AvantGarde

Retail plays a major role in increasing circulation and sales for all kinds of consumer goods and services. Countries like USA, U.K. and China are successful examples of the same. Consumer retail is the second-largest industry in the United States, both by the number of establishments and by the number of employees. Wal-Mart, the world’s largest retailer, is also the world’s largest employer. It has become the most successful retail brand in the world due to its ability to leverage size, market segmentation, and its efficacy in assuming market dominance. Wal-Mart heads the Fortune magazine list of top 500 companies in the world.

Retail Scenario in India:

In India over 94% of the retail sector consists of traditional mom-and-pop stores and street-vendors. With no large players, infrastructure being far from adequate and a tiny part of the population being able to afford it, , Indian retail never attracted large business houses and majorly focused on niche product segments and luxury goods.. This was till they realized that retail in India is a USD $353 billion  industry[BMI India Retail Report 2010] growing at a CAGR of 10% and contributing more than 25% to the country’s GDP. Today it might seem implausible that this important sector of the country’s economy had been overlooked by Corporate giants. However they cannot be squarely blamed too. Indian retail has traditionally been an unorganized sector, where retailers lacked the means as well as the will to develop or  expand. Retail could also never enjoy the support of the Indian consumer, who is  famous for being miserly and treated shopping as a form of leisure than a necessary evil, thus enjoying the thrill of discovering bargains and discount deals on his own.

Small gains, lack of infrastructure, an unattractive Indian consumer and absence of regulation never provided opportunities for retail giants to capitalize. Meanwhile, the Government preferred to remain silent while the unorganized retail sector provided a meager standard of living to millions in the country. Poverty plagued a majority of the population and the corporate giants preferred to spend their resources in areas like power and telecom where large-scale opportunities were abundant. Today the retail industry has witnessed a remarkable transformation.

The New Story

The country’s towering economic growth of around 8% has resulted in major shifts in the Indian economic class, with higher incomes leading to the growth of the Indian middle-class. This middle-class is aware of the standards of living in other countries, thanks to exposure through the tools of Globalization – the Media & the Internet. They have decided to thus adopt a “Spending” approach to improve their standard of living rather than the traditional “Saving” approach. The currently estimated value of organized Indian retail’s target population is larger than that of the entire United States. Voted the most attractive retail destination in the world for two years in a row, India is expected to witness 10% growth in its retail sector over the next few years (Source: “Retail in India – Getting Organized to drive growth.” CII-A.T. Kearney, Nov. 2006, Assocham Press Release). Recognizing the short-term and long-term growth of retail in India, a number of domestic business giants have entered the retail industry. We focus on the factors that have led to the success of Kishore Biyani’s Pantaloon Retail.

Pantaloon’s Story

Pantaloon’s success and continuous growth in the Indian organized Retail market can be attributed to a number of factors, some of which have been derived from the strategies of large retailers in the west, while others are completely tailor-made for the Indian market. What is evident at the outset is that Biyani has foreseen and understood the Indian retail roadmap better than anyone else.

Pantaloon’s major advantage over its competitors in the retail sector has been its unique understanding of the Indian organized retail market with all its quirks, shortcomings and challenges. By creating a retail business from the ground-up and expanding rapidly, Pantaloon has followed a Wal-Mart-like pattern of growth. However, unlike Wal-Mart, it decided to experiment with as many retail formats, product-mixes and brands as was possible in order to gain maximum knowledge about the uncertain Indian mindset. In fact, newer entrants in the organized retail market would learn the ways of the unique Indian organized retail sector as well as find a way to combat Pantaloon’s dominant market share in almost all forms of organized retail a daunting task.

What did it do Right ?

The Retail Experiment – Multiple Formats, Multiple Brands

Pantaloon has experimented with every retail format possible. Most of their experiments have proven to be successful and Pantaloon continues to experiment while expanding existing ventures. However, the real reward of these experiments is the knowledge and experience gained- This was most elusive in a previously untouched and unknown organized retail sector. This is an example of Pantaloon adapting itself to the Indian market rather than attempting to copy a Wal-Mart. The experimentation process did not end with testing different store formats alone: Pantaloon is also experimenting with a variety of products. From men’s wear the company has moved on to introduce furniture, sportswear, kitchen appliances, food, electronics and children’s apparel. Again, it seems to know what works and what doesn’t in the Indian market, something that would not have been this apparent even 1 decade ago.

Pantaloon has also introduced a number of private brands. For example, it has experimented with launching clothing lines based on famous Bollywood blockbusters.. Within the brand retailing space, Pantaloon has also tied up with some of India’s most popular brands like Gini and Jony to sell them at their stores. Rather than attempt to compete with existing popular brands the company has decided to partner with them and leverage them  in the ambiguous Indian market. These brands have achieved success and a loyal fan following; Pantaloon’s move has brought in more customers then they could retain.

The competitors do have the opportunity to learn from the experiences of India’s largest retailer, but the experience that comes with managing these diverse retail formats in the Indian scenario is something that new entrants will have to learn on their own. Due to the pace at which Pantaloon had moved, it has made several sectors of organized retail out of anybody’s reach.

The Right Joint Ventures at the Right Time

In accordance with its experimentation policy Pantaloon has formed key joint ventures with a number of popular names like Staples and Starbucks. With its first-mover advantage, it actively shut doors for the competition by snapping up major brands before others could get to them.

Versatile Retailing

Rather than expand as a menswear retailer alone, Pantaloon’s policy of comprehensive experimentation has given it an important advantage – a versatile retail presence. Consumers see Pantaloon as an exclusive brand retailer, discount retailer, specialty retailer and food retailer: all at once. One of the reasons for this versatility is that the brand name has not been forced on, or even associated with the different products and stores other than the original menswear line. Instead, each store and product has been given its own identity and presence. Pantaloon is essentially an organized retailer in the guise of a large number and variety of unorganized retailers. This again represents the company’s unique understanding of the Indian scenario – consumers often feel threatened in a monopolistic environment, and are thus allowed to choose between multiple brands, all of which essentially belong to the same parent !!

Strengthening Back End Operations: Supply-Chain

A robust Supply chain serves as the backbone of a successful retail chain in the long-run. Although the company ignored these aspects in initial phases due to the inadequacies in infrastructure, it rightly favored experimentation over organization. But to continue to grow at the pace it had acquired in the first few years, it needed to pay attention to its sourcing network, transportation system and other logistics.. What Pantaloon is and will always have to improvise on is the absence of basic infrastructure like transportation and regulation. The pace of expansion of the retail industry is likely to outstrip that of development of the country’s infrastructure. Pantaloon will have to be innovative in deciding as to how it compensates for these inadequacies while efficiently managing its supply chain.

Money: The Ultimate Differentiator

Pantaloon has the upper hand as compared to most potential foreign and domestic competitors. However the same characteristics that have made it an exclusive and versatile retailer can prove to be a disadvantage. Much of Pantaloon’s competition comes from either retail ventures of other large Indian industrial houses (Reliance Retail, Birla’s retail venture) or foreign retail giants (Wal-Mart). In other words, Pantaloon’s competition is rich, very rich. While the competition may not have made inroads into the Indian market as thoroughly as Pantaloon, it  still has enough money to compensate for this shortcoming.

Summary

Through a carefully executed policy of comprehensive multi-format experimentation, Pantaloon has managed to understand and take advantage of the compressed evolution of the organized Indian retail industry (mentioned earlier) to become the dominant player. As far as industry knowledge, experience and skill are concerned, Pantaloon with its dream team is looking in good shape. Now it is facing stiff competition that is financially better-equipped. How it takes advantage of its existing resources, accesses additional capital and competes with its competitors in a race to develop an efficient supply-chain will determine the future of the company. While the task is daunting, Pantaloon has more leeway and an enormous head-start compared to anyone else.

Atul Mishra,

MBA Batch of 2012,

IIT Kanpur