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
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.
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