Retail Premise Identificatio - CROMA

INDUSTRY OVERVIEW

INTRODUCTION TO RETAILING
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What is retail? Retail involves the sale of goods from a single point (malls, markets, department stores etc) directly to the consumer in small quantities for his end use. In a layman’s language, retailing is nothing but transaction of goods between the seller and the end user as a single unit (piece) or in small quantities to satisfy the needs of the individual and for his direct consumption. Let us understand the concept with the help of an example. Arun wanted to purchase a mobile handset. He went to the nearby store and purchased one for himself. In the above case, Arun is the buyer who went to a fixed location (in this case the nearby store).He purchased a mobile handset (Quantity - One) to be used by him. An example of retail: The store from where Arun purchased the handset must have shown him several options for him to select one according to his budget and need. From where do you think the store owner (also called the retailer) purchased all the handsets? Here the manufacturers and the wholesalers come into the picture. The retailers purchase goods in bulk quantities (huge numbers) to be sold to the end-users either directly from the manufacturers or through a wholesaler. The Supply chain

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Manufacturers

Retailers

End User (Consumer)

Wholesaler s

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Manufacturers - Manufacturers are the ones who are involved in production of goods with the help of machines, labour and raw materials.

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Wholesaler - The wholesaler is the one who purchases the goods from the manufacturers and sells to the retailers in large numbers but at a lower price. A wholesaler never sells goods directly to the end users.

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Retailer - A retailer comes at the end of the supply chain who sells the products in small quantities to the end users as per their requirement and need. The end user goes to the retailer to buy the goods (products) in small quantities to satisfy his needs and demands. The complete process is also called as Shopping.

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Shopping - The process of purchasing products by the consumer is called as shopping. However there are certain cases where shopping does not always end in buying of products. Sometimes individuals do go for shopping but return home empty handed. Such a shopping is merely for fun and is called window shopping. In window shopping, individuals generally go to the market, check out various options and their prices but do not buy anything. This kind of shopping helps to break the monotony.

GLOBAL RETAIL SCENARIO
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Retailing has played a major role in the global economy. In developed markets, retailing is one of the most prominent industries. In 2008, the US retail sector contributed 31% to the GDP at current market prices. In developed economies, organized retail has a 75-80% share in total retail as compared with developing economies, where un-organized retail has a dominant share.

Global retail sales was estimated to be around US$ 12 trillion in 20072; however, in 2008, the slowdown in the global economy, especially in the US, and credit crunch, decreased consumer spending. On a global level, the economy performed robustly till 2007, but the US crisis spread over to Europe in early 2008, and its impact was felt in the Asia-Pacific region by mid-2008. India has the highest number of retail outlets in the world at over 13 million retail outlets, and the average size of one store is 50-100 square feet. It also has the highest number of outlets (11,903) per million inhabitants. The per capita retail

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space in India is among the lowest in the world, though the per capita retail store is the highest. Majority of these stores are located in rural areas.

INDIAN RETAIL SCENARIO: During the last few years, the Indian retail market has seen considerable growth in the organized segment. Major domestic players have entered the retail arena and have ambitious plans to expand in the future years across verticals, formats, and
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cities. For example, companies like Reliance, Tata, Bharati, Adani Enterprise, have been investing considerably in the booming Indian retail sector. Besides, a number of transnational corporations have also set up retail chains in collaboration with big Indian companies. The Indian retail sector is highly fragmented and the unorganized sector has around 13 million retail outlets that account for around 95-96% of the total Indian retail industry. However, going forward, the organized sector’s growth potential will increase due to globalization, high economic growth, and changing lifestyle. Moreover, high consumer spending over the years by the young population (more than 31% of the country is below 14 years) and sharp rise in disposable income are driving the Indian organized retail sector’s growth. Even small towns and cities are witnessing a major shift in consumer lifestyle and preferences, and have thus emerged as attractive markets for retailers to expand their presence. Although the growth potential in the sector is immense, it is not without challenges that could slow the pace of growth for new entrants. Rigid regulations, real estate costs, high personnel costs, lack of basic infrastructure, shrinkage, and highly competitive domestic retailer groups are some such challenges. Additionally, resource constraints at shopping mall projects are also delaying completion and disrupting many retailers’ entry strategies.

Retail in India: Industry Structure The retail industry in India is highly fragmented and unorganized. Earlier on retailing in India was mostly done through family-owned small stores with limited merchandise, popularly known as kirana or mom-and-pop stores. In those times, food and grocery were shopped from clusters of open kiosks and stalls called mandis. There were also occasional fairs and festivals where people went to shop. In the twentieth century, infusion of western concepts brought about changes in
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the structure of retailing. There were some traditional retail chains like Nilgiri and Akbarallys that were set up on the lines of western retail concepts of supermarkets. The government set up the public distribution system (PDS) outlets to sell subsidized food and started the Khadi Gram Udyog to sell clothes made of cotton fabric. During this time, high streets like Linking Road and Fashion Street emerged in Mumbai. Some manufacturers like Bombay Dyeing started forward integrating to sell their own merchandise. Shopping centers or complex came into existence, which was a primitive form of today’s malls. Since liberalization in early 1990s, many Indian players like Shoppers Stop, Pantaloon Retail India Ltd (PRIL), Spencer Retail ventured into the organized retail sector and have grown by many folds since then. These were the pioneers of the organized Indian retail formats. With the opening up of foreign direct investment in single-brand retail and cash–and-carry formats, a new chapter unfolded in the retail space. Many single-brand retailers like Louis Vuitton and Tommy Hilfiger took advantage of this opportunity. The cash-and-carry format has proved to be an entry route for global multichannel retailing giants like Metro, Wal-Mart and Tesco.

Size of the Indian retail industry In 2007, the total Indian retail industry was valued at Rs 13,300 billion (estimate), and the organized segment constituted 5.9% of the value at Rs 783 billion. In the segment, the clothing and accessories sales had a majority share of 38.1% followed by the food and grocery segment at 11.5% and electronics segment at 9.1%. The organized retail industry grew at a CAGR of 33% during 2004-2007. Even though the organized retail segment has a minuscule share in the total industry, it has enormous potential considering the rising urbanization, the

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efficient supply-chain, the readily-available retail space, and modern technology, which help in reducing consumer prices to a great extent.

Furthermore, with the entry of big foreign players, the Indian organized retail market has become more competitive in terms of implementing newer business models on the operational format, and pricing, and in terms of efficiency. The organized retail sector will largely benefit in terms of productivity and growth if sectors like agriculture, food processing, and textile are encouraged further. The above-mentioned sectors would receive a remarkable boost if they would supply to big Indian and foreign retail players, which will ensure their growth in tandem with the retail sector. Moreover, the organized retail sector will directly and indirectly improve the country’s employment scenario. Many Indian retail players have already started purchasing supplies directly from farmers and other suppliers, which has invariably eliminated the supply-chain
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complexities and large number of intermediaries, and has resultantly lowered prices for consumers. Furthermore, the amendment of the Agriculture Product Marketing Act (APMC) has revamped the farm produce supply chain. Industry segmentation Organized retail can be segmented in two ways - segmentation by verticals and by channels. Verticals are segmented on the basis of the type of merchandise offered; similar merchandise can be clubbed together to form a vertical, for instance food and grocery. Channels are the means through which retailers sell their merchandise; for example, store channels of retailing that comprise different formats like hypermarkets, supermarkets and department stores and non-store formats like online retailing, vending and kiosks.

LATEST DEVELOPMENTS IN INDIAN RETAILING

FDI IN RETAIL LIKELY WITHIN WEEKS – An article from Times of India After years of debate, foreign direct investment in retail may soon be a reality with a panel of secretaries expected to approve the framework for allowing global retail chains to set up shop in India later this month. Government sources said the proposal has gained momentum, with both Prime Minister Manmohan Singh and finance minister Pranab Mukherjee backing it, and chances are that the Cabinet could clear the proposal in August, setting the stage for the entry of large chains by the end of the current financial year. While a date for the meeting of secretaries would be fixed over the next few days, the outline of the policy has been finalized after two rounds of inter-ministerial consultations. The plan envisages allowing foreign chains such as Walmart and

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Tesco to hold up to 51% stake in the Indian venture. This is higher than what had been proposed during the first round of consultations. But there could be areas demarcated for these retailers. For instance, it would be left to state governments to decide whether foreign chains are welcome or not. Similarly, the government intends to allow these chains to operate in large cities only. How large cities are defined remains to be seen. If the cut-off is fixed at one million population, then the retailers can open stores in around 50 cities. But if the bar is raised to 10 million, then only Delhi, Mumbai and Kolkata will make the cut. The move is aimed at countering criticism that the large chains will result in the closure of mom-and-pop stores. Over the years, Opposition parties such as BJP have used livelihood concerns of kirana stores to block FDI in multi-brand retail. Though the government believes that a large footprint of multi-brand retail chains will boost employment, efforts are also underway to stipulate local sourcing requirements. For instance, the secretaries' panel will discuss a plan to mandate 2530% sourcing from small and medium enterprises. In a recent interaction with TOI, economic affairs secretary R Gopalan had said the government could contemplate putting in place rules stipulating majority sourcing from India. But the view in other ministries is that this might not be compatible with the rules prescribed by the World Trade Organization. Further, to stay competitive, especially vis-a-vis kirana stores, the organized retailers will be forced to procure from local manufacturers and producers. Only in case of goods such as electronics or high-technology items that are not manufactured in India or the local producers are not cost-competitive would a retailer opt to import.

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In any case, most international players are already in India and have been sourcing for their global requirements or have additionally got into the wholesale cash-andcarry segment where they are not permitted to sell to individuals. So, in a way, the supply chains have already been built, said a government official. The other requirement that foreign retailers are going to face is a mandated level of investment in back-end infrastructure to develop supply and distribution chains which would help check wastage.

COMPANY OVERVIEW

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About Infiniti Retail Limited Infiniti Retail Limited is a 100% subsidiary of Tata Sons. The company has launched Croma, a national chain of mega stores of consumer electronics and durables. Infiniti Retail Ltd., owns and runs Croma's retail operations in India, while Woolworths provides technical support and strategic sourcing facilities from its global network. The first Croma store was launched in Juhu, Mumbai on October 9, 2006. Infiniti Retail Ltd has launched 64 Croma stores pan-India and plans to launch more such stores across India in the coming months.

About CROMA: CROMA is India’s first national, large format specialist retail chain for consumer electronics and durables. Croma offers its shoppers one of widest ranges of products and brands in consumer electronics and durables and a shopping experience that's truly world-class. They can choose from a number of products
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across eight categories. Their trained and knowledgeable advisors will help you arrive at an informed decision with their personalized advice.

ABOUT TATA GROUP’S RETAIL INITIATIVE AND ITS SUCCESS:
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An article in Outlook magazine, June 2011

In 24 years the Tata Group's retail operation has grown into the second biggest in the industry Sample this. Tata Group’s retail flagship Trent was profitable from Day 1. It’s a record, anywhere in the world, anyway you look at it. The secret? Fifteen years ago, the Tata Group managed a steal for itself as it shopped its way into big ticket retailing with perhaps the best deal in town. In the first flush of liberalization, foreign direct investment (FDI) in multi-brand retail was allowed in India, a tempting proposition that had led one of Britain’s oldest retailer, Littlewoods, to set up shop here. But the Liverpool Company soon cashed out, failing to grasp the consumption story of a billion plus market, and Trent — which was still taking baby steps towards becoming the group’s premier retailing company — saw a bargain that was simply irresistible.

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Trent thus began with a buyout. Its initial lifestyle and fashion retailing template came as part of the package deal. “It was a perfect opportunistic pick for Trent. We back calculated and got the price right for it. So Trent had one running store right from the day of acquisition and was also profitable from the first day itself,” remembers Raju Bhinge, chief executive of Tata Strategic Management Group (TSMB), the group’s consulting and advisory wing.

IN SUM Total number of stores Total sq ft (in million) Revenues (FY 2011; in Rs crore) No. of formats* 2,144 4.96 9,544# 14

*Formats include World of Titan, Fastrack, Helios, Tanishq, Goldplus, Zoya, Eye+ in Titan; Westside, Star Bazaar, Landmark, Fashion Yatra in Trent, Croma in Infiniti; Tata Kisan Sansar in Tata Chemicals; and Tata Teleservices’ retail outlets #Does not include Tata Teleservices

So what you see of Trent today with all its many formats was built on that one store in Bangalore. That’s when in the spring of 1998, the Tata Group looked at big-format fashion and lifestyle retail for the first time. “You need to understand how to stock things, merchandising, store formatting and optimise that learning,” Bhinge time travels fondly, sitting inside his new glass and steel office in Central Mumbai’s Lower Parel, oblivious of the cacophony of cars and blaring horns outside. Now, 2,144 store rollouts later, the various pieces of the retail puzzle seem to have fallen well into place with the Tata Group emerging as the second biggest retailer — both in revenues and scale of operations — in India. “It seems scattered but

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when you look at it, you’ll see we’ve built a reasonably nice looking business without making much fuss,” quips RG Gopalakrishnan, director, Tata Sons. Spanning 14 different formats and over 4.96 million sq feet, the combined sales in 2011 from the many hypermarkets, fashion and lifestyle, electronics, watches, jewellery, books and music stores that the group companies run will also narrow the gap between them and the maharaja of Indian retail Kishore Biyani.

BIG PICTURE Group/company Total stores Tata Retail Future Group Reliance Retail Aditya Birla Retail Spencer’s Retail 2,144 1,000 1,000# 571# 220 Area covered (million sq ft) 4.95 15 NA 2 1.1 Revenue FY 2010-11 (Rs crore) 9,544 12,000* 5,834 1,750 1,083*

# Reliance Retail stores don’t include RIL oil outlets and Vimal stores; Aditya Birla Retail stores don’t include outlets run by Madura Garments, Idea Cellular and UltraTech Cement *estimates

Biyani’s Future Group — the country’s largest retailer — is expected to post revenues of Rs 11,000 crore-Rs 12,000 crore in 2011 when it comes out with its annual numbers end of the month. Scale is just half the story. Where the Tata Group stood out is in its ability to spawn a profitable operation. That’s the core of its retailing blueprint. Barring Pantaloon, Future Group’s flagship company, Titan and Trent are the only listed retailers that have been profitable in the last five to six years. Titan made combined profits of Rs 1,084 crore from 2006-07 to 2010-11 while Trent posted profits of Rs 158 crore from 2005-06 to 2010-11. Croma, Tata Group’s electronic megastores, has broken even operationally at the consolidated store level and is expected to do so at the corporate level also by 2011-12, says its confident chief executive Ajit Joshi. This when some of the
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big boys in retail have been staring at even bigger trouble — with inefficient operations, high leverage, losses, and then the pangs of a slowdown which eventually triggered massive restructuring of operations and downsizing. So while Pantaloon posted profits of Rs 630.26 crore between 2005-06 and 200910, on a consolidated basis, the Future Group booked losses of Rs 1,835 crore in 2009-10. Analysts say its home décor businesses and electronics stores have been drags on the bottom line. On its part, K Raheja Corp Group’s Shoppers Stop was in the red in 2009. Vishal Retail and Subhiksha went belly up, and the former was sold off by its lenders after posting losses for its last three years. RPG’s Spencer’s Retail is still bleeding, though losses are coming down from a staggering Rs 520 crore (2008-09) to Rs 130 crore (2010-11). Late entrants Reliance and Birla Retail, both of whom started operations in 2006-07, are hoping to break-even by 2012-13. In retrospect, it can also be argued that Trent has been able to endure the sales slump during the recession because of the relative profitability of Westside and Landmark models. When customers chose value or downtraded, it stepped up its promotions. And by picking up the warning signals of a slowdown faster than many, the inventory levels were kept extremely tight. “Tatas had been the most under-covered and least appreciated retail groups despite being one of most successful and profitable retailers in the last five years,” points out Arvind Singhal, chairman of retail consultancy Technopak Advisors. “Retail is both an art and a science and they are conscious of both,” says an executive from a rival chain on condition of anonymity. All about profitability Retail is a tough business to crack, leave alone make money, but the group seems to have got the hang of the module. And it goes about it in a clinical fashion — spreadsheet by spreadsheet, store by store. “We observe a brand or an SKU for six to eight weeks. If it sells, it stays. If not, we are ruthless about it. Our
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private labels compete with the best of brands. After that the manufacturers meet our new lines committee and we share the data. We are transparent and that’s why they respect our decision,” adds Joshi to underscore the degree of micro management. It’s not that the group always gets it right. Steel retailing flopped as did Tata Motor’s efforts in passenger car retailing via the dealership network of Concorde Motors. Even product planning and displays throw up occasional lemons like when Croma got it wrong with children’s electronic toys. “We are building the retail piece brick by brick unlike our other manufacturing businesses like steel or auto where we think of the totality first. In retail, you have to get a number of micro things right. You aggregate the micros and only then you get the macro right,” Gopalakrishnan decodes it for us. Even though the group has entered most of the high growth segments of retail — namely, apparel, food and grocery, consumer durables and electronics, jewellery and footwear — and continues to evaluate new segments, most competitors scoff at the group’s trade-off between pace of growth and profitability. Trent took 15 years to open 54 Westside departmental stores and after 2004, took almost four years to open its second hypermarket Star Bazaar in Mumbai.

BRICK BY BRICK 31-Mar11 Retail format WATCHES Stores 2010-11 Area in sq Sales in Sales/sq ft ft Rs cror (Rs ) (in million) e

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World of Titan Fastrack# Helios JEWELLERY Tanishq Goldplus Zoya EYEWEAR Eye + Total TRENT Westside Star Bazaar Landmark Fashion Yatra Total INFINITI (Croma) TATA CHEMICALS TATA TELESERVICES
* Average sales/sq ft (Rs ) Data source: Companies

311 47 6 120 29 2 150 665 54 11 26 3 94 63 714 608

0.32 0.02 0.01 0.29 0.05 0.01 0.12 0.81 1.36 0.84 0.44 0.04 2.68 0.6 0.6 0.27

650 41 8 4,787 533 31 118 6,168 670 490 270 15 1,445 1,540 391 NA

20,537 20,568 5,958 167,661 105,247 46,771 10,050 76,141* 4,926 5,833 6,136 3,750 5,392* 25,709 6,516 NA

# Fastrack numbers include both stores and kiosks

The new kid on the shopping mall block Reliance Trends, which is only into its third year, already runs 50-odd stores in the country. Both Reliance Retail and Birla Retail, which have started operations after 2006, manage 18 and 10 hypermarkets respectively. “Given that they have set up their first hypermarket in 2004, they had an early mover advantage and could have used that to achieve higher economies of scale and top line,” says a chief executive of Mumbai-based retail chain who did not want to be quoted. Noel N Tata, the retailing master mind in the group — having built over 90 stores for Trent from one in 1998 as its former managing director — looks at it differently. “We have not as yet seen economies of scale translate into profit. At this stage of retail development, it is more important to make sure that every retail

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format has sufficient customer appeal and is viable. Our experience has also shown that scale alone does not bring about profitability.” Abheek Singhi, partner and director at Boston Consulting Group (BCG), agrees. “Tatas have never tried for rampant growth. They have ensured value for customers, profits for shareholders and steady growth for the formats,” he says. Tata himself admits that he would rather guard his profits and pay out dividends rather than expand footprint; in the same breath he adds that both in hypermarkets and in fashion retailing, growth has been “tempered by a lack of properties in the right locations and at the right prices”. “Star Bazaar has opened seven stores and Westside 18 in the last two years and have set a good pace of growth,” he adds. The number of Landmark stores has also more than doubled in six years. Sector analysts also say that both Pantaloon and Westside are private label-led and that means they are responsible for developing their own merchandise as opposed to multi-brand formats where the onus lies with the individual brands. Such chains take longer and are more difficult to grow, but in the long run turn out to be more profitable as they capture value from the factory to the customer. No coincidence then, that both are of the same age, have the same number of stores and are going through makeovers. Star Bazaar especially has seen measured rollouts and says it wanted to perfect the model before expanding. That means optimising range, supply chain, pricing, marketing and location before the market opens up in the true sense of the term. “Our plan is to have 50 hypermarkets over a period of five years. We have already signed over 25 properties,” states Tata. Scaling up is a science and according to TSMB’s Bhinge, it takes time to excel. In bulky items like consumer durables and electronics or for the large format hypermarkets, a distribution centre (DC) at the backend is critical. But each of such centre also needs to be viable. So Croma has to plan for 8-10 stores
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near a DC to make one viable. This will only be possible if the front-end and the backend are perfectly synchronised. Keeping this structure in mind across the group’s retail formats, ramping up means concentrating on a geography. “When we enter a city, we want to conquer a minimum of 20 per cent of the market. That itself takes us to a leadership position,” says Ajit Joshi, CEO Infiniti Retail Ltd. Next comes location. Where do you open once you zoom in on a city? “Tanishq will mostly be standalone stores in high streets. But never near a jewellery market,” Bhaskar Bhatt, Titan’s MD is quite emphatic. But “watches are accessories, so a World of Titan will look at high traffic areas in big spending or upcoming neighbourhoods. Eye care too will have to be a neighbourhood format while Fastrack will have to be near youth hangouts.” Each of the formats go through similar mapping. And even though the demographics are blurring, locations do play a role in merchandising and inventory management as well. The retail story has a rural angle. Tata Chemicals’ Kisan Sansar is a successful agri-retail outlet offering a whole range of products and services. “We offer the complete suite of farming products and nutrients — from seeds to fertilisers and pesticides. Also in a country where land holdings are small, we have been trying to provide value-added services like soil and water testing to boost farm productivity,” explains R Mukundan, managing director, Tata Chemicals. There is no one size fits all as both front and back ends are different for the different formats. Experiments with a common pool of personnel didn’t take off either. But that doesn’t mean tapping group synergies — from bulk buying of real estate to cross selling or even data sharing — is uncommon. “If you need to brainstorm, imagine the in-house talent pool which is just a phone call away,” points Joshi.
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So for most, TCS usually provides the IT backbone while Drive India Enterprise Solutions becomes the logistics provider and supply chain manager. Croma has been riding piggyback on Tata-AIG to provide extended warranty for the appliances beyond the stipulated time period. This novel scheme has been a hit, doubling the goodwill. “We try to promote each other internally.” “We tie up wherever it’s feasible, wherever there is commonality of customers,” says Deepak Gulati, executive president, mobility, Tata Teleservices. “Some of our products like Tata Photon are already in Croma and we sell Tata Sky DTH and may even explore Nano bookings.” Most executives vouch for the 360 degree evaluation exercise — the Tata Business Excellence Model — where a neutral team assesses and evaluates the different operations. So while Croma’s Joshi will mentor Tanishq, Raymond Bickson, managing director of Indian Hotels, will guide Croma. It also pays to adopt global best practices from the international partners like Woolworths of Australia or UK’s Tesco, the world’s third largest retailer. “Our offices are next to each other, we work as a seamless operation. Every Monday, officials of Croma and Woolworths meet to review sales, next day there are joint discussions on new products,” says Joshi. “Even rollouts need perfect planning between partners.” Tesco’s technology and operational prowess while managing scale — like each of the 75,000 sq feet Star Bazaar hypermarkets — has equally helped in growing sales even during difficult and uncertain times. You can’t fault the group for being proud retailers. In 2002, at the annual Tata group management meet, chairman Ratan Tata, spelt out — for the first time at a public forum — that retail was an emerging opportunity the group should explore. He even set a target then. “To foresee that retailing could be a Rs 10,500 crore business by 2012 when we were only clocking Rs 150 crore in 2002 was a very big
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deal in itself,” says Gopalakrishnan. It means growing 70 times in a decade. And when group officials say they will make it happen next year, you know they must be doing something right.

LATEST DEVELOPMENTS AT INFINITI RETAIL LTD Croma changes format, eyes more stores – An article from Times of India Croma, the consumer durables and infotech (CDIT) chain of Tatas, is getting into a new retail format to offer best-selling products from its stores. It also plans to set up shop-in-shops inside Star Bazaar, the hypermarket chain of group company Trent, to boost revenues. The stores under the new format are called ‘Croma’ and will be of 4,500-6,000 sq ft in size. The chain already has Croma Megastore (8,000-12,000 sq ft) and Croma Zip (less than 3,000 sq ft). The chain plans to set up eight stores under the new format in the coming months, including three in Chandigarh, Panchkula and Mohali in two months. It already runs two such stores in Bangalore and Pune. “We can not get 8,000 to 12,000 sq ft space in all cities and sometimes not sure about opening of malls, but we do not want to miss these localities. These stores have better per sq ft realisations. The initial stores are doing exceptionally well,” said Ajit Joshi, chief executive officer of Tata Sons-owned Infiniti Retail, which runs Croma stores.

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Croma also plans to set up shop-in-shops in Star Bazaar. Next, the CDIT chain of Videocon, already has a shop-in-shop arrangement with Star Bazaar for the latter's Aurangabad store. “Based on the pilot project, we will decide to open more such shops, but we will not open in a city where Croma’s stores are not present,” he said. It initially opened large stores of 20,000-22,000 sq ft on the lines of its Australian partner, Woolworths, which had a format, Power House. But later it came out with stores of smaller sizes. “Very soon, we corrected ourselves because we don’t have such blocks. Then those kind of properties were blocked for big retailers. Big brands do not necessarily have the kind of width and breadth they have abroad in India,” Joshi had told Business Standard in a recent interview. “One golden rule we followed from day one is that we do not repeat SKUs (stock keeping units) in our stores. If we display one particular 32 inch model of a television, that is it. We will not put one more set on display. That forced us to reduce the size of our stores,” he added. However, Next, which competes with Croma, is coming out with larger stores to offer better product mix and ambience. It has also adopted the franchisee route to increase its footprint. The CDIT market in India is estimated to be around Rs 1,00,000 crore and organised players account for a fourth of the total pie. Set up in 2006, Croma runs 64 stores and posted revenues of Rs 1,540 crore for 2010-11. It expects to achieve break-even at the company level by this financial year.

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SCOPE OF WORK

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Scope of Work at Infiniti Retail Ltd:

My internship at Infiniti Retail Ltd was in the Business Development Department also popularly known as the Property Department. It is headed by Mr. Murtuza Sariya and ably supported by the following:
1) 2) 3) 4) 5)

Naoshad Gagrat, Manager (Pan – India) Shivmohan Marwaha, Manager (North region) Naveen Durga, Asst Manager (South Region) Yogesh Bhatt, Asst Manager (Western Region) Inderpal Singh Chadha, Management Intern

My scope of work her was related to but not limited to the following: 1) Scouting for new premises 2) Review of the terms and conditions of the MOU 3) Review of the Monthly Revenue Share statements shared with various landlords 4) Day – to – day Communication with various landlords

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PROCESS OVERVIEW

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Overview of the store identification to store operation cycle at IRL:
Premises Identification

Property Team steps in for negotiations

Signing of MOU & Agreement with the Landlord / Developer

Store Planning & Merchandising Team starts conceptualizing the store

Procurement Team starts ordering goods required

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Procurement Team starts ordering goods required

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Premises Identification: Retail site selection is a very important decision. Where you choose to locate your retail business will have a major impact on everything your shop does. The difference between selecting the wrong location and the right site could be the difference between business failure and success. First, a location is usually one of the most important elements customers use in choosing a store. Second, when chosen, athe site to complete Fit outssite for many Projects Team takes over retailer must live with the years because it is expensive. Lastly, because great sites are acquired by other retailers, it is mostly hard to find them. Location is also competition advantage which is not easy to simulate. For a retail enterprise, location may result as success or failure. But a good location is related with target market, rivals and costs. At retail business, achievement or failure is related with the features of trade area case, the retailer can generally be sure that it will have the suitable mix of neighbors, sufficient parking places, and fine traffic. But, in some cases, the retailer must realize the situation in which the center is not correctly planned. The selection of location is based on the following criteria: Type of Goods Examine what kind of products you sell, as some goods will require certain types of locations. Would your store be considered a convenience store, a specialty shop or a shopping store?
Operations Team takes charge and ensures smooth working of the store New Store Opening (NSO) Team steps in to arrange the merchandise in the store Handover of Premises by Landlord / Developer to Infiniti Retail Ltd

surrounding the location. Lastly, the site may be in a shopping center. In such a

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Convenience goods require easy access, allowing the customer to quickly make a purchase. A mall would not be a good location for convenience goods. This product type is lower priced and purchased by a wide range of customers. Specialty goods are more unique than most products and customers generally won't mind traveling out of the way to purchase this type of product. This type of store may also do well near other shopping stores. A shopping store usually sells items at a higher price which are bought infrequently by the customer. Furniture, cars and upscale clothing are examples of goods found at a shopping store. Because the prices of these items are higher, this type of customer will want to compare prices before making a purchase. Therefore, retailers will do well to locate their store near like stores.

Population and Target Customer If you are choosing a city or state to locate your retail store, research the area thoroughly before making a final decision. Read local papers and speak to other small businesses in the area. Obtain location demographics from the local library, or the Census Bureau. Any of these sources should have information on the area's population, income and age. You know who your customers are, so make sure you find a location where your customers live, work and shop.

Accessibility, Visibility and Traffic
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Don't confuse a lot of traffic for a lot of customers. Retailers want to be located where there are many shoppers but only if that shopper meets the definition of their target market. Small retail stores may benefit from the traffic of nearby larger stores. • How many people walk or drive past the location. • Is the area served by public transportation? • Can customers and delivery trucks easily get in and out of the parking lot? • Is there adequate parking? Depending on the type of business, it would be wise to have somewhere between 5 to 8 parking spaces per 1,000 square feet of retail space. When considering visibility, look at the location from the customer's view point. Can the store be seen from the main flow of traffic? Will your sign be easily seen? In many cases, the better visibility your retail store has, the less advertising needed. A specialty retail store located six miles out of town in a free standing building will need more marketing than a shopping store located in a mall.

Signage, Zoning and Planning Before signing a lease, be sure you understand all the rules, policies and procedures related to your retail store location. Contact the local city authorities for information on regulations regarding signage. Ask about any restrictions that may affect your retail operation and any future planning that could change traffic, such as metro construction, highway construction etc.

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Competition and Neighbors Other area businesses in your prospective location can actually help or hurt your retail shop. Determine if the types of businesses nearby are compatible you're your store. For example, a high-end fashion boutique may not be successful next door to a discount variety store. Place it next to a nail or hair salon and it may do much more business.

Location Costs Besides the base rent, consider all costs involved when choosing a retail store location. • Who pays for building maintenance, utilities and security?
•

Who pays for the upkeep and repair of the air conditioning units. Gensets etc?

• How much is the average utility bill? • Will the retailer be responsible for property taxes? The location you can afford now and what you can afford in the future should vary. It is difficult to create sales projects on a new business, but one way to get help in determining how much rent you can pay is to find out what sales similar retail businesses are making and how much rent they're paying. Special Considerations

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Your retail shop may require special considerations. Make a list of any unique characteristic of your business that may need to be addressed. • Are restrooms for staff and customers available? • Is there sanitation service available? • Does the parking lot and building exterior have adequate lighting? • Does the building have a canopy that provides shelter if raining?

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Business Development Team: The BD team step in once the premises is zeroed down. They do the negotiations with regards to the technical and commercial aspects of the store. This also includes the site feasibility analysis, various internal approvals and liaising with all departments concerned to iron out differences with the landlords if any. They also ensure continuous support to the departments even after store opening to ensure smooth conduct of business. Further details are provided later in the report.

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Store Planning & Merchandising: The first tenet of 21st century merchandising is recognizing the importance of optimizing prices, product, and process. However, the recognition of importance is not always matched by an understanding of how these optimized processes and technologies work. Unless it’s rectified, this situation could easily lead to a late?decade backlash, as unrealistic expectations on what optimization technologies and processes can accomplish could lead to disillusionment. Oddly, the greatest disconnect is found in the largest retailers. According to a survey carried out by KPMG, only 18% of respondents with annual revenues greater than $5 billion report they have a solid understanding of lifecycle price optimization, yet 64% believe it is extremely important to their retailing success. The prospect of having powerful tools in the hands of those who have huge reach, but only a vague understanding of how to use them, is disconcerting to say the least. Therefore, the second critical tenet of 21st century merchandising is ensuring merchants have a solid understanding of the optimization tools, processes and techniques they plan to employ.

Plan & identify store performance: An effective store format or store type gives you the basis for delivering a specific offer to a customer type. You can then build your retail planning on all the processes needed to organise the format. Infiniti Retail Ltd understands that the most valuable asset a retailer has is their store space. They know that "Sales Floor Space" is vital to winning new revenue and increased profits.

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Efficient Store planning helps identify the performance contribution of each category or department in relation to the space allocated within each store and produce detailed reports. By using imports from CAD and other drawings store specific floor plans are drawn which allow us to create various planning scenarios by re-allocating space according to sales and profit performance and specific demographic requirements. Department Function:
•

Plan, develop, capture, and analyse store layouts

• Reallocate space within an aisle, or the entire store • Highlight under and over performing categories • Identify space and sales opportunities • Maintain accurate inventory of store equipment • Compatible with AutoCAD plans efficiency in drawing • Design store scenarios and deploy the best option
•

Drilling down to the individual product and planogram

• Uses fixture libraries for efficiencies in planning

Procurement Team:
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The process of obtaining goods and services from preparation and processing of a requisition through to receipt and approval of the invoice for payment is the procurement cycle. It commonly involves (1) purchase planning, (2) standards determination, (3) specifications development, (4) supplier research and selection, (5) value analysis, (6) financing, (7) price negotiation, (8) making the purchase, (9) supply contract administration, (10) inventory control and stores, and (11) disposals and other related functions. This team looks after buying of all the capital goods, Replenish able goods and uniforms required for the new stores to open and run effectively. They also look at transferring excessive stock from operational store and hence rationalizing the inventory and keeping the cost associated with opening a new store to its lowest. They use latest SAP software for ordering and inventory storing. The lead time required by the team is 15 – 20 days to get the material in order. They take the help of the store planning team and also the projects team to get the right quantity at the right place and at the right time.

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Handover of Premises by Landlord / Developer: Complete scope of work is defined by IRL as follows: “Completion of Handover’ means completion of all technical and other specifications more all necessary approvals, sanctions, permissions, No objections etc from all the concerned authorities for using the Premises for the said Business”. After the landlord / developer has completed his scope of work in terms of both technical as well as getting the legal paperwork pertaining to the property, as agreed upon with IRL, then the handover of the landlord is said to be complete. As a rule, IRL doesn’t step upon the property without the landlord getting the desired No Objection Certificates. There are times due to financial constraints or lack of technical knowledge, the landlord requests IRL to complete the pending work. This IRL does as a goodwill gesture and charges the landlord at actuals. Thus ensuring a long a long term cordial relation with the landlord. This additional charge is then adjusted by IRL from the landlord’s monthly rentals. Such an arrangement is mutually beneficial to both, IRL as well as the landlord because this ensures that IRL can open Croma store on time and also the Premises is in order for the customers to walk in.

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Projects Team:

Once the go ahead is given by the Property Team to take over the site, the project team steps in. Along with them, they bring along army of contractors, who help the projects team to get the store up and running. The HVAC, Electrical Wirings, Lighting, Interiors, IT set up etc all is taken care by the projects team. This team is constantly guided and supported by the Store Planning team and Procurement team. They work in tandem to ensure that they meet the expected store opening date. The turn around time for this team is normally forty five to sixty days. The project team is normally at the site inspecting and monitoring the daily work of the contractors and also ensure that everything goes according to the plans and drawings given to them by the Store planning and merchandising team. They also see to it that the quality of the material delivered at site is upto the mark and in sync with the rest of the stores. They appraise the property team incase things do not go as per plans from the landlords end.

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New Store Opening Team:

As the name suggest they come in whenever IRL decides to open a new store. This team comes in ten – twelve days before the store opening and checks the store for any loose ends. This team basically acts as a link between the following: 1. Projects Team 2. Store Planning and Merchandising Team 3. Operations Team

This team takes over the store from the projects team and ensures that each and every detail is taken care of as given by the store planners. They also liaise with the merchandising team and ensure that the stocks required for opening the store are in order. Incase of shortage or non usable items, it is the responsibility of the NSO team to fill up the gap. Also, this team has to ensure that the operations team is given a smooth handover so that the store runs smoothly upon their exit. The team also makes sure that the staff recruited for the store is well trained and all the documents and necessary paperwork are in order, so that the store doesn’t faces any compliance issues later during operations.

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Operations: The Store Operations team deals with process, procedures and communications to Store, Area and Regional Managers. The Operations team is the key to managing a business, within multiple locations, by ensuring efficient operations and the achievement of sales, customer service and profit goals. This team is critical cog between customer and the resulting sales. This team is the face of IRL and represents the ethos & vision of the management. They are the ones responsible for sale of goods and hence ensure profitability and repeat customer to the organization. If they do their job honestly and efficiently then the entire company benefits. The total strength of the operations team ie the sales force is close to 1500 odd people. The hierarchy at the store is as follows:

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Overview of Business Development Teams scope of work:

Premises Identification

Meeting with the Landlord / Owner / Developer

Negotiation: Rental Terms & Conditions

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Scout for new No Yes premises

Undertake site feasibility study

Is the site feasible?

Scout for new No premises

Was the Negotiation successful? Process the premises for internal board approval No Scout for new premises

Does the board approve? Yes

Signing of Memorandum of Understanding (MOU)

Title Verification and Due Diligence of the premises Undertake site feasibility study

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Signing of theNo Project Tem payment of token ScoutOperations Team steps Agreement & steps for Yes new money premises in in Title Verification and Due Diligence of the premises

Are the Documents in order?

Smooth Functioning of the store

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PREMISE IDENTIFICATION
Formats of Croma outlets:
1)

Croma stores – The store size of this format is in the range of 6,000 to 20,000 sq. ft carpet area. This store has the entire range of products that Croma offers to its customers. There are eight different sections that the consumer can experience, namely, Entertainment section, Communication section, Imaging section, Mobile & Ipod section, Home appliance section, White goods section, Computer & Laptop section and Accessories section. There are around 45 such full fledged stores.

2)

Croma Premium –The store size of this format is in the range of 4,000 to 6,000 sq. ft carpet area. There are six different sections that the consumer can experience, namely, Communication section, Imaging section, Mobile & Ipod section, Home appliance section, Computer & Laptop section and Accessories section. There are around 5 such Croma Premium stores.

3)

Croma Zip –The store size of this format is in the range of 800 to 4,000 sq. ft carpet area. There are five different sections that the consumer can experience, namely, Communication section, Imaging section, Mobile & Ipod section, Computer & Laptop section and Accessories section. These stores are aimed mostly at places where the large format is not possible or not viable. The various offerings here are aimed mostly at consumers who are on the go. There are six such Croma stores at Mumbai & Delhi airports. The service time towards consumers is lower as compared to the larger formats. These stores are aimed at fast moving CDIT goods. There are around 12 such Croma Zip stores.
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4)

Croma Kiosk (proposed) – This is the latest format being explored by Infiniti Retail ltd to reach out to their target audience. The size of these stores would be in the range of 120 to 250 sq. ft carpet area. This model will be targeted only at Malls in major metros and will house only a limited quantity of mobile phones, Ipods & MP3 players, cameras and accessories. This is still in the concept stage and details are being worked upon.

Types of Premises occupied by IRL:
1)

High – Street Showroom – Retail outlet on a street, as opposed to the one in a mall or shopping center. Examples of High – street showrooms.are Malad and Juhu.

2)

Shopping Malls - A shopping center with stores and businesses facing a system of enclosed walkways for pedestrians. In simpler terms it means An urban shopping area limited to pedestrians. Examples of stores in Shopping malls are Croma store at Ishaniya Mall, Pune and Croma Store at Phoenix Mall, Mumbai.

3) Airport Duty Free zone shops – At airports, non-aviation activities are

rapidly gaining in importance. Conference facilities, retail outlets, restaurants and leisure opportunities are expanding, complementing the product spectrum available at airports, thereby enhancing their competitive profile. The target groups addressed by airport retailers are not only comprised of airline passengers, but also include airport employees, daily visitors, people who work in the airport’s vicinity, and local consumers. Major airports in particular have recognized the importance of airport
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retailing, and exploit the large numbers of visitors as well as the deregulated, more liberal shop-opening times. For airport operators, higher rental rates and space utilization are often relativised by increased incidental costs. Key factors are passenger stop-over time and highly differentiated customer demands. In addition to national and international retail products, shopping centers at airports commonly feature a range of specifically regional products. Access to all international major brands. Airports have long been important retail outlets with an international flair. As air travel grows, so does the importance of airport shopping. Flight passengers from all over the world use their waiting time to browse among wide selections of brand products. Extensive experience in the duty free trade. Example of stores at airport are: Delhi International Airport, Delhi Domestic Airport, Mumbai International Airport, Mumbai Domestic Airport.

4)

Seamless store within store – The "shop in shop" retail concept is where a brand owner or retailer takes space in another retailer's store and fits it out to provide selling space dedicated to that secondary company's products. “a space which a host retailer lets to another retailer, wholesaler or manufacturer so that the hirer of the space may sell goods under his own name. One example of the mix of retail space is Shoppers Stop, with arrangements with many retailers like Titan Fast Track, Esprit, Davidoff etc. There are benefits to both retailers e.g. shared costs, shared marketing and demandgeneration, and speed to market. Increasing retail concentration and the growing reliance of both producers and retailers on their brand make producer-distributor relationships in many fast moving goods industries a critical factor for delivering customer value. A shop-in-store agreement
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(SISC) is a clear example of how collaboration between two retailers is developing to become a long-term oriented working partnership. Starbazaar at Infiniti Mall Andheri. Types of Landlords:
1)

Investor – The landlord is basically an individual investor who has bought the premises from the developer. Developer – The company / individual developing the Premises may also be the landlord of the premises. Typically speaking a builder is the own Mall Management – When opening stores in the mall, usually IRL deals with the team appointed by the Mall to look after the upkeep and smooth conduct of the mall, this team is known as the Mall management team.

2)

3)

NEGOTIATIONS:
Negotiations are carried out between IRL and the landlords after site selection. There are various factors which are negotiated upon, but rent being the most critical aspect. The various rental scenarios are as follows:
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Rental Models:
1)

Fixed Monthly Rent all inclusive: Such deals involve paying a fixed amount to the landlord, which includes various components such as, Common area maintenance charges, Service tax, Property tax, Society charges, Sinking funds, etc. In such a deal, risk sharing is totally absent, as the risk arising out of the business is to be borne entirely by IRL.

2)

Fixed Monthly Rent inclusive of only Common area maintenance charges + Service tax (extra): The fixed amount remains constant, but the component of Service tax is extra, which is to be borne by IRL over and above the rent amount. The downside of such a deal is that IRL has to pay about 10% over and above the rent amount.

3)

Fixed Monthly Rent + Common area maintenance charges (extra)+ Service tax (extra): The various components like CAM charges and Service Tax are over and above the fixed monthly rental to be paid. The CAM charges are either a lumpsum amount or calculated per square foot basis, as agreed upon.

4)

Percentage of Net sales with minimum monthly guarantee: To mitigate the risk of uncertainty in business, various retailers including IRL have started taking the route of Revenue sharing with the Landlord. Here both the parties strike a deal at a particular percentage number which is to be calculated based on the net sales the store does in a particular month. There is a minimum amount called as the minimum guarantee amount that
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IRL agrees to pay the landlord incase the store doesn’t perform upto his/her satisfaction. This number acts as a fixed monthly rental, but incase the store performs better than this number then the revenue share % comes to play. At times, the landlord is also asked to invest in the capital expenditure of IRL, which if agreed upon by the landlord, then his/her Revenue share % is increased.
5)

Percentage of Net sales without minimum monthly guarantee

The above scenario is repeated but without the monthly fixed component. Here the risk for the landlord increases significantly, incase a store doesn’t perform well.

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Signing of Memorandum of Understanding (MOU) When a contract is too formal and a so-called gentlemen's agreement is too casual, a memorandum of understanding might work perfectly. A memorandum of understanding (MOU) is, concisely, a written agreement. An MOU is sometimes confused with other, similar jargon, such as letter of intent or memorandum of agreement. For most legal purposes, however, all three of these terms amount to basically the same thing. No matter their length or complexity, MOUs specify mutually-accepted expectations between two or more people or organizations as they labor together toward a common objective. And here are two other touchstones of MOUs -- generally they're not legally binding, in part because neither party wants to deal with the ramifications of a binding agreement, and they don't involve the exchange of money. You might think that memoranda of understanding sound suspiciously similar to agreements, but there are actually significant differences between the two. An agreement is a written, private agreement between two parties that is legally binding and can be enforced by a judge. MOUs are less formal than agreements, and typically include fewer details and complexities.

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Site feasibility study: Post MOU sign-off between IRL and Landlord, the site needs to be assessed with regards to its financial and technical viability and also the various other amenities provided by the landlord. Site feasibility study is a detailed study of the site, its adjoining area, the macro and micro factors such as the catchment analysis, detailed financial analysis which comprise of the following:
1)

Input Sheet: Entry of basic data pertaining to the site and its retail area on the following excel sheet. This sheet is the most critical part in the entire process because all the various key ratios or the parameters in the subsequent sheets are extracted from this sheet. Any error made here will be reflected in the rest of the sheets as well.

Name of the property Name of the city Location in city Store type (Mall/High Street) How far is the nearest Croma (put no. followed by km) Which Croma model is the nearest store? (Croma / Croma Zip / Kiosk) Carpet area in sqft Area on each floor (give floor no. followed by area with '+' separator for each floor as illustrated) Period of lease Lock-in period Likely date of possession (enter in dd-mm-yy form) Stamp duty to be borne by (Lessor/ Lessee/ if Shared, please give share of IRL) Registration to be borne by (Lessor/ Lessee/ if shared, please give share of IRL) Property tax to be borne by (Lessor/ Lessee/ if shared, please give share of IRL) Rent on super built-up area (Rs/sqft/month) Esclation % year 2 Esclation % year 3 Esclation % year 4 Esclation % year 5 Rent Free Period (Days) Efficiency of carpet area : super built-up (%) Rent on Carpet area (Rs. / Sq. Ft.) Type of Rental Arrangement

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MG / Rent CAM Service Tax Total Amount to be calculated Upper limit of Rent on carpet area (Rs. / Sq. Ft.) Revenue Share % in Yr 1 Revenue Share % in Yr 2 Revenue Share % in Yr 3 Revenue Share % in Yr 4 Revenue Share % in Yr 5 Comparable Base Store Area of Base Store (Sq. Ft.) Sales per day of base store (Rs. Lacs) Year of Operation of Base Store Sales % to Base Store Staff Cost as per Base Store (Rs. Lacs) Power Facilities & Other Expenses as per Base Store (Rs. Lacs) Opening Fixed Assets Core Stocks Deposit No. of Months Deposit (Rs. Lacs)

2)

Executive Summary about the property: The various parameters giving a gist of the premises and the expenses related to the same are computed in
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this sheet, using the data from the previous input sheet. The key indicative figure here being the Store PBT positive in year. The earlier the store starts generating profits the better it is for the business.
Executive Summary
Name of the property

City

Location in city

Store type & brand recommendation

Carpet area (Sqft) For multilevel sites, area on each floor (sqft) Nearest Store Actual for this site (Incl. of CAM & ST) Actual city average to date after this site Minimum Guarantee % of net sales

Rent per month (Rs lakhs per month) Effective Rate per sq.ft. per month on carpet area (Rs.)

City average budget

Type of Deal

Period Key terms of lease/licence Property tax borne by

Lock-in

Date of possession

Stamp duty borne by

Registration cost borne by

Rent on super built up (Rs/sqft)

Carpet area % to super built up

Deposit (Rs. Lacs)

Rent Free Days

Capex estimate / Negotiated Savings

Rs/sqft

Rs lakhs

Sales potential in Rs/sqft

Year 1

Year 2

Year 3

Year 4

Year 5

Sales potential in Rs lakhs / day

Year 1

Year 2

Year 3

Year 4

Year 5

2

Store PBT positive in year

without considering central cost allocations

Store PBT positive in year

after considering budgeted central cost allocations

3)

Profit & Loss statement: Using the data from the input sheet, the Profit and Loss statement is generated for the particular store.
Yr 1 Yr 2 (Rs Lakhs) Yr 3 (Rs Lakhs) Yr 4 (Rs Lakhs) Yr 5 (Rs Lakhs)

Projected Financials (Rs lakhs) Comparable store (Base store) Area of base store (sqft) Sales per day of base store (Rs lakhs) Sales per sqft p.a. of base store

(Rs Lakhs)

Year of operation

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Area of new store (Sqft) Sales per day projected for new store Sales per sqft p.a. of new store Annual sales Yoy Growth % Gross Margin Gross Margin % Other variable costs Other variable cost % Store Contribution Store Contribution % Total occupancy cost (as per actual discussions) Occupancy cost as % to sales Staff cost (as per base store) Staff cost as % to sales Power, facilities & other exp (as per base store) Other store fixed costs as % to sales Depreciation Store level profit Store level profit margin % Interest on working capital Store level profit after interest Marketing & Corporate Cost allocations Allocations as % to sales Store net profit before tax Store net profit margin Interest Rate Depreciation Opening fixed assets Additions/ (deletions) Depreciation Total net block Core stocks Fluctuating working capital (5 days sales) Total working capital Deposit Capital Employed ROCE (based on store level profit) % of base store sales % of base store sales

4)

NPV & IRR: These key indicative ratios are generated in this sheet, based on the various scenarios of sales.

Base case (Rs in lakhs) Investments in core stocks

Yr 0

Yr 1

Yr 2

Yr 3

Yr 4

Yr 5

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Cash from operations Deposit Capex Free cash flows Terminal value NPV IRR If cash from operations higher by (Rs in lakhs) Investments in core stocks Cash from operations Deposit Capex Free cash flows Terminal value NPV IRR If cash from operations lower by (Rs in lakhs) Investments in core stocks Cash from operations Deposit Capex Free cash flows Terminal value NPV IRR WACC computation Cost of Equity Cost of Debt Debt:Equity Tax WACC Terminal Growth Rate

25% Yr 0

Yr 1

Yr 2

Yr 3

Yr 4

Yr 5

25% Yr 0

Yr 1

Yr 2

Yr 3

Yr 4

Yr 5

5)

Capex requirement: This sheet gives the total Capital expenditure that will be incurred by IRL for the said store.

Capital Expenditure Estimate Sheet Area of the store

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Particulars Civil and Interior works Flooring Electrical Light tracks HVAC low side HVAC high side Sprinkler system Light fixtures Visual merchandising IT (Servers, racks UPS etc) Heavy duty racks Sensomatic Modular fixture Admin items Consultancy fees CCTV Sofas HTR Streme Chairs Listening post Hl display Miscallaneous Contengency Total

Standard Rs/sqft

Please type x for items that are not in IRL scope

Capex in Rs lacs

Total Rs/sqft for this store

6)

Description of Critical Site parameters: The micro factors with regards to the properties are described here as follows: a. Description of Frontage b. Description of car parking facilities c. Description of Mall/ Building d. Internal description of store
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e. Suitability of Loading area f. Power situation and back-up availability g. Availability of Branding opportunities

1)

Description of Market: The macro factors with regards to the properties are described here as follows: a. If property is in a mall, list of top 5 tenants b. Top 5 retailers in the locality c. Description of catchment, both present and future d. Description of closest direct competition and likely future competition

1)

Premises rating sheet: Finally after all the analysis, the site is given ratings as per norms fixed by IRL, which can be seen below. Any site with a combined rating greater than 4.2 has a good chance of being selected.
Summarised Property Rating

Key Criteria Property Type: Mall

Weightage

Rating

Score

Rent Revenue Ratio (Year 2)

15%

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Store PBT per sq.ft. (Year 2)

20%

Capex Credit per sq.ft. (Year 0)

15%

Location in Mall

10%

Car Parking

10%

Socio Economic Profile

15%

Tenancy Mix

15%

Total Score

0.0

Scoring Guidelines
Rent Revenue Ratio less than 3% will receive a rating of 5; Between 3% to 4% = 4; Between 4% to 5% = 3; Rent Revenue Ratio greater than 5% will receive a zero rating.

Store PBT greater than Rs. 500 per sq.ft. will receive a rating of 5; Between Rs. 400 to Rs. 500 per sq.ft. = 4; Between Rs. 300 to Rs. 400 per sq.ft. = 2; Less than Rs. 200 per sq.ft. will receive a zero rating. Capex Credit from Landlord greater than Rs. 1800 per sq. ft. will receive a rating of 5; Between Rs 1000 per sq.ft. to Rs. 1800 per sq.ft. = 4; Between Rs. 500 per sq.ft. to Rs. 1000 per sq.ft = 3; Between Rs. 200 per sq. ft. to Rs. 500 per sq.ft. = 2 Location within the mall on the Ground Floor in the main Atrium will receive a rating of 5. However locations within the mall which have high footfalls (e.g. Escalator landings / Next to Hypermarkets etc.) will receive a rating of 4.5

Two Common car parks for every 1000 sq.ft. of the total mall area, will receive a rating of 5. Common Parking facilities around the mall will also be taken into consideration.

Catchment which has a minimum of 20% of Sec A and 40% of Sec B will receive a rating of 5; A catchment which has 50% of Sec C and 15% of Sec B will receive a rating of 2; Anything below Sec C will receive a rating of zero.

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A mix of a Hypermarket, Multiplex, Foodcourt, and two Lifestyle Anchors will receive a rating of 5. Any tenant less than this will receive a 0.5 to 1 rating less. The brands of the anchors also need to be taken into consideration.

Internal board approval Internal Board approval is the process based on group consensus i.e. the finally adopted decision has everyone's approval. The approval of the premises is done by a team of Top Management, which includes 4 HODs, CFO, CEO and the company Chairman. They go through the site feasibility study and a detailed PPT presentation of the site submitted by the Business Development Team and also try to use their own experiences, if any, or else their point of view regarding the locality and its future developments. Considering all the various financial and technical aspects, the board either approves or disapproves of the site.
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Title Verification and Due Diligence of the premises This process is carried out by the legal department of Infiniti retail Ltd, wherein they verify the authenticity about the fact whether the developer / landlord is the rightful owner of the said premises. This involves the landlord to submit the following documents: In case of the proposed Lease/Leave and License of the property, the list of documentation required for verification of the title of the proposed LICENSOR/Licensor is as follows: 1. A copy of the duly stamped and registered deed of conveyance/ lease deed under which the proposed LICENSOR acquired an interest in the property. The original of these documents would have to be sighted as well. In the event that
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2. 3. 4. 5. 6. 7.

8.

9.

the property is leased to the proposed LICENSOR the copies of the title documents of the owner of the property should be reviewed. If the proposed LICENSOR is a builder, a copy of the development agreement and the power of attorney granted by the owner to the said builder would have to be reviewed. Copy of the approved building plans sanctioned by the relevant municipal authorities. Occupation certificate issued by the relevant municipal authority. Title certificate, if available, from the owner/ builders’ advocates. A Certificate in format attached as ANNEXURE – B (for VAT etc registrations) In the unlikely event that the property is situated in a cooperative society, you would require the following: 7.1.1.Share certificates issued in the name of the proposed LICENSOR in the said cooperative society. 7.1.2.No objection letter from the said society for letting the property on lease basis. Certified true copies of the following documents required: 8.1.If property is owned by Company 8.1.1.Memorandum and Articles of Association of Company 8.1.2.List of Directors with their addresses and contact detail (Phone, email, fax) 8.1.3.Latest Annual Return/ form 32 in support of List of Directors 8.1.4.PAN 8.1.5.Power of Attorney / Board Resolution for negotiation/execution of documents on behalf of company 8.2.If property is owned by Partnership firm: 8.2.1.Partnership Deed 8.2.2.List of Partners and their specimen signatures 8.2.3.PAN/Passport of all the partners 8.2.4.Power of Attorney in favor of Managing Partner, if any Declaration/Confirmation that no encumbrance, charge or mortgage has been created with respect to the property. If there has been a charge created over the property, the following details of encumbrances that may have been created by the proposed LICENSOR would be provided: 9.1.1.Copy of the mortgage deed 9.1.2.Form 8 and 13 filed with Registrar of Companies registering the Mortgage mentioned above. 9.1.3.No disturbance undertaking letter from the charge holder/bank for letting the property on lease. 9.1.4.Details of any pending litigation in respect of the property.
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10.Verify the following to confirm all outgoings in respect of the property have been satisfied as on the date of the proposed lease: 10.1.1.Property taxes Receipt 10.1.2.Electricity bill. 10.1.3.Telephone bills. 10.1.4.Water and maintenance charges. 11. Following is the list for Drawings to be provided: (Can be sent in pdf/drg. Format) • • • • • • • Site plans and complete floor plans of the Mall/ building All Circulation plans and parking layout Services layout (HVAC, Plumbing, Electrical) Sections, elevations, all sides Tenant mix Perspective views Façade

Agreement: The understanding between two or more legally competent individuals or entities about the rights and duties regarding their past or future performances and consideration as manifested by their language (oral or written) or by implication from other circumstances such as the usage of trade and the course of performance. Types of agreements:
1. 2. 3.

Leave & License agreement Options Agreement Revenue Share Agreement

1.

Leave & License Agreement
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The word ‘licence’ has been defined in section 523 of the Indian Easement Act, 1882 "where one person grants to another, or to a definite number of other persons, a right do or continue to do in or upon the immovable property of the grantor, something which would, in the absence of such a right, be unlawful, and such right does not amount to an easement or interest in the property, the right is called a licence. In a leave and licence agreement the juridicial possession of the premises is deemed to remain with the licensor and the licensee is said to be in constructive possession of the said premises. Thus a leave and licence does not create any interest in the premises in favour of the licensee but gives the licensee the mere right to use and occupy the premises for a temporary period. Most owners prefer to give their premises on leave and license basis rather than tenancy or lease basis. Here all the technical and legal details are encompassed by both the parties, and this agreement over-rides the MOU that the parties had signed earlier. The terms and conditions mentioned herein are enforceable by the court of law.

2.

Options Agreement

Legal contract between a potential buyer and the seller of a property whereby in exchange for a fee the seller gives the potential buyer, up to a certain date, the first chance to buy that property. This agreement gives IRL the option to either buy the property incase the owner intends to sell it, or else extend the lease of the premises, as mutually agreed upon.

3. Revenue Share Agreement
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The owner of the property has requested the IRL to permit the owner of the property to participate in the revenue earned from the business at the Premises apart from the monthly lease rent payable under the said Lease Deed and the IRL has agreed for the same. Here the parties agree to adhere to the percentage of Revenue sharing, as mutually decided.

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GAP IDENTIFICATION

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Gap Identification: 1. Manual intervention during the rent payment for stores 2. Lack of centralised data backup

1.

Manual intervention during the rent payment for stores: Rent payment refers to the payment of the monthly dues to the landlords. This may be a fixed rental or percentage basis, as agreed upon with the landlord. Rent payments are normally by the 10th of every month. The trigger for the rent payment is normally given by the Business development department. Property department normally intimate the accounts department by sending out a manual excel sheet which contains the details of each and every premises, with the exact rent to be paid out, recovery or withholding rent, if applicable. The accounts department on its part will then tally the figures and issue cheques to the respective landlords. This entire process is time consuming and prone to error, either from the business development department or the accounts department. The format of the manual excel is as follows:

Name

L&L Rs.

Amenities Rs.

CAM

Service Tax

Recovery Rs.

Hold Rs.

Total Amount Payable

Payable in current month

Comment

Rev Share %

Payments to be made in the name of

As observed, people have to fill up each and every column so that the message goes out clearly to the accounts department. Filling up such an excel sheet is a tedious task, because of the fact that a single premises might have multiple owners and also the sheer number of stores, 64, makes it a big challenge. There are stores which have single owner but then there are store with as many as 12 co-owners, in all the Business Development department
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deals with as many as 120 owners for its 64 stores. Going forward as Infiniti Retail adds more stores to its kitty the number of owners is likely to increase manifolds.
SN . Nam e L& L Am eniti es Servi ce Tax Re cov ery Hol d Tot al Am oun t Pay able Paya ble in curren t month Comme nt Rev Shar e% Payments to be made in the name of

CA M

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Juhu Total Inclu sive Pay Shreyas Home management Pvt Ltd

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Mala d Inclu sive

Total

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Him alay a Mall 78.7 9% 2.55 % 2.55 % 2.55 % 2.97 % 2.55 % 2.55 % 2.76 % 2.76 %

Different Service tax for different location, as per agreement

Pay. Due date is 7th of every month.

Gamin Traders Pvt Ltd

Multiple Owners for single premises, potential source of Exclu sive error
Exclu sive

Exclu sive Exclu sive Exclu sive Exclu sive Exclu sive Exclu sive Exclu sive

Pay Pay Pay Pay Pay Pay Pay Pay Pay RS payable only to Modi Buildwe ll applica ble

Modi Buildwell Ltd. Ramlal Jethlal Sheth (HUF) Harshad Ramlal Sheth (HUF) Prakash Ramlal Seth (HUF) Ramlal Jethlal Sheth Prakash Ramlal Seth Harshad Ramlal Sheth Aashaben Prakashbhai Sheth Diptiben Harshadben Sheth

Total

Excl usive

2.65 %

Modi Buildwell Ltd.

The various scenarios for error are as follow: Errors from the Business Development department:
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a. Incorrect data entry: The data entered by the BDD is incorrect, which leads to the accounts department releasing wrong payments. The errors can be due to: • Wrong amount entered in the L & L column • Service charge may have been exclusive in the agreement, but due to over-looking such details the BDD enters it as inclusive, which creates a difference of almost 10% in the rent payable • Common Area Maintenance charge may have been exclusive in the agreement, but due to over-looking such details the BDD enters it as inclusive, which creates a substantial difference in the rent payable • Wrong Revenue share % is given by the BDD hence, there is an error.
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Wrong figures are given by BDD for the adjustments in the monthly rent, in the form of recovery of investment done by IRL on behalf of the landlord. All the above scenarios lead to either lower or higher than expected rental outflow to the Landlord. All this leads to duplication of work for BDD as well as accounts department and also a certain amount of mistrust between the parties involved.

a. Incorrect formula entry: The entries in excel sheet are linked to each other by formulae. Incase of a new store, the formulae set for the various fields are wrong or not correctly linked then there is a high possibility of a wrong amount
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going to the landlord and leading to the doubling of work and embarrassment to the department as well as the organisation. b. Erroneous addition or deletion of critical data: There are various critical parameters such as escalations due on rentals or a maximum cap on the rental to be paid or the minimum guarantee amount to be paid to the landlord. If any of these data gets deleted then the rental amount payable to the landlord alters and the landlord will receive a wrong amount. c. Changes not updated: At times, there are various changes from the landlord’s end: • Change in landlord due to previous landlord selling the premises to a new individual. • Change in landlord’s banking details • Change in landlord’s address etc If these changes are not updated in the excel sheet then a lot of confusion occurs and at times leads to disharmony among the team.

Errors from the Accounts department: As much as the Business Development Department is prone to error, so is the Accounts department. Basically they have to extract data manually from the excel sheet and work on the figures and amounts payable for the month. The following errors were witnessed:
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a. Overlooking remarks mentioned by Business Development Department: The accounts department, in order to avoid delay in payments to the landlords, try releasing the payments due ASAP. This rush in the work leads to overlooking of comments made by the BDD, regarding the payments to be made, thus leading to release of incorrect amounts. b. Over-ruling rentals to be paid: At times, the accounts department doesn’t take cognisant of the fact that the new rental is applicable. This happens mainly due to the historical data available with them from the previous month’s data. c. Confusion due to multiple communications on same premises: Further, there are times when multiple communications are sent to the accounts department with regards to the rental or some other cost related to a single premises. This leads to a general state of confusion and if things are not sorted out before releasing of rent then it leads to error prone payment being given to the landlord.

d. General lack of awareness: The accounts department is sometimes out of loop or out of sync with the latest developments with regards to a premise. When the company and the landlord agree to go in for an area reduction, which leads to reduction in the rent or a reduction of the overall rent, this

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communication might not be provided to the accounts department which leads to incorrect amount being released.

The above are the various scenarios when Infiniti Retail Ltd defaults or makes errors in their release of rent to the landlord. Incase the company wants to be error free in rent release then it has to have an automated system in place, which will take care of the various flaws in the existing system. This will lead to the following: 1) Reduction in time and effort spent with regards to rent release activity 2) Reduction in duplication of work arising out of wrong amount released 3) Reduction of general stress due to wrong amount released 4) With the growing number of stores manual data entry will not be possible 5) No further mistrust between landlords and Infiniti Retail Ltd 6) Effective and efficient communication of amounts to be released

1. Lack of centralised data backup All computers and their components are subject to failure. In fact sooner or later every business will be confronted with some type of computer failure. The largest threat to businesses during a failure will be some type of data loss or data

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corruption. While the causes of data loss and data corruption vary, not all are easily fixed. When a data loss or data corruption occurs, many times the only option is to restore the data from a previously created backup of the affected data. Many businesses today over look the importance of data backups until they suffer the unexpected loss or corruption of valuable data. Once this occurs it would be too late, unless the business is lucky enough to restore the data by physically recreating all the affected files from scratch. This of course is only possible if they have a hard copy or another source from which to recreate the data. It will also cost the business a valuable amount of man hours in recreating the data as well. That is if they are lucky enough to be able to even recreate the data in the first place. If your business has made backups of all data stored on the hard drives, restoring that data will go much more quickly and require a lot less effort. It will also require a lot less man hours and tears shed over the loss that has occurred. Another factor to be considered is if the person handling the profile decides to move on in his/her career, here again we find a loss of data. At Infiniti Retail Ltd, people are given specific sites to handle. Any issue with regards to the site has to be handled by the same individual, for example communication pertaining to the upkeep of the mall has to be routed by the operations team to the BDD team which inturn takes it up with the landlord. This communication at times is done via letters or else resolved at personal level verbally. Incase the written communication is not shared with other team members then the data can be misused by the opposite party once the person concerned moves out of the organization. This also leads to a gap in the knowledge transfer and hence the department is shown in poor light at critical juncture.

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Also, written letters being sent by individuals were never consistent in their reference numbers, hence it was difficult to keep track of the progress of any such linked communication.

RECOMMENDATIONS

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1.

To eliminate Manual intervention during the rent payment for stores

Computer application blueprint – Rent Payment trigger Scenarios

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Objective: To develop an application for computing the monthly rent amount for Store properties. Input data: The following are the various input data that influences the Rent amount:
I.

Property: Rent is computed for the property.
a.

Start of operation: Rent is not applicable during the fit out rent free period and operational rent free period or till start of operation date. That is if start of operation date falls before this free period, then rent is not applicable even though operation has started.

b.

Investors: A property can have multiple investors for whom the rent amount is remitted. Each investor can have different share “%” of the rent amount.

c.

Area: The area of the property signifies the area for which the rent amount is paid. CAM charges can be determined on the area of the site. Leave & Licence/ Lease Agreement: This is the agreement for lease. It signifies Minimum guarantee part of rent amount or the rent paid is Revenue share or the rent paid can be a ‘%’ of revenue share. This agreement may also contain the CAM amount. Minimum Guarantee amount for the next year can be fixed ‘%’ of rent paid for previous year based on the agreement and compared with the ‘%’ of revenue share. Whichever the amount is higher, that amount is considered as rent.

d.

e.

Amenities agreement: Amenities agreement is the additional agreement with the landlord which governs the CAM amount. CAM: Common Area Maintenance charges can form part of the rent and are applicable based on the agreement. CAM amount figures in the L&L
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f.

agreement itself or in the Amenities agreement. This amount can either be fixed amount per square feet or on actual amount (given by landlord every month) per square feet or fixed amount or actual whichever is lower per square feet. The CAM amount can also be clubbed with the Minimum guarantee amount and set as inclusive of Minimum guarantee based on the agreement.
g.

Service tax: Service tax is either inclusive or exclusive the rent amount based on the agreement. Revenue Share: Revenue share is the predefined percentage of the “Net sales” amount. The revenue share amount is applicable if the amount is greater than the Minimum guarantee amount and lesser than the “Upper Cap” amount. Revenue share is not applicable for certain sites for which only MG amount stands valid.

h.

i.

Escalation: The escalation of rent in percentage is applicable after predefined period after the date of operation as per commercial negotiation terms in the agreement.

I.

Recovery:

Recovery amount signifies the amount that can be recovered from the vendor as a part of the agreement terms. So to this extent the rent amount can be lowered till the amount is completely recovered. II. Hold: Hold amount indicates the amount that can be deducted from the rent but parked somewhere in the system. This amount is under negotiation stage with the property
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investors and the accounting treatment to the ‘Hold’ amount can be defined after the negotiation. If some part of the ‘Hold’ amount has to be paid, then that can be paid as a fixed percentage every month till the entire amount is paid.

III.

Calculation Logic:

Rent Amount = (Minimum Guarantee + CAM + Service Tax) or (Revenue Share + CAM + Service Tax) - Recovery amount – Hold amount

IV.Points to Remember I. Minimum guarantee amount may not be applicable for certain sites for which the entire rent amount is based on revenue share. II. MG amount and CAM charges may have escalation after specified period. III.CAM charges may not be applicable for certain sites. IV.Revenue share may not be applicable for certain sites if the rent amount for that particular site is fixed. V. The revenue share amount can have a further clause such that the amount arrived cannot go below minimum guarantee amount and cannot exceed the Upper Cap amount. VI.Service tax amount can be either inclusive or exclusive at any part of the rent amount based on commercial negotiation. VII.If the Land lord is not satisfied with revenue share performance, may be after a specified period the average sale of the previous period is taken as

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a base to arrive at a minimum guarantee. And then that store will follow minimum guarantee model.

1.

To eliminate issue of lack of centralised data backup: This issue was tackled in the following way: The communications to various landlords were sent using reference numbering scheme which gives the other person the required tracking details in a jiffy. The scheme followed was: Reference no it is sent year landlord
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Company’s initials Initial’s of the person sending it

To the premises current

The number of times communication has been sent to the

An example for the same is as follows: Ref: IRL/RCity/ISC/2011/1 The above can be explained as follows: IRL – refers to Infiniti Retail Ltd RCity – refers to the premises where it is being sent ISC – refers to Inderpal Singh Chadha owner of the document 2011 – refers to the year of communication 1 – refers to the number of times IRL has communicated with RCity, next letter being sent by IRL to the same premises would carry the number 2,rest remaining constant. The communications being sent were also filed in a folder available on the common server. The folder was named as Communication Center_Property and its access was given to all the members of the department.

A manual excel sheet was also being maintained to track the communications sent by various members, a glimpse of the same is as below:
Date on documen t Name Mall / Premis es Addresses to Docum ent No Reference No Date of dispatch of letter

Thus the above practice, if followed diligently would help the department save loss of important communications incase a person leaves the organization.

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BIBLIOGRAPHY

Reference Books:

Sr. No. 1. 2. 3.

NAME OF BOOK Strategic Retail Management Shop-in-Store-Concepts Retail Marketing

NAME OF AUTHOR Joachine Zenter, D. Morschette Marco Mossinkoff Maria Banks
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4. 5. 6. 7.

Harvard Business Review Report from JLL IPC Report from KnightFrank IPC Report from Cushman Weikfield

HBR publications JLL KnightFrank Cushman Weikfield

Reference Website:
1. 2. 3. 4. 5. 6.

www.indianretailnews.com [email protected] www.Outlookmagazine.com www.timesofindia.com www.cci.com http://ezinearticles.com

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