Tatas' Croma plans to make it big

Croma, the Tata group's electronic and durables chain, seems to be making up for lost time.

The retail chain, which opened just 50 stores in the last four years, is launching three stores every month in the current financial year.

The 50th store was opened last week in Bangalore.

There is a reason for Croma's new-found enthusiasm to increase the store count. Analysts say the margin in durables retail is wafer-thin and hence scale is the single-most important thing.

Next, the consumer durable and electronic chain promoted by the Videocon Group, is the largest player in the market and has 526 stores already -- over 10 times than Croma's. Next plans to add 300 more stores by the end of this fiscal.

The other leading players in this segment are Kishore Biyani's Future Group which runs 36 standalone stores of eZone and 16 shop-in-shops, and Reliance Digital with 39 stores.

Next did a business of Rs 1,100 crore (Rs 11 billion) in FY 2010 and expects around Rs 1,800 crore (Rs 18 billion) business this year.

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Croma, however, did much more business per store with its turnover touching Rs 1,000 crore (Rs 10 billion) in FY 10.

Ajit Joshi, managing director and chief executive of Infiniti Retail, which runs Croma Stores, wants to double the turnover in this financial year.

So why did Croma go slow on its expansion plans earlier? Joshi says the slowdown in the property market and delay in opening malls hit Croma's expansion plans. "We would have had 100 stores by now but for the recession," he adds.

Joshi says the chain is now on a firm footing to achieve its target as the Rs 150-200 crore (Rs 1.5-2 billion) required for the expansion is not so much of a big deal.

On an average, a Croma store costs between Rs 3.5 crore (Rs 35 million) and Rs 5 crore (Rs 50 million), including infrastructure and the inventory.

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"We want to be number one in cities we operate and have the largest market share," Joshi says, adding the chain is posting higher double-digit same store sales growth.

The chain would continue to expand in such metros as Mumbai, Chennai, Hyderabad and Bangalore as part of its hub-and-spoke model.

In this model, the store chain would expand its stores around its distribution centres, from where it could supply merchandise to its stores.

For instance, Croma will open eight more stores in Delhi in the calendar year 2010, in addition to the eight it already operates.

The retail chain will now also look at penetrating smaller cities such as Chandigarh, Amritsar, Jalandhar, Mysore and Mangalore.

While Croma stores have broken even, the chain is expected to do so at the company level by the end of this fiscal, R K Krishna Kumar, chairman of Infiniti Retail and director of Tata Sons, said recently.

Tatas have so far invested Rs 280 crore (Rs 2.8 billion) in the business.

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Croma, which has over 100 private labels, plans to launch many others including blood pressure monitors, washing machines soon. It launched LCD and LED televisions last week under its own brand.

"We are not looking at replacing the share of our suppliers with our private labels. When our revenues double and billing size goes up, their share will also increase," Joshi says, adding "any category we enter, we want to have a share of 20 per cent".

Croma, which was running Croma Megastores, which are nearly 12,000 sq ft in size and compact store Croma Zip (less than 3,000 sq ft) has also entered the mid- sized stores which are between 4,000 sq ft and 8,000 sq ft.

Next, on the other hand, has stores of varying sizes ranging from 2,500 sq ft to 15,000-20,000 sq ft.

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The Indian consumer durable and electronics market is estimated to be around Rs 80,000 crore (Rs 800 billion) and is expected to grow at 10-12 per cent this year.

The organised durable and electronics market accounts for just a fourth of the total market as smaller standalone stores still rule the roost. But analysts say players such as Next and Croma are in a position to reverse the trend.

Retail consultants say Croma's plans are achievable provided it gets good sales from opening new stores, adds new categories and maintains good same store growth.

"Hundred per cent growth is dependent on how you use the underlying business model and value proposition to deliver the three levers (sales growth, new categories and same store growth)," says Debashish Mukherjee, Principal at retail consultant AT Kearney.

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Purnendu Kumar, associate vice president, Technopak Advisors, says since Croma has got Woolworth of Australia to support its back-end operations, rolling out stores is much easier for the chain. "Setting up back end is a big challenge for durable retailers.

Croma does not have that problem. Once you got your model right and understand the market, rolling out stores is easy," Kumar says.

Croma has also got another Tata firm TCS to implement the SAP system in its back end operations. Earlier it was using the software of its back-end partner Woolworths.

"In India, we have our own complications. Each city has its own octroi and local levies. We deal with many categories which is not dealt with by Woolworths in Australia. "Instead of straining our systems, we thought of getting TCS to implement SAP for us," he says.