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Shoppers Stop

  1. 1. SHOPPING. AND BEYOND. TM CAPSTON PROJECT ON SHOPPER’S STOP (RETAIL) Submitted by: Praveen Shukla Roll No: 01 II Semester EP GPBM 2007-09 (Andheri) Project Guide: Prof. Kamal Tandon 1
  2. 2. ACKNOWLEDGEMENT Several people have been extremely helpful in making this project successful. I would like to express my sincere gratitude to Professor Kamal Tandon at S.I.E.S. College of Management Studies. Any endeavor is not possible without the love and support of family, friends and God. So I would take this opportunity to thank them all. Last but not the least I would like to thank Mr. David D’souza (Store In- Charge, Shopper’s Stop, Malad West) for taking his time out in discussing the problems and providing accurate data. 2
  3. 3. S.NO TABLE OF CONTENT PAGE NO. 1 SYNOPSIS 4 2 INDIAN RETAIL SECTOR – AN OVERVIEW 6 3 KEY DRIVERS OF THE ORGANISED RETAIL INDUSTRY 7 4 THE VIRTUOUS CYCLE 11 5 CHALLENGES IN INDIAN RETAIL 12 6 KEY CATEGORIES DRIVING RETAIL GROWTH 14 7 RETAIL FORMATS 17 8 ORGANIZED RETAILING: NEED FOR A PROACTIVE OUTLOOK 18 9 SHOPPER’S STOP 20 10 SWOT ANALYSIS 28 11 COMPETITIVE STRENGTHS 29 12 GROWTH STRATEGY 33 13 OTHER ARRANGEMENTS 39 14 MANAGEMENT STRUCTURE 40 15 OPERATIONS 41 16 ADVERTISING AND PROMOTION 54 17 MANAGEMENT INFORMATION SYSTEM (MIS) 58 18 ESOP’s 66 19 CONCLUSION 67 20 BIBLIOGRAPHY 68 SYNOPSIS India retail industry gives an employment of around 8% and contributing to over 10% of the country's GDP. Retail industry in India is expected to rise 25% yearly being driven by strong income growth, changing lifestyles, and favorable demographic patterns. Shopping in India has witnessed a revolution with the change in the consumer buying behavior and the whole format of shopping also altering. Industry of retail in India which has become 3
  4. 4. modern can be seen from the fact that there are multi- stored malls, huge shopping centers, and sprawling complexes which offer food, shopping, and entertainment all under the same roof. Today, retailing is about so much more than mere merchandising. It’s about casting customers in a story, reflecting their desires and aspirations, and forging long-lasting relationships. As the Indian consumer has evolved they expect more and more at each and every time when they steps into a store. Retail today has changed from selling a product or a service to selling a hope, an aspiration and above all an experience that a consumer would like to repeat. Modern retailing is all about directly having "first hand experience" with customers, giving them such a satiable experience that they would like to enjoy again and again. Providing great experience to customers can easily be said than done. Shoppers’ Stop (SS) is the leading department store company in India. It has built robust management systems to capitalize on the growth potential in the organized retail space, particularly the department store segment. However, the stock has priced in the bulk of its upside potential leaving little room for positive surprise, in our view. SS enjoys a unique advantage of having a strong presence in the niche department store segment, which is likely to face limited competition from both foreign and domestic players. In our view, income elasticity in this business segment is high, and as India per capita incomes grows, SS should capitalize on its growth potential. The company has a strong, loyal customer base, relatively high earnings visibility and low business risk. Efficient business systems, better/standard companywide business practices and a balanced portfolio lowers SS’s business risk. SS plans to enter new segments such as home improvement and hypermarkets. These can give up further upside to the stock if successful. 4
  5. 5. Given the 30% growth predicted in organized retail and SSL’s retail expansion plans, we expect the company to record revenue CAGR of 31.6% on a consolidated basis over the next 3 years. INDIAN RETAIL SECTOR – AN OVERVIEW The Indian Retail Sector has undergone rapid transformation by setting scalable and profitable retail models across various categories and formats. Traditional markets are making way for departmental stores, hypermarkets, supermarkets and speciality stores. 5
  6. 6. The modern malls cater to shopping, entertainment and food, all under one roof. It was estimated that India will have over close to 50 million square feet of quality retail space by the end of 2007. The growth in mall space has been over ten fold in our years: from about 2 million square feet in 2002 to 28 million square feet in 2006. The Indian Retail market is estimated to be worth around Rs. 14,100 billion. The organized retail market has increased its share from 3 % in 2004 to around 4 % in 2006 and is valued at Rs. 511 billion (source: India Retail Report 2008, Technopak Advisors Private Limited). KEY DRIVERS OF THE ORGANISED RETAIL INDUSTRY: Favorable demographics, rising income as a trickledown effect of the rising GDP are among the major reasons for the retail boom. 6
  7. 7. Changing Demographic profile: The composition of the Indian population is shifting towards a larger composition of people in the age group 20-60 i.e. the working population with purchasing power. This shift is expected to be a major driver of consumption. Share of 20-60 Year Population of the Total Population Source: India Retail Report 2008, Technopak Advisors Private Limited The low median age of the population means a higher current consumption spend vs. savings as a younger population has both, the ability and willingness to spend. The younger population is also quicker at experimenting. The Indian consumer in among the 7
  8. 8. youngest in the world as compared to the ageing population of USA, China, Japan, UK etc. Higher consumption is a direct booster for the retailing industry. Rising income levels NCAER reports that the number of high-income households has grown substantially. The reports indicate that: The Very Rich, with annual income of Rs. 215,000 stood at 6.2 million in 2006 The Consuming Class, with annual income of Rs. 45,000 to 215,000 stood at 90.9 ml. The number of households in the Aspirants (Rs. 16,000 to Rs. 22,000 annual income) and the Destitute (less than Rs. 16,000 annual income) groups will decrease significantly (source: India Retail Report 2008, Technopak Advisors Private Limited). Personal Disposable Income, Household Sector Saving and GDP across Deciles, All India, 2007 - 08 Increasing Middle class consumption growth India has seen a significant change in the consumption of durables in recent years. The changing income demographics, age profile and macro environment are visible in the 8
  9. 9. growth in consumption of durables. For example, the installed base of cars, cable television subscribers and cellular subscribers has increased significantly over this period. Real Estate Boom The positive growth in industry is driving the real estate boom in India. The development of real estate focuses on two primary areas: retail and residential. The growth in mall space has been over ten fold in four years: from about 2 million square feet in 2002 to 28 million square feet in 2006 (source: India Retail SHOPPING. AND BEYOND. Report 2008, Technopak Advisors Private Limited). According to an ICICI study, malls are estimated to become a Rs. 384,470 million sector by 2010. Source: India Retail Report 2008, Technopak Advisors Private Limited Technology Technological changes are being adapted for use in retail. Retailers are using call centers and cell phones to keep their customers informed of new developments, schemes and 9
  10. 10. offers.Technology is being used to improve the customer experience, customer information, security, logistics and supply chain management resulting in finding favor with the consumers and increasing operational efficiency thus enhancing profitability. Fluidity The retail segment is expected to become more fluid now, with an increasing number of super-sized stores ranging in stocks from grocery to healthcare products. It is expected that the traditional formats will collapse into each other (source: India Retail Report 2008, Technopak Advisors Private Limited). Exposure to international trends The large Indian population traveling and employed abroad is facilitating creation of awareness of modern shopping formats and also leading to change in consumer expectations from the providers of shopping options in India. There is a large Indian NRI population. Given that international lifestyle brands are readily available in their country of migration, this population shops for similar quality merchandise at lower prices in India on their visits here. In addition, inbound tourists visiting India and looking for shopping here seek similar products at lower costs in a similar environment. Globalization has removed trade barriers and promoted consumerism. Over the last decade, there has been an increase in branded goods, both domestic and international, in the Indian market across product categories. Both width and depth of product offering to the Indian consumers is increasing. Dynamics of organized retail Organized Retail derives its advantages from generating operational efficiencies while simultaneously catering to rising consumer aspirations. Size drives economies on procurement, and lowers logistics and marketing costs while delivering better value to customers in terms of lower price, better quality, greater selection, improved service and in-store ambience. THE VIRTUOUS CYCLE 10
  12. 12. Human Resource The industry needs skilled manpower to fit the diverse roles at the front-end and back-end of the new and complex retail formats. It is estimated that over 2.5 million jobs will be created in the sector by 2010. The complexity of the operations requires trained personnel. The modern formats require staff to handle administration, public relations, advertising, store management, sourcing, and merchandising and information management. A number of reputed institutes have started offering specialized courses in retail management. Technology Technology is important to cut costs, improve efficiency, providing value to customers and increasing the customer experience. IT solutions help in synchronizing activities across various verticals such as procurement of inventory. Security from both external and internal threats is also important when the scale of the operations increases. Logistics The efficiency of logistics and supply chain management systems are curtailed due to infrastructure constraints. The wider range of products make supply chain management even more complex. Efficient logistics services help organized retailers streamline their operational dynamics and thus more profitability. Market Information and Presence It is important to track demographic and socio-economic changes, evolving customer needs and desires, behavioral transformation as it takes place. A multi-channel, pan-India presence is essential for holding the leading position in the retail industry. Investments in Retailing in India The Indian Retail market is estimated to be worth around Rs. 14,100 billion. The organized retail market has increased its share from 3 % in 2004 to around 4 % in 2006 and is valued at Rs. 511 billion (source: India Retail Report 2008, Technopak Advisors 12
  13. 13. Private Limited). Food and grocery is estimated to be the largest single block, but the contribution of the organized sector is at 0.8 %. The clothing, textile and fashion accessories constitute the second largest block where nearly 17.5 % is contributed by the organized sector. Footwear has the highest contribution from organized retail (36 %). Retailers have to continuously upgrade systems and keep expanding their presence, both to provide better services to customers and maintain their position in the market. The retail industry has benefited from the partial relaxation of restrictions on FDI in the real estate sector. However, in the retail sector, FDI is allowed only in the cash and carry formats and to the extent of 51 per cent in single brand retail operations. 13
  14. 14. KEY CATEGORIES DRIVING RETAIL GROWTH Apparel The apparel market today stands at Rs. 1,088 billion with a poised to grow at 10% for the next 5 years. The organized share has grown from around 16 % in 2006 to 17.5 % in 2007. Footwear The footwear market stood at Rs. 122 billion in 2006, up from Rs. 111 billion in 2005. The category is poised to grow at 11% . The contribution of organized retail stood at 36 % in 2006 and is estimated to reach 38 % by this year end. 14
  15. 15. Personal Care The personal care category accounts for 5% of the total retail market with a size of around Rs. 700 billion. This category is seeing a growth rate of around 14% . The organized retail accounts for around 10% currently. Source: India Retail Report 2007, Technopak Advisors Private Limited Furniture & Furnishing The furniture and furnishing market is relatively small in India with a large portion coming from the unorganized trade. The size of this category in 2006 was Rs. 17 billion of which Rs. 2 billion is from organized trade. The category is poised to grow at 15 %. 15
  16. 16. Source: India Retail Report 2008, Technopak Advisors Private Limited Food, Beverages & Tobacco This is the single largest category in terms of the value, but is also the category with least contribution from organized form. In 2006, the size of food, beverages & tobacco category stood at around Rs. 8, 900 billion with a mere 0.8 percent coming from organized trade. Source: India Retail Report 2008, Technopak Advisors Private Limited Consumer Durables & IT 16
  17. 17. CDIT accounts for another 5% of the total retail market and contributes around Rs. 675 billion. The category is seeing faster growth rates and is estimated to reach Rs. 785 billion. Organized retail accounted for around 9.5% and will reach 11% by this year end. Source: India Retail Report 2008, Technopak Advisors Private Limited RETAIL FORMATS Traditional retail formats Organised Retail Formats 17
  18. 18. *Other formats include speciality stores in Apparel, Footwear, Watches, Furniture & Furnishing, Toys, Convenience formats etc. ORGANIZED RETAILING: NEED FOR A PROACTIVE OUTLOOK Although there are many important issues pertaining to India’s economic. Looking at current trends in the Indian economy the spurt in economic activity in almost all fields, encoring GDP growth rate of 8-9%, and the enthusiasm of the Indian entrepreneur to push the Indian business has led to the conclusion that India will be major player in the international field in another 15-20 years. However, as of now, in spite of having large resources and intellectual capital, India is lagging behind compared to many other less developed countries and even compared to Asian countries due to deficiencies in systematic planning, lack of foresight and honest dedication towards development. India’s weak infrastructure and bureaucracy also hinder progress. These problems have also had an impact on organized retail. 18
  19. 19. The total volume of retail trade in India is around $330 bn which is expected to increase to $500bn by 2011. Only 3 to 4% of total retail business is currently in the organized sector. The rest is in the hands of innumerable small and unorganized sector players. The giants of Indian business such as reliance, future group, RPG group, bharti, etc... , have come forward to invest huge amounts into the retail business. The support from the government seems rather lukewarm and ambivalent. This may be a concern situation if large business houses enter into retailing, they might replace small retail shops and lead to unemployment. This view, however, has its strong detractors. Some findings revel that the employment to floor-area ratio in organized retail is almost the same as that in unorganized retail. But the quality of environment in which people are employed, and the salary that they get, are of much higher order than in unorganized retail. However, the major efficiency gain from these modern value chains comes from their large-scale direct buying from the source, both local and global. It is noticed all over the world that big and small retailers work side by side and have progressed well. it is also to be borne in mind that in order to have 10-11% of retail marketing in the organized sector, huge investments are required to create the necessary infrastructure, which in turn will generate additional employment not only for those who may be replaced by the organized retail sector, but also for many other unemployed people. Organized retail has tremendous growth potential in the fast expanding Indian economy. Not only will it benefit millions consumers but also farmers, small manufactures and artisans. The sector will also offer enormous direct and indirect opportunities while attaching huge investments in building the supply chain infrastructure, adding to the economic growth of India, especially in rural areas. It will also be able to supply consumers with quality products and service at reasonable price. A well planned and well organized retail business will ensure that the customers will benefit not only by way of quality products but also in prices due to the bulk buying capacity of big retailers. 19
  20. 20. In case FDI is permitted in the multi brand retail business, we can get access to international experience in this field. This would bring modern technology in transportation and logistics, which would have beneficial multiplier effects on various sectors of the economy. For example, we need technology in the harvesting, storage, handling and packing of fruits and vegetables. Today, more than 40% of our horticulture produce is spoiled due to poor handling, storage and transportation. Rather than clearing the entry of big international retail players like Wal-mart, Carrefour, Tesco and Sainsbury, we might consider the possible benefits of their entry into India. In case these players are allowed to enter retail business, they will not only bring in capital and advance technology, but also help boost our exports. SHOPPER’S STOP Company background Shoppers’ Stop is promoted by the K Raheja Corp Group, one of leading players in real estate development and hotels. Shoppers’ Stop has progressed from being a single brand shop to a family orientated fashion and lifestyle store. Shoppers’ Stop operates under the Departmental store format, and was one of the pioneers of the large format stores in India. Shoppers’ Stop hass created a new business unit to manage its specialty businesses like Crossword, Mother care, F&B business and MAC. About Shopper stop SS is one of India’s prominent retailers and is a part of the K Raheja Corp Group (Chandru L Raheja Group), which is among the prominent real estate developers and 20
  21. 21. hoteliers in the country. They are pioneers in setting up a nation-wide chain of large format department stores in India with professional management. They believe that the initiatives taken by them have played a key role in developing organized retailing in India. Their focus on bringing in the international best practices into the retail operations, and providing the customer with a unique shopping experience has helped them become an industry leader. They are a professionally managed and systems driven organization. They believe in strong focus on customers, supported by systems and processes and a committed work force are the key factors that have contributed to their success and will help them scale up as they embark on their strategic growth plan. They believe that delighting customers is the key to being a successful retailer, and hence have built the business model around their customer. Their focus is centered on developing Shoppers’ Stop and its various associate brands as leading retail brands and capitalising on the emotional connect that they have been able to create with the customers. Every employee in the organization is called a Customer Care Associate (CCA), including the MD, Executive Director and CEO who are designated as ‘Customer Care Associate and Managing Director’ and ‘Customer Care Associate, Executive Director and CEO’ respectively to reflect their belief in customer care and service. They offer their customers a shopping experience, comprising a vast range of lifestyle merchandise, various services and aspirational products made available to them in a globally benchmarked shopping environment and complemented by superior customer service. Their Service Mission Statement is ‘It’s Magical, It’s Comfortable, It’s My Store’. They benchmark with global retailers, and strive to enhance their service offering in line with the emerging global trends. They began by operating a chain of department stores under the name “Shoppers’ Stop” in India. Currently they have twenty four (24) such stores across the country and three (3) stores under the name “HomeStop”. Over the years, they have also begun operating a number of speciality stores, namely Crossword, 21
  22. 22. Mothercare, Brio, Desi Café, Arcelia, Stop & Go and MAC. They are also experimenting with other formats of retailing through their various ventures. Shoppers’ Stop Shopper’s Stop is the flagship business of departmental stores. They retail a range of branded apparel, footwear, perfumes, cosmetics, jewellery, leather products, accessories, home products, electronics, books, music and toys in their stores. They also retail their own private label apparel, footwear, fashion jewellery, leather products, accessories and home products. These are complemented by cafe, food, entertainment, personal care and various beauty related services. Promotions and events are an integral part of their service offering to their customer, which helps them to create a unique shopping experience. They retail products of domestic and international brands such as Louis Philippe, Pepe, Arrow, BIBA, Gini & Jony, Carbon, Corelle, Magppie, Nike, Reebok, LEGO, and Mattel among others, through their stores. They retail merchandise under their own labels, such as STOP, Kashish, LIFE and Vettorio Fratini, Elliza Donatein, Haute Curry, I Jeanswear, Insense, Mario Zegnoti, Acropolis and Indi-Visual. Their designer section show cases some of India’s prominent fashion designers (Ritu Kumar, Satya Paul and LABEL), retailing affordable designer wear. They are also licensees for Austin Reed (London), an international brand, who’s mens’ and womens’ outerwear are retailed in India exclusively through their chain. Their loyalty program, called First Citizen, had 781,951 and 971,537members as on March 31, 2007 and December 31, 2007 respectively. It is one of the largest loyalty programs in the country. First Citizens accounted for over 62% and 61% of their Retail Sales for the year ended March 31, 2007 and nine months ended December 31, 2007. They offer them First Citizens rewards points on their purchases, special offers and discounts, and invitations to exclusive events and promotions. They are the only member of the Intercontinental Group of Departmental Stores, (IGDS) from India. IGDS, headquartered in Switzerland, is an international association of department stores enterprises who, in order to increase their economic efficiency and productivity, have 22
  23. 23. agreed to closely cooperate on mutual know how accumulation, networking and joint services in respect of all issues relating to the department store industry. Membership of the IGDS is exclusive and includes renowned department stores such as Marks & Spencer (UK), Selfridges (UK), Karstadt (Germany), Woolworth’s (South Africa), Central (Thailand), Far Eastern (China), Matahari (Indonesia), Parkson (Malaysia), C.K. Tang (Singapore), Marshall Field’s (USA) and Manor (Switzerland). Crossword Crossword is a speciality store in the leisure bookstore category. The store focuses on methodical classification, clear signages, and dedicated enquiry/order desks. There are cafes, reading tables and stores within the store to enhance the customer experience. The product mix consists of books, magazines, CDROMs, music, stationery and toys. Forty eight (48) Crossword stores are currently being operated, out of which twenty six (26) stores (including 10 shops in shops) are run by the Company and twenty two (22) are Run by external franchisees HomeStop HomeStop is a format which retails hard and soft furnishing and home accessories. Their offerings through HomeStop ranges from hard furnishing such as home furniture, modular kitchens, health equipment and recliners, and soft furnishing such as mattresses, draperies, carpets and home accessories such as decorative accessories, kitchen accessories and appliances,. They are currently three (3) HomeStop, one each in Mumbai, Bangalore and New Delhi. Brio and Desi Café (F & B) Their foray into Food and Beverages (“F & B”) began with Brio. Brio has been designed with the intention of providing a warm and friendly place to relax, revive and reflect. It currently operates twenty (20) Brio stores. They have started an Indian cuisine concept under the name of Desi Café as another concept to add to the food and beverages offerings. It currently operates three (3) Desi Café stores in Mumbai, Lucknow and 23
  24. 24. Rajouri. Hypercity They have a 19% stake in Hyper city Retail (India) Limited, which operates the store named “HyperCity”. The store, having an area of approximately 124,500 square feet offers food and grocery, general merchandise and apparel. Currently, there is one HyperCity store in operation. Hypercity Retail (India) Limited has also opened three (3) stores called ‘ExpressCity’ in Jaipur and one (1) store in Thane, to experiment with smaller versions of the format. ExpressCity is a retail format which is similar to a convenience store format primarily retailing food, grocery and household needs Shopper’s Stop business has grown from one store in Mumbai in 1991 occupying an area of approximately 0.05 million square feet to approximately 1.50 million square feet across twenty seven (27) (including HomeStop) stores located in the cities of Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Jaipur, Lucknow, Gurgaon, Ghaziabad and Noida. Their growth strategy is based on increasing the reach and penetration across the country by opening new stores and through multiple retailing channels and formats, and furthering Shoppers’ Stop as an experiential retail brand through unique national and international products. They also look at enhancing their merchandise width by adding new product categories and services, and strengthen their offerings by adding new brands and private labels to offer a better depth in each category. They also endeavour to enhance their base of loyal customers through the First Citizen Programme. They believe that as they grow in size and scale and expand the reach further, their current economies of scale would be further enhanced. They also continue to focus on at enhancing their operational efficiencies and human capital, which is critical 24
  25. 25. in any service driven industry such as retail. They are also investing in other formats by way of joint ventures, licenses and franchisee arrangements. The following are the initiatives under such arrangements: M.A.C. They have opened M.A.C. stores under a Supply and License Agreement with the cosmetics major Estee Lauder. Currently it is operating four (4) MAC store in Mumbai, Bangalore and Delhi. Arcelia Arcelia is a new retail concept aiming at the bridge to luxury segment, with a strong emphasis on experience and indulgence and is primarily caters to discerning women shoppers. It primarily retails cosmetics, fragrances, fine jewellery, footwear, handbags etc. They currently have two (2) stores operational in Delhi and Pune. Mothercare Under an exclusive franchisee arrangement by virtue of a Development Agreement with Mothercare UK Limited, they have opened Mothercare stores, which market a variety of products for expecting mothers, babies, toddlers and children, the focus being on style, function and safety. It currently operates eighteen (18) Mothercare stores; out of which ten (10) are shop in shop and eight (8) are standalone stores. Nuance Group They have forayed into airport retailing through our joint venture with The Nuance Group AG, Switzerland. They will handle the retail operations in the domestic terminals while the joint venture company will handle the operations at the duty free zones in international terminals. The joint venture company, called Nuance Group (India) Private Limited, has already bagged contracts to operate outlets at the international airports at Bangalore and Hyderabad. Timezone 25
  26. 26. Timezone marks their foray into entertainment retail. They have acquired a 45% stake in Timezone Entertainment Private Limited which is in the business of providing family entertainment centres. It currently operates six (6) outlets in Mumbai, Ahmedabad, Kolkata and Hyderabad. HyperCity-Argos They have ventured into new formats of retailing, namely catalogue stores, call and collect stores, internet retail website and telephone orders through their subsidiary, Gateway Multichannel Retail (India) Limited under the name of ‘HyperCity-Argos’. Currently operating five (5) stores at Thane. 26
  27. 27. Their Vision “To be a global retailer in India and maintain its No. 1 position in the Indian Market in the Department Store Category.” They are clearly focusing on the Indian market, which they believe offers tremendous opportunities to department stores. At the same time, they benchmark themselves with leading retailers in the segment worldwide. It is the constant endeavor to bring in global best practices into the business and consistently upgrade themselves to offer to the customers an international shopping experience. Their Background One of their Promoters, Ivory Properties & Hotels Private Limited (“IPHL”), commenced its retail operations in the year 1991 under the brand name ‘Shoppers’ Stop’ with its first store at Andheri, Mumbai. It started off with ready to wear men’s wear and thereafter added women’s wear in 1992, children’s section and cosmetics, perfumes and accessories in 1993. The company was incorporated on June 16, 1997. Soon after incorporation, IPHL executed a conducting agreement with them dated November 3, 1997 giving them the right to participate in running the departmental stores. This agreement was terminated and a fresh Conducting Agreement was executed with IPHL dated March 31, 2000. The brands, trademarks and goodwill of Shopper’s Stop division of IPHL were also assigned through a separate agreement. In 2005 they made an initial public offering of 6,946,033 equity shares of Rs. 10/- each at a premium of Rs. 228/- per share to fund the opening of 11 new stores and the renovation and expansion of certain existing stores. They were awarded ‘Most Admired Shopping Destination of the Year’ by the Images Fashion Forum, ‘Retail Destination of the Year’ at the India Retail Forum and ‘the Advertising Campaign of the Year’ at the CMAI Apex Awards, in the year 2005. 27
  28. 28. In the journey of reaching 27 stores, They have received various awards and honours, some of which are, “Most favoured retail destination of the year” (2004), Retail Destination of the Year, at the India Retail Forum (2005) and the Advertising Campaign of the Year, at the CMAI Apex Awards, (2006), Gold Shield Award for excellence in financial reporting in their annual report for FY 2005-2006 as “The Best in Manufacturing and Trading Enterprises” category in January 2007 by ICAI. In FY 2006, they reported a net profit of Rs 402 million (before re-statement). Their gross retail sales were Rs 6660 million in FY 2006. Their operating profits stood at Rs 568 million in FY 2006 and our shrinkage was 0.40 per cent in FY 2006. Their gross retail sales increased to Rs 8850 million in FY 2007, and operating profits (earnings before interest, depreciation, tax, exceptional and non-recurring items) to Rs 787 million in FY 2007 and their net profit stood at Rs 262 million (before re-statement). SWOT ANALYSIS 28
  30. 30. They believe the following key strengths have helped them emerge as a prominent domestic retailer: Experienced professional management team They have an experienced professional management team led by Mr. B. S. Nagesh, their CCA & MD, who is a prominent professional in the retail sector in the country and has been the first Chairman of the CII Committee on Retail in 2001 and has received various awards over the years including ‘Retail Professional of the Year’ for the years 2003, 2004 and 2006 by CMAI, ‘Retail Professional of the Year’ in 2005 at the ICICI Retail Excellence Awards, ‘Entrepreneurship Award’ at the Enterprise Scions Awards by DNA Money in November 2006 and the ‘Visionary Award’ from ICFAI in 2006. He is supported by Mr. Govind Shrikhande, CCA, Executive Director and CEO. Their GROUPCOM consists of 6 professionals and is supported by a team of professionals with relevant domain expertise and retail oriented functional specializations from FMCG and service industry background with professional qualification in their respective fields. They were awarded the ‘Best Top Management Team of the Year’ in 2002 by CMAI. The management team is complemented by a committed work force. The HR policies aim to create an engaged and motivated work force, which is essential for success in any service oriented industry such as theirs. Strong focus on systems and processes They have a strong focus on systems and processes. They have been able to capture their learning over the years and use them to create Standard Operating Procedures (‘SOPs’) for each of the activities, right from planning and setting up of new stores to their day to day operations. Their SOPs are available on the Intranet, which helps their employees to access them whenever required helping them to achieve consistency in their decision making process across the chain. They also have a Manual of Authority, outlining the 30
  31. 31. framework of financial and legal decision making authority at all levels in their Company, right up to the CCA & MD and the CCA, Executive Director & CEO. They believe this will help them as they embark on the growth strategy and enhance their reach with the customers and help provide them a consistent brand experience across their stores. As they grow in size, systems and processes will be the key driver and differentiator to organised operations and enhanced profitability. Extensive use of Information Technology (IT) systems They have deployed state of the art international IT systems for retail operations across their business processes and operations. Most of the processes are linked online, and utilize some of the leading technologies available to deliver overall control and efficiency. With changing customer aspirations and requirements, immediate monitoring of information on sales trends is critical. Their IT systems help them not only to monitor customer purchase patterns, but also allows the organization to quickly respond to it by facilitating decision making and providing the tools to adjust their operational strategy accordingly. Their systems also facilitate them to conduct their business efficiently by helping them to optimize their resources including their store space, inventory, manpower and overall capital deployed in their business. They have received the IT user award from NASSCOM for Best IT Practice in Retail Category in 2003. Strong distribution and logistics network and supply chain They have created a strong distribution and logistics network, with their four Distribution Centers covering 303,382.20 square feet handling over 400,000 SKUs per year, and working 24x7. The distribution and logistics setup is networked and on line allowing them to deliver merchandise to the store within 48 hours of receipt / generation of auto replenishment order, which has helped them optimize in store availability of merchandise. The 31
  32. 32. Distribution Center management is outsourced to service providers such as Toll (India) Logistics Private Limited. They believe their existing Distribution Centres, which have been designed to scale up, will be able to meet their growth requirements as they expand the number of stores. They have undertaken various initiatives in further improving the efficiencies of their supply chain, which they believe is critical for any retailer. These aim at meeting the conflicting requirements of reducing their inventory whilst ensuring availability of products at all stores as per customer needs, as well as reducing their operational costs. Vast range of lifestyle products and services Their merchandise ranges across apparel, accessories, perfumes, cosmetics, home and kitchen products with over 400,000 SKUs, which are complemented by their services offerings. They offer their customers a variety of national and international brands as well as their in-store brands (private labels) under one roof. Internationally benchmarked shopping environment They believe and focus on providing their customer a globally benchmarked shopping environment with the best in class service which has been instrumental in their success. They engage international designers such as Portland Design Associates (UK) to design their stores, sourcing the fixtures in domestic as well as international markets. They periodically provide the managers exposure to international department stores through IGDS to be able to capture and implement best practices in their operations. This has helped them to create a niche in the customers’ mind, and enhance their brand equity. It is because of this service and ambience that they offer, has created a differentiation in the mind of the customer versus their competitors where similar products and brands are available. 32
  33. 33. Strong understanding of the real estate business The benefit from the Promoters’ association with the real estate business and their relationships with developers, which have helped them acquire preferred properties at competitive rates. They enjoy Anchor Tenant status in most of the malls that are presently located in due to their high brand awareness and trust, ability to draw a large number of customers and occupy a significant space in the mall. As Anchor Tenants, they occupy a prime location in the malls on terms that they believe favourable to them as compared to the other occupants. Large base of loyal customers They had 19.9 million customers entering the stores in the year ending March 31, 2007. They believe that the emotional connect that they have been able to create with their customers through their service offering and special promotions has helped them convert many of them into loyal customers. This is clearly proven by their large and constantly growing base of First Citizen members. 33
  34. 34. THEIR GROWTH STRATEGY They believe that the department store format offers significant opportunities in the country with the changing consumer aspirations and drive for a better lifestyle. They believe that a younger population with higher disposable incomes and willingness to experiment would drive customer aspirations for lifestyle products. They are thus primarily focused on the Indian markets in the department store format although they are experimenting with other formats to enhance growth opportunities. At the same time, they consistently evaluate other opportunities and may look at alternative delivery formats or product categories or even within their existing offerings should they find the opportunity compelling or to strengthen their existing format. Their growth strategy is based on: 1. Increasing their penetration in existing cities and expanding their reach across the country 2. Furthering Shoppers’ Stop as an experiential retail brand through differential service and unique national and international promotions 3. Getting enhanced share of the organized retail market through multiple formats and retailing channels 4. Enhancing the merchandise width by adding product categories 5. Introducing new brands and developing private labels to offer a better depth in each category 6. Increasing the First Citizen base 7. Utilizing economies of scale as they grow in size and expand their reach 8. Enhancing the operational efficiencies 9. Enhancing the human capital 34
  35. 35. Increasing the penetration in existing cities and expanding their reach across the country Increasing their penetration in existing cities with a larger number of stores, increasingly of larger size, will enable them to penetrate into new catchment areas within these cities and optimize their infrastructure. Enhancing their reach to cover additional cities amongst the top 50 cities of the country, will enable them to reach out to a larger population and become a preferred shopping destination for them. This will help them provide a platform to domestic and international brands wanting to reach out to domestic consumers with the same profile as their customers. Furthering Shoppers’ Stop as an experiential retail brand through differential service and unique national and international promotions They are continuously inducting and training CCAs to deliver a differential service, which they measure and improve through their customer satisfaction studies done through CSMM. They continue to focus on unique events and promotions to reinforce the Shoppers’ Stop experience and their brand image amongst their customers to become a destination of choice for them. Enhancing the merchandise width by adding product categories Consumers tastes are shifting and the propensity to spend on new categories of merchandise like cellular phones, Personal Data Assistants, digital cameras, writing instruments, designer clothing, etc, is increasing along with needs for new services. Their focus will be to add on such new categories in the stores along with developing existing categories to increase the share of not only existing customers, but also acquire new customers. 35
  36. 36. Introducing new brands and developing private labels to offer a better depth in each category They continuously focus on enhancing the depth and width of their merchandise. The private label and private brands initiative is part of such focus and offers a differentiating factor as compared to competition at the same time helping them to enhance margins. They have a tie up with Austin Reed (UK) wherein they are their licensee for India for men’s outerwear such as tailored clothing to include suit, jackets, trousers, shirts, ties and men’s smart casual wear to include trousers , jackets, shirts, knitwear and all items of women clothing. They continue to evaluate such opportunities for tie ups with national and international brands, which can be introduced in India through their stores. They may, in the future, also offer these brands to the customer through independent chain of stores that they may promote, should the market opportunity justify the setting up of the same. They have tied up with MotherCare UK Limited under an exclusive franchise to retail their product in India. MotherCare is a retailer of Kids wear and maternity wear and accessories. Increasing their First Citizen base to enhance their base of loyal customers The number of First Citizens increased from approximately 632,086 on March 31, 2007 to 781,951 on March 31, 2008. First Citizens accounted for 62% of their sales in the year ending March 31, 2008. As on December 31, 2008, the number of First Citizens stood at 971,537and their contribution to the sales in the period between April 1, 2008 and December 31, 2008 was 61%. A higher base of First Citizens exposed to the Shoppers’ Stop experience, would help them to build customer loyalty. They believe, their new business intelligence software (called Business Objects) will help them understand the customer at an individual level, which may help in making more profitable sales to them, as well as meeting their needs in a focused manner. 36
  37. 37. They believe with the addition of new stores and initiatives at their existing stores, they will increase the base of First Citizens. A higher base of loyal customers would attract various brands to join hands with them and use their stores to reach out to these customers. Utilizing economies of scale as they grow in size and expand their reach They believe that their existing corporate infrastructure and software systems have been designed for a higher scale of operations than their current size, and can help them with their growth plans without the need to significantly increase costs. They have in place their core distribution and logistics infrastructure, which can handle larger business volumes at marginal addition to costs. Higher business volumes will also improve their negotiating powers and help them get further economies of scale in their buying with opportunities of incremental margins. Enhancing their operational efficiencies through better systems and processes They have a consistent focus on enhancing their operational efficiencies and monitor key operational parameters on an ongoing basis using concepts such as GMROF, GMROL and GMROI to improve their productivity on space, labour and inventory. They benchmark their stores within the chain on performance parameters on historical as well as comparable basis to seek areas for improvement to reduce their operating costs and enhance their productivity levels. Their Baby Kangaroo Programme was recognized as top innovative HR practices by Delhi Management Association with Erehwon Innovation Consulting in 2006. Enhancing their human capital 37
  38. 38. They periodically assess their CCAs across all levels through assessment centers to identify competency gaps and use development inputs (i.e. training, job rotation etc.) to bridge them. They benchmark their compensation and benefits through consultants, with the best in the industry to pay the associates accordingly Validation of improvements is done through Customer Satisfaction and Employee Satisfaction studies. This ensures that there is a constant endeavour to align human capital to organizational objectives. Their acquisition of 100% shareholding of Crossword Bookstores Limited Pursuant to a share purchase agreement dated February 28, 2005, they have acquired 49 per cent of shareholding in Crossword Bookstores Limited held by ICICI Trusteeship Services Limited. Crossword Bookstores Limited is 100 per cent subsidiary after the acquisition. They believe that this gives them a strong brand name, that is, Crossword and the infrastructure and expertise in operating a speciality store. Their option to acquire a controlling shareholding in Hypercity Retail (India) Limited (“Hypercity”), setup to venture into mixed retailing One of the promoter companies, Inorbit Malls (India) Private Limited has incorporated Hypercity Retail (India) Limited. The objects of the said company inter alia include the running and managing of hypermarkets, supermarkets, etc. The company runs a store under the name ‘HyperCity’, in Malad, Mumbai, which is the business of food and mixed retailing, i.e. to provide all kinds of products to consumers at competitive prices through a hypermarket format. The company has also started three (3) stores called ExpressCity in Jaipur and one (1) store at Thane. In the event they view that the investment in Hypercity would be beneficial to them, they may acquire such shares. They believe that this option would be beneficial to them as it would allow them to participate in new retail formats as and when they consider such a venture profitable. As and when they acquire shares in Hypercity Retail (India) Limited, 38
  39. 39. the same would be subject to regular market risk as any other equity investment. They have acquired 19 per cent equity stake in Hypercity Retail (India) Limited on March 17, 2007 Their joint ventures “Our venture is to launch stores based on product lines available on catalogues and internet retailing.” In July, 2007, they executed a series of agreements for launching a new format of retailing through shelf edge point of sale material, indicating that the product lines are available in the Catalogue and internet retailing. Under the agreements, their subsidiary, Gateway Multichannel Retail (India) Limited, is to operate the stores with services from Home Retail Group (India) Limited a wholly owned company of Home RetailGroup plc and Hypercity. The agreements also provide for the use of the trademarks of Argos and Hypercity by Gateway Multichannel Retail (India) Limited. Their joint venture with The Nuance Group AG for retail outlets in airports In January 2007, we entered into a joint venture on 50:50 basis with The Nuance Group AG, Switzerland for managing and operating retail outlets in duty free zones at airports in India. The joint venture company has won bids to operate outlets in the Bangalore and Hyderabad international airports. Their foray into entertainment retail They have acquired 45% strategic stake in Timezone Entertainment Private Limited, which is engaged in family entertainment center that offers interactive gaming facilities. 50% in Timezone Entertainment Private Limited is held by Avel PTY LTD, Australia, Aberdee PTY LTD, Australia, and Leisure and Allied Industries Private Limited who have expertise in operating family entertainment centers. 39
  40. 40. THEIR OTHER ARRANGEMENTS Their arrangement for MAC stores They have entered into an agreement with ELCA Cosmetics Private Limited, dated June 13, 2005, granting them a non-exclusive license to employ MAC Concept till June 29, 2008, which is automatically extended for up to two consecutive one-year term periods unless written notice not to renew is provided by either party. They have opened 4 MAC stores at Mumbai, Bangalore and Delhi. Their exclusive right to open ‘Mothercare’ outlets On October 3, 2005 they entered into an agreement with Mothercare UK Limited granting them an exclusive right within India to open ‘Mothercare Outlets’, as a franchisee, for a period of ten years which they have a right to extend for another five years, not less than six months before the end of the fifth year of this agreement. They have 17 ‘Mothercare’ outlets including 8 being part of Shoppers’ Stop stores. Their franchisee for Crossword They have entered into a Master Franchise Agreement with their Subsidiary, Crossword Bookstores Limited with effect from July 1, 2006, giving them exclusive franchisee rights for a period of five years, subject to existing franchisee arrangements at the time of the said agreement. 40
  41. 41. MANAGEMENT STRUCTURE The Chandu Raheja group holding structure is the promoter of Shoppers Stop with only the retail arm of the group listed. 41
  42. 42. THEIR OPERATIONS They currently operate 154 stores (including HomeStop) with 26 stores just in Mumbai, an aggregate area of approximately 4.50 million square feet. The real estate in which they operate their stores is taken on long term lease and conducting arrangements. They do not own any of the stores. The chart below illustrates the scheme of their operations. 42
  43. 43. Specialties Retail, Hypermarkets, Department, Stores, Bookstore, Airport, retailing Departments: • Men •Men's Apparel •Men's Accessoris • Women • Women's Apparel • Women's Accessories • Kids • Toys • Mothercare • Girls • Boys • Home & Travel • Home • Travel • Fragrances &Beauty • Fragrances • Skincare • Makeup • Gift Ideas • Bargains & Discounts • Crossword • For Him • For Her • Gift Voucher They review their store opening plans from time to time, and may open additional stores as per their competitive strategy for different markets in India. They have entered into contractual arrangement for 17 additional stores sites, aggregating an area of 1,842,572 square feet with the stores likely to be opened by FY 2010-11. They intend funding these and any additional stores that they may sign up from proceeds of this issue. 43
  44. 44. They also periodically review their space requirements in existing stores and if required, may negotiate for additional space to meet their growth requirements. Distribution Centers: They have four Distribution Centers (DCs) servicing their departmental stores and speciality stores across the country. The service office housing the corporate functions is located in Mumbai. Store Planning and Set up Planning and starting a store takes approximately between 6-24 months, depending on the stage at which the construction is when they sign on the property. Selecting the location Their choice of cities and location where they open their stores is based on the demographic data available and through their own commissioned market surveys. They are currently focusing on metropolitan and Tier I and Tier II cities in the country, based on market potential. They select sites within the city after commissioning wardrobe and catchment studies in identified locations, with agencies such as AC Nielsen ORG Marg. Site selection & Documentation They have stores in malls as well as standalone stores. In most of the malls where they have signed on space for their stores, they have come in as “Anchor Tenants”, which they believe provides them advantages in terms of favourable terms. They also sign on 44
  45. 45. properties for standalone stores in some of the locations. The real estate in which they presently operate their stores and other commercial premises are taken on long term lease, leave and license, conducting and other contractual arrangements, some of which are with companies promoted by the Promoters. They do not own any of the real estate in which they presently operate their stores. Normally, such arrangements range between 5 to 9 years and some are structured with options to renew them at their discretion for up to 24 years. They also optimize their investment in the store by getting the property developer to provide us with utilities such as air conditioning, escalators, lifts and electrical etc. Store planning They have a centralized Store Planning and Projects Team comprising of Engineers and Architects. This team focuses on setting up of new stores as well as upgradation of existing stores to: • Create a store ambience that helps present the desired image to the market • Facilitate customer convenience, circulation and store space productivity by Internal arrangement of selling/non-selling areas. They have currently engaged international architects and retail designers to design their stores. Portland Design Associates (UK) form the panel of architects that work with them for concept design and are supported by a panel of domestic architectural firms. This allows them to capture international trends and developments, and continuously bring in latest designs on retail store fixtures, lighting, building materials, signage’s and related elements. Hence, each of their stores may have a different look and feel, with improvements targeted at providing the customer with an enhanced international shopping experience. The store planning process begins approximately 2-3 months before planned handing over of the store shell to them by the property developer / their landlord. Since every store may have a different geometry and floor configuration, and also have a different space allocation for different departments and services, they draw up an independent plan for each store. 45
  46. 46. Store Set Up / Projects The Projects Team thereafter focuses on the project once the planning is completed. The project function encompasses project costing, tendering, material procurement, vendor selection, construction management and vendor management. Completing a store after receipt of the store shell typically takes between 3-4 months for fit out, wherein usually no occupancy charge is paid. The project supervision is done by professional project management companies appointed for each project. They have extensively defined operating procedures for all the activities governing the entire process as part of their SOPs. Recruitment and Training Their recruitment for any new store being opened begins 3 months before the store opening with only the store head being recruited six months in advance. Their employees go through a classroom training and orientation, and are subsequently trained at their other existing stores. They conduct mock runs at the store before it is opened to the public. Store Operations Their stores are where they deliver to their customers the Shoppers’ Stop experience. Hence the store operations are one of the most critical functions. Their processes are designed to ensure that each aspect of the stores’ functioning adds up to delight the customer and reinforce the Shoppers’ Stop brand. Each of their stores is headed by a Store Manager, reporting to the Area Controller who looks after a group of stores. The Store Manager is responsible for the day to day operations of the store and is assisted by a team comprising of retail as well as back office personnel. The retail team is responsible for sales and consists of the CCAs responsible for serving the customer. The back office team comprises of support functions such as administration, security and 46
  47. 47. housekeeping and store level representatives of corporate functions such as human resource, marketing, visual merchandising and accounts. The corporate functions executives report to both, the Unit Head as well as the functional head at the Services / Corporate office to ensure perfect synchronization. Store Processes They have defined processes for all their functions for day-to-day operations, and to ensure consistency in customer experience across their chain of stores. Functions such as security and housekeeping which are outsourced are also covered under the process manuals, with strict control to ensure that they are rigorously followed. This enables them to meet their Service Vision Statement ‘It’s Magical, It’s Comfortable, It’s My Store’. Their CCAs follow their operational guidelines and help customers to shop in a non-intrusive manner. Customer assistance The CCAs are regularly trained on product knowledge as well as selling and inter personal skills to ensure that their customers are well serviced and have an unforgettable experience within the store. They use in-store directories, size charts, signages and ticketing to make it easier for the customers to shop and find their way about, in line with their philosophy of non-intrusive service in line with international standards. Cashiering, alterations and exchanges are critical service areas that they focus on to ensure that the time taken with respect to each of these aspects helps them to meet customer expectations. Cashiers are trained and tested regularly on their speed to ensure quick checkout for the customer at the same time ensuring that customers in the queue are well attended. Similarly, they provide alteration services on purchase free of cost. They also permit their customers to exchange the merchandise purchased at the stores, which they are not satisfied with. They value customer feedback and view customers’ complaints as an 47
  48. 48. opportunity to learn and build better ties with their customers. They have a well-defined complaint management process and strive to respond to all complaints within 72 hours of the complaint being received. Visual Merchandising They use Visual Merchandising (VM) skills to present their merchandise at its best, in order to appeal to the customer. This is a critical in store activity with Visual Merchandising Team deciding on the theme as well as the manner in which the merchandise is proposed to be displayed across the stores nationwide. Scope of VM includes setting up of window displays as well as in-store areas to display merchandise. They draw up annual VM calendar at the beginning of the financial year based on the planned merchandise seasons and launches. This calendar is then used to draw up a complete VM plan along with designs, vendors and other details. Doing this centrally allows us to ensure a common visual merchandising theme across the chain of stores. Distribution and Logistics The distribution and logistics team handles all merchandise movement and warehousing requirements, including inbound and outbound logistics, functioning on a 24x7 basis. For this, they have extensively used technology to ensure on-line movement of information and have integrated most of their partners in the supply chain including various departments, vendors, and some of the other service providers into their information system. They have implemented JDA’s Warehouse Management System (WMS) along with the Merchandise Management System to manage our inventory. The operations of the Distribution Centers are outsourced to third party service providers such as Toll (India) Logistics Private Limited (formally known as Sembcorp Logistics (India) Private Limited) pursuant to contractual arrangements through wholly owned subsidiary, Upasna Trading Limited (“UTL”), for which it pays the service providers a fixed sum per article handled. 48
  49. 49. Key features of UTL’s agreements with service providers as applicable to us: • Service providers to receive goods from vendors through the nominated carriers on door delivery • Service providers to be fully responsible for any loss or any damages to the goods, if it fails to follow the prescribed procedure • The title of all the goods shall be at all times with them till they are sold to a third party. • The service providers shall be responsible for maintaining all waybills, updating records in the register and also submitting them back to the Sales Tax Department. Insurance • The insurance for the warehouse premises, will be taken by the owner of the premises. UTL or Shopper Stop Company will insure the stock during storage and transits as well as our equipment, if any placed at the warehouses. Penalties • If attention of UTL is brought to the fact that there is a shortage in stock /goods lying in the premises of the service provider, UTL has the right to recover an amount equal to the cost price value of the goods from the service provider within 15 days after giving a notice in writing in respect thereto to the service provider. • If any loss or damages is suffered by UTL or Shopper Stop on the happening of any of the events specified written notice shall be sent to the service provider shall make good all the loss suffered by UTL and Shopper Stop. Statutory Compliance 49
  50. 50. • All statutory compliance with regard to labour laws, rent (as applicable) and other charges including tax for running and operation of the premises shall be borne by the C&FA Termination • In the event of any breach of any of the terms and conditions of this Agreement and the service provider fails to remedy such breach within thiry (30) days of receipt of written notice from UTL, UTL has the option of terminating the Agreement; • UTL shall be entitled to terminate this agreement by giving to the C&FA, three (3) months notice in writing. This C&FA can wish to terminate this agreement by providing six (6) months notice to UTL. While the infrastructure facilities for company DCs are set up by the service provider, these DCs work exclusively for the company and employ their software systems. Stocks are delivered to stores on a daily basis or once in two days (as per their needs) in the morning, to the Receiving Bay Incharge who verifies the stock and keeps it on the floor, which is then displayed on the shelves, before customers enter. They do not have any stocking point at the stores. This ensures that the desired service levels are effectively delivered, costs are variable, allows capturing economies of scale that the service provider is able to bring in. The service providers are accountable for all shrinkages in the distribution system. Buying & Merchandising Buying and Merchandising (‘B&M’) is an important function, under which their team plans the product offering for our customers, and procures them. They are responsible for ensuring product availability for the customers in the style and design desired by them. 50
  51. 51. The B&M team works closely with the store planning; marketing and visual merchandising teams and influences the marketing plan and capacity allocation. The B&M function works on the basis of two seasons (Spring-Summer and Autumn- Winter). Each season is broken down into 26 weeks, with planning and monitoring done at the weekly level. Based on market research, past performance analysis and forecasts for fashions and trends in the ensuing season as available from various industry bodies and research agencies, the B&M team plans and sources the product range for all our stores. Sales and Margin Planning The B&M team converts the corporate financial plan into divisional and department plans covering sales, margin, markdown and inventory. 51
  52. 52. Range Planning Range planning is where their teams decide what to buy, how many options (types of merchandise) to buy and how much to buy of each option, and when to put it on sale. This is derived from the financial plans formulated for each season, for each division and department. B&M team with the help of the software can fine tune the range for each store. Product Development and Ordering 52
  53. 53. Generally, each brand makes a brand offering for the season. The merchandiser, based on trends and past data, selects the range and places the order. For private label, we prepare the design brief for each season based on the trends and fashion forecasts. The design brief is converted into samples by our vendors, based on which we place the orders. In Season Management Monitors actual performance of their merchandise against the plan on a weekly basis during the season, and accordingly decide on the short term strategy to be adopted. These include special promotions, in excess of what had been initially budgeted. This may also require revising plans, and also purchase orders with vendors, wherever possible. Private labels They have a strong focus on in-store brands, which are also called private labels. These help the company to complement the product range that they receive from national and international brands and allows them offer to their customer an enhanced range across price points. Their private labels are STOP, Kashish, LIFE, Vettorio Fratini, Elliza Donatein, Haute Curry, I Jeanswear, Insense, Mario Zegnoti, Acropolis and Indi- Visual. Since the company does not advertise their private labels, costs are lower enabling the company higher margins as well as permitting to offer the customers quality products at lower price points. Private labels accounted for 21% of our sales in FY 06-07. It is their endeavour to enhance the share of private label portfolio in the total sales, but as a policy they will not take the share to more than 25%, as this would dilute our brand offering to the customers. Gift Vouchers They also sell gift vouchers, which are purchased by customers for gifting purposes. These gift vouchers can be used in any of our stores for purchase of merchandise. Individuals and corporate purchase gift vouchers for their gifting purposes. 53
  54. 54. Arrangements with vendors Shopper Stop has various types of arrangements with vendors for the merchandise they supply. These include: • Bought Out Merchandise They purchase the merchandise from the vendor under this arrangement, and hence own the inventory. All their private label products and some of the brands that retail form part of this arrangement. • Merchandise on Consignment Basis Under this arrangement, the consignor remains the owner of the inventory and bears all inventory related risks. All unsold stock can be returned to the consignor; with the responsibility being limited to stock that may get damaged or lost while in their warehouses or stores. The consignor receives the payment for the merchandise only after it is sold. • Concessionaires These are arrangements under which they provide concessionaires with a demarcated space within store to sell its products. The concessionaire is responsible for its inventory and also employs its own staff at its counters. They monitor the product range as well as the sales staff to ensure consistency with the Shoppers’ Stop offering. The company gets their margin in the form of trade discounts under such arrangements, with a fixed minimum amount. They have such arrangements with Gili India Limited, Rockym Optimor Private Limited and Sterling Meta-plast Private Limited among others. • Conducting arrangements Under this arrangement, the company permits others to conduct their business in their stores in demarcated areas, and in return pay them a conducting fee. The conductor has its own billing and cash collection system, and independently manages its operations. The conducting fee that the company receives from such arrangements is generally fixed as a 54
  55. 55. percentage of the revenues generated by the conductor subject to a fixed minimum amount. ADVERTISING & PROMOTIONS Advertising strategy is based on creating a bond with the customer and enhancing their trust in Shoppers’ Stop. Advertisements thus promote the Shoppers’ Stop brand and not the merchandise, store or the property location. They extensively use promotions and events to further their relationship with the customers. They have a central marketing team at service office in Mumbai, supported by representatives at their stores. 55
  56. 56. Promotions Shoppers’ Stop use promotions as an important part of our marketing tool to reinforce the brand positioning ‘Feel the experience, while you shop’. The promotions are targeted at enhancing the fun in shopping and providing the customer with a unique shopping experience and not just on offering discounts and bargains. Their belief is to give more for same and not same for less. The companies plan their annual promotions calendar and carry out these promotions simultaneously across all our stores. Some of our promotions and events include: • Parikrama: Festival celebrating Indian tradition and culture, which not only serves to bring the consumers closer to culture, but also provides a platform to promote upcoming artisans from remote and rural areas giving them an opportunity to showcase their art and craft at Shoppers’ Stop. • Fly to Santaland: Customers shopping upto or more than a predetermined value woul be eligible to enter a contest and win a holiday to The Santa Village in Finland showcasing apparel and accessories for men with offers ranging from gifts to trips to international destinations and discounts etc. with every buy that they make. The event serves to bring men into the stores. • Wardrobe Exchange: A charity promotion under which customers donate their old garments and accessories and earn discounts on new purchases at Shoppers' Stop. The old garments are donated to Concern India Foundation. • Rims And Dials : A festival which solely focuses on watches and sunglasses • Do Your Denim : This event is geared towards bringing out the creativity of customers to design their own denim jeans Besides these, they organized several other festivals such as: • Disney Carnival, in 1993, with official Disney characters from Disney Inc (Mickey, Minnie, Donald and Goofy) participating. 56
  57. 57. • The Tycoon Tie Festival in 1994, in which the largest tie in the world was displayed and featured in the Guinness Book of World Records. • Festival of Britain, in 1996 in collaboration with the Government of Great Britain. • The Buy and Fly to Seven Wonders of the World, in 2001 which provided customers an opportunity to win a trip to the Seven Wonders. They also hold sales at the end of each season (twice a year to mark the end of each season) wherein they offer a range of discounts on our merchandise. These not only help them clear their inventory, but also bring in larger number of customers into the stores. First Citizen Programme Started in April 1994, the First Citizen programme is the center of loyal customer management process. We had 971,537 First Citizens as on December 31, 2008. First citizens accounted for about 62% of their sales for the year ended March 31, 2008 and 61% of the sales for the nine months ended December 31, 2008. They have three levels in First Citizen membership namely Classic Moments, Silver Edge and Golden Glow, depending on the spend in our stores: First Citizens receive: • Reward points on their spend in our stores, which can be exchanged for merchandise • Special schemes and promotions available only to First Citizens. • Extended or exclusive shopping hours, especially during festivals • Invitations to select events and celebrations • Home delivery of alterations. • Comfort Lounges at select stores. It is a tradition to invite First Citizens to inaugurate new stores. ‘First Update’ from Shoppers’ Stop ‘First Update’ is a complimentary bi-monthly magazine sent to Golden Glow First Citizens. The articles are written keeping in view the lifestyle preference of the customer 57
  58. 58. covering various topics such as health, shopping, product specific information, , fashion trends, new arrivals in store, store updates, contests/offers, entertainment and travel. First Citizen Co-branded credit card They have introduced Co-Branded cards as an extension of the First Citizen programme. They currently offer (subject to fulfillment of conditions) a First Citizen Citibank –co branded card to First Citizens. This card provides additional points over the regular reward points besides other benefits such as free insurance, offer alerts, EMI schemes, etc. The reward point system allow the member the flexibility to earn reward points by shopping at any place of their own choice and still have them redeemed at Shoppers’ Stop. Systems and Processes The company has a strong focus on systems and processes. They believe that this is a strong differentiator for them and is a critical success factor in our growth strategy. They have created a Manual of Authorities (MOA), which governs decision making authority. We also have extensive Standard Operating Procedures (SOPs) created into manuals to govern most of the activities including site selection, store planning, store operations, buying and merchandising, distribution and logistics etc. SOPs are available on Intranet, which helps employees to access them whenever required helping them achieve consistency in our decision making process across the chain. The SOPs provide guidelines for most of our business activities and define the steps to be undertaken as well as responses for a variety of situations that may arise. They believe this offers us significant advantages and enables them: 1. Provide customers with a consistent service delivery across organization, which helps them, strengthen their brand and bondage with the customer 2. Respond to situations and developments in a predictable manner 58
  59. 59. 3. Capture learnings and best practices from across the organization and enhance efficiencies in the operations 4. Reduce operational risks by permitting them to identify issues and areas of concerns and deviations from set processes 5. Reduce dependence on individuals, including those in critical functions 6. Induct new employees faster Ranking the stores is based on their compliance with the SOPs. They believe the trust on systems and processes will help them manage their growth better, and will be the key driver and differentiator to organised operations and enhanced profitability. MANAGEMENT INFORMATION SYSTEM (MIS) Shoppers’ Stop have strong MIS capabilities that make use of their technological investments to generate valuable insight for them and helps them in improving the operations, as well as in enhancing the speed of response to what the customers want. 59
  60. 60. They are thus able to monitor their performance on a day-to-day basis, across stores, departments and product categories and compare the same with other stores as well as across periods. This helps them take corrective action on time , and optimize stock. They are in the process supplementing Business Intelligence capabilities through the deployment of Netezza, a next generation data warehousing appliance. They believe that this is the first time that any company is using this technology in India. They have also invested in Oracle Data Integrator (formerly Sunopsis) to map the source systems to the Business Intelligence platform. They are currently using Business Objects to analyse data related to the buying trends of loyalty customers. They use this insight to customize our offerings to our loyalty base, which in turn, enhances their shopping experience leading to increased repeat visits. Measurement of Customer Satisfaction Shoppers’ Stop has been measuring and tracking drivers of customer satisfaction since 1999, and has devised a Customer Satisfaction Index (CSI). The CSI score and the feedback received during the survey done of customers who provides them with valuable information. They use this for strategic planning and for operational improvements. They carry out two studies in a year, with First Citizens and walk in customers at the store, with CSMM, a division of IMRB International, a leading market research agency, conducting the studies. CSI scores for the previous two years are given below: The Process Index covers factors within the control of Company whilst the Overall Index also covers additional factors that may be outside the control of the Company but may have an impact on customer satisfaction. 60
  61. 61. CSI scores are made available at the unit level for each of the above parameters as well as for the chain. This allows them to track performance on customer expectation at overall, segment and unit levels, determine critical improvement areas at all levels and also identify opportunities that can leverage upon. CSI score acts as an indicator of employee performance with several of managers having the CSI score as a Key Result Area (KRA) in their performance appraisal. Measurement of Employee Satisfaction They actively measure employee satisfaction as they believe that employee satisfaction has a direct relationship with customer satisfaction. Satisfied and motivated employees are critical for the success of any service intensive business. They carry out an annual online survey in which all our employees participate, based on which it is easy to determine the Employee Satisfaction Index (ESI), on store as well as chain level. Stores have linked ESI to management performance and have made it a KRA for several of the managers. ESI scores for the previous two years are given below: The Work Factor Index covers parameters that directly impact the employee whilst the Overall Index covers additional factors such as company loyalty and image, which also influence employee satisfaction, but are outside the purview of the immediate manager. They are one of the first Indian retailers to use external research agencies to track Employee Satisfaction scores. They also participated with Walker International in one of its worldwide researches that links customer satisfaction with employee satisfaction. Measurement of Vendor Satisfaction 61
  62. 62. They have also completed vendor satisfaction study covering all their trade vendors, conducted by CSMM, a division of IMRB International. This is an annual study and will help them monitor their vendors’ satisfaction level and their commitment and loyalty through the Partner Satisfaction Index. They have also instituted awards for their vendors called ‘Pinnacle Awards’ for the top performing partners in various categories. Technology They are technology oriented organization and use information systems extensively across their operations, to enable them to optimally benefit from systems and processes. Their focus on technology dates back to the time when they started business, even whilst were a single store company. Since then, they have remained abreast of the developments in IT usage in the retail sector globally and have progressively introduced new software solutions across various functions. Beginning with a computerized cash memo in their first store in 1991, to use of FoxPro for operations & accounting and eventually, implementation of a complete ERP from JDA, they have gradually extended the use of technology in the various areas of operations. Most of the critical functions such as Supply Chain, Operations, Finance & Accounts, Customer Loyalty Program & Human Resources are linked through a computer network. This has enabled to reduce their time to market and respond to the changing customer requirements. This has also helped to reduce the costs of operations through both, reduction in wastages and missed opportunities as well as a consequent reduction of the overall costs of operations. IT Backbone Entire organization is networked and connected with the 27 stores and 4 Distribution Centers (warehouses) linked up to the Services Office through high speed leased line. They have almost 600 point of sales machines and over 1000 desktops or laptops 62
  63. 63. connected to over 75 servers spread across our different locations, through leased lines and Integrated Services Digital Network (ISDN). They have data and network security systems managed by HCL COMNET. They also have deployed some external third party packaged software solutions (from some of the leading global vendors) while some of the software systems have been developed in house. They continue to invest in IT systems to upgrade the same to be able to better serve their requirements and enhance operational efficiencies. Human Resource Human resource policies are targeted at creating an engaged and motivated work force. They have a fairly young team with the average age of the organization being 26 years as 63
  64. 64. on January 31, 2008. Managing a young team engaged in a service intensive business with largely repetitive work is one of the challenges that they face. With competition from other service companies including retailers and ITES/BPO companies, retaining CCAs is another challenge that they face, and therefore they view retention of key personnel as a priority task. Efforts in building a conducive work atmosphere has helped in having lower attrition rates than the rest of the industry. Attrition level for the front end Customer Care Associates was 81 per cent in FY 20067 and has decreased to 60 per cent in FY 2008. They provide a conducive work atmosphere and opportunities for their employees to learn and grow. Employee Development Policy Human Resource vision is to create a committed workforce through people enabling processes and knowledge sharing practices based upon value system. There is a strong believe that learning and development is an integral part of business operations. Each of their employees has training of subordinates and mentoring as a critical part of his KRAs. This enables them also to share the learning’s across the organization as well as bring in the SSL values to the employees. They focus on our top 100 associates under which the development needs of these employees are tracked and a six monthly review conducted by the CCA, MD and CEO. With the annual assessment centers for every level within the organization, including the top management. Under this, employees are subject to certain tests and areas of development identified and focused on in the coming year, based on the employee’s career plan. They have used this assessment centres to carry out promotions at all levels, through a completely transparent process. 138 and 103 of the jobs positions are filled from personnel within the organization through a process of scientific selection based on assessment centers as on March 31, 2007 and December 31, 2007, respectively. This is mainly due to the reason that makes them strongly believe in providing the associates 64
  65. 65. with career paths within our Company through cross functional exposure and role enhancement as part of the developmental process. Training Their corporate objective is to provide every associate with an average of 5 man days of training per annum through internal and external resources. All senior management members are required to contribute 30 hours per annum towards training. In order to support a learning culture, they provide at our discretion, reimbursement for fees for relevant professional courses that eligible associates enroll in. There are tied up with City and Guilds, UK, to provide a distance learning and certification program for Customer Care Associates who have been identified as having potential to grow into supervisory roles. International exposure is provided to associates with potential. On an average, annually about 50 associates get an opportunity to visit retail establishments in different parts of the world through the International Group of Department Stores (IGDS). Internationally acclaimed professors are brought into India to train our associates on strategic issues of retail management. Another thing being to also investing in an E-learning platform to enable associates take courses from their individual work stations at their own convenience. Compensation Policy Compensation policy reflects continuing efforts to build a world class performance driven culture. They benchmark them selves on compensation externally through consultants biannually, and aspire to be on the upper quartile of target segment, comprising of FMCG companies and other retail companies and are currently at the 75 percentile. Variable pay is an important component of total compensation, with all associates covered under Profit Linked Reward Scheme (PLRS), linking individual performance and Company profitability. Part-time and full-time employees are eligible for PLRS. 65
  66. 66. Almost 60% of Customer Care Associates earned PLRS in the year ended March 31, 2007. They also have Employee Stock Option Plans (ESOPs). Eighty five (85) employees held stock options under our ESOPs as on date of this Draft Letter of Offer. They also contain monetary reward scheme called ‘Jo Jeeta Wohi Sikander’ which recognizes excellence in work under various categories i.e. Best CCA, Supervisor, Store, etc. Winners in each category are recognized through awards and ceremonies and are given individual prizes such as Trophies and Gift Vouchers. Communication to Employees Shoppers’ Stop also have a bi monthly in-house magazine called Re-Tale, which helps in our endeavour to enhance transparency and communication across levels. Associates are encouraged to write in to the editor with their concerns and the CCA and MD are required to respond with a solution through this magazine. Conducts focus groups wherein they have participation from cross functional and cross level associates where they can voice their thoughts, issues or opinions to the facilitator. Competition They retail a range of branded apparel, footwear, perfumes, cosmetics, jewellery, leather products, accessories, home products, electronics, books, music and toys. Along with this they have their own private label apparel, footwear, fashion jewellery, leather products, accessories and home products. This is complemented by café, food, entertainment, personal care and various beauty related services. Promotions and events are an integral part of our service offering to our customer, which helps us create a unique shopping experience. Tough competition from other retailers of similar products and services. These include stand alone stores in the organized and unorganized sector, as well as other chains of stores including department stores. The competitive landscape in the retail industry has altered drastically in the last couple of years. Several large players have announced mega plans to enter this sector and existing players are also ramping up their capacities to meet the fresh, untapped demand and competition. They balance that by focusing on offering 66
  67. 67. customers a unique shopping experience with a combination of promotions and events. It is because of this and the service and ambience that they offer; they believe has been able to create a differentiation in the mind of the customer vis-à-vis our competitors where similar products and brands are available. Social Responsibilities Responsible corporate citizen and make a conscious effort to contribute to society at large. They support NGOs such as Child Rights and You (CRY) and Concern India Foundation. In association with CRY, launched eco-friendly bags and donate part of the proceeds from their sale to CRY. They also periodically conduct ‘exchanges’ as part of the promotions and donate the old garments collected to Concern India Foundation. Capacity Utilization Existing in the business of retailing of goods and services where capacity and capacity utilization cannot be quantified Interest of key managerial personnel The key managerial personnel of the Company do not have any interest in the Company other than to the extent of the remuneration or benefits to which they are entitled to as per their terms of appointment and reimbursement of expenses incurred by them during the ordinary course of business and to the extent of the Equity Shares held by them in the Company, if any. 67