Govind Shrikhande on how Shoppers Stop fought for growth amid slowdown
"One of our chief learnings from the slowdown was to never compromise on
customer experience. Customers should continue to get your best service
and merchandise," writes Managing Director Govind Shrikhande.
Govind Shrikhande, MD, Shoppers Stop <em>Photo: Nishikant Gamre</em>
Shoppers Stop Managing Director Govind Shrikhande tells Business Today:
The slowdown in demand in India came out of the trillion-dollar meltdown in the US and Europe. It gathered momentum over two quarters, with the health scare in Mumbai and Pune, the stock market crash, the Telangana protests in Hyderabad, and then 26/11 in Mumbai.
All these shocks came one after the other. IT, exports and banking were hit the worst. Our like-for-like sales growth turned negative in the second half of financial year 2009, and continued to remain so till April-June in financial year 2010.
It was a great test of the industry and its fundamentals. Retail thrives in a growing economy, when incomes are on the rise and consumers have great hopes about the future. When consumer sentiment turns negative due to job losses or a drop in income, spending is either skipped or postponed.
When spending is postponed, retail is impacted, especially the clothing and accessory categories. This directly results in a drop in like-for-like sales, impacting profitability and growth. The retail sector saw the death of several players in this period, and a number of others had to re-strategise their formats and balance sheets.
It was a great time for learning. Our board challenged us to create a recession proof model that could face slowdowns. One of our chief learnings from the slowdown was to never compromise on customer experience. Customers should continue to get your best service and merchandise. Only then will they continue to shop with you.
Quite unlike what most companies do in such times, we repositioned our brand and launched a new logo.
THE CASE
When a slowdowns hits, everyone is affected. You require the support of everyone in the ecosystem, whether you are running at a profit or a loss. Everyone understands that running a business is like running a marathon and not a 100 metre sprint. So, during the 2008 slowdown, senior associates accepted salary cuts, others waived increments and suppliers chipped in with extra credit.
We also learnt that it is essential to evaluate businesses. Businesses/formats/stores that are never going to be profitable need to be closed. Postponing this can only cause more harm. In some cases the customer may not be ready, or your scale may not support profitability.
So, closing the business without any emotional baggage is a prudent decision to sustain the overall business. We closed down Arcelia and Brio, two new formats, at that time. We right-sized a few stores, including our department stores in Bandra (Mumbai) and MGF Saket (Delhi).
And our manpower costs were trimmed by around 12 per cent. Even finance ministers can't predict what will happen to the economy. So, get full control on controllables, as uncontrollables are not in your hand.
Every business has certain fixed variable costs. Some of the costs and factors impacting business are never going to be in the control of a company. For example, economic growth, oil prices or stock indices are not in the control of any single company. There is no point in sweating when these factors become negative.
Identifying the controllable costs, such as energy and employees, and gaining full control over them helps the business focus its energies on the right metrics. We were able to cut power consumption costs by more than 25 per cent over a 15-month period.
Another important thing during the slowdown is to communicate. When the sky starts falling, everybody notices it. But if one communicates steps that are being taken and the rationale behind them to everyone, fear gets converted into target-oriented objectives. We communicated issues very clearly across the organisation and had all our stakeholders rallying behind us completely.
The slowdown in demand in India came out of the trillion-dollar meltdown in the US and Europe. It gathered momentum over two quarters, with the health scare in Mumbai and Pune, the stock market crash, the Telangana protests in Hyderabad, and then 26/11 in Mumbai.
All these shocks came one after the other. IT, exports and banking were hit the worst. Our like-for-like sales growth turned negative in the second half of financial year 2009, and continued to remain so till April-June in financial year 2010.
It was a great test of the industry and its fundamentals. Retail thrives in a growing economy, when incomes are on the rise and consumers have great hopes about the future. When consumer sentiment turns negative due to job losses or a drop in income, spending is either skipped or postponed. When spending is postponed, retail is impacted, especially the clothing and accessory categories. This directly results in a drop in like-for-like sales, impacting profitability and growth. The retail sector saw the death of several players in this period, and a number of others had to re-strategise their formats and balance sheets.
It was a great time for learning. Our board challenged us to create a recession proof model that could face slowdowns. One of our chief learnings from the slowdown was to never compromise on customer experience. Customers should continue to get your best service and merchandise. Only then will they continue to shop with you.
Quite unlike what most companies do in such times, we repositioned our brand and launched a new logo.
THE CASE
The 2008 slowdown hit consumer sentiment, hurting Shoppers StopTHE STRATEGY
Shut unprofitable formats. Rightsized stores. Controlled costs. Repositioned the brand
We also learnt that it is essential to evaluate businesses. Businesses/formats/stores that are never going to be profitable need to be closed. Postponing this can only cause more harm. In some cases the customer may not be ready, or your scale may not support profitability.
So, closing the business without any emotional baggage is a prudent decision to sustain the overall business. We closed down Arcelia and Brio, two new formats, at that time. We right-sized a few stores, including our department stores in Bandra (Mumbai) and MGF Saket (Delhi).
And our manpower costs were trimmed by around 12 per cent. Even finance ministers can't predict what will happen to the economy. So, get full control on controllables, as uncontrollables are not in your hand.
Every business has certain fixed variable costs. Some of the costs and factors impacting business are never going to be in the control of a company. For example, economic growth, oil prices or stock indices are not in the control of any single company. There is no point in sweating when these factors become negative.
Identifying the controllable costs, such as energy and employees, and gaining full control over them helps the business focus its energies on the right metrics. We were able to cut power consumption costs by more than 25 per cent over a 15-month period.
Another important thing during the slowdown is to communicate. When the sky starts falling, everybody notices it. But if one communicates steps that are being taken and the rationale behind them to everyone, fear gets converted into target-oriented objectives. We communicated issues very clearly across the organisation and had all our stakeholders rallying behind us completely.
| Stories of other companies that faced tough times and emerged stronger, told by the people who were in the thick of things. | |
| Nitin Paranjpe on HUL | Himanshu Kapania on IDEA |
| Mahendra Mohan Gupta on Jagran Prakashan | Rakesh Jain and Sushil Agarwal on Aditya Birla Nuvo |
| Sanjay Lalbhai on Arvind Mills | Peter Mukerjea on Star India |
| Sanjiv Goenka on CESC | Bhavarlal H. Jain on Jain Irrigation Systems |
| Govind Shrikhande on Shoppers Stop | Sunil Pahilajani on Greaves Cotton |
| Anu Aga on Thermax | Sunil Duggal on Dabur India |
| N. Srinivasan on India Cements | Arvind Uppal on Whirlpool |
