What’s the latest trend in the IT business?, you ask. Seven out of 10 times, the answer is likely to be, "Retailing, what else?". So, it doesn’t come as a big surprise to know that every vendor worth its salt has an exhaustive retail plan chalked out, or that every third channel partner (be it a distributor, sub-distributor or dealer) either has put retail outlet(s) in place or is planning to do so in the next few months.

In the past three months alone, no less than 25 new retail outlets have got opened in Mumbai, Delhi and Bangalore combined. These were both uni-branded as well as multi-branded. Vendors who made much news on the retail scene included HP, Canon, Zenith and Logitech while among the distributors Rashi was in limelight for its aggressive retail initiatives. Among others, players like Agrani made further strides in its retail expansion plans by putting in place nearly 50 retail outlets across the country. And not to forget a large number of relatively smaller players who have opened one or two retail outlets in their respective cities.

"Since my per-unit cost is lower because of the bulk purchases made for my reselling business, I obviously stand to gain by selling few of those units through my retail outlet" Dushyant Mehta,  Chairman & CEO, Mediaman Infotech

This obviously makes you wonder about the reasons which are suddenly making IT retail outlets so much of an ‘in-thing’. So, is it just hype and overestimation of business potential or is retailing indeed the next major step in the evolution of IT business in the country?

RATIONALE BEHIND THE RUSH
When asked to explain the rationale behind the ongoing retail rush, a good amount of people end up reasoning that in western countries IT retail outlets are a big hit and that there’s no doubt that a similar scenario would prevail in the country too.

According to this school of thought, with PC penetration in the country bound to reach the levels that exist in developed countries, the concept of IT retailing sounds more realistic and viable than its construed to be.

But then there’s another school of thought which strongly disagrees to this logic by pointing out that the Indian consumer mindset and purchasing powers are far different from their counterparts in western countries.

While this may be a highly debatable issue, what indeed is noteworthy is the trend where resellers have started to consider retail as a logical extension to their existing business.

ADVANTAGE RESELLER!
One of the biggest advantages a reseller enjoys by opening his own retail outlet is that of cost. Since the reseller anyways makes bulk purchases for his volume business, he can easily sell a part of it through his retail outlet at a far better price. By establishing a synergy between his run-of-the-mill volume business and the retail business, a reseller can expect to reap good results.

"You just cannot make a retail venture profitable by running it on credit taken from someone else, from a rented location and by asking a third person to look after daily management of the retail shop" Manish Gokani,  Director, Cyberciti

"Since my per-unit cost would be lower as compared to a pure retailer because of the bulk purchases made by me for my reselling business, I obviously would stand to gain if I decide to sell few of those units through my retail outlet," reasons out Dushyant Mehta, MD and CEO, Mediaman Infotech. Mediaman has a retail outlet called ‘Here and Now’ and according to Dushyant its doing extremely well.

Another advantage that a reseller with a retail presence enjoys is that it can sell a lot of niche products, which otherwise do not get pushed in the normal course of channel business. Also, since resellers have a good amount of inventory lying with them, customers would never return because of shortage of any product. A retail interface also acts to the benefit of a reseller if he wants to test-market a product before taking up its dealership.

A DIFFERENT BALL-GAME
While at the outset, retailing may appear to be a very attractive proposition to a reseller, one must keep in mind that retailing is a much different ball game than volume business. Sustaining a retail outlet in itself is a herculean task.

Unlike a dealer organization, which can run with minimal amount of floor space and low overheads, retail establishments require huge initial as well as recurring capital expenditure. In a dealership kind of business model, resellers can sustain because there’s a constant rotation of cash and good credit periods too are available. Both of which are absent in the retailing model.

In fact, some partners (including established retailers) feel that given the current level of maturity and low purchasing capabilities of Indian buyers, retailing as a concept can look good only on paper. Manish Gokani, owner of one of the oldest retail showrooms in Mumbai, Cyberciti, feels that making retail a good success for anyone in a metro is a task very difficult.

According to him, there are three essential ‘O’s in the absence of which a retail venture cannot sustain. These are: Own premises, Own capital and Owner-driven. "You just cannot make a retail venture profitable by running it on credit taken from someone else, from a rented location and by asking a third person to look after daily management of the retail shop," says Manish.

And there’s a very valid reason behind Manish’s strong views. Real estate prices are exorbitantly high in the metros and with sales conversion being a very small fraction of the walk-ins, there’s no way one can sustain business on credit. "Were I not lucky to own a big property in the most prime location of Mumbai and capital support from the family, Cyberciti would not be what it is today," admits Manish candidly. He goes on to say that though a large number of retail outlets are springing up, a good amount of them have been closing down as well in the recent past or have stopped being profitable.

"You just cannot make a retail venture profitable by running it on credit taken from someone else, from a rented location and by asking a third person to look after daily management of the retail shop" Manish Gokani,  Director, Cyberciti

And many others share a similar view. Says Saket Kapur of Computer Vision, "Though the number of walk-ins are increasing day by day, the conversions are not happening at all. The retail situation is aggravated by two oppositely working forces of sky high real estate prices and low purchasing power of average Indian customers."

Saket also feels that for retail to be profitable, the differential between resellers’ and retailers’ price should be around 30 percent. This apparently is not the case. Its a known fact that prices offered by vendors to both resellers and retailers are same, maybe a bit lower in some cases for resellers.

A BAD IDEA?
So does this all make retailing such a bad proposition after all? Not really, if one gets few things right. First and foremost, retailing should not be viewed as a medium which can completely replace the typical distribution business. Even at its best, retailing can only become a co-existing mode of IT business. Contrary to what many believe, vendors can never completely rely on the retail channel to push its sales. So, one cannot jump into retailing thinking he will have hundreds of people queuing up before his shop for buying PCs and peripherals.

Second, one must understand that sales from a retail establishment would be largely limited to the home segment. If one is expecting IT managers of corporate houses to visit his shop (no matter how swanky it may be) for organizational purchases, he is wrong. Corporate buying would continue to happen from the conventional channel. Having said that, one can easily estimate the kind of business that may happen in retail considering the fact that home segment contributes to just about 30 percent of the overall IT purchase.

Third, retail business doesn’t happen on its own. One needs a good team of sales persons who can make the customers feel comfortable, address each of their queries, understand their needs clearly and accordingly suggest the right product and convince them into buying the product.

"You just cannot make a retail venture profitable by running it on credit taken from someone else, from a rented location and by asking a third person to look after daily management of the retail shop" Manish Gokani,  Director, Cyberciti

Most importantly, even if the customer doesn’t make a purchase, one has to make sure he leaves the outlet as a happy person. One has to understand that it’s not in the Indian mentality to make a purchase in the first visit. Strike the right chord with the customer and he will come back to the retail outlet at a later day. So the right selection of people to man the outlet has an impact of the overall customer satisfaction.

Fourth, unlike reselling business, a customer relationship begins after the sales is done. Managing this relationship efficiently by offering high levels of service will ensure repeat visits and positive word-of-mouth publicity. Any successful retail outlet will vouch for the fact that 30-40% of their sales is repeat business.

And finally, one should critically analyze the feasibility if he is thinking of getting into an exclusive retail tie-up. Unless one is not completely sure of the support and hand-holding a vendor has to offer, its better to stick to multi-brand, multi-product kind of retailing model.

Zenith, which has over 130 retail outlets in the country, in fact promotes its retailers to keep other accessories and peripherals as well. "We understand that it is important for retailers to have other source of business as well. And asking them to keep other non-competitive products gives our brand a mileage as well," remarks Raj Saraf, CMD, Zenith Computers.

NO SINGLE MANTRA
While there may not be one single mantra for success in retailing, a conscious note of the above mentioned points would surely help. Also, considering the fact that this business has minimal bad debts, transparent cash transactions and healthier margins, retail as a business proposition cannot be written off completely.

"One of the main reasons why retail is on the upswing is that there is vendor support for this initiative as they get high visibility in these stores. Also, retail is expected to push high volumes in the coming months and years," assures Suresh Pansari, MD, Rashi Peripherals.

Of course, it is an uncontested fact that Indian consumers are only opening their eyes to the concept of IT retail. But with the way IT products are getting commoditized, it won’t be long before IT retail outlets would have a similar status to the kinds we see at large departmental stores.

In fact, software companies like Microworld and Trend Micro have already started to sell packaged software through retail.

"Surprisingly, few of Logitech’s high-value items like cordless desktops are selling like hot-cakes at our retail outlets," informs Manish Aher, Manager-Retailing, Rashi

Peripherals. Mediaman’s Dushyant, too has a similar story to tell. "Some of our niche products get sold many a times faster at our retail outlet than it does through our regular channel," says he.

Conclusion? There’s nothing wrong with retailing as a business concept. But to make it sustainable and ultimately profitable, one has to keep in mind the dynamics of this business are far different from those of reselling. And so the basic approach towards retailing has to be different. While reselling is more logistics-centered, retailing is interaction-centered. But since both have to co-exist, one needs to identify where his strengths lie and accordingly decide whether or not to jump onto the retail bandwagon.

GOLDIE with inputs from MOHIT CHHABRA and SUNILA PAUL