Thursday, December 31, 2009

Franchising Poised To Explode In Small Format Retail In 2010

Mumbai: Even as retailers shelved their expansion plans last year and struggled to keep company-owned stores running, they figured out a way to multiply their stores and sustain business — through franchising.

Franchise India Holding Ltd, estimates a rise in the adoption of franchise model by small-format retail players in the country since the slowdown last year.

As per its estimates, 85% of all small-format retail business in India now operates on the franchise model.

“Earlier, only 50% of small-box retail companies in India operated through franchise model, while the rest is operated only through company owned stores. This is a very significant growth from what it used to be a year or two ago,” Gaurav Marya, president, Franchise India Holding said.

During the recession, most retailers were starved of capital for expansion. Franchising offered a model to sustain their business.

“That was when we saw the growth in retail and companies that were earlier not franchising started looking at the model,” Marya said.

Brands such as Koutons, Levis, Reebok and Adidas, which were traditionally not franchising, have lately started looking at the model.

So much so, the retail format ratio for most brands now stands at 80% dedicated to franchising and 20% for company run at strategic locations.

According to Franchise India, large-box retailers typically desist from taking the franchise route, although some, like Trent’s Westside chain, are franchised.

Videocon India, which runs two retail formats — Next (electronics chain) and Planet M (music and departmental chain) — is now starting to franchise Planet M, which was earlier being expanded through company-run stores.

Bata India, the largest retailer and manufacturer of footwear in the country with 1,200 stores, is starting its own franchise network to expand retail presence in a few months, Marcelo Villagran, managing director and chief executive officer of the company, had told DNA Money in October. Bata is looking at opening 60 flagship stores every year and tapping the franchise model will help the brand accelerate further in the market that is getting highly competitive.

Cookie Man, the retail chain store owned by Australian Foods Ltd, which runs over 50 stores across India, is looking at reaching a total of 250 stores through franchising in another 5-6 years.

“Not only does the franchisee bring in the capital, but also, the retailers are able to save 4-8% on the point of sales,” Marya of Franchise India said.

Currently, 45% of organised retail sales in India are through franchised outlets.

This is in line with the developed world countries like US and Europe, where these models are well incepted in the business world.

As per Franchise India estimates, the fashion retail industry in the country is pegged at $29 billion and growing at 12% per annum. India is now opening up as a competitive apparel retail market.

The market potential for footwear is 1.1 billion pairs and it is estimated to be a $2 billion sector.

The jewellery market is estimated at $9.7 billion, with gold contributing 98% to retailing. And the industry is touting retail franchising as the best mode of tapping the market’s potential.

Source:Shailaja Sharma / DNA
Friday, January 1, 2010 2:17 IST