In a statement on Monday, Ingka group, which owns and operates Ikea
stores in India, said that its aim was to reach 100 million people in the country in the next few years with a “multichannel approach”. “The ambition is to enter top Indian cities quickly. Three Indian cities — Mumbai, Delhi and Bengaluru feature in the list of top 30 global markets for fast expansion in the future,” it said.
Ikea is not the only big-box retailer to think small. The Kishore-Biyani-led Future group
will roll out 7-Eleven neighbourhood stores, albeit tweaked for the Indian market, in the next two months, while Reliance Retail has just launched a smaller version (called Smart Point) of its supermarket chain Smart.
At a press briefing last week, Gaurav Jain, head, strategy and planning, Reliance Retail, said that the Smart Points launched by the company would act as "multi-purpose corner shops". In other words, not only would these outlets cater to the everyday needs of consumers within its catchment, but also work as offline pick-up points for those ordering groceries from Reliance's online platform.
So far, 18 such stores have been set up, say company sources, in Thane, Navi Mumbai and Kalyan, near Mumbai, with plans to open at least 100 more within Mumbai and Delhi in the next few months. The network would be subsequently expanded to multiple cities across the country, they said, in time for Reliance’s new commerce launch expected later this year.
While some experts say that changing consumer behaviour, driven by convenience and speedy delivery, is at the heart of the strategy to go small, some others point to soaring rental costs, lack of large spaces within cities and bureaucracy for the shift in strategy.
“A retailer typically requires multiple permissions to set up a store,” says Arvind Singhal, chairman, Technopak. “To top it all, town planning in general across Indian cities has not been uniform, which means quality retail spaces are limited, driving up rental costs,” he says.
Rentals today constitute 10-15 per cent of a retailer’s top line, while salaries and wages make up 8-10 per cent, and marketing and sales expenses 6-8 per cent (see chart).
But some experts say retailers, especially in premium apparel, lifestyle and home furnishings could end up paying more for the right properties at the right location, pushing up rentals to as much as 20 per cent of their top line.
“This makes it unviable for them to set up stores after a point and pushes them to change gears,” says Dhanraj Bhagat, partner, Grant Thornton
India. Retailers have been taking stock of operations for some time now.
According to retail industry sources, several international and local brands in the lifestyle, fashion and cosmetics space have in recent months tied up with platforms such as Nykaa, Amazon, Jabong and Myntra to gain a foothold in India, before launching offline stores. The idea is to build a base before setting up brick-and-mortar stores, which entail significant expenditure, they say.
The government last year relaxed norms for single-brand retailers allowing them to set up e-stores before launching physical outlets in the country apart from giving them the leeway to declare all sourcing for domestic and export markets as local in nature. This prompted brands such as Uniqlo to speed up its India entry plans even as retailers such as H&M welcomed the move.
Apple, in contrast, has opted to depend on large and small-format franchisee stores within cities to fulfil its ambition for an offline footprint, even as the tech giant finalises plans to set up a company-owned and operated outlet in Mumbai in the central business district of Bandra-Kurla Complex (BKC).
The BKC outlet could be around 25,000 sq.ft, market sources said. This will be three times the size of its largest franchisee outlet in the country, also located in Mumbai, in the Lower Parel area.
But no clarity on the launch date of its signature outlet yet, led in part by a delay in bureaucratic work, will mean that Apple will continue to keep a firm eye on its franchisee network instead, according to experts. The plan is to set up mostly 1,500-2,000 sq. ft. stores and smaller 600 sq. ft. shops in multiple cities along with its retail partners, complemented by larger franchisee outlets in key metros.