Another important aspect where many retailers have gone wrong is in merchandise planning – getting the right type of merchandise at the right time and place. One of the key indicators of the wrong merchandise policies is the level of markdowns to sales. Says Nagesh: “One of the key reasons for our losses has been overbuying due to wrong projections and therefore markdowns more than projected.
Just last year we ran markdown sales for more than 8-10 weeks and the markdown percentage was very high.”
Other retailers have similar stories to relate. The Delhi-based Ebony chain of stores works on 22-28 per cent markdown on branded and non-branded apparels and up to 30-35 per cent on other imported household range. Says Biyani: “Last year our average markdowns to sales were 12 per cent, this year we are aiming at an average of 8 per cent.” SV Phene, vice president – corporate planning, Trent, has this to say: “We follow a common policy on markdowns. After every season is over, we carry out a sale to clear old stocks and bring in new stocks.
Thus we have markdowns twice a year.” Things aren’t very different for supermarkets that sell more stable merchandise. For example, Foodworld admits to having 15 per cent average markdowns on sales.
While once-a-season markdown is a common phenomenon across the retail industry worldwide, the trouble sets in when markdowns increase disproportionately. Says Mathur, “we should all realise that most of our retailers are not stalwarts in the industry. They have and are learning through trial and error process. Thus, it typically takes two seasons for the retailer to gauge the market, during which the markdowns increase.” Though most retailers do undertake a detailed study of the market before they enter, they have not always been able to accurately gauge the pulse of the market.
Says Singhal: “When you purchase a brand from a large national brand, all that you need to manage is your merchandising department. The design, the sourcing, studying of fashion and customer preference, are all done by the national brand. But once you move in-house into private label, you need to build the organisation of a national brand.” A case in point is Pavilion, the low-price store started by the Rajan Raheja Group in Chennai, which closed down recently.
While the format was perfect for the market, the company did not build it up fast enough and ultimately found that it could not sustain the operations with just one store. On the other hand, when Pantaloon build its departmental store, it had the back-end in place as for long it was operating as a franchisee setup and supplying to large number of Pantaloon Shoppes across the country.
At the end of the day the customer should perceive some value in entering the store. This was one major hurdle that most retailers faced in the initial days – and even now when they enter new cities. For example, when Trent started as a private label retailer, it faced considerable resistance from the customer. Admits Himanshu Chakrawarti, general manager marketing, Trent: “Value for money was our objective right from the beginning.
Where we went wrong was taking the customer requirements and benchmarks into consideration. But later we realised through internal research and studying of customer behaviour that the customer wants those products, which he uses regularly competitively priced as compared to national brands. We did not actually drop prices across the merchandise categories, but made regular products more competitive and communicated the same to the customer. This took time and so we faced this initial resistance from the customer.”