Promart, a discount retail format acquired by Vemb Lifestyle from Provogue India in 2011, wants to spread out to where it is most needed – the Tier III, IV, and V cities which are the hotbeds of untapped consumption. Ashish Garg, Managing Director, Promart, talks to Sanjay Choudhry about the company’s business philosophy and future plans.
Q. Please tell us something about Promart and its positioning.
The discount-retail brand Promart was previously owned by Provogue India. They launched it in 2007 with alarge-format store each in Ahmedabad and Indore, but for some reason could not take the business forward. The two Promart stores were very popular and managed to do a huge business, generating a turnover of `50-55 crore in just two and a half years. But both of them were shut down by Provogue by the end of 2009 and went into complete closure in 2010. Last year, we at VEMB Lifestyle purchased the brand outright from Provogue.
Promart is today positioned as a multi-brand, multi-discount retail format where all the major apparel brands like Pepe, Wrangler, Mufti, Arrow, J. Hamstead, Liliput, Gini & Jony, and Spykar are offered at a discounted price under one roof. We buy last season’s collections from these brands and offer discounts to customers ranging from 20 to 60 percent.
Q. Why did you decide to acquire Promart? What advantage will it give you over launching a retail brand of your own?
Promart is already a very popular name in Gujarat and Madhya Pradesh because it did a lot of advertising and roped in Bollywood film stars as brand ambassadors. The format was doing quite well in Ahmedabad and Indore as long as it lasted. We are re-launching these stores and will leverage on the branding initiatives that have already been taken by Provogue. We are also planning to get two to three brand ambassadors on board on a long-term basis. We anticipate opening up of Indian multi-brand retail to FDI, which will give retailers like Promart a boost. In addition, we feel selling multinational brands at a discount to customers is a very attractive business proposition.
Q. How many stores do you have currently? Can you talk about theroll out plan for 2012-13 fiscal?
We have already relaunched the Ahmedabad store of Promart after a complete revamp. It is a fairly large store of around 8,000 sq.ft. We have also opened two new stores in Vadodara and Mumbai. We will also be opening stores in Rajkot, Jamnagar, Vapi, Valsad, Surat, and Mehsana in a month’s time. We are going to close the 2011-12 fiscal with 15 stores. In 2012-13, we are planning to open around 100 more stores. These will mostly be large format, about 2,000- 8,000 sq.ft. in size depending on the city. We are looking at an average sales of around Rs 5,000 per sq.ft. from our stores.
We will also be coming up in other states like Punjab, Uttar Pradesh,NCR, Haryana, Karnataka, and Maharastra. We have identified locations where we want to be present. We have a team which is conducting negotiations.
Our strategy is to open stores mainly in tier II, III, IV, and V cities, where branded apparels will be offered at discounted prices. People in these smaller towns have the capacity to buy those products but they are deterred by the high prices. We will offer them an opportunity to get a feel of fashion at an affordable rate.
Q. Lot of e-commerce companies are also targeting customers in tier II and III towns where top brands are not easily available. What is your take on that?
E-commerce is a very doable concept. We also plan to enter the e-commerce space in the next five to six monthsunder our own Promart brand name. The only drawback in this is that customers cannot physically see the products, which makes a big difference. If we keep the touchand- feel factor in mind, the physical format will always have leverage over the e-commerce platform.
Q. But there is massive real-estate and other costs attached with physical formats. Isn’t that a disadvantage?
Ultimately both physical stores and e-commerce players need space to stock the goods – there is no escape from this. The thing is, e-commerce operators in India are currently doing only small turnovers. In comparison, we are planning to close the 2011-12 fiscal at Rs 65 crore and targeting a turnover of Rs 450 crore in fiscal year 2012-13.
Q. You are projecting a massive growth in turnover in the span of one year. How will this be possible?
The main reason is that the number of Promart stores will increase from 15 to 115 by next year. So the sales are going to multiply in the same scale. We will mainly be focussing on menswear, womenwear, kidswear, home linen, shoes, accessories, kitchenware, etc.
Q. What is your assessment of the market beyond metros?
Metros are actually our last focus. If you look at our roll-out strategy, we are mainly concentrating on the tierIII, IV, and V cities. We feel the metros are over-crowded with retailers and brands at this point of time. Many players are already doing business there. But even the large retail chains of India haven’t yet reached the tier III and IV cities.
We feel there is a large potential and good buying power in smaller towns. People there also love fashion because of exposure through satellite television and would love to buy the same things that people in the top metros buy. They understand and appreciate fashion brands and have the purchasing power. We want to tap this emerging segment in non-metros where there is much less competition.
Q. What about challenges in small towns like low brand awareness?
As far as brand awareness is concerned, we are sourcing our products directly from the principal manufacturers. So we will be having all the promotional material to endorse those brands in the same way they are doing in their prime stores. We arealso planning to rope in two to three big names from Bollywood as brandambassadors on a long-term basis.
Q. What will be your location strategy?
It depends from place to place. In tier III, IV, and V towns, we will be locating ourselves on the high street because typically that is where people of these locations mostly go to shop. We have to serve the masses and cannot remain aloof in a mall. In smaller towns, we will be looking at formats ranging from 2,000-3,000 sq.ft. which is still quite large for those areas.
Q. How much are you investing in setting up these stores?
In 2011-12 fiscal, we have already spent Rs 40 crore. In the 2012-13 fiscal, we will be making an investment of Rs 110 crore for expansion. So the total investment in these two years would be Rs 150 crore.
Q. What will be the USP of these stores?
Firstly, we are going to reach out to the smallest cities of India. Secondly, we will work on a “no warehousing” concept. We will only be keeping that much of inventory in each store which we think would be saleable. Also, we will be buying everything on cash upfront unlike most other retailers who buy on credit. Buying on cash would be our main policy – that iswhy we are infusing so much capital into the company.
The benefit is that we will get our own choice of merchandising and products as per our requirement from the manufacturers because they always give preference to cashpaying customers. We will get all the sizes, combinations, and colours from them that we want for serving our customers better. This does not happen in case of retailers who are buying on credit because they always get only the left-outs.
Q. Won’t cash buying pose a problem for you in terms of cash flow?
Ours is a cash-rich company because of the support we have from other group entities, so cash flow won’t be a problem. By buying in cash and paying upfront, we will be getting better discounts as well as choice and quality of products compared to other retailers who take a credit of two to three months. This will also positively impact our sales as we can offer more discounts to our customers.
Q. What is your private label strategy?
We will think of launching our own in-house brands after we achieve a certain level of scale, say, about 40 to 50 odd stores pan-India. This is because we have to manage the production levels, which is not possible unless we have economies of scale. As of now, though, we are busy tying up with all the national brands which are very popular among people all over India.
Q. Will FDI in multi-brand retail pose a threat to Indian retailers like you?
We are in favour of FDI. I don’t think it is going to be a threat to us. With FDI, Indian retail sector is going to get more professionals and will be more organised. We will actually be able to learn a lot from well-established foreign retailers if they come to India. I don’t see any competition with them because India is a huge market with growing consumption. The market is very large that can sustain any number of players. The scale that foreign retailers try to create is simply not possible beyond the metros. They will take five to ten years to build the infrastructure and penetrate smaller locations. By that time, the market and Indian retailers will mature. I think FDI will be a growth story for everybody.
Q. Why do you think large modern retail players in India are struggling to make profits?
Actually, it is the dead inventory – the left-out inventory – that is killing most of them. Dead inventory is onearea we have identified as the main threat to the sustainability of retail operations and are determined to avoid it. That is why Promart’s focus is to work on zero inventory. We are totally focussed on minimising inventory because that is the only area where retailers get stuck.
Another thing is high real estate rentals. These are so high in themetros compared to the actual sales, hardly anyone can make a profit. Most retailers have opened stores only in the metros, making the market overcrowded.But nobody is focussing on tier II, III, IV, V, or even tier VI cities.
The non-metro towns too have a huge purchasing power. For example, there is a mobile store in Rajkot – a tier IV city – that is doing sales of Rs 4 crore every month. I think organised retail chains are not reaching where there is a huge untapped demand. They are just crowding the metros.
*This interview was originally published in April 2012 issue of Images Retail.