Multi-brand out­lets vs exclusive stores

Both have their ad­van­tages and neg­a­tives, and it is not clear which for­mat is su­pe­rior, but ev­ery re­tailer is forced to choose be­tween the two

CRN - - FRONT PAGE - AB­HI­JEET MUKHER­JEE

Part­ners have long de­bated about which re­tail model brings more prof­its: multi-brand out­lets (MBOs) or exclusive stores. There has been no de­fin­i­tive an­swer so far, and a de­fin­i­tive an­swer may not even be pos­si­ble. Yet for chan­nel part­ners in­vest­ing in re­tail mak­ing a choice be­tween these two mod­els is im­por­tant.

There are ap­prox­i­mately 1,700 Len­ovo Exclusive Stores (LES) and LESlites, 300 HP Worlds, 100 Dell exclusive stores, 500 Acer Malls, 250 Sony Cen­ters, 70 Asus exclusive stores, and around 50 Toshiba stores in the coun­try to­day. This along with some of the stores pro­moted by other brands puts the num­ber of exclusive part­ner-driven stores at around 3,000.

There are only guessti­mates about the num­ber of multi-brand part­ner-driven stores. The fig­ures range from 12,000 to 25,000 depend­ing on the pa­ram­e­ters you choose to cat­e­go­rize these stores.

Exclusive po­si­tion­ing

Part­ners say that the big­gest ad­van­tage of own­ing an exclusive store is that there is shared re­spon­si­bil­ity with the ven­dor who must en­sure that the store is vis­i­ble and that there’s a min­i­mum flow of busi­ness. In a slack­ened econ­omy, part­ners say that most ven­dors are work­ing harder to keep their spe­cialty store busi­ness grow­ing.

Says Paramjit Singh Juneja, CEO, Se­cant Tech­nolo­gies, a Lud­hi­ana-based exclusive re­tailer, “We get from the ven­dor a trained in-shop sales­per­son who has sound knowl­edge about the prod­ucts we shelf. This pro­vides a great cus­tomer ex­pe­ri­ence and helps us to sell bet­ter. We also get op­er­a­tional costs of 1-1.5 per­cent and up to 3 per­cent for high­end prod­ucts.”

Ven­dors ad­mit that since the spe­cialty stores act as an ex­tended brand wagon their first pref­er­ence will be to pro­mote these stores over MBOs. “For an exclusive store our com­pany pro­vides more fron­tend and back­end mar­gins,” in­forms S Ra­jen­dran, CMO, Acer In­dia. “In terms of in­di­rect prof­its we pro­vide demo prod­ucts at dis­counted rates, mar­ket de­vel­op­ment funds, in-shop and shop-front brand­ing ma­te­ri­als, and leads which not only add to their profit mar­gins but also help to draw foot­falls.”

How­ever, many feel that the for­tunes of an exclusive store are of­ten de­pen­dent on the ven­dor. “No ven­dor can keep pro­mo­tions go­ing through­out the year. Nor do all cam­paigns work through­out the year,” points out Arvind Modi, CEO, Bits & Bytes, a Jaipur-based re­tailer who owns both exclusive stores and MBOs.

While ven­dors say that they foot most of the in-house brand­ing, most part­ners say that it’s more ex­pen­sive to run an exclusive store.

Ex­plains Manoj Ba­jaj, CEO, CAS Com­put­ers, a Tin­sukia-based multi-brand re­tailer, “Even for a small city like Tin­sukia the op­er­a­tional costs are high and an exclusive store would not be able to pro­vide the ROI. The monthly ex­penses for even a 400 sq ft store would be noth­ing less than ` 50,000 in­clud­ing real-es­tate, elec­tric­ity and tele­phone ex­penses, 2-3 sales­per­sons and a store man­ager, a peon, and freight and courier charges. If I add five more brands to the same store and my ex­penses re­main the same, I will have bet­ter prof­itabil­ity.”

“One prob­lem with ven­dors is that they ex­pect re­tail­ers to stock and dis­play each and ev­ery model of theirs. Al­though the run-rate mod­els van­ish from the shelves fast the high­end mod­els are hard to liq­ui­date and thus our money gets stuck. We even­tu­ally sell them at zero profit,” rues Modi.

Where MBO works

Most spe­cialty re­tail­ers feel that since ven­dors of­ten fail to main­tain a uni­form MOP it is the MBO own­ers who reap the ben­e­fits. Adds Modi, “A uni­form MOP can re­duce com­pe­ti­tion be­tween the two re­tail for­mats as well as among peer part­ners but since the MOP is not uni­form MBOs sell at a re­duced rate while we have to fol­low the com­pany guide­lines and bear losses.”

Most part­ners say that con­ver­sion rates are higher at MBOs. Points out Hemant Shah, MD, Care Of­fice Equip­ment, a Mum­bai-based multi-brand re­tailer,

“A multi-brand re­tail out­let pro­vides a lot of op­tions both for the seller as well as the buyer. For a ` 40,000 note­book re­quire­ment of a cus­tomer I can of­fer 10 SKUs of dif­fer­ent brands which may not have been pos­si­ble if I had an exclusive store be­cause a sin­gle brand might not nec­es­sar­ily have a wide range of SKUs.”

Many sub-dis­trib­u­tors who have set up MBOs are tak­ing ad­van­tage of the sit­u­a­tion. “We have seen some of our peers tak­ing ad­van­tage of price clear­ances of­fered by dif­fer­ent ven­dors and pro­mot­ing the prod­ucts through their stores,” says Di­nesh Nair, Di­rec­tor, Big C Tech­nolo­gies, a Ben­galuru-based multi-brand re­tailer.

How­ever, he adds that for part­ners to re­ally take ad­van­tage of a multi-brand store deep pock­ets have be­come nec­es­sary. “Across the coun­try we have seen businesses pay­ing ex­tra for smaller real-es­tate foot­prints. To do jus­tice to 5-6 brands a re­tailer needs to have a min­i­mum dis­play space of 750 sq ft in a city like Ben­galuru. We have seen smaller re­tail­ers shut­ting shop be­cause smaller spa­ces cost more per square foot while the ba­sic costs in terms of man­power, pro­mo­tions and of­fice ex­penses re­main the same.”

Ex­pec­ta­tions from ven­dors

Large for­mat re­tail­ers and e-com­merce por­tals are a threat to all part­ner-driven businesses, and the big­gest de­mand from re­tail­ers cut­ting across both for­mats is bet­ter con­trol from ven­dors to en­sure sta­ble MOP.

“Ev­ery year we are see­ing more com­pe­ti­tion from web­sites. Many of these por­tals have deep pock­ets, and can of­fer bet­ter deals be­cause month-on-month prof­itabil­ity is not a con­cern for them. That’s not the case with a part­ner­driven store,” says Vinod Mulchan­dani, Di­rec­tor, Aarvee

“For an exclusive store we pro­vide fron­tend and back­end mar­gins, demo prod­ucts at dis­counted rates, MDF, shop-front brand­ing ma­te­rial and leads” S RA­JEN­DRAN CMO, Acer In­dia

Com­put­ers, a Mum­bai-based exclusive re­tailer.

Re­tail­ers sug­gest that the best op­tion will be to bring on­line re­tail­ers un­der reg­u­lar mar­ket de­vel­op­ment pro­grams, or to pro­mote dif­fer­ent mod­els through dif­fer­ent for­mats.

High tar­gets set by ven­dors is an­other dis­turb­ing fac­tor. “At times we find it ex­tremely dif­fi­cult to meet tar­gets,” com­plains Reeta Bud­hay, Di­rec­tor, Busi­ness Al­go­rithm, a Nag­pur-based exclusive re­tailer. “What adds to our woes is that a ven­dor starts pro­mot­ing an­other part­ner if our tar­gets are not met. No one can per­form con­sis­tently month-on-month, so ven­dors must not stop help­ing a part­ner be­cause the part­ner had a bad month.”

More cre­ative fi­nanc­ing op­tions are also in de­mand. Many re­tail­ers re­port grow­ing num­bers be­cause of fi­nanc­ing op­tions. “Ven­dors such as HP have tied up with banks and fi­nance com­pa­nies for EMI schemes. A 5 per­cent cash-back on cer­tain prod­ucts helps us to sell them bet­ter,” says Juneja. Most suc­cess­ful IT re­tail­ers are adding more stores. Most exclusive store own­ers are launch­ing ei­ther MBOs or stores of other ven­dors. “No one wants to keep all their eggs in a sin­gle bas­ket. You don’t want to be tied to the for­tunes of a sin­gle ven­dor or a sin­gle for­mat,” re­marks Ba­jaj.

Ra­jen­dran sums up things rather nicely. “There’s no sin­gle for­mula for suc­cess. We have seen some en­trepreneurs suc­ceed­ing with MBOs and oth­ers with spe­cialty stores. What you need to pay at­ten­tion to is the ba­sics of busi­ness such as place, prod­uct, pro­mo­tion and people.”

“Even for a small city like Tin­sukia the op­er­a­tional costs are high. The monthly ex­penses for even a 400 sq ft store would be noth­ing less than ` 50,000” MANOJ BA­JAJ CEO, CAS Com­put­ers

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