My background -
I have done MBA in retail management.
I own a apparel / family store in very small place (tehsil / taluka) place in western Maharashtra. (current city population = 2 lakh).
My store is approximately 8200 sq ft and it does psft sale of Rs 6200 (approximately).
Comparison with above discussion -
- 8000 sqft is nothing much, at least in western Maharashtra. You will find at least one store of 8000+, 4 store of 5000+ and least 10 store greater than 2000 in many cities, with population less than 3 lakh.
As already pointed by someone in above earlier post, inflation is around 6 - 8%. So even with almost same quantity sold, you will get sales increase automatically.
This is biggest problem in any apparel shop.
Smaller or single store like us, pay very close attention (almost weekly). We usually purchase as and when needed, instead of buying everything before start of season.
But even after this, most of us are stuck with dead stock of 10%+
For organized retailer, buying process usually start 6 months before product arrive at store. In this process, there is far greater chance of products becoming out of fashion.
Advantages of geographical spread / bulk buying -
This is difficult to achieve in apparel retail.
Reason being with every 100km, choice changes.
Eg in western Maharashtra, white and sober taste are most preferred. While if one move towards south, karnataka, dark color are more preferred. If one go towards north, Gujarat, fancy work is more preferred.
Also, each caste / religion has their own taste / preference in apparel.
Eg. Hindu / muslim and jain / marwari needs very different types of sarees.
So even if a retailer has stores spread across India, he has little advantages of bulk buying.
This is beautifully explained by Kishor Biyani in his book. Refer to white shirt example.
There are low entry barrier to start apparel store and competition is intense.
In late 4 Years, at least 15 new shops (Avg sqft 1000+) has opened in my city.
Then there is also competition from branded segment.
Raymond, Peter England ( i own this one), Cotton King has opened franchise in my city.
Man power cost -
This is biggest issue for me. Apparel is still seasonal business.
You just can't hire new salesperson and fire him once season is over. This is because you need to give training to sell apparel.
Currently i spend 5% of my sales on apparel and Avg cost per employee per month is approximately 8000 - 12000.
It is very serious problem and organized retailer do face problem on this front.
Other Overhead -
Other overhead like electricity bill, municipal taxation remain same but organized retailer needs to pay rent while most of shop owners have their own property.
Distribution network -
Since fashion keeps changing and customer always want something different from what he has seen last time, it pays to buy from wholesaler, rather than manufacturer.
There are few items for which we do buy from manufacturer ( we go to banaras, Ahmedabad, surat, panipat, Amritsar, Indore, Jabalpur, Erode, Madurai and many other places)
But at the same time, we buy more than 50% of our entire purchase from wholesale market ( MUMBAI, Indore, Amravati, gandhinagar).
Every apparel retailer knows wholesale is least 10 - 12% costly than manufacturer but they also know that it far easy to buy than sell.
So even if organized retailer has edge of direct buying from manufacturers, it doesn't make much difference.
Opening store in smaller towns -
I don't precisely know why big retailer (shoppers stop / reliance) don't open store at small cities but my guess is -
- Local Retail market is too small
- Their overhead are higher, so they need bigger sales to justify overhead
- Strategy (L&T construction division has strategy of not bidding any project below 500 Cr)
So strategy of opening in smaller towns has is no moat or doesn't give much distinct advantage. IMO
Reducing FMCG / kirana -
Again this is not unique.
Future group is already doing this. I have visited few newly opened big Bazaar where first 2 floor were given to apparel / fashion and last floor was given to FMCG.
Even i remember, one of our visiting professor from future group used to tell that we have decided FMCG won't grow beyond 25% of our sales. We are using it mostly to attract foot falls.
Disclaimer - I have not visited any v-mart yet but have visited and shopped at other organized retailer numerous times. (Pantaloon, shopper stop, big Bazaar, max, Reliance, more and many other)