Home Retail “Young home ownership is creating a lot of demand in our industry”

    “Young home ownership is creating a lot of demand in our industry”

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    Evok, the home interiors retail chain by , has a well thought out brand targeting the youth of the country. D.K. Jairath, COO, Evok, shares his assessment and insights with Tripti Bisht, Assistant Editor – Online Media, on the home interior solutions market in India.
     
    Q. How do you assess the Indian home interior solutions market?

    The home interior solutions market is huge in India, with an estimated size of around Rs 60,000 crores, only 5 to 6 percent of which is organized. This shows the massive headspace available for growth, particularly with the changing character of the market and evolving customer preferences. The organized players are practically on a low base and showing multiples of revenue growth year-on-year.

    It is also a very complex market because of the very demanding expectations of customers. The competencies which have been brought to this sector by the players are diverse in nature. They are still experimenting and learning. Since it is a high growth and high complexity market, the home interiors solutions business requires a higher skill set to operate. 

    Q. What is driving the growth of the Indian home interiors industry?

    There are two large segments in the business: the new home segment and the home renovation/improvement segment. For organized players like us, these two contribute to sales in a 60:40 ratio.

    An important factor driving consumer demand is that homes are undergoing a character transformation. They are no longer considered to be retirement privileges by the earlier generation. Now homes have begun to be seen as an essential asset from the day someone steps into working life. The new generation is driving a lot of demand towards what we call the young home segment.The home ownership age has gone down dramatically on an average from the late 50s to the mid 30s or even the late 20s. Young home ownership is creating a lot of demand in our industry.

    The lifestyle of Indian consumers has also undergone a significant change. With women increasingly going out to work, the character of nuclear families has evolved. The majority of urban markets today are dominated by working couples which collectively have got a higher disposable income. They have aspirations to move up the ladder in terms of the type of home to own and furnish. The young urban couples have less disposable time – they want everything under one roof and don’t mind paying a little extra for the convenience. They are also looking for a wholesome experience. This is what drove us to open Evok four years ago.

    Q. How important is the youth segment for your business?

    Our entire brand philosophy has been conceptualized around what we call the 25-45 year age group. This is a very clearly thought out brand strategy because this is the young home ownership group. The average contribution from this segment to our revenues is almost as high as 70 percent.

    Q. What kind of consumers do you target?

    In the Indian home interiors industry, there are three segments. The first is the value segment which comprises the lower strata of the supply positioning. Here both consumers and suppliers are driven by the concept of price and value. Style and durability don’t matter much to this segment. This is the mass segment of the market which is still high on volumes.

    The second segment – the mid and upper-mid consumer segment – is more difficult but it also has the most growth potential in future. It wants style but with good value and is aspirational in nature. The consumer here does not mind paying a bit more than the value segment but wants both value and style.

    The third segment is the niche luxury segment which is relatively price insensitive. Consumers in this segment still want value but are relatively high on niche. Design, style, differentiation, luxury, or high prices – as long as these give the customers in this segment the niche they are looking for, they don’t mind paying for the product.
    As a company, we have chosen to ally with the mid and upper-mid segment and everything from our brand philosophy to the products we supply and source are created around its needs.

    Q. What trends are you observing in the home interiors industry in terms of consumer preferences?

    The evolution of Indian customers in the home interior space is linked to the evolution of homes and lifestyles. Over time, houses in India have become smaller and more compartmentalized. Joint families have given way to nuclear families. The concept of urban living is leading to what we call the nuclear formation, with consumers preferring compact, sophisticated homes. Sophistication is a key determinant of consumer behavior. Smart storage solutions and uncluttered houses are in demand, leading to design ideas such as the straight line contemporary interior concept replacing the huge-looking traditional carved furniture concept.

    Simplistic designs, straight-lined elements, and sophistication in terms of look and feel are gaining ground. The concept of contemporary interiors is ‘in’. Even tier I and II cities which are assumed to be the traditional markets are today going in for very straight lined, sleek, and smart product-led house environments. The theme of modern and contemporary interiors is catching up fast.

    Q. What are the challenges faced by the home interiors solutions retailers in India?

    It is a very tough and capital-intensive industry. Anyone planning to enter the business has to be equipped with significant capital management capability.

    Our industry format runs on big box retail. It is very high on space intensiveness and operating costs, which affect the viability and capability of retailers. The quality and affordability of retail are a huge impediment. Other challenges relate to infrastructure, such as the problems associated with suppliers, the interrelationship between developers and retailers in terms of the maturity of the path ahead, and so on.

    Another challenge is the lack of skilled manpower. This is a highly people-led business unlike conventional retail. It is almost a consulting industry where the sales executive needs to understand the customer’s requirement in terms of look, size, storage, etc. before taking him through the 10,000 sq.ft store. Skilled manpower is hugely problematic because we simply don’t produce what we call retail professionals in this industry. People today look at retail as employment and not as a career.

    One more challenge comes primarily from the point of technology. This is not a cash-and-carry field, so there is a need to broaden customer service. About 80 percent of our business comes from what we call “post-order management” sales in which the customer does not transact in the store but just books an order. We then have to source the material, look at the warehousing patterns, and organize transportation, delivery, and installation. This calls for a huge capability, lots of services and a lot of measurement of customer satisfaction. These three things and the overall capability to manage all these are the factors which make this business very complex.

    Q. What kind of footprint do you have across India?

    We are the youngest organized sector player in the industry, having started in May 2008. Currently our population count is 15 stores, which makes us one of the largest retail chains in the country in home interior solutions.

    Evok expanded its footprint in West India in 2010; in 2011 we moved very significantly into South India. Two more stores are coming up in the next quarter. For the next three years, we plan to set up 8-10 mega formats every year on a pan-India horizon. By 2014-15, we want to have 50 formats and aggregate revenue of Rs 400 crore.

    Q. Is there life beyond the metros for you?

    We are looking at expanding into tier I and II cities which account for 30-35 percent of our total revenue and are very important for us. We are already present in Chandigarh, Lucknow, Ludhiana, Jaipur, and Cochin. Our success in tier I and II cities has given a lot of momentum to our expansion. We have realized that tier I and II are no less than metros in terms of consumer behavior, demand, and business viability. The occupancy costs are much lower there.

    Q. What are the top selling product categories of Evok?

    By value contribution to sales, the largest category will always remain home furniture. It currently accounts for about 55 percent of our total revenues. The second largest category is modular kitchens (20 percent), followed by décor and furnishings (12- 15 percent). The remaining portion is accounted for by bath products and floorings and design services.

    Internally, we are very bullish on modular kitchens because of their low market penetration. The capability of this product segment to grow is very high. A lot of our internal energy is currently spent on making modular kitchens a very big vertical for us. All said and done though, home furniture will always remain a larger category.

    Q. What all products do you import and from where? Do you want any regulatory changes to help the industry?

    Almost 80 percent of the furniture we sell is globally sourced. Home decor items and certain products in the kitchen and bathroom categories are imported too. The rest of our product portfolio is domestically sourced. We primarily import from South East Asia including Malaysia, China, Thailand, Indonesia, and Philippine as well as from Germany and Italy in Europe.

    The biggest impediment to imports for players like us is the custom duty, the single largest levy as far as the landed cost of goods is concerned. There is a need to simplify the custom procedures and the custom classification so that it becomes easy for all the stakeholders – importers, suppliers, and the government – in terms of documentation needs.

    The entire handshake process has to be simplified and made quicker to increase the turnaround time of containers. This will avoid problems like inventory on hold and capital blocked. The government also has to tame inflation and normalize the dollar to rupee ratio.

    Q. Do you have any location preferences for your stores?

    No. If you move all over India, you will realize that you cannot really define any location boundaries. The moment you decide you want to be only a mall-based player or a standalone player, you would seriously jeopardize your own market expansion. We evolved a strategy two years back that we will not hesitate to go by the fundamental logic of addressing the right markets, then choosing right locations and then moving into the right properties. The location could be a mall or a highstreet but it has to be conducive.

    Q. How is online marketing and advertising for you?

    On an aggregate basis, we allocate about 7 percent of our cumulative revenues towards what is called consolidated marketing and advertising expenditure. While there is no specific segregation for online marketing, we know it is gaining significant momentum. What we do in terms of current online initiatives is to form customer communities. We are also very shortly looking at graduating to a certain level of e-commerce activity in the next two to three months. However, e-commerce in our industry will be of a limited penetration. The evolution will be slow because it is linked to the evolution of customer habits. For luxury products, kitchens, or furniture, customers need to feel, experience, and look at the sizing and finishing of products. So the online platforms have to be supported by a few physical locations to take care of the look and feel factor.

    Q. With a lot of international brands entering India, how does Evok plan to tackle the competition?

    We always welcome competition because this industry has a negligible number of players compared to the sheer addressable size of the market. I think the entry of more players will give some shape to the industry. Today the industry has none, with four or five players operating in different markets in an isolated way. The industry needs a certain character and size which can help it become a collective entity in front of both the government and the customers. With improved technology which global players can bring to the table, opportunities for collaboration and improving our own competitiveness will increase. Evok is open to collaborations.
     
    This interview was originally published in January 2012 issue of Images Retail.