Although organised retail has been the buzzing topic for over the last couple of years, many believe the arrival of Wal-Mart will provide a greater boost, as it will compel several large players like Reliance and Tatas to expedite their plans.

As per Ernst & Young estimates, in 2006 there were nearly 50 superstores (includes Malls and Hypermarts) and this figure is likely to quadruple to 220 by end-2007. Organised retail is expected to grow four fold from $7 billion to $30 billion by 2010.

Threat for channels

Major IT vendors have begun formulating strategies to ride the hypermart bandwagon. "We view developments in the retail sector as a huge opportunity for our consumer business. The entry of large companies in organised retail is bound to create a paradigm shift in buying behaviours and fuel consumer demand," says Alok Bharadwaj, Vice President, Canon India. Canon has created separate teams targeting different emerging retail types. It has tied up with several superstores like Croma, Metro Cash & Carry, Next, E-zone and Reliance. "We have plans to tie up with 25 national chains and 50 regional chains including hyper-marts and CE superstores by end-2007," informs Bharadwaj. Revenue from hyper-retail is likely to form a substantial 33 percent by this period for the vendor.

Obviously Canon isn't alone. All major vendors including HP, Samsung and LG are firming up their hyper-retail plans.

LG has set up a division by the name of 'Modern Business', which will target large retail chains and other city-centric malls to push its IT products. Distributors too are preparing to get on the bandwagon. Esys Technologies for instance has set up a 10-member team to manage business through hypermarts. The Best IT World and Mediaman Infotech have been showcasing their products in these chains.

Informs V Krishnan, GM, Consumer Sales, IPG, HP India: "For us, national and regional CE chains like Croma, E-zone, and Vijay Sales are of greater significance. These retailers have a strong focus on IT products and can leverage their loyal CE customer base to sell IT products."

Says Sanjay Sharma, Vice President, Samsung India: "If the price difference [between the hypermart and the IT retailer] is marginal, you might see more and more customers preferring to buy from these stores because of the buying experience these stores provide. In near future, at least in major cities, I see these stores giving stiff competition to PC retailers."

Acknowledges V Krishnan: "Clearly these plans will impact channels. Honestly, channels are bound to feel the heat. Initially the impact will be limited. But as large players grow their understanding of IT business they will start dominating sales volumes, creating severe competition for channels."

A case in point is Croma, the consumer electronics chain from the fold of Tata Group. Its pilot store at Juhu in Mumbai has nearly 40 percent of the 20,000 sq ft space dedicated to IT and other digital convergence products.

"Much like consumer electronics, IT products have been gaining mass acceptance. Increase in education and income levels have been the reasons behind the upswing and this phenomenon is not limited to Metros but has spread to smaller cities as well. Hence our strategy has a strong focus on IT retail even in the tier-2 cities," states Ajit Joshi, CEO, Infiniti Retail, parent company of Croma.

Buoyed by the response to its pilot project, the company is in the process of rolling out new stores. "We expect to have seven new stores by this fiscal end. We will open 30 more stores in the next fiscal and have 100 plus stores in all by FY2010 covering 20 major cities," says Joshi. Croma expects 45 percent of its revenues to come from IT and digital convergence products.

Global cues

Sam Bhavnani

HP's Krishnan shares some APAC figures to give an idea about the possible impact hyper-retail could have on IT retailers. "The retail chains dominate our consumer PC sales in several APAC markets. For instance, in Australia-New Zealand, they contribute close to 70 percent to HP's total consumer PC sales. Their contribution in Hong Kong is between 50 and 60 percent and in Singapore, it's about 40 percent," he informs.

The evolution of impact

Not every type of retail chain will compete with IT channels immediately. Analysts believe that the first blow will come from speciality retailers and will be confined mainly to the consumer segment.

"It is not the Reliance or Bharti's stores that will pose an immediate threat, but the consumer electronics retailers like E-zone and Croma will. IT being a high-involvement purchase, these stores with their focus on CE will be better geared to sell smart as compared to hypermarts," says R Kannan, President, Ramms India, a retail consultant.

"It's difficult to hypothecate as it's only the beginning. There are cues available from the evolution of IT retail in the US," says Krishnan of HP.

In a developed market like US, there exist three types of retail chains that sell IT products–Consumer electronics superstores like Best Buy, Circuit City, and CompUSA, office products superstores namely Office Depot, Staples, and OfficeMax, and hypermarts like Wal-Mart, Target and K-Mart.

"As the retail revolution spreads and competition intensifies, there will be serious downward pressure on prices. And this could lead to some retail chains adopting a value-add model," points out Krishnan.

For instance, Wal-Mart has launched its own PC brand as it gives them better control over pricing, margins and inventory. Many others like Best Buy and CompUSA have moved into providing packaged services and solutions.

Croma’s laptop section is Wi-Fi enabled and is double the size of a regular IT outlet with virtually all brands

Experience Zones at Croma include gaming, home theatre, etc

Channels getting aware

In September last year, a dipstick study among retailers had thrown up interesting figures. Nearly 66 percent of respondents did not consider hyper-retail as a competitive threat. However, there are indications that this perception is fast changing.

Mumbai's channel association TAIT is even looking at organising a group discussion with key vendors and distributors to assess ways that channels can adopt to counter the competition that hyper-retail will pose. "This is an important topic of discussion today and we want the community to be sensitised about the gravity of this issue," says Chetan Shah, President, TAIT.

Many informed channel partners are worried. "The retail chains are emerging as a clear threat to us. They have started selling IT products in good numbers and that's a big cause of worry. Channels will have to do something really radical to survive this new market reality," says Ajit Mital, CEO of Lucknow-based Acme Digitek.

Agrees Praveen Jalan, Director, Jalan Infotech: "The threat by the large retailers is real. They are formidable competitors worldwide and the scene will not be different in India. There will be some serious competition even for the RDs like us." Jalan believes that because the end users will start buying from large retailers, it will impact the business of his reseller partners, in turn, impacting his own business.

Vendors' balancing acts

Anil Philip

"Organised retail is still at a nascent stage. It's difficult to predict which way it will go. It could take the shape of the small IT retail counters in malls like those in Funan or Sim Lim Square in Singapore or it may grow to take the proper hypermart format. But we believe hypermarts will co-exist and not eliminate traditional IT stores," believes Anil Philip, Director, Transaction Business, Lenovo India.

Hence, Lenovo is investing heavily in IT retailers. "We will continue to invest in our retail channel this year. We plan to up our exclusive stores from 61 to 100 and we will provide them strong support," says Philip.

HP too is treading cautiously. "While we don't want to miss the hyper-retail opportunity we do not want to upset our relationships with our existing partners," says HP's Krishnan. The company will increase its engagement with retailers. "Of our 400 retail stores, we offer special branding to 200. But now we will extend this assistance to all the stores," informs Krishnan. For this HP is preparing a new plan due for launch in the first quarter this year.

In fact even vendors have their fears about superstores. "Our experience in other countries has taught us that once these retailers gather critical mass, they tend to arm-twist suppliers. A large national chain may simply say 'No' to us for not offering the price it wants. This could have serious consequence on the brand and business," says Krishnan.

Surviving the hyper threat

Most believe that to survive, channels will have to change their business model and approach. Ramms's Kannan believes: "Presently, a majority of IT retailers are mono-brand and the entry of multi-brand CE chains would put them in a disadvantageous position. They might be forced to stock more than one brand if they want to stay competitive."

Sam Bhavnani of Current Analysis believes that IT channels will have to focus on providing personalised service to customers. "That's the only way that can help them survive," he says.

Kannan says that IT retailers should focus on three customer experience parameters–sales experience, ambience, and range. They should appoint sales persons trained on soft skills and mannerism in addition to technology.

Hyper-retail is a new phenomenon and hence it's difficult to predict how channels will adapt to the changing market realities.

Hence we again turned our focus to the US market and spoke to Imad Boukai, President, Connect Computers, a system builder and retailer from Irvine, California. Imad doesn't view hypermarkets as a threat, rather claims to have benefited by their expansion. "Entry of hypermarts has in fact expanded the market for traditional resellers. We have tied up with CompUSA to provide BTO systems and support," he says.

Whenever CompUSA bags an order, it communicates the specs and timelines to Imad. Imad's Connect Computers builds the solution.

Instead of competing with large chains, Computer Connect chose to collaborate. Imad calls them his 'channel'.

- Nagesh Joshi