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Simran Says: The Indian retail model has a safety strategy ...
Posted On: 06-12-2010 00:00:00 10

A year ago I was helping introduce a new home textiles brand in the market. The brand had been developed and marketed by an exporter and was high on design content with attractive pricing to boost. Since the company credentials were good we got the appointments with the retailers easily enough. The surprise came when it came to discussing terms of trade. All retailers we spoke to ( and we spoke to just under a dozen) had identical terms which were broadly as follows. The brand would be given a shop-in-shop of between 100 - 200 sq ft. The interiors of the section were to be done by the brand. All goods would be on consignment and the space would need to be managed by a staff retained by the brand. The retailer would get a margin on sales or a minimum guarantee, whichever was higher. The minimum guarantee's I estimated were pegged at approx 5 - 6 times the actual rental of the space. By doing this the retailers had effectively absolved themselves of all risk. What's more, I would estimate that lifestyle retailers have given over 50% of their floor space as shop in shops with the balance being occupied by private label and a few well established brands that may not accept the minim guarantee arrangements on account of brand strength. The obvious plus of this strategy is that it secures the retailer since investments are limited and the bottom line is partially guaranteed. Further, since the retailers are selective about who gets the shop in shop there is an attempt to achieve a fit between the brand and the target customer. However, it is a less aggressive strategy in that it depends on the brands to merchandise the sections they occupy. Getting a well balanced product mix across the store therefore becomes a challenge. What's more, this model depends on brands that are capable of scaling up with the retailer. Since these are limited, most lifestyle retailers are looking similar in terms of the brand mix. But for the moment the retailers have clearly chosen the safety strategy.


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