and creativity, especially in textiles and gems industry could be leveraged to corporatize and organize an indigenous lifestyle industry. The government therefore has shown full support to luxury and fashion goods industry to share and integrate the skills of Indian artisans and craftsmen with international expertise to make India a global hub for manufacturing luxury goods.
It is expected that the government will slowly move on to allow 100% FDI in single brand retailing from 51% now. We may also expect government to allow FDI even in multi brand retailing in the future. However, the foreign players should have the respect for corporate social responsibility and government norms to develop a long term and mutually beneficial relationship with the government.

As luxury labels descend on India to seize the potential, and the rich Indian responds with wide eyes, the big question mark that dangles is counterfeits. Counterfeiting can severely undermine the brand value of luxury goods, for which everything is in a name.
High import duties(35%) and restrictive FDI rules are some of the other factors that is holding back premium brands from entering and expanding their businesses.
But the biggest challenge for the luxury goods makers is the paucity of quality space. Most luxury brands are currently housed within five-star hotels which is making them comparatively inaccessible. On an average, the space requirement for luxury brands is higher (2,000-3,000 sq. ft.) and only a handful of places fit the bill. Partnering with real estate companies and acting as their anchor tenants might solve some of the problem.

Managing luxury brands is as much an art as a science. The challenge is to create a demand for something which is non essential. After all, it looks crazy to spend Rs 50,000 on a handbag or Rs1,27,000 on a briefcase. Creativity plays a key role in creating such a premium image. Many luxury brands achieve legitimacy and fashion authority as a result of the creative talent of their design teams who respect the brand heritage and yet continuously reinvent it.
With a rapidly expanding population of high net worth individuals, India could emerge as the next hub for luxury goods consumption. When all is said and done, the experience of the stores themselves may be the real key to the luxury industry's success.
We think the growth of luxury retailing in India is going to be very exciting, colorful, and vibrant. India will reshape the luxury industry itself in many ways. For now, the question isn't whether India can support such a huge rise in luxury retailing - a strong interest in foreign brands and a growing middle class of about 300 million almost guarantee that it will be a leading luxury market in the future - but whether the country is running out of retail space.

IRF 2008: Day 3

Day 3: India Retail Forum
The next urban Frontier: Twenty Cities to watch By: Roopa Purushothaman, Chief economist, Future capital holdings and R Shukla, Directo, NCAER
Detail discussion about the report….real good report….could not write it up due to huge data bombardment!!

Creating excitement in retail By: Bob Pritchard, International Marketer of the year & Tony Coombs, Market Force One
· The following three should always be present in interactive entertainment that should be provided to children to relieve parents for shopping:
o Education
o Health
o Fitness
· ‘e’ ball
· Track ‘n’ Find

Investments in Retail
- Anchor: Prashant Desai, Future Fund
- Vikram Rao, Business Director (textiles & apparels), ABG
- Srinath Sridharan, Sr. VP &Head, Strategic Alliances, Wadhawan Holdings
- Anjan Chatterjee, CMD, Speciality Restaurants (Mainland China)
- Ashish Kapur, MD, Yo!China
- Pradeep Hirani, Chairman, Kimaya Fashions
- Atul Jain, country head, Jumbo Electronics
- Sanjay Sahni, MD, Rituwears
- Ho Jung Lee, Senior Analyst, KPMG Korea

· Business of Business is to create value / Business of Business is to satisfy customers
· Business value is determined by its market capitalization which depends on
o Performance – (in your control)
o Perception – of the market (can only be affected by business)
· Capital will only come when the market sees growth in business.
· Market loves the following about retail:
o Growth
o Pure India play (not affected directly by global happenings)
o Can be the next big structural story in making
o The benchmarks are available world over to compare the growth
· Market hates the following about retail:
o Few size players – largest player is at $1 bn
o The promise on growth / revenue / profit is not being delivered – poor execution
o Confusing growth – largest player is growing @ 75% while smallest @ 25%
o Continuous need for capital
· Challenges:
o Tough macro environment
o High real estate prices
o Delays in development of mall
o Every store is a new challenge – customers are different in different region
o Evolving market – continuous change
o Cost is increasing
· Opportunities:
o Huge Customer base and rising income
o Rentals are way down
o Increasing entry barriers
o Competitive activities are at its weakest

Real estate and Retail
· Need for both realtors and retailers to understand each other business and then work out the deal.
· Currently both work in isolation
· Mall design should be as per need of location and all mall should not be designed in standard way.
· We can look at the option of taking rent as per the business of retailers. Also need to work out how revenue share model works.
· Developers should size there stores as per requirement of retailers and not just by sizing it in std way
· The high property tax is also a big concern
· The huge cost of finance and rising cost of land is forcing realtors to charge high prices from retailers. How to decide as to how much of total mall revenue should come by revenue sharing mechanism.
· Look at providing entertainment in malls like children theme park, water-park, and aquarium so that foot fall can be increased.
· Is it possible that consumers are ready to pay more for better shopping experience?

IRF 2008: DAY 2

Day 2: India Retail Forum
What do shoppers Really Want? (world view) By: Jonathan Banks, Business Insight Director, The Nielsen Company, UK
· The population world over aging because of which the consuming pattern changes with time. The major reason for this aging population is increasing life expectancy and decreasing population growth rate.
· Skewness in wealth and population distribution.
· Middle class population and there income are increasing
· The changes are happening fast and has huge ramifications
· The trend is with GDP increase – retail spend increases.
· Major online purchases happens in travel, books and electronics goods.
(overall a very general presentation)

Winning Retail Strategy By: D Shivakumar, VP & MD, Nokia India
· Strategy is about doing different things and doing things differently
· The story / growth of organized retail will be much higher then even the telecom which is a huge success story in Inida. The organized retail will grow by 42% to $70 bn by 2011
· With time the share and penetration of various categories of product will change.
· The real estate demand & supply gap is huge.
· The driving factor for relationship between three key players namely consummers, manufacturers and retailers were discussed.
· More than third of the purchase in influenced by word of mouth
· Manufacturers are doing vertical integration – shop-in-shop, own outlet, concession agreement etc – to better understand the customers.
· Retailers are using pvt labels to enhance there margins.
· The need is to have proper partnership between retailers and manufacturer – the era of independent growth is over and new era of dependent growth is happening.
· Surplus labor but short in talent – is the biggest challenge.
· Supply chain, need to understand the consumers and creating brand are the major challenges that retailers face.
Private label trends by: Paul Martin, Global sales Manager, Planet Retail, UK
· Discounters are the champions of pvt labels
· Switzerland has maximum share of pvt labels in retail. World avg share of pvt label is around 20%.
· Factors driving growth of pvt label:
o Consumers:
§ Well informed
§ Trust
§ Long market presence of pvt label
o Retail environment:
§ Highly developed market
§ Highly concentrated market
§ International players
§ Fierce price competition
§ Discounter expansion
o Manufacturer:
§ Over capacity – manufacturers sell there product (unbranded) to retail – thus increasing there sales and using capacity as well.
· As the retailers grow they try to influence entire supply chain using the following powers:
o Choice of supplier – breadth
o Product ingredient – shelf space control
o Certification & quality std – retailers can get there pvt labels certified thus giving confidence to consumers.
o Direct feedback from consumers.
o Quality positioning & target group selection – price positioning.

· History of pvt label (started in 19th century):
o Products were imported and the branded domestically by retailer(current status of china)
o Pvt label used as value alternative (India between this phase and next)
§ The brands are around 30% cheaper than mfg brands
§ It causes credibility problems and confusion in the minds of customer
§ Often connected with low std, low quality, cheap, unsafe
§ Educating the customer is the key
o Pvt label used as Segmentation by price (value/standard/premium) (current status of Australia)
§ Strong regional players drives the growth
o Segmentation by categories, sub-branding (USA/UK) – new categories of products develops
o Segmentation by brand evolution eg ethical brands (Switzerland)
· Future:
o Multiple availability of pvt label – in co-operation with other retailer (two retailers giving same pvt label)
o Channel blurring – difficult to recognize role of mfg & retailer eg. Pvt label of cola
o Co-branding – retailers cooperate with mfg brands to tailor their offer to target consumers

Health & Wellness :
- Girdhar Gyani, Sec Gen, Quality Council of India
- DrRK Shrivastava, Dir Gen, Health services, Ministryof health & family welfare, GOI
- Somnath Das, COO, Manipal cure & care
- Anchor: Anand Rangachary, MD (south Asia & ME), Frost & Sullivian
- Rakesh Pandey, CEO, Kaya clinic
- Peter Baker, CEO, H&B Stores (Dabur)
- Ratan Jalan, CEO, Appollo Health & Lifestyle
- Ashutosh Garg, CMD, Guardian Life Care
- Dr Sanjeev K Chaudhary, CEO, Religare Wellness
- Ashish Kripal Pandit, CEO, VLCC
- Viraj Gandhi, MD, Medicine Shop
- Gautam Thandani, Director, 98.4
· The market is expected to grow to 300% in next 3-5 years
· Challenges:
o Manpower Shortage:
§ Availability & Retention of quality staff – companies want to open there own institute but there is strict requirements from govt – regulations are being amended to change the rules and open institutes in PPP format
§ Shortage of doctors
§ Geographical imbalance in distribution of medical college – mostly located in south
o Creating consumer awareness of the product is important – huge negative bias towards wellness industry – trust needs to be built by providing quality service at affordable cost.
o Duplication of product is a big challenge – organized retail can help check it.
o Fixed MRP, Low margin – makes investing for quality difficult
o Adhering to quality std is a challenge – consumer should be empowered and pharmacists should be enabeled
o Procurement efficiency is a problem – mainly governed by size.
o Practicing traditional Indian medicine system (ayurveda, homeopathy) is challenge because of cost and non-availability of professionals
Collaborative Retail Support (SCM) :
- Anchor: Vikram Bakshi, MD, McDonald’s (north & east) & president restaurants association of India
- Abhijit Malkani, Director, ProLogis India
- Pascal Allix, GM, South Asia, Oracle
- Arun Gupta, CIO, Shoppers stop
- Alok Jayant, Industry Principal, Retail & wholesale, SAP India
- Badal Chaudhry, Head, Apparel & Lifestyle Business, Safexpress
- Anshuman Singh, CEO, Future Logistics & Solutions
- Brian Oravec, CEO & MD, Realterm FCH Logistics
- Peter Robilliard, Solution Director, Asia-Pacific Japan, Torex
- Sanjoy Sahgal, CEO, AXIND software
- Thomas Capune, MD, Consulting Partners, Germany

· Challenges:
o Increasing supply chain risk
o Increasing complexity of pdt & services
o Rising prices of energy
o Talent retention
o Wide geography
o Integrating IT with vendors system
o Creating transparency across SC
o Proper co-ordination between sales & supply chain team
· India has sufficiently well established SCM esp in food. Eg: Amul. Here consumption and demand are well matched – but the problem might come when volumes will further increase.
· Avg SCM cost is around 2 – 30% with varying categories and type of store.
· Amount of money being spent in front end is around 13-15% compared to only 4% in SCM. Is this worth doing?
· SCM could be improved if retailers can share sales data with vendors – this will enhance visibility across supply chain
· Collaboration between retailer, vendor and logistics service provider is the key to efficient SCM

India Retail Forum (IRF) 2008

Here are my running notes of various presentations, lectures & pannel discussions that happened over the three day period at IRF 2008. I would be happy to be of in case you want to anything more on the subject.
Day 1: India Retail Forum
The conference began with anchors Mr Anish Trivedi, Banyan Tree Communications and Mr Jayant Kochar, GoFish Retail Solutions setting the positive tone for the Indian economy. They point to the fact that though Indian economy at the moment is going through inflationary phase with slower predicted economic growth, the economy is still not doing bad when compared with rest of the world. They showed that US, UK and almost all developed economy are facing much bigger trouble compared to India and the long term story of India remains intact. They felt that India is the most rewarding market and the place for retailers to be in.
Inaugural session by Mr V. Vaidyanathan, immediate past chairman of IRF and ED ICICIC Bank
The salient points covered by him were:
· India is not a decoupled economy.
· India story is indeed intact because of following reason:
o The fact that India is now a liberalized economy and country of entrepreneurs. Combine these two fact and it’s a recipe for success coz given a chance, entrepreneurs will find the way out. He gave the example of USA pointing to the fact that USA also is land of entrepreneurs and has been liberalized for last 200 years.
o Trend of globalization, technology, rising consumer income will help these entrepreneurs who will write the Indian story.
o People now are aware and need growth. Even politics is now more oriented towards growth.
· The risk are there and will always be. It is these risk that will keep us awake. Eg: Japanese fish – shark – fight for life.
· Change is the only constant.
The challenge of Managing the change, By: Mr R Subramanian, Founder & MD Subhiksha Retail
· Realism of Indian retail – Indian consumers are the most arbitrage seeking (will go and compare prices at all shops), most savy and are not time starved.
· Promotional day pricing, loss leader pricing etc will not work in India
· India is different in two key parameters:
o The cost structure – Globally cost of people is high and cost of property is low. That is why the big format stores with self service options got developed. But in India this is just opposite. Indians like being serviced and in fact Indians are most over-serviced population. India is the only country where people will have one lakh car and will still have it chauffer driven. Self service format is not for India.
o Impact of MRP – In India prices are governed by MRP and therefore you will not find wide variation in prices of general items. So there is no locational advantage that could be gained. Usually people will go to far distance to get benefit of prices but if there is no price difference, the stores should better be located near the convenient locations. India will probably always remain “small store format” country.
· One big change that has happened is substantial increase in disposable income of the consuming class.
· Currently India is going through excesses and fundamentals have been forgotten. Indian retail is currently in hyper growth mode which will slow down eventually and only those will survive who will have there fundamentals intact.
· The key to manage the retail store is therefore:
o To manage bottomline, topline are much easier to come. This is difficult because competition is with kirana stores who have traditionally survived with very low margin forced on them by big manufacturers like HLL, P&G etc. They survived because they are the true entrepreneurs. They know how to work in adversity. Generally, big retailers try to use scale of economies to manage margin but it is only increasing sales and not the profit.
o Real estate prices – Retailers have the tendency to get hold of any and all real estate since they believe that anyway over time the prices are going to increase and after some period they will be profitable. But retailing is not a real estate business.
· Consumers are highly value conscious and we should strive to increase the value to the consumers.
· Organized retail still has huge opportunity to grow.
· There is large part of untapped demographic dividend (under served geographies) to be tapped.
· Migration is happening to urban cities coz of growth in manufacturing and services.
· The key to make Indian retailers strong is to expose them to brutal competition.
· India is the most competitive market in the world and those retailers who can survive here can survive anywhere in the world. Thus in next 5-10 years one may find that Indian retailers are moving out and setting up shop in other countries.
Perspectives on the Indian Economy and Implication for retailers: 10 things retailers should do in the next 12 months By, Ireena Vittal, Partner, McKinsey & Co.
· Since 1992, Indian economy is the most resilient economy. In spite of various problems in the past like Asian meltdown, 911 etc and current sub-prime crisis, India can still grow at 7%.
· The rate of growth of Indian economy is increasing and at the same time volatility is decreasing. Since India is an emerging market the volatility will be there but at a much reduced level then before.
· The reasons for India showing resilience are:
o Pvt consumption is driving the growth (68% of GDP). Indians are more confident of future and are therefore spending more and saving less. The savings rate has decreased by 33% from past.
o Positive supply side…
· Basically India is at inflexion point. It is where China was 15 years ago.
· Long term story of India seems good but in short term the future seems uncertain. The consumption has tapered down in last 4 quarters but fixed investment is still robust. This indicates that bottom has been reached and there is no downturn from here.
· Inflation is mainly driven by (40%) fuel and food. The fuel prices will move as per global conditions and nothing can be predicted on that front. The food prices were the lowest and the farmers where the major loosers. The food price correction was long due and what we are seeing is the one time correction which was due for long.
· Cost of financing is likely to remain high in near future & the financing firm may see bad time in near term.
· The consuming class is still thriving:
o Salaries of govt employees has increased.
o More budding entrepreneurs.
o Rural economy and Farmers are doing good.
o The effect of NREGA (100 day employment scheme of govt) is showing results.
· Thus long term story is robust, short term is uncertain and consumption pockets are still thriving and growing.
· 10 things that retailers must do:
o Build sale by:
§ Communicating value to consumer – not by advertisement but by doing real thing that consumer values. Like reduced prices etc. The effect of this will take time.
§ Drive traffic to store – shift promotion and marketing to traffic generating vehicle.
§ Never miss a sale – proper replenishment and incentive to shop staff
o Reduce cost:
§ By simplifying merchandising & sourcing
§ Restructure indirect cost
o Find Cash:
§ Manage for cash – look at cash flow
§ Increase investment efficiency & effectiveness (get 4 stores at price of 3)
o Buy in Buyers market:
§ Use the downturn
· Find partners
· Find who have to sell and get it from them at lower cost
§ Build bench strength
· Recruit talent
§ Local market battle plan – involve local community including kirana’s.
· The retailers need to have speed, simplicity and productivity of space – the long term story is intact and retailers should move confidently.

Connecting with young India, Saurabh Dhoot, Director, Videocon retail
Nothing worth writing!!
Q&A with Kishore Biyani
· Only 3% of India gets affected by EMI.
· Success is about discovering Indian way of doing retail
· “Garv se kaho hum kanjoos hain” – to bring about cost sensitivity to people.
· Key learnings over the year:
o Thoroughly understood Indian consumers
o Invest every rupee smartly.
· There is no right format. Execution is the key.
o Central mall – least risky and most profitable
o Big Bazaar, KB fair price – Lowest cost – true retailing
o Pantaloon – consistent income
o Home town bazaar (new format) – door to door sales – exciting
· Retailing is about understanding consumers
· Pvt labels is one of the major growth drivers for success
· Entertainment is the most difficult business coz the biggest source of entertainment of Indians (gossip) comes free of cost. Next is movie which is considerably cheap.
Round table 1: Where is the opportunity?
- Arvind Singhal, Chairman, Technopak
- Anchor: Bijou Kurien, President & CEO, Reliance lifestyle holdings
- Govind Shrikhande, ED & CEO, Shoppers stop
- Mark Ashman, CEO, Marks and Spencers India
- Ambreesh Murty, Country Manager, eBay India
- Thomas Varghese, CEO Aditya Birla Retail
- Roshini Bakshi, Country Head, Walt Disney
- Sonica Malhotra, ED, MBD group
- Soumitra Ghatak, CEO, My Dollar Store
- Asif Adil, MD, Diageo India
- Dhruva Chandrei, COO, Next Retail India
- Arvind Chaudhary, CEO, Aadhar Retail
- Sanjay Dutt, Dy MD, Cushman & Wakefield
- Doug Hargrove, CMO, Torex UK
- Sandeep Kataria, Global Brand Director, Home Care, Uniliver UK

· Economic slowdown is not crippling opportunity – can be seen from the sharp increase in no. of stores across all formats and across all retailers.
· Diversification in format is happening
· Retailers are expanding their reach by diversifying into geographies (cities)
· Reaching to wider strata (class) of consumers
· Modern format is no longer intimidating (to not so well off)
· Modern retail is having impact in sales of various categories of products
· More brands are looking for vertical integration – manufacturers are becoming retailers.
· Strategic alliance with best in the world – tie ups Bharti-walmat, Tata-Tesco,
· Increasing support from pvt equity
· Consolidation is expected
· More global retailers will come in
· It is expected that within 5 yrs:
o Investment of $30 Bn
o Revenue - $100 Bn
o Mall space – 500 million square foot
o Reach – 600+ towns, 5000+ villages.
· Issues in catchment – reducing
· Stagnation of innovation in certain categories.
· Online retailing (growing at 30%) – key:
o Ease of use
o Safety & trust
o Value (in reduced price & increase convenience)
o Major categories – travel, brand new fixed price product (like tech product, some apparel pdt etc), no confirmed price product (like jewellery) where prices are fixed via auction.
· We should try to exploit synergies between online & offline retail:
o Online provides benefit of large catchment area to be targeted.
o Online can address unreachable market
o Ease of selling end of life inventory
Hypermarket: Experience and learning
- Viney Singh, MD, Max Hypermarket
- Andrew Levermore, CEO, Hypercity
- Rakesh Biyani, CEO, Future Group
- Anchor: Hem Chandra Javeri
- Brendan Dorrian, CEO, Patonz Global Retail Network, UK

· Hypermarket & Kirana: major benefit in terms of assortment mix and price to some extent. Hypermarkets tend to increase the assortment variety that people consume. Eg. Sales of Kellogs has gone up significantly due to increase in no. of hypercity. People get exposed to products in hypermarkets. Kirana is mainly about services.
· The worries are cost of energy, real estate, week infrastructure and rising people cost.

· Major people challenge are:
o Lack of experience – because of nascence of business.
o Bringing people from outside or training in house – the two options being explored. Future group has not brought any people from outside.
o Discipline among shop floor employee is a big problem – can be overcome by giving proper motivation.
o Collaborate with institutions to train people. Future group has tied up with around 22 programs in country
· Supply Chain challenges:
o Supply chain is very well developed in India. How else can u justify the fact that over 12 million retail outlets in India are getting their products and surviving. But it is long, complex and involve multiple handlings. Lead time is long. The thing that is supplied by two trailers in US is being supplied by >300 vehicles in India at different time.
o Retailers can hold their own logistics systems.
· Consumers:
o Sales are skewed in weekends and holidays.
o Retailers trying to manage sales over week uniformly
o Loyalty is defined by no. of visits the consumers make per month. Some customers does shopping with whole set of shoppers and are loyal to all.
· Pricing:
o Consumers want 5 quarters in a rupee.
o Country governed by MRP – locational pricing a problem
o Pvt label – the key
o Creat new categories where there is no price comparison – to gain higher margins
· High rentals – developers need to understand the business model of retailers and work along with retailers.
Don’t try to change people habit – it will take more time and will cause more pain
Rather try to create new habit – its easier and faster.
· Concern was shown in safety of woman – collaborate with police, bylaws to have proper covered atriums, toilets etc, multi-level car parking. But anyways, malls are much safer then streets of India.
· Finding a good location is a challenge.
· Finding a mall with right mix of retailers and convenience to shoppers is a challenge.
· Retailers should try to create entrepreneurs in the store who can manage stores to provide better service to customers.

What could be the future concepts
- Anchor: Gagan Singh, MD, Sandalwood Living Retail
- Anchor: Harminder Sahni, MD Technopak
- Kabir Lumba, ED, Lifestyle
- Damodar Mall, CEO, Innovation & Incubation, Future Group
- Arvind Nair, MD, DLF Retail
- Vishal Mirchandani, CEO, Wadhawan Lifestyle
- Subhinder Singh, MD, Reebok India
- Akhil Chaturvedi, Director, Provogue
- K R Suresh Kumar, GM, Retail Sales, Indian Oil
- Rajiv Agarwal, CEO & Director, Essar Telecom Retail
- Ashwin Puri, CEO, Pioneer Property Zone
- Sanjiv Gupta, CEO, GKB Lens
- Nilesh Khalkho, CEO, Sharaf DG, UAE
- Ravi Showan, Head of Retail, Empire Direct, UK

· (Missed some part)
· Innovation in concepts – mobile banking & shopping, virtual payment, elimination of experts to tell about products
· Oil companies - To maintain margins – go closer to consumers and improve the service levels.
o Sell pdt in oil court like mobile recharge, movie ticket etc for which customer don’t like to move out to purchase it specifically.
o Display commodity price for farmers and even provide trading facility at courts for farmers.
· India has the advantage of directly leap forging and find out what works rather than going through painful process of trial and error.
· Innovating concept that can bring local & big retailers together is the key
· Specialty mall like Emporio in New Delhi, Homes in Pune are the next gen formats.Collaborative retail (like two players coming together) to exploit the synergy is also very much possible in Indian scenario.

Friday, August 8, 2008

Supply Chain Practices of Three European Apparel Companies: Zara, H&M and Benetton

Hennes & Mauritz
· Sweden based – founded by Erling Persson
· Though compared to its competitor Zara, H&M took more time to deliver the clothes, the extra time gave the company a cost advantage and clothes were 30-50% cheaper compared to those at Zara.
· Stocks are replenished every day and no item was allowed in shelf for more than a month.
· Clothes were designed by H&M and mfg by 600 suppliers located in 22 countries across the world to be shipped to more than 1300 stores spread in 25 countries across the world.
· All of H&M’s collection are planned and designed centrally by the company’s purchase and design department. The department had over 100 in house designers and cooperation from around 100 buyers and 50 pattern designers.
· The design was based by balancing three parameters namely fashion, quality and price.
· Every year H&M brought out two main collections, one during the spring and one during the autumn season. Within each season, several sub-collections are released.
· H&M also brought out collections in collaboration with renowned designers of the world
· H&M did now own any factories or manufacturing units, and clothes were procured from more than 700 independent suppliers.
· The main responsibilities of production office included identifying new suppliers, placing orders with the right suppliers, negotiating price, ensuring suppliers maintained quality, minimizing transport time etc.
· H&M essentially operated through two supply chains in order to optimize time and cost. The first chain took care of the cost component and the manufacturing was done mainly in Asian countires. The second one termed ‘rapid reaction’ was used for fashion sensitive garments, and was based in Europe.

· The production was sent to warehouses which act as transit terminal.
· The merchandise is delivered to store in daily shipments.
· The goods from the Asian countries were shipped by sea in order to minimize costs. When the orders from a particular store were large, the shipment was sent directly to stores. If the garments were in demand only in a particular country, then they were sent directly to the distribution centre in that country.
· All the H&M stores were managed by the company and operated in the best available locations.

Thursday, August 7, 2008

Supply Chain Practices of Three European Apparel Companies: Zara, H&M and Benetton

The case details the design, production and distribution practices of following three companies:
Zara: One of the pioneers of fast fashion developed a fully integrated supply chain model. The processes like design, production and distribution were carried in-house and it owned and operated all the stores.
Hennes & Mauritz: Designed & distributed the garments, and owned the stores, while the manufacturing was completely outsourced.
Benetton: designed and manufactured all the garments, but did now own any stores.

· Three key success factors – short lead time, more style and low supply of any particular style.
· Zara – the flagship brand of Spain based Inditex group, founded by Amancio Ortega Gaona and opened its first store in 1975.
· 1058 stores located in 69 countries as of March ‘08
· Able to conceptualize the garment, develop, and deliver it to the stores within 2-3 weeks weres the industry average is six months.
· Key to success – integration of design, production, distribution, and retailing
· The model allowed Zara to respond quickly to shifts in consumer tastes and to newly emerging trends.
· The company's instant fashion model, which completely rotated its retail stock every two weeks, also encouraged customers to return often to its stores, with delivery day becoming known as "Z-day" in some markets. The knowledge that clothing items would not be available for very long also encouraged shoppers to make their purchases more quickly.
· In 1988, the company opened its first foreign store in Oporto, Portugal.
· If a design doesn't sell well within a week, it is withdrawn from shops, further orders are cancelled and a new design is pursued. No design stays on the shop floor for more than four weeks, which encourages Zara fans to make repeat visits. An average high-street store in Spain expects customers to visit three times a year. That goes up to 17 times for Zara.
· While most retailers try to forecast the fashion trend and produce accordingly, Zara moves with the customer requirements and does not have to depend on forecast.

· The design centre was located in Spain as well and was divided into three segments for Men, Women and Child wear.
· Team consisted of more than 200 designers who can churn out 60 styles each.
· The store managers and sales staff updated the head office every day about the moving stock and provided inputs regarding the new lines, colors, styles and fabrics that customers are demanding.
· The store specialists provided the designers with an outline of the new style, design and fabric as demanded by the store. The procurement and production managers provided inputs regarding the capacity and manufacturing costs. The designers came out with the design specifications and the technical brief. With all the teams working in tandem, the prototypes were ready within a few hours!!

· Zara procures unprocessed and undyed fabric and colored the product based on the need. Zara sourced undyed fabric from far east, Morocco and India.
· The prototype is made by design team.
· The production facility cuts the fabrics as per the required design using computer layout of sample pieces. The layout was prepared to minimize wastage.
· The cut-pieces were barcoded and marked and were then distributed for sewing to 350 small workshops in Spain and Portugal where almost 60% of production happens. These workshops, which were not owned by Zara, employed about 11,000 workers and were provided with a set of instructions on how to sew the garments. This helps keep cost down. Quality was assured by maintaining proper training and audit.
· Garments are usually ready in a weeks time.
· The stitched garments after coming to the production centers of Zara were checked twice for quality, pressed, tagged, wrapped in plastic bags and sent to the distribution centers.

· Distribution centre (5lac sq meter) is located centrally in Spain.
· Zara has its own railway track of 211 km on which the goods moved to the distribution centre.
· Optical reading devices sorts out more than 60,000 items every hour. The distribution centre has two level and was fully automated. On one level, folded apparel was packed into cardboard boxes. The boxes were dropped through a shaft according to their destination. On the lower level, garments – sorted based on their styles – were placed on hangers. There were two belt systems – one for folded and one for hung garments. The garments were then routed using automated routing devices. All the garments were pre-priced and the lots labeled according to their destination.
· The garments were shipped out twice a week.
· Non-european consignments were sent to the airport for further distribution.
· Stores within Europe receives consignment within 24-36 hrs wereas outside Europe received them within two days.
· Zara achieved accuracy of 98.9% in its shipments.
· Once the merchandise reaches the stores, the goods were put on display straight away. With new stocks arriving twice a week, the stores always had something new to offer and the customers waited eagerly for new arrivals.
· The codes on the clothes conveyed to the staff where exactly the items needed to be placed. In the stores, the clothes were organized by color rather than type of garments. This was done in order to encourage customers to spend more time at the stores matching items.
· The stores were mostly located in the prime locations across the world.
· All Zara stores were uniform in outlay, including lighting, fixtures, window display and arrangement of garments.
· Most of the stores were company-owned and in some markets, particularly in Asia, Zara went in for alliance and franchises.
· Zara retained the right to open its own stores in the location and buy out franchised operations in cast the franchise experienced any problems with running the stores.

Zara’s supply chain - advantages and disadvantages:
· Zara was able to react swiftly to the emerging trend in the fashion industry. In contrast, other retailer took between 8 to 12 months to forecast and arrive at a style and send it for production.
· If the style did not sell as expected, the low production quantity ensured that Zara did not lose much, as there was not much stock to be discounted. On an average, Zara sold only 18% of the clothes through discount sales twice a year, as against the industry average of 36% and constant markdowns.
· Though this supply chain of Zara has higher cost but it allowed Zara the advantage of low inventory and higher profit margins. Analysts opined that Zara’s supply chain did not minimize costs, but worked towards maximizing revenues.
· The biggest disadvantage with Zara is that since Zara owned all the channels of supply chain, it was difficult for Zara to expand to far location as it becomes very costly to distribute such products.

(The supply chain practices of H&M and Benetton will follow in my next article…soon!!)