Why Retail Stores Fail ? Its important to study success, but sometimes its just as insightful to study failure

Presented By:Hitesh Sethi (27)Kunal Batra (30)Shubham Arya (61)Why Retail Stores Fail ?Its important to study success, but sometimes its just as insightful to study failure

What is Retail?Retailis the sale of goods and services from individuals or businesses to theend-user. Retailers are part of an integrated system called the supply chain. A retailer purchases goods orproductsin large quantities frommanufacturersdirectly or through a wholesale, and then sells smaller quantities to theconsumerfor a profit. Retailing can be done in either fixed locations like stores or markets,door-to-dooror bydelivery.

Types of Retail Formats in IndiaMom & Pop Stores (Kirana Stores)Departmental Stores (Westside, Lifestyle)Category Killers (Best Buy, E-Zone)Malls (Inorbit, Ansal Plaza)Discount Stores (Primus Retail)Supermarkets (Haiko)Street Vendors (Hawkers)Hypermarkets (Reliance Fresh, Big Bazar)Kiosks (CCD Express)

Mom-and-pop StoresThese are small family-owned businesses, which sell a small collection of goods to the customers. They are individually run and cater to small sections of the society. These stores are known for their high standards of customer service.Department storesDepartment stores are general merchandisers. They offer to the customers mid- to high-quality products. Though they sell general goods, some department stores sell only a select line of products. Examples in India would include stores like "Westside" and "Lifestyle"--popular department stores.Category KillersSpecialty stores are called category killers. Category killers are specialized in their fields and offer one category of products. Most popular examples of category killers include electronic stores like Best Buy and sports accessories stores like Sports Authority.MallsMalls are the largest retail format in IndiaOne of the most popular and most visited retail formats in India is the mall. These are the largest retail format in India. Malls provide everything that a person wants to buy, all under one roof. From clothes and accessories to food or cinemas, malls provide all of this, and more. Examples include Spencers Plaza in Chennai, India, or the Forum Mall in Bangalore.Discount StoresDiscount stores offer price reduction.Discount stores are those that offer their products at a discount, that is, at a lesser rate than the maximum retail price. This is mainly done when there is additional stock left over towards the end of any season. Discount stores sell their goods at a reduced rate with an aim of drawing bargain shoppers.SupermarketsOne of the other popular retail formats in India is the supermarkets. A supermarket is a grocery store that sells food and household goods. They are large, most often self-service and offer a huge variety of products. People head to supermarkets when they need to stock up on groceries and other items. They provide products for reasonable prices, and of mid to high quality.Street vendorsStreet vendors, or hawkers who sell goods on the streets, are quite popular in India. Through shouting out their wares, they draw the attention of customers. Street vendors are found in almost every city in India, and the business capital of Mumbai has a number of shopping areas comprised solely of street vendors. These hawkers sell not just clothes and accessories, but also local food.HypermarketsSimilar to supermarkets, hypermarkets in India are a combination of supermarket and department store. These are large retailers that provide all kinds of groceries and general goods. Saravana Stores in Chennai, Big Bazaar and Reliance Fresh are hypermarkets that draw enormous crowds.KiosksKiosks are box-like shops, which sell small and inexpensive items like cigarettes, toffees, newspapers and magazines, water packets and sometimes, tea and coffee. These are most commonly found on every street in a city, and cater primarily to local residents

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Top Reasons why retail stores fail

1. NeglectEntrepreneurs are often visionaries, which is great for creating a company. However, after the initial challenge, many company founders look toward the next one. Without clear direction and involvement from its leader(s), a company will soon go off course. Like anything else, a company requires careful maintenance to remain at peak performance.

2. DisastersNatural and man-made disasters often deal death-blows to companies, such as floods or fires. While its difficult to avoid such disasters, company management can insure it carries adequate insurance and has a plan for emergency scenarios.

3. Access to CapitalIn business, finances are often a paradox - it takes money to make money. While some companies are able to start-up with little capital, they often reach a point where they need additional financing to continue operations. Without those funds available, they are unable to meet their day-to-day expenses. Securing access to capital before the company needs it is often the difference between success and insolvency.

4. Poor SalesSales, of course, are the life of any business and without them, the business soon flounders. Some causes of poor sales, such as economic factors listed previously, are out of the hands of company leadership.However, many of the reasons for poor sales can be directly traced to management. For instance, if changes in customer preferences and the market in general are ignored, sales will suffer. While there is no way to guarantee sales, managers can be proactive and responsive to sales trends.

5. Management/Leadership ProblemsOf the reasons listed, this is the one that is completely in the hands of the companys owner(s). While many people are great entrepreneurs - able to start a company from just an idea - these same people sometimes arent ready for the management issues they face as the company matures. Without prior experience or simply because of incompetence, many wholesale retail store owners are the very reason their company eventually fails. Of course, with more experience and the ability to spot and address problems before they get out of hand, business owners are more likely to avoid these challenges.

6. Economic FactorsThe economy is cyclical, which means it periodically goes through low times. Wholesalers who are unprepared for those times of economic recession are often caught off-guard financially.While the economy isnt something a individual company can change, business owners can prepare for those difficult times through scenario training and financial planning

7. Over expansionOverexpansion is similar to the issue of excessive overhead. While it may make sense in moderation, too much too quickly can often bankrupt a business. Supply problems, logistic challenges, staffing issues, and financing concerns are potential obstacles in expanding. Without adequate preparation and strategy, the attempt to capture more of the market can quickly turn into a matter of survival.With adequate preparedness, as well as balancing the short-term challenges against the long-term needs of the company, you can successfully navigate these obstacles and achieve the full potential of your own wholesale company.

8. Customer ProblemsCustomer problems can range from your primary buyer being unhappy with your products to going out of business without paying for a major shipment. Like fraud and disasters, companies dont have much control over their customers. Again, preventive planning is the key.Maintaining clear lines of communication, reviewing customer profiles, and being quick to address customer concerns are all excellent ways to keep a minor problem from turning into a major disaster.

9. FraudFraud - by customers, employees, vendors, or partners - is an unfortunate fact in any industry. While there is a degree of due diligence a company can perform, no one is able to avoid fraud altogether. Similar to disaster planning, the best course of action is to have adequate insurance as well as policies (such as a check and balance system) in place to avoid fraud and be ready to address it when it happens.

Failure of Subhiksha

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About SubhikshaSubhiksha was started by R. Subramaniam, an IIM A & IIT Chennai alumnusin 1997Subhiksha in Sanskrit means (prosperity)the giver of all good things in lifeTheme - Why pay more when you can get it for less at Subhiksha?Discount store at prices lower than other retail outlets500 outlets in early 2007Set up 1,000 sq ft shops all across the city

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About Subhiksha Product PortfolioFruitsVegetablesGroceryMedicinesMobiles

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Success Timeline of Subhiksha1997 - 1st grocery Store in Chennai2000 - 50 stores in Chennai2000 June - ICICI Venture 10% stake for 15 Cr2001 - Increased Stake to 23%2002 - 120 Stores across Tamil Nadu2003 - Azim Premji 10% stake for 230 Cr2006 - 500 Stores across the country2007 - 1000 Stores Across the country

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Retail Format of SubhikshaDiscount StoreMultiple ProductsSmall Store formatResidential Locations

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Retail Strategy 2CsCriticality of costConvenience of Buying

No Frills StoreEDLP StrategyOff the main roads to take advantage of low costCatchment area of approx 2 kms

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PositioningLow pricesConsumer SavingsConsumer TrustOne Stop ShopMultiple products under one storeStore designed with Indian touchLocation ConveniencePrivilege to loyal customers

jineshSubhiksha's motive behind establishing a no-frills stores that does not provide air-conditioning, dazzling lighting, or a touch and feel experience to its customersSubhiksha offered a lot of value to its consumers. Some of them are:One stop shop: Subhiksha focused on selling FMCG, fruits andvegetables, medicines and mobile through a single location thusreducing the consumers time and energy to go to different locations tofulfill different needs.A discount store: Subhiksha offered a discount of about 10% on almostall of its products be it fruits and vegetables or the FMCG items andeven on pharmacy products. Thus it attracted a lot of customers.20

Pricing StrategyEDLP Everyday Low Pricing ApproachPrices below the MRP

ProductSubhikshaMRPRice 5 kgRs.102Rs.119Britannia Marigold 400 gmRs.21Rs.24Sugar 1 kgRs.15Rs.17

Discount Model: It was based on Wal-Marts Every Day Low PriceModel (EDLP). They offered a discount of 10% apart from loyaltydiscounts and special promotions.

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Distribution Network Distribution Channels helps in the place aspect of the marketing mix.It provides place, time & possession utility to the consumersCarpet Bombing ModelCluster of stores in close proximity10 stores in 1998 to 1000 stores in 2008Stores with one intermediary

Carpet Bombing Model: It was based on Starbucks approach. Inthis strategy retail chain opens a cluster of stores in close proximityto each other, in a geographical area which has high populationdensity with purchasing potential. This enables the chain tocannibalize sales within its own network rather than allowing themto go to other individual stores or retail chains.22

Failure Timeline of Subhiksha2007 - 350 Crore IPO 2008 April - Enter into Wholesale Market2008 April - Un-mindful Expansion2008 July - Market Falls2008 Oct - Operating Difficulties2009 - Major Financial Crisis 2009 March - Shut Down Operations

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Why the decline?Over Confidence & AggressivenessUn-mindful expansion spree across the countryNo consolidation- Tried to be first in every townPoor inventory managementOperations came to a standstill due to non- payment of salaries, huge debt burden & arrears to suppliersSpending the debt raised moneyMajor competition by stores like Big Bazar, Spencers etc

Un-mindful expansion spree across different parts of the countrySubhiksha didnt realize that with this only a few stores would be profitable and generate positive cash flows. It moved across different sectors such as medicine, grocery, IT, mobile etc very fast.IPO problemSubhiksha was thinking of going for an IPO in 2007 but shelved it in view of uncertain market conditions. But I believe that they got greedy as they expected a market correction.Both of them didnt consolidateSubhiksha and Vishal instead of stabilizing and consolidating themselves first in different places and then moving to newer locations, tried to be the first in every town.Poor inventory managementSubhiksha had a bad history of credit defaults and this led to supply breakages. This led to situations where sometimes the store had very high inventory and at others, the stocks were out. This led to great dissatisfaction.Private LabelsVishal tried to develop private labels in almost every category but had limited scale to support them.Subhiksha closed down in 2009 amid allegations of defaults, non wages payments and bankruptcy. The people behind it are still struggling to come up with valid explanations.

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Subhikshas Revival StrategiesMarch 2009- Undergone a corporate debt restructuring exercise, with lenders reviewing its booksSubikshas subsidiary Cash and Carry Proposed scheme50% waiver and amalgamation with Blue Green Construction & InvestmentsPost merger promised to pump in 150crReopened as Subhiksha Rice Wholesaler 3 stores opened in Chennai

The scheme was basically a compromise between the company and its creditors through a 50% waiver of principal and a payment period of 10 years. But the court deferred appointment of a provisional liquidator, as an appeal in this regard is pending before a division bench.

The banks counsel said the retail chain has an exposure of around Rs 870 crore to banks, Rs 107 crore to unsecured lenders and Rs 250 crore of reserves, which none of us know where it went. There are also loans/advances of Rs 119 crore where the identity of the parties is unclear, it said.

The banks, includingICICI BankLtd,HDFC Bank LtdandBank of Barodaare owed around Rs750 cror

investigation request came after Subhiksha told the court that investors and promoters are ready to pump in Rs 250 crore. Post merger (with Blue Green), we can pump in Rs 150 crore in eight weeks from the investors and another Rs 100 crore in 6-9 months, counsel representing Subhiksha told the cou

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Recommended Survival StrategiesSpecializations in productsImproved storesBetter Store Design & InteriorsBetter management with suppliersShut stores with low salesFocus on quality instead of quantityInvest more in R&DStudy target market wellCarry sales check on regular intervalsImprove quality & after Sales serviceChoosing Equity over Debt to be risk freeOpen stores in malls or shopping complexes to increase footfall

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BordersBorders Group, Inc.was an international book and music retailer based in Michigan. The company employed approximately 19,500 throughout the U.S., primarily in its Borders and Waldenbooks stores.Borders Group also operated stores inAustralia,New ZealandandSingapore.As of January 30, 2010, the company operated 511 Borders superstores and 175 stores in theWaldenbooks Specialty Retailsegment, includingWaldenbooks, Borders Express, Borders airport stores, and Borders Outlet stores in USIn 2003, Borders had 1,249 stores worldwideAverage store size was 40,000 sq ft

Borders: The Beginning1971 Tom and Luis Borders open the first store in Ann Arbor, Michigan1992 Kmart acquires Borders and merges it with Waldenbooks1997 Borders goes international1998 Company launches Borders Online, establishes Borders (UK) Ltd2001 Borders outsources online operations to Amazon2004 Company agrees to have Seattles Best Coffee operate cafes in its U.S. stores

The Last Years2006 Borders turns a profit for the last time2007 2008 Company closes or sells all foreign stores2009 Borders offers free Wi-Fi in stores2010 Company creates eBook store2011 Borders files for bankruptcy, closes stores, liquidates assets

Positive Moves By BordersLarge inventoryExcellent inventory systemBorders OnlineSelf-service kiosksBorders Reward CardAgreement with Seattles Best CoffeeFree Wi-FiConcept stores

So why did they fail?ProductDelayed introduction of e-readers, website and online retail, Wi-FiMistake of focusing on CDs/DVDsPriceHigher than prices of competitorsPlaceOutsourced online sales operation to competitor AmazonToo many stores that were too largePromotionLack of promotion

Other Reasons for FailureTargetingMass marketingNo direction

DifferentiationProducts didnt stand out from Barnes and Noble or Amazon products

Borders didnt pay attention to the changes in the market until it was too late to introduce new and successful products.

Failing to control costs For Borders, its inability to control costs stemmed from its failure to adapt its business strategy. Amazon and Barnes and Noble were able to reduce their costs with electronic books and more online sales. Borders stuck to its model of retail sales, and therefore failed.

ost stores also sellmagazines,newspapers,DVDs,graphic novels,gifts,games, andmusic.34

BordersFocused on varietyUsed software to determine which books to sellInvested in CDs/DVDsThird party e-readerExpanded physical plantRefurbished storesOutsourced online sales operation to Amazon Barnes and NobleFocused on lowest priceSold best-sellers and bargain books Invested in online salesDeveloped own e-reader (Nook) years before Borders hopped on boardHandled own online sales operationOffered eBooks almost one year earlierOffered free Wi-Fi 6 years earlier

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