1. LeveragingFranchiseesforProfitableGrowthinRetail
TheIndianretailmarketisconsideredasoneofthemostattractivemarketsintheworldintermsof
marketsizeandpotential.
Thisisreflectedinthe`30000CRRetailFranchisingindustryinIndia,whichisgrowingatanannual
rateof30%.Howevertherearekinksinthegrowthstory.
67%ofthesecompanies
reported lower profits in
FY'12 compared to thatin
FinanciaYear2008-09
86%ofIndian Retailers
improved Sales Change
fromFinancialYear2008to
2012
Retailerswith
improvedProfits33%
Retailerswith
LowerProfits
67%
Retailerswithsales
degrowth14%
Mostcompaniesreportedgrowthinsales
buttheincreaseinsalesgrowthis
notreflectedintheprofits
These21retailcompaniesamounttoa
cumulativeturnoverofRs21,000crore
inFinancialYear2012-13
Only33%ofIndianRetailersimproved
profitsfromFinancialYear2008to2012
HowcanRetailCompanies
Grow? Retailcompaniescangrowbyexpandingtheretail
footprintbywayofownstoresandoflate-through
Franchising.
Franchising
Own
Stores
Declining
ProfitTrend
Maintainingprofitability=Growthinretail
Established
Players
Franchising
Franchising
Franchising
Franchising
Only33%ofIndianRetailersimproved
profitsfromFinancialYear2008to2012
Manyestablishedplayersarestilltotakethe
growthrouteforwardinarapidpace,
possiblybecauseoftheircurrent
decliningprofittrend.
Aprofitabilitypressurehasalwaysbeen
areasonforacautiousapproachtoward
growth.
Franchisee appears to be one such option
wheregrowthcancomewithoutincreasingthe
operatingexpenses.
Increasing
growth
Declining
operatingexpenses
F
F F
F
FF
Own
Stores
Makingthefranchiseemodelprofitableisclosely relatedwith
makingtheretailingprofitableinthefirstplace.
Tounderstandwhyretailersarenotonasolidground,letusreiteratethepressures
thatatypicalorganizedretailerfacestodayintheexistingbusiness:
F
Increasing competition in
homemarkets,otherretailers
looking to expand,internet
retail,and globalretailers
enteringIndia
Moredemanding
consumers looking to
extractthebestvalue
formoney.
Limited negotiating
power to increase
marginwith
establishedbrands
Increasing operating
costsdueto
inflationarypressures
Slowdown in the
Indian Economy,
resulting in
decreasednumberof
consumers and
reduced discretion-
Retailersarestrugglingtomakemoney Franchiseetotherescue
ProblemsofaRetailer
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