retail – Page 5 – Pertinent Observations

FDI in retail

I’m trying to figure why that is turning out to be a big deal. Given that we have over 5 years of history of “organized retail” in India, and that it hasn’t performed particularly well on a lot of factors, I don’t know how permitting FDI in multi-brand retail is going to make a difference.

In my personal experience, the performance of “modern retail” over the last 5 years has been underwhelming at best. I can’t recall a single time when I’ve gone to one of these chain stores (Big Bazaar/ Reliance Fresh / More) and come back without getting annoyed with the checkout staff. While the variety available at these stores is massive, which is why I go there at times, the stores are all staffed with a bunch of imbeciles. Yes, all of them. They have made an attempt to overcome the unskilled staff by means of “software systems” and that has only added to the problem, rather than helping solve it.

On countless occasions, staff at modern retail outlets have refused to sell me something that I wanted to buy because “the item code wasn’t found in the system”. The other day the customer in front of me wanted to cancel an item midway through checkout, and the checkout staff had to call the store manager to reverse the transaction. I don’t know why the systems have been designed so badly. The fundamental problem with most of these “modern retail” outlets is that the staff there have no real incentive to actually sell you stuff, and the impression one gets is that the only thing staff strive to do is to avoid mistakes. Perhaps their incentives are structured thus. I know of a case from some 4-5 years back, when a family-owned opened across the road from a More outlet and in the course of a year, the latter had shut down.

Given this lacklustre performance of modern retail, I don’t know how much of a difference permitting FDI in the sector will achieve. Yes, it is argued that if Walmart invests directly the “know-how” it has accumulated over the years will be introduced to India. However, there is no reason to believe that this “know-how” has not already been implemented. Major players in organized retail such as Reliance and the Aditya Birla Group (More) have demonstrated in other sectors of their willingness to acquire know-how from across the globe, and implement it better than their global counterparts. Then, most major management consultants in India have established retail practices, which is another route for “knowledge import”. It is also not an issue of capital – Indian investors in various sectors have time and again shown that they are willing to invest in companies with strong business practices.

The problem with modern retail lies not with either know-how or investment. The problem is one of implementation, and I don’t see how bringing in Walmart (who have little idea of Indian markets) can make a difference there. FDI in retail is not going to solve this problem.

The real problem lies in bottlenecks higher up the food supply chain. Various states are yet to repeal the archaic APMC Act which gives certain people monopoly over food trade in certain areas. There are various restrictions on movement of goods across states (though this should be lesser of a problem once the GST (Goods and Service Tax) Regime comes into play). Time and again, the government acts arbitrarily in changing the rules concerning movement, import, export and “support price” of commodities, and this creates uncertainty in the market and scares away investors.

It is reforms higher up the supply chain that are crucial in order to make the food supply chain more efficient and reduce wastage. The government would do well to put the topic of retail FDI on the backburner (especially since it’s controversial) and instead focus on enabling the rest of the supply chain to become more efficient.

Tailors

In a little street called Narayana Pillai Street, off Commercial Street in the Shivajinagar area of Bangalore there stands a building called “Ganesh complex” which can be called a tailoring hub. There are some ten to twelve shops (forgive my arithmetic if I’ve counted too low) all of which are occupied by tailors who stitch women’s clothes, primarily salwar kameez and its derivatives. I don’t know if there’s much to choose between the stores, and I think it’s a question of “tailor loyalty” the way it’s practiced among beach shacks at Baga beach in North Goa.

The wife is friends with a tailor called Ahmed, who runs a shop called HKGN tailors in this complex. Till recently (when he took two weeks with a consignment) his USP was “one hour tailoring”, where upon receiving cloth and measurements, he would stitch your dress in about an hour. I hear that there are a large number of tailors in the vicinity (though not sure if they’re in Ganesh complex) who offer the same terms. In fact, I know a lot of women who travel to that area to get their clothes stitched both for the quick delivery and also for the network of tailors that is present there.

While waiting for Ahmed to deliver the wife’s latest consignment yesterday (the one he took two weeks with), I was watching tailors in neighbouring shops working. The thing that struck me was that there isn’t much economies of scale in bespoke tailoring. Each piece of cloth needs to be cut separately, in its own size, and there’s nothing that can be “batch processed” across different samples. Of course, there is tremendous scope for specialization and division of labour, so you see “masters” who measure, mark out and cut cloth, and “stitchers” who stitch up the stuff together.

However, across the city, except for the handful of tailors in the Shivajinagar area, the standard turnaround time for stitching seems to be about two weeks. And given the wife’s experiences (I usually buy readymade garments so not much insight there) it is a fairly disorganized industry and requires several rounds of follow-ups and waiting at the tailor’s shop in order to get the goods.

The economics of the industry (that there are no economies of scale) makes me wonder why the two-week-turnaround time has become standard in this industry. Isn’t the turnaround time solely because of inventory piled up at the tailor’s? Can the tailor not manage his inventory better (like say going a few days without fresh orders or hiring a few extra hands temporarily or working a weekend) and thus lead to much shorter turnaround time? Given the individual nature of the job, what prevents tailors from offering instant turn-around like the handful of people in Shivajinagar do? Or is it that bulk orders (one person coming with a bunch of clothes to stitch) mess up any “quick turnaround model” the tailors could offer?

There is only one explanation I can think of. “Sales” and “production”, for the tailors happens at the same spot (their storefronts). For “sales” purposes they need to be there all the time, though they don’t need to be actively doing anything. Hence, it suits them if production is also a continuous full-time process, so that the time they spend at the storefront isn’t all “wasted”. By piling up an inventory of orders, tailors are always assured of having something to do even if no fresh customers are forthcoming.

So as the wife’s experience with Ahmed has shown, the “quick turnaround” hasn’t been sustainable at all.

Inventory

You know inventory represents a huge cost when online retailers such as Flipkart which don’t have to invest in keeping inventory at storefronts in expensive malls and high streets offer massive discounts, of the tune of 30 to 40% at times.

You know that inventory represents a huge cost, and shop space is precious, when you go shopping in summer trying to find a nice sweater and find that no half-decent store is even selling sweaters!

Oh, and I think you can judge the standard of a clothing retailer by the quality of their trial rooms.

Reliance Retail?

So on Sunday morning when I went to Reliance Fresh down the road I saw this guy who runs a vegetable store nearby frantically running between shelves, stocking up huge quantities of fresh vegetables. If this were a government store, and if this were license-permit raj, we could have said that this guy was hoarding vegetables.

While this explained why you seldom get fresh stuff at Reliance Fresh later in the day, it made me wonder if Reliance Retail is actually a retail operation. Given the amount of vegetables that this retailer was buying it seemed like it was more profitable for him to walk down the road and source the stuff from Reliance Fresh, rather than traveling a few kilometres down the nearby KR Road to source from the city market.

So thinking about it, this is probably reliance fresh’s strategy. Apart from selling to retail customers, they also make money out of supplying to nearby retailers, who take advantage of the lower prices at Reliance Fresh in order to make a margin for themselves and avoid the long trudge to the wholesale market.

I’m sure Reliance Fresh doesn’t particularly have a problem with the deal, except that they might lose out on customers who know about the poor quality of vegetables one gets there in the evening and so decide to not shop there for other groceries also. Customers know when to get good stuff so they don’t mind. The retailers obviously don’t have a problem.

Neat, ain’t it?

Shoe Shopping

I went with the significant other last weekend while she bought shoes. And realized that the way girls buy shoes is completely different from boys’ decision process. Yeah, I know you’ll be thinking I’m just stating the obvious, and I might be doing that. And again, this post is based on two data points – myself and the significant other. I conveniently extrapolate.

Fundamental theorem of shoes: The number of pairs of shoes a boy owns is small compared to the number of pairs of shoes a girl of the similar age/socio-economic stratum owns.

I don’t think I need to give any explanation for that. The rest of this post is a corollary.

Corollary 1: The amount of time a boy spends in buying one pair of shoes is significantly larger than the corresponding amount of time a girl spends.

Yeah, this might sound counterintuitive, which is why I’m writing this post. So I think there are several reasons for this, but they all follow from the fundamental theorem of shoes
1. If you have one pair of shoes of a certain kind, you can’t afford to make a mistake buying them. You need to go through a careful decision process, evaluating various pros and cons, before deciding on your perfect shoe.
2. Boys’ shoes need to multitask. For example, you will wear the same pair of black leather shoes to office, and to that random wedding reception. The same sneakers you wear to play football might be worn for a casual evening out. So each pair of shoes needs to serve several different purposes, so the search space comes down accordingly
3. The cost of going wrong is too high – if you have a policy to own a limited number of shoes, and you buy an ill-fitting shoe, you have to live with that (or throw with extreme guilt) for a very long time. This happened with my earlier pair of sneakers, with the unintended consequence that I went to the gym much less often than I’d planned to
4. The amount of time a boy spends in a particular shoe is much more than the amount of time a girl spends in a particular shoe. So it is important for boys that each and every shoe is absolutely comfortable and fits perfectly. Again increases search time.

Recently when I had to buy a pair of formal shoes for my engagement I drove Priyanka mad with the amount of time I took to decide. I visited several shops, tried out lots of shoes, walked around, walked out, visited more shops and so forth. And all this after I had decided I wanted a pair of brown shoes without laces.

Corollary 2: The average cost of a boy’s shoe “wardrobe” is comparable to the average cost of a girl’s shoe “wardrobe”

Yeah, unintuitive again I guess. But backed up by data. My shoes, on average, cost well over a thousand rupees. Priyanka’s shoes, on average, cost well under that. It’s a vicious cycle, and I don’t know where it starts. I want my shoes to last longer, so I want to buy shoes of better quality, so I end up spending more on them. Or it could be like I wanted my shoes to last longer precisely because they are expensive. But I’ll stick my neck out and say that all this stems from the fundamental decision of not wanting to wear too many pairs of shoes.

For a girl, the cost of going wrong with a shoe purchase is low, given the frequency with which she wears a particular shoe. Also her shoes don’t multitask, so she can afford to have a few pairs which are not exactly perfect fits, as long as they serve the purpose. She has this urge to shop for shoes, and with her monthly budget in mind she is naturally conditioned to not splurge on them.

So I was kinda horrified (not exactly, since this had happened a couple of times before) last weekend when Priyanka walked into a shop, picked up a pair of chappals from the shelf, dropped them to the floor, stepped into them for a few seconds and decided to buy them. They didn’t cost too much, so I guess the cost of going wrong was small, but I would’ve never done something like that.

Barista Update

The Barista at Barton Center on MG Road has suddenly become so much more bearable, as they have turned down the volume of their music to a level such that you can actually have conversation without shouting. On a related note, it seems much easier to find tables there compared to earlier (yesterday we walked in around 6 and found several tables empty; earlier there would be a long wait at that time).

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!

FabIndia Koramangala

There are very few clothing stores that I can say I’m in love with. There are very few stores where I feel like buying a large proportion of merchandise on display whenever I visit it. There are very few stores where just the atmosphere makes you buy much more than you had planned to. And it’s a pity that on two of my visits to the store, I bought nothing.

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.

Orange Juice and Petrol

So I was reading this article by Ajay Shah about administered pricing for petroleum. He does an excellent (though it gets a bit technical in terms of statistics) analysis about what could go wrong if the government were to free pricing of petroleum products. He mostly argues in favour of deregulation, and that is a view that I completely endorse.

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!

Shopping in New York

When I went shopping in New York on Friday I was reminded of this article by Tim Harford that the bofi had posted as part of a comment on one of my earlier posts. The basic insight in the article (which draws upon some widely cited research – I’ve read about it in several other places) is that too much choice may not be a good thing. That basically if presented with too much choice you are likely to just put NED rather than put effort into making the choice, and so it makes sense on behalf of the marketer to restrict choice.

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..

Bangalore Book Festival

So today I made my way to Gayatri Vihar in the Palace Grounds to visit the Bangalore Book Festival, on its last day. It was interesting, though a bit crowded (what would you expect on the last day of an exhibition? and that too, when it’s a Sunday?). I didn’t buy much (just picked up two books) given the massive unread pile that lies at home. However, there was much scope for pertinent observations. Like I always do when I have a large number of unrelated pertinent observations, I’ll write this in bullet point form.

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”.