Buying protocol decoded

Most of the retail buys done is extensively based on what we think we can sell which is in conflict with buying protocol based on what market demand and dynamics tells you that will sell ! Normally emphasis is that if a particular brand is hot selling a certain category means this will sell in your stores by default. This is not entirely true. What a trend or track record tells that there is a demand for a certain category of article this furthers needs to examined and debated in your own context. Apparently these things are predecided when Retailers launch their operation. We all believe so......then why sluggish sales or mounting inventory ??

Lets first know what I call "buying protocol" ?

Protocol loosely mean a predefined set of action leading to a desired end result. In buying context we need to consider following protocol :

- Does the requirement fit into our Marketing Sales Plan ?

- Does the requirement fit into our target customer needs ?

- Does the requirement closely matching target customers requirement fullfillment window ?

- What is the anticipated shelf life of the requirement ?

- Does the requirement needs any last minute customisation or leveraging based on various inputs ?

- Is there any need or possibility to enhance or repackage the USP of this requirement ?

- Does all above is based on sound data analysis or is it mere hypothesis and gut feeling ?

Problem is that in dynamic Indian situation the analytical model is grossly inadequate to correctly grasp the requirements and this can be proved if we analyse slow moving items, bloated inventry and leftovers.

Concern is managers/marketeers do not statisically analyse and correlate data in depth rather skim through surface and conclude. They tend to pick up data selectively which further their hypothesis. They do not want to face or confront inconvenient truth. This is particularly pronounced in Indian context. In west the research model is so well tested and fine tuned that there are a well defined and entrenched buying protocol which is analysed at 360 degree.

Once above questions are adequately answered then we know the genuinity of requirement and then based on trend, historic data and forecast the buying quantity is reached.

In my next post I will deal with the subject how these quantities be sourced at right price, from right source and at right time !

All so important to complete buying protocol !

Great Indian Retail Dream unable to take off !

The cat is out of bag !

The desired ROI (Return on Investment) people were expecting in Retail Sector is simply just not happening and all retailers are finding it very difficult to sell goods in numbers that makes their investment viable. Since most of the retail players are having deep pockets So the pinch is not so visible to them but sooner rather than later the figures will force them to come to the terms of real brasstacks of retail format.

What is the reason behind non performance of Retail sector in India versus stated Business goals ?

First let us understand in short, modern retail business which travelled from the high streets in western hemisphere to India.

Today Retail business globally has become increasingly competitive taking advantage of global supply chain and economies of scale which comes with high volume operations. Flexibility and efficient use of resources are key factors of retailing success. The retailers need to combine a strong Brand image, ability to provide excellent customer management support and value for money through excellent sourcing and buys. The organized retail business as trend in India started in early nineties and by the close of century it was clear that retail industry is not going to be same in India. The hopes still runs high but the performance is wanting on all fronts.
The single biggest reason of Indian retail not performing as expected is the mindset of Retail top managers. Instead of building their retail maths based on providing value to customer for their buys they are resorting to gimmics and scheme that lacks transparency, low on faith and hopeless on repeat business from same customers. For example most of the retailers who flaunt discount or bargain simply increase 3 times their purchase price and then give discount or give freebies. The customers are not fools they know the game hence this retail format is not realizing its true potential. Who will buy a Rs 1400 shirt to take 1 or two items free or 50 % discount. The fact is these retailers are buying old stock from well known global brands at a throw away prices then refurbishing it to show case their showroom. This is unethical and customers understand pretentions ! The question here is why a person who can afford to pay and buy a fresh arrived product of Brand say Reebok or Nike or Debenhams will go to a multi branded retailers who are displaying a few season leftovers from these brands ? Either these retailers simultaneously put products in stores along with brand owned show rooms or sell at REAL discount rather pretending to be genuine and fresh. You only go and review collection at a Reebok, or Allan Solly and compare their range with products of same brand displayed in other retailers who sells these brands under one roof and you will understand what I am saying !
Incapability to cope up with sourcing right product at right price for a right time is equally responsible for creating hurdles in otherwise a winning business format that retail is world over. Rather attempting at differentiating the product mix from fellow competition most of the retail shops products looks hopelessly same. No retail stores are offering something new something different to customers. You go to shops at High street in London or Paris and visit Shops of Gap, Debenhams, Zara, Next, Motherscare, Monsoon, H & M and you will realize how different is each stores from others in terms of product mix, product pricing , visual merchandising and choices a customer can exercise. The conversion ratio of footfalls is very high in all these store. And unlike in India the stores salesman is not boring you to death singing peans of its product advantage, in west it sells on almost automode and staff intervention in customers interaction is considered and measured response. One has to closely study Walmarts, ASDA, TESCO, PRIMARK, TARGET stores who have revolutionized the way retailing is done . TESCO’s internet sales model is being duplicated by scores of companies in USA.They source sharp and sell sharp by building in logical margins models. In India even if the retailers are sourcing sharp they are not genuinely passing these benefits to customers which can drive them in large numbers to these retail chains. Retail in India is still working on textbook retail maths written by various authors without adapting to local and strategic situation. Most of them are out to make a kill which in short term may seem working but in long term it wont.
Stuffing the stores quantitatively not qualitatively is another factor hindering sales. Poor quality merchandise in Indian multi brand stores is challenge which everyone is aware of but due to faulty retail maths basics the stores are pushed to stuff racks purely to fill category without deeply evaluating its buy and offer to customers. In well known Retail chains you can easily come across products of poor quality in terms of workmanship, finishing, product safety & integrity.

Quality assurance and return policy is mostly hanging out in eye catching corners of these retail stores more as epitaph rather an active policy document ! The market still has to learn to implement policy of customers returns with no question asked. Conditions apply offer today in India is seen as a ploy to deny commitments made to customers rather a genuine method to reward customers !!

High rental cost of Retailing space is another factor which eats up revenue. 10 years back global retail giants realized its pitfall and started building pads in outskirts of city limits with a complete shopping experience package right from daily household items to luxury goods to attract customers and they have been successful minimizing this problem. They used a basket of other methods as well to tame the high rising real estate cost factor in retailing.

I know a certain retail chain which has just launched into retail landscape devising whole of their marketing strategy on assumption rather solid market study or study of typical day of Indian youth ! It claims that it is a youth store mainly catering/targeting college and university students but pricing its products which only top earning office executive can afford. I don’t know any average college going youth who will like to buy Rs. 1500 shirts even though he gets an item free ! The selling strategy is not going to work unless drastically re-casted and the money being invested in opening new stores will come under pressure thereby jeoparding ROI by investors in mid term and long term !

High manpower turnover and shortage of experienced manpower is also contributing to its turbulence. Recently a well known placement agency confided to me that retailers are hiring left ,right and centre MBAs thinking text book knowledge alone is adequate to meet their ends meet without grass root reality experience and exposure. This has not only frustrated the companies who are employing them but those well educated MBA s as well since most of the time companies does not know what it actually wants out of them and how to take best out of them !

And the things that really takes matter out of hands is total bureaucratic way of decision making by top managers and management. The decision making is painfully slow in retail organization hence whatever their plans are remains on paper specially on revenue side where as surprisingly speed of investment and expenses are quite good.

The biggest challenge in India now to cope up with is runaway inflation, price rise , tightening money supply, high interest rate and falling sales. These could not have come at a worse time than it is now when huge money was being poured into the Retail sector. How this sudden impact is going to affect big retailers is to be seen yet but surely it will give a blow from which it will take some years to recover.

It is intersesting to see for example what is happening in world market :-

UK Market

Euler Hermes, worlds largest credit insurer and analyses thousands of business across the UK to assess the risk on them defaulting on payment to supplier due to tight financial situation has warned that there is a lack of available financing and the companies who are highly leveraged have a particular weakness in their business models having 15 % greater chances compared to last year of not paying to suppliers indicating the bad performance by retailers in current year. Retailers chain like MK ONE with a sales turnover of GBP 150 Million, insolvency has shocked financial experts.

Profits at Sports direct down by 50 % . M&S shares dropped by 30 %. M&S joint venture with President Chain Stores in Taiwan has to be closed down only after opening in May 2008 due to lack of interest of shoppers to buy its products.
Similar trends have been noticed in other European countries but their position is a little better than US counterparts.

USA Market

IMF in its latest revised report says US economy growth in next few years will be painfully slow predicting 1 % growth in 2008 and 0.8 % in 2009. It continues in the grip of tight credit conditions and high commodity prices thereby not able to reduce inflationary pressure and fuel economic growth. The general retail market is under tremendous pressure with almost all retailers are implementing a variety of cost cutting and sales promotion method.
Recent financial announcement of of Levis is an eye opener as can be seen below :
LEVI STRAUSS & CO. ANNOUNCES SECOND-QUARTER 2008 FINANCIAL RESULTS

· Reported Net Revenues Decrease 8%
· Net Income of $1 million
· Challenging Economy and ERP Transition Impact Results
SAN FRANCISCO (July 8, 2008) – Levi Strauss & Co. (LS&CO.) announced financial results for the second quarter ended May 25, 2008 and filed its second quarter 2008 results on Form 10-Q with the Securities and Exchange Commission.

Highlights include:

Three Months Ended % Increase (Decrease)

($ millions) May 25, 2008 May 27, 2007 As Reported

Net revenues $936 $1,016 (8)%

Net income $1 $46 (98)%

The above results announced by Levis in indicative of tough times the retail business is facing and past masters in Retailing are facing the brunt of a economic downslide.
Indian Retail bandwagon is raring to go and at take off stage while fly by night operaters are getting into it in hordes masquerading as genuine retail outfits thereby seriously compromising the future of investors in retail segment. It will not be a surprise that after couple of years there will be a bubble burst and only retailers with deep pocket and commitment will survive as we saw when dot com revolution swept India and went bust subsequently globally.