EBOs V/S MBOs: Which side do the scales tilt?

De­cod­ing the EBO V/S MBO Tus­sle

Apparel - - Front Page -

There is in­deed no def­i­nite an­swer to the ques­tion of which re­tail for­mat brings in more prof­its. Even as Zara is open­ing exclusive out­lets to de­liver high mer­chan­dise vis­i­bil­ity and cus­tomer ex­pe­ri­ence, Ray­mond and Si­yaram’s are mov­ing to sell­ing their mer­chan­dise through multi-brand out­lets.

Time and again, re­tail­ers and brands have hopped on to new-fan­gled band­wag­ons and newer re­tail dis­tri­bu­tion for­mats when it comes to pulling in cus­tomers and in­creas­ing sales. It is true that con­sumers are no longer only price con­scious; rather, they look for con­ve­nience, time sav­ing meth­ods, trends, va­ri­eties, good dis­counts and a one-stop-des­ti­na­tion kind of shop­ping con­cept.

“Where once, sin­gle-brand re­tail­ing was typ­i­cally dom­i­nated by cat­e­gories such as luxury goods, ap­parel, ac­ces­sories and footwear, chang­ing con­sumer de­mo­graph­ics have made even brands like kitchen ap­pli­ances, ac­ces­sories, toi­let ac­ces­sories, ap­parel ba­sics, etc., find a place in multi-brand out­lets to­day,” opines re­tail ex­pert Nis­hank Jain. Be it a brick and mor­tar space or e-com­merce por­tals, a ma­jor­ity of re­tail­ers are look­ing for pres­ence via MBOs.

Cur­rently Ti­tan, He­lios, Ray­mond, Ti­tan Eye+, Mahin­dra First Choice, Car­na­tion Auto, Kap­sons, Van Heusen, The Mo­bile Store, Skech­ers, Sangeetha Mobiles, Pro­mart, Ur­ban Shore, Ki­maya Kitsch, Si­yaram’s, Of­ficeYes.com and Planet Fash­ion are op­er­at­ing via the MBO for­mat.

THOUGH OPEN­ING EBOs WILL IM­PROVE VIS­I­BIL­ITY OF THE BRANDS, TO MAKE IN­ROADS INTO VAR­I­OUS TOWNS AND CITIES WHERE THERE IS A HUGE PO­TEN­TIAL MID­DLE AND UP­PER MID­DLE CLASS POP­U­LA­TION RE­SID­ING, MBOs ARE THE ONLY OP­TION.

MBOs v/s EBOs - Which for­mat is might­ier? Monte Carlo di­rectly ap­proaches their cus­tomers through their dis­tri­bu­tion chan­nel which com­prises a mix of Exclusive Brand Out­lets (EBOs), a net­work of Na­tional Chain Stores and Multi Brand Out­lets (MBOs). There is no pre­ferred for­mat. Though open­ing EBOs will im­prove their vis­i­bil­ity, to make in­roads into var­i­ous towns and cities where there is a huge mid­dle and up­per class pop­u­la­tion re­sid­ing with in­creas­ing dis­pos­able in­comes, MBOs are the only op­tion. At present, they have 150 EBOs and more than 1,000 MBOs all over In­dia.

“You need the right prod­uct at the right price to set up an EBO, es­pe­cially in non-met­ros,” says the spokesper­son from Arvind Brands. It is not easy to tap small mar­kets as big brands may not have ac­cess to the in­ner­most chan­nels. So, there is an MBO thrust, lower price points, and more fash­ion­able prod­ucts to suit the as­pi­ra­tions of a per­son. While a metro con­sumer is slightly more evolved, the small town guy doesn’t mind wear­ing rip-offs and im­ports.”

Small time ap­parel man­u­fac­turer and re­tailer Tarun Jain of Brooks In­ter­na­tional feels, “Ap­parel is more prod­uct driven and less brand driven and hence, the MBO route proves to be more prof­itable. Though, on one side, exclusive brand vis­i­bil­ity has to be com­pro­mised, but on the other, small re­tail­ers get to spread their costs evenly by sup­ply­ing their prod­ucts to var­i­ous stores.” KOU­TONS is an ex­am­ple of the change from a MBO to an EBO for­mat.

THE DEPART­MENT OF IN­DUS­TRIAL POL­ICY AND PRO­MO­TION HAS CLAR­I­FIED THAT GLOBAL RE­TAIL­ERS PLAN­NING TO EN­TER THE MULTI-BRAND RE­TAIL SEC­TOR IN IN­DIA WILL HAVE TO MAKE FRESH IN­VEST­MENTS IN BACK-END IN­FRA­STRUC­TURE, AND AC­QUI­SI­TIONS OF SUP­PLY CHAINS OR BACK-END AS­SETS FROM EX­IST­ING EN­TI­TIES WOULD NOT BE AL­LOWED.

In­flex­i­ble Govt. Pol­icy struc­ture The Depart­ment of In­dus­trial Pol­icy and Pro­mo­tion (DIPP), has clar­i­fied that global re­tail­ers plan­ning to en­ter the multi-brand re­tail sec­tor in In­dia will have to make fresh in­vest­ments in back-end in­fra­struc­ture, and ac­qui­si­tion of sup­ply chains or back-end as­sets from ex­ist­ing en­ti­ties would not be al­lowed.

The guide­lines also say that both the back-end fa­cil­i­ties and the front-end re­tail en­tity would have to be com­pletely sep­a­rate and the multi-brand re­tail trad­ing en­tity will not be per­mit­ted to un­der­take any whole­sale ac­tiv­ity. The front-end stores set up by the multi-brand re­tail trad­ing units would have to be ‘com­pany-owned and com­pany-op­er­ated’ only. Th­ese re­stric­tions, thus, po­ten­tially limit the re­tail­ers’ flex­i­bil­ity to struc­ture his fran­chisee ar­range­ments or oth­er­wise, on­line chan­nels, sup­ply chain, dis­tri­bu­tion net­works, etc., and hence, we are see­ing an in­crease in EBOs to­day, es­pe­cially in the con­sumer durables seg­ment, with Sony and Pana­sonic be­ing the lead­ers.

Both th­ese re­tail con­cepts have their own pros and cons. At some point of time, the re­tailer ben­e­fits from exclusive out­lets, and at an­other time, he may ben­e­fit from multi­brand out­lets. While EBOs are im­por­tant for branded ap­parel mak­ers to es­tab­lish a mar­ket pres­ence, and cre­ate an im­pres­sion in the cus­tomers’ mind, MBOs of­fer a prag­matic ap­proach for the suc­cess of a re­tailer as they of­fer a wide va­ri­ety to shop­pers un­der a sin­gle roof. From any busi­ness per­spec­tive, the model that leads to the bot­tom line strat­egy de­pends on dif­fer­ent as­pects, such as, is the in­di­vid­ual brand strong enough to sur­vive with the EBO for­mat? How do the brand want to be po­si­tioned? Are we look­ing at the long-term or short-term strat­egy and the strength of fi­nance on the mar­ket­ing side? What is the ac­cep­tance of the brand in the eyes of the cus­tomer? etc.

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