On yet another related note, they seem to have done something about the pricing. It’s friggin’ expensive now (70 bucks for a small cappuccino?) but I think they’ve gotten it right. There is obvious value in the restaurant as shown by the long waiting lines that used to be there earlier, and the restaurant is now simply monetizing that value rather than using artificial means (loud music) to chase people away.

As a former revenue management professional (damn; that sounds so corporate whoreish) I’m happy they are doing what a coffee shop like them is supposed to do – providing excellent environment for long conversations and chilled out afternoons, and actually charging for what it’s worth.

The earlier method was so cheap and country – they were clearly underpriced because of which there was overcrowding and they weren’t able to meet demand and had to use other measures such as playing loud godawful music to keep the crowd rotating.

Two thumbs up to Barista’s new pricing and music policy!

I haven’t been to too many FabIndia stores outside Bangalore (only a handful of stores in Gurgaon and maybe one in Delhi) but having shopped a few times at the FabIndia store in Koramangala, I feel distinctly underwhelmed whenever i go to any other outlet. Having been several times to this beautifully designed house, I find FabIndia outlets housed in less spectacular buildings sad. Of course there have been times (including two days ago) when I’ve shopped at other outlets but the experience simply doesn’t come close.

The first time I went to the store was some four or five years back when Anuroop wanted to check out kurtas. I think we went there on Bunty’s recommendation but I remember that I hadn’t bought anything. I had quickly made amends for it a couple of months later when I bought a couple of shirts, and then a year later when I bought a dozen shirts at one go!

The only other time I went there without purchasing anything was yesterday morning, when I was visiting the store after a gap of some two or three years. The first thought was one of guilt – of having shopped in a less spectacular Fabindia store (the one at Kathriguppe) just the previous night, and then as I got over it I got overwhelmed with the variety on display. I suddenly got afraid that I might over-spend and made a dash for the exit.

I wasn’t gone for too long, though, as I returned in the evening with Priyanka, and this time we discovered something even more spectacular – something that I had completely missed during my hajaar earlier visits - the store cafe. The brownie was decent, and the coffee was just about ok, but that didn’t matter one bit. Once again, it was the atmosphere at play, and that the coffee shop had in plenty.

It’s something like a small arena. If you can perform some visual art (say a play or a dance) in a five feet square area, this is just the place for you! All around the 5×5 “well” (which is full of pebbles) are stone benches, at different levels. Cushions have been placed on some arbitrary benches, and we understood that that’s where it was supposed to sit. There wsa some music that I didn’t quite recognized but was quite pleasant, and the wooden trays in which the waiter brought our coffees were also beautiful – I might have bought something like that from the store had I been in a spendthrift mood yesterday!

If you are in Bangalore and are interested in cotton clothes you should definitely check out this store sometime. It’s in Koramangala, in the extension of the intermediate ring road. Make sure you go there leisurely, for there is plenty to see and buy (the inventory is about six times as much as that of an “ordinary” FabIndia store). And while you are there, do visit the cafe and lounge around there for a while. And think about Priyanka and me while you are there.

One of the big fears about deregulation that he mentions is the fear that volatility in retail prices of petroleum products might increase, and he argues that this is a good thing and is much better than the government artificially hiding the prices and subjecting the junata to major price shocks once in a while. While I agree with him on this, I don’t think prices will change frequently in the first place.

While I was reading this article, I started thinking about the neighbourhood Sri Ganesh Fruit Juice (yeah there are a dozen of those in every neighbourhood in Bangalore) center. About how the guy keeps the price of orange juice constant throughout the year, despite the price and availability of oranges themselves fluctuating wildly across seasons. Yeah he might do minor adjustments such as changing the proportion of water but he can’t do too much of it since he needs to maintain quality.

The basic funda here is that customers want certainty. Every time they go to the shop for their fix of orange juice, they want certainty in the prices. Even if you are on an average cheaper, you will lose customers if your price is more volatile than your competitor’s. Of course there are occasions when you can’t help it and are forced to change your price – and on these occasions your competitors are also likely to do the same. But as far as possible, you try your best to decouple the price of orange juice from the price of orange which is pretty volatile.

Now I don’t know if the volatility in crude oil prices is more than the volatility in orange prices (it’s likely to be) but considering that oil companies are supposed to be more sophisticated than your neighbourhood juice shop guy, I would expect similar behaviour from them – of keeping retail prices of petroleum products as stable as they can. Of course they are likely to follow long-term trends but they are surely not going to pass on the short-time noise in prices to the customers.

So this fear of increase in volatility of retail prices is unfounded, assuming of course that the oil marketing companies are good businesspeople!

So on Sunday evening, after having spent most of the day with a bunch of friends I know through an online group, and an hour or so with RG Mani, a very tired me walked into Macy’s, which claims to be the largest store in the world. I don’t dispute that claim – there are some six floors with each floor being the size of an average Big Bazaar. And there are clothes. And clothes. And shoes. And clothes. And more clothes.

Since I was trying to shop not only for myself, I ended up spending a considerable amount of time in the women’s section also. And the problem there was one of plenty. There was so much stuff to look at that it caused intense NED. I ended up just giving up on large sections of the store, and not even looking at even a sample of price tags there (yeah, I’m a cheap guy and was looking only for heavily discounted stuff). I won’t elaborate further on this “too much choice => NED” funda. Read the Harford article for more on that.

I don’t know what the strategy of the store is and whether they had deeply discounted stuff at all. The sample of clothes that I happened to check the price tags of were all extremely expensive. Perhaps the store did have some cheap stuff, but I don’t understand the policy of hiding it somewhere. Is the thinking that people on the lookout for cheap stuff are going to look more carefully and will hence find it? Which means some kind of “skimming” in terms of people’s attention spans? But the problem with this strategy is that by not displaying the cheap front up front, you may end up turning away a lot of people who look for cheap stuff!

Looking through all the huge floors of Macy’s caused me so much NED that when I saw an excellent looking reasonably priced Tommy Hilfiger sweater I didn’t even bother trying it. Maybe if I’d seen that sweater earlier I would’ve owned it now! So much that choice, and size, can do!

On Monday I went to this store called Century 21 near my office and had a more productive shopping experience. They also had both cheap and expensive stuff but they prominently advertised the cheap stuff with prominent “sale” signboards. Much more targeted, much more convenient for the cheap shopper, much more sales which means much more profits. Only thing I wonder is if this strategy of theirs turned away people looking for the higher margin expensive stuff..

• There were some 200 stalls. Actually, there might have been more. I didn’t keep count, despite the stalls having been numbered. Yeah, you can say that I wasn’t very observant.
• All the major bookshops in Bangalore barring the multicity ones had set up shop there. I don’t really know what they were doing there. Or were they just trying to capture the market that only buys in fairs? Or did they set up stall there just to advertise themselves?
• It seems like a lot of shops were trying to use the fair to get rid of inventory they wanted to discard. All they had to do was to stack all of this on one table and put a common price tag (say Rs. 50) on every book in that collection, and it was enough to draw insane crowds
• One interesting stall at the fair had been set up by pothi.com an online self-publishing company. I’ll probably check them out sometime next year when I might want to publish a blook. Seems like an interesting business model they’ve got. Print on demand!
• I also met the flipkart.com guys at the fair. Once again, they were there for advertising themselves. Need to check them out sometime. Given the kind of books I buy, I think online is the best place to get long tail stuff.
• There was an incredibly large number of islamic publishing houses at the fair! And have you guys seen the “want qur an? call 98xxxxxxxx for free copy” hoardings all over the city? Wonder why the Bajrang Dal doesn’t target those
• There was large vernacular presence at the fair. I remember reading in the papers that there was a quota for Kannada publishers, but there was reasonable presence for other languages also, like Gult, Tam, Mellu, Hindi
• A large number of stalls were ideology driven. Publishing houses attached to cults had set up stalls, probably to further the cause of their own cult. So there was an ISKCON stall, a Ramakrishna Mutt stall, a Ramana Maharshi stall, etc.
• Attendance at most of these niche stalls was quite thin, as people mostly crowded the stalls being run by bookstores in order to hunt for bargains. Attendance was also mostly thin at publisher-run stalls, making me wonder why most of these people had bothered to come to the fair at all.
• I saw one awesomely funny banner at the place. It was by “Dr Partha Bagchi, the world leader in stammering for last 20 years” or some such thing. Was too lazy to pull out my phone and click pic. But it was a masterpiece of a banner
• Another interesting ideological publisher there was “Leftword books”. Their two sales reps were in kurtas and carrying jholas (ok I made the latter part up). And they were sellling all sorts of left-wing books. Wonder who funds them! And they were also selling posters of Che for 10 bucks each
• I wonder what impact this fair will have on bookstores in Bangalore in the next few days. Or probably it was mostly the non-regular book buyers who did business at the fair and so the regulars will be back at their favourite shops tomorrow.

I bought two books. Vedam Jaishankar’s Casting A Spell: A history of Karnataka cricket (I got it at Rs. 200, as opposed to a list price of Rs 500) and Ravi Vasudevan’s “Making Meaning in Indian Cinema”.

While book-shopping yesterday I was thinking about the various Landmark stores I’ve been to, and how the Landmark at the Forum is the worst of them all, with the one at Spencer’s Plaza in Madras (which I last visited seven years back) coming second. The problem with these two stores is that they are in otherwise popular malls. What this does is that it attracts casual browsers to just check out the mall and makes the browsing experience more painful for the serious browsers.

On the other hand, the Landmark stores in Nungambakkam, Gurgaon (Grand Mall) and Garuda Swagath Mall are either standalone or situated in malls which are otherwise not too popular. And precisely for this reason, the crowd at these stores is significantly superior. You get your space to browse without being asked to make way for passerby, you can actually sit down going through a book and deciding whether to buy it. The store staff, who are much less hassled, are far more courteous and helpful. And if you happen to pick up a conversation with another browser, it is likely to be much better than at the more popular malls.

This presents an interesting problem for the bookshop-owners regarding location. Do they put the bookshop in a popular mall and thus maximize footfalls? Or do they locate their shops in lesser malls or on high streets hoping to attract better “quality” of footfalls which might actually result in better sales? Keeping the shop in a popular mall attracts more casual browsers and if book purchase is an impulse decision, then it is likely to pay off for the store (even there you need to keep in mind that crowded checkout counters can cause the casual browser to drop the book back in the shelf). On the other hand, if they think book buying is a more informed, laborious decision, then they should be locating themselves in places where they won’t get random crowd.

Of course I’m only talking about the browse-and-buy model here and not covering shops such as the erstwhile Premier Bookshop – which rely on customers who know exactly what they want and just ask for it. And of course, for a shop to locate itself in a slightly obscure location it needs to have the “pull” (of a brand name or something) in order to attract customers.

Coming to the loot:

• The Naked Ape, Desmond Morris
• The Great Railway Bazaar, Paul Theroux
• The Emerging Mind, VS Ramachandran
• The Flight of the Creative Class, Richard Florida
• Panic, Michael Lewis
• A Splendid Exchange (How Trade Shaped the World), Willian Bernstein
• Gang Leader For A Day, Sudhir Venkatesh
• The Bowler’s Holding the Batsman’s Willey (humorous sporting quotes collection), Geoff Tibballs
• Musicophilia, Oliver Sachs
• The Oxford Book of Modern Science Writing, Edited by Richard Dawkins
• When Genius Failed (LTCM), Roger Lowenstein
• Ramayana, a modern rendition, Ramesh Menon
• The Rise and fall of the third chimpanzee, Jared Diamond
• Bhairavi, the global impact of indian music, Peter Lavezzoli
• The Real Price of Everything (collection of 6 economics classics – fundaes by adam smith, david ricardo, etc.), Edited by Michael Lewis
• Predictably Irrational, Dan Ariely
• The Universal History of Numbers (Part 1 and 2), George Ifrah (didn’t buy part 3 since it seemed full of CS fundaes)
• A Maidan View, Mihir Bose
• The States of Indian Cricket, Ramachandra Guha
• The Bhagavad Gita, Royal Science of God-Realization, Paramahamsa Yogananda
• Autobiography of a Yogi (Kannada translation), Paramahamsa Yogananda (mom and aunt asked for it)

People, thanks for your recommendations. And once I’m done reading these books, I might be open to lending them (provided I trust you to return them, of course).

A few Sundays back, I came home in the evening expecting an evening full of EPL and IPL (I don’t exactly recall what games were on that night, but both were fairly appetising). And then my mother tells me that I’ve to go for a niece’s birthday party. I wasn’t too enthusiastic about going, but was pushed to go nevertheless. I spent a total of an hour in commuting and attending the party and eating. “So you weren’t bored”, said my mother. “I wasn’t bored as such, but had nowhere as much fun as I’d've had with that hour of cricket and football. In fact, even if I take into account the “reputation” and minimal networking and whatever good Karma I gained out of attending the party, I thought I wasn’t adequately compensated. It was hard convincing my mother of the same.

Changing tracks, you have various interest groups clamouring for extra funds from the government for one purpose or the other. On a number of occasions the lobbies are so strong the money will be released. However, I’m yet to see too many people asking the question as to where the money came from. Rather, what would have happened to the money had the government not doled it out to this interest group. In fact, the Finance Minister would do a great service to himself and to most of rest of the people if he starts talking in terms of opportunity costs.

Take the following two statements:

1. “The government has given the textile sector a tax break amounting to Rs. 1000 Crore in the wake of the rupee’s appreciation”

2. “The government has given the textile sector a tax break amounting to Rs. 1000 Crore in the wake of the rupee’s appreciation. The money thus collected was supposed to go into the building of 500 superspecialily hospitals in remote and poverty-stricken districts”

I’m not sure if this example is the best (I mean I think it’s easy to replace most variables in this), but you can see the impact when people start talking in terms of opportunity costs.

The provocation for this post comes from this analysis of a shop called “Amma Naana” in Chennai. The authors of the study, supposedly MBA students and their professors, compare this store to the average supermarket in Chennai. They meticulously collect data, create tables, calculate averages and show this store to be significantly superior to all supermarkets.

I don’t dispute the conclusion at the macro-level. From my experience, too, standalone stores seem to be much better managed than chains, and there is the element of customer service which leads them to do much better than similar “organized retail”. However, certain parts of the analysis are disturbing:

Amma Naana does not pay any rentals as the property is owned by the proprietors.

Supervision of the store involves the owners? family members, keeping the employee payroll lower.

Ok, from a purely Profit and Loss statement standpoint (notice that I’m not saying ‘accounting standpoint’) this might be fine. However, when doing a comparative analysis, isn’t it necessary to take into account the opportunity costs? For example, the article says that the store charges a premium on most products. And all packed goods are sold at MRP. Is anyone surprised about this, given that this store is in the posh Boat Club area?

Usually, how does the poshness of the locality come into account in a P&L statement? By way of high rents. By removing rents out of the equation, this article is completely missing the point. Similarly, this store is supposed to have a larger staff than most chains. However, “most are family members” so their salary is not taken into the income statement. Can any other store operate like this? Does it make any sense to compare this store to another which owns neither the location nor the rights to the labour of a few hundred relatives?

The normal “economic” thing to do would obviously be to take into account the opportunity cost of the space and the relatives. Take in the costs of “what if I’d rented out my building instead of running this shop” and “what if I’d let my relatives work elsewhere instead of running this shop”. And? the analysis will be fine.

But then, these things don’t fit into an accounting standpoint, do they? You remember accounting? People read P&Ls and balance sheets together for a reason. Suppose the account statement presented in the article were accompanied by a balance sheet. The size of the balance sheet would’ve showed you there is significant capital cost involved. The size of equity the promoter owns would have told you that the profits have to be shared with several relatives. Fair?

Sometimes when you see articles with obvious stupidity in newspapers where you expect a reasonable standard, you start wondering who the stupid one is. Whether it is the guy who wrote the article or the editor. I think the prize should go to the editor. The author does his job – writes an article as well as his intelligence permits. The editor? He is bloody paid to keep the bad articles out, and maintain the exalted standards of the publication. Clearly, the editor at the Business Line doesn’t seem to be doing his job.

Hat tip to

chandrachoodan

?for linking to a link to this article.

?

Now, Megamart appears to have a similar progressive discount policy. But a little closer look and a little math reveals it’s not so progressive at all. Right now the policy is

Buy one, get 30% off
Buy two, get one free
Buy three, get two free

Now I’m wondering what they are playing at. For example, yesterday after I’d tried on a pair of trousers and liked it, the salesman said “why don’t you buy another pair? then you’ll get yet another free”. It was as if he was willing me to buy two pairs more of trousers for the price of one. But then, I quickly realized that it wasn’t just the price of another trouser I was going to pay, I would also forgo the 30% discount on the first one.

Just to rephrase Megamart’s discounting policy,

Buy one, get 30% off
Buy three, get 33% off
Buy five, get 40% off

If you look at the discounting this way, it’s hardly progressive. If you’ve gone in with an intention to buy one pair of trousers, I don’t know if there’s sufficient incentive for you to walk out with three – given the measly 3% additional discount. Also, note that, when you purchase three garments, you end up getting the cheapest free. So if the three garments you’ve bought have a high variation in prices, there is a chance that you are effectively getting less than 30% of discount on the whole!

However, I think their point is with the way they have phrased their discount policy. I don’t know how to analyse this on a behavioural framework, but I think this “get one free” bit overrides the “30% discount” bit in the consumer’s head. From Arvind’s point of view, I think this is a clever strat.

One more thing I want to mention here. Yesterday, I was trying out and trying to figure out if I wanted a second pair of? trousers. At that time, I decided that if I’m going to buy this trouser too, I’m going to ask for a separate bill. There was no way I’d buy yet another pair that I didn’t want, all to just get that additional 3% in discount. In the eventuality, I didn’t like the second pair of trousers. So I ended up buying one pair, at a nice 30% discount.

?

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One thing, however, is clear ? that the demolition of the current monopoly will prove beneficial for everyone in the long run. It is now up to the governments to look ahead and do the needful.

There is some excellent material on this topic on the agmarket website. Do check it out if you are interested in this topic.

Cross posted at The Indian Economy Blog. I will try and reply to all comments here, but can’t promise the same regarding the IEB.