News: Indian retail chains seek better margins
(TNN 01/05/2006) Mumbai - We may still be far away from having our own Best Buys, Circuit Citys and Dixons, but big consumer durables and appliances retailers in India are beginning to demand their pound of flesh, and manufacturers are finally listening.
Regional retail chains like Vivek’s and Vijay Sales, and more recent entrants like Pantaloon’s Electronic Bazaar, are said to be negotiating with leading companies for better margins and exclusive arrangements.
Vivek Sharma, VP sales and marketing, Onida, says the company is exploring partnerships with major retail chains along the lines of the category management being done by FMCG companies for the modern trade.
With the prospect of a national chain becoming real, and the offtake volumes that these chains can provide, manufacturers are more willing to offer exclusive deals to these chains.
For instance, Pantaloon’s Electronic Bazaars in 25 locations, and its new stores of 10,000-20,000 sq ft each called e-zones, which are being rolled out across the country, could give it considerable bargaining power with manufacturers. Confirms Kishore Biyani, MD, Pantaloon Retail, “We have started the process.”
Manoj Kumar, head of Pantaloon’s consumer durables and electronics business, elaborates that talks are on with leading manufacturers who are putting in place dedicated resource persons for modern trade.
“Over the past five to six months we are seeing companies changing in this regard. This shift is also evident in the involvement of the country heads of some of these companies with retail chains — for instance,” Mr Kumar says.
CEOs like KR Kim of LG and Ravinder Zutshi of Samsung are personally involved in driving this initiative on a regular basis.
Single-digit penetration levels in categories like washing machines and airconditioners are a big reason manufacturers are welcoming such partnerships.
Says Sandeep Tiwari, head of marketing at LG Electronics, “Penetration of airconditioners is below 1% and that of washing machines is less than 5% (in the consumer market). This is going to facilitate category penetration.”
Tying up for exclusive models or variants of existing models is one route that’s already being adopted, with commitment for a minimum volume of offtake.
Variants can even help reduce channel conflict, says Kamal Nandi, VP sales and marketing, Godrej Appliances, as benefits offered to the large chains can be justified to the regular trade.
Last year Godrej Appliances launched a variant of its fully-automatic washing machine for the Mumbai market exclusively through Vijay Sales, at a special price.
The deal has obviously worked well for both parties and Nilesh Gupta, MD, Vijay Sales, says that in less than a year the chain has sold over 10,000 units and has been offered a new variant this year.
He adds that Electrolux also has an exclusive arrangement for retailing three models of microwave ovens through his chain.
Down south, the Chennai-based Vivek’s is also negotiating with major brands for customised models in colour televisions, microwave ovens, washing machines and refrigerators, according to managing director BAK Setty.
“It’s very much under active consideration, and should happen within the next 3-4 months,” he says. The other critical and ongoing area of contention between retailers and manufacturers is margins.
“Profit margins retailers enjoy here are the worst,” says Mr Gupta. “In the West, margins are between 25-30%, while Indian retailers get only between 15-18% margins.”
These are likely to increase once retailers achieve a considerable national presence. Pantaloon’s Mr Kumar says he would look at a margin differential of at least 2-5% over the current levels, once his entire network of stores is up.
Manufacturers are also recognising that large retail chains can play an important role in building brands and driving sales, especially for the higher end models and for emerging categories like flat screen TVs, home theatre systems and IT products, where the brand experience is better communicated.
Regional retail chains like Vivek’s and Vijay Sales, and more recent entrants like Pantaloon’s Electronic Bazaar, are said to be negotiating with leading companies for better margins and exclusive arrangements.
Vivek Sharma, VP sales and marketing, Onida, says the company is exploring partnerships with major retail chains along the lines of the category management being done by FMCG companies for the modern trade.
With the prospect of a national chain becoming real, and the offtake volumes that these chains can provide, manufacturers are more willing to offer exclusive deals to these chains.
For instance, Pantaloon’s Electronic Bazaars in 25 locations, and its new stores of 10,000-20,000 sq ft each called e-zones, which are being rolled out across the country, could give it considerable bargaining power with manufacturers. Confirms Kishore Biyani, MD, Pantaloon Retail, “We have started the process.”
Manoj Kumar, head of Pantaloon’s consumer durables and electronics business, elaborates that talks are on with leading manufacturers who are putting in place dedicated resource persons for modern trade.
“Over the past five to six months we are seeing companies changing in this regard. This shift is also evident in the involvement of the country heads of some of these companies with retail chains — for instance,” Mr Kumar says.
CEOs like KR Kim of LG and Ravinder Zutshi of Samsung are personally involved in driving this initiative on a regular basis.
Single-digit penetration levels in categories like washing machines and airconditioners are a big reason manufacturers are welcoming such partnerships.
Says Sandeep Tiwari, head of marketing at LG Electronics, “Penetration of airconditioners is below 1% and that of washing machines is less than 5% (in the consumer market). This is going to facilitate category penetration.”
Tying up for exclusive models or variants of existing models is one route that’s already being adopted, with commitment for a minimum volume of offtake.
Variants can even help reduce channel conflict, says Kamal Nandi, VP sales and marketing, Godrej Appliances, as benefits offered to the large chains can be justified to the regular trade.
Last year Godrej Appliances launched a variant of its fully-automatic washing machine for the Mumbai market exclusively through Vijay Sales, at a special price.
The deal has obviously worked well for both parties and Nilesh Gupta, MD, Vijay Sales, says that in less than a year the chain has sold over 10,000 units and has been offered a new variant this year.
He adds that Electrolux also has an exclusive arrangement for retailing three models of microwave ovens through his chain.
Down south, the Chennai-based Vivek’s is also negotiating with major brands for customised models in colour televisions, microwave ovens, washing machines and refrigerators, according to managing director BAK Setty.
“It’s very much under active consideration, and should happen within the next 3-4 months,” he says. The other critical and ongoing area of contention between retailers and manufacturers is margins.
“Profit margins retailers enjoy here are the worst,” says Mr Gupta. “In the West, margins are between 25-30%, while Indian retailers get only between 15-18% margins.”
These are likely to increase once retailers achieve a considerable national presence. Pantaloon’s Mr Kumar says he would look at a margin differential of at least 2-5% over the current levels, once his entire network of stores is up.
Manufacturers are also recognising that large retail chains can play an important role in building brands and driving sales, especially for the higher end models and for emerging categories like flat screen TVs, home theatre systems and IT products, where the brand experience is better communicated.
posted by InCar Group Press Room at 14:23
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