Jul 10, 2008
Business - Small prices,big brands
For 19-year-old Hemant Patel, getting a pair of branded jeans was a top priority when he entered his first year of junior college two years ago. But like most college students, Patel only had his meagre pocket money to fund his branded needs. It was then that Patel spotted The Loot at Marine Lines when he was on a train to college. The banner, with a picture of a stuffed gunny bag, said "Brands for less, up to 60 per cent discount." Patel entered the world of The Loot and become one of its many loyal customers.
IdeaThe burgeoning chain of this multi-brand store that is on permanent discount shook Mumbai's retail world four years ago and now is slowly taking its unique concept across the country. The Loot is the only multi-brand store that offers national and international brands at a minimum discount of 25 per cent, going up to 60 per cent. This is not a factory outlet, where the pair of denims will have a missing rivet or funny zip, it is a place where you get branded goods that are not seconds, on discount all through the year.
"The Loot gave me my first Pepe jeans. Owning a London brand was a big deal for a 17-year-old,"said Patel. "Ever since then, The Loot has been my haunt. What's so great about The Loot is that the stuff is not company rejects and the shopping experience is great."
It is exactly this sentiment that Jay Gupta, the brain behind this novel award-winning concept wanted to achieve.
"I wanted to make brands accessible to every college student. People love brands but find it too expensive to indulge in them. This is what I wanted to change," said the 33-year-old.
Sitting in his new office at Mahim, where he spends about 13 hours every day, Gupta smiled when he thought back on how he hit upon the idea. "It was not a eureka idea that I just stumbled upon. It took a lot of observation and planning," he said.
For six years, Gupta sat behind a desk at a retail multi-brand franchise outlet and watched several people walking in but very few of them actually buying anything. That was in 1998. "I realised that although we had a lot of potential customers, they did not convert into sales. So people were interested in branded goods, but did not have the will to pay such high costs," said Gupta. He, along with RP Chhabra, the chief executive officer, decided that the gap between desire and buying capacity needed to be bridged.
"We shut our franchise shops and started The Loot. We started with barely four brands but today we sell 60 national and international brands," said Gupta.
Identifying the gap between the average Mumbaikar's desire to own a brand and his unwillingness to spend on it was just the first step. To bridge this gap required a great deal of investment and risk. "We shut down all our stores to introduce this concept, so it was a risk I took, with nothing much to fall back on," said Gupta.
The business model was simple. For every 12 retail frontline stores, one store is required to sell new products that have not yet been sold or surplus stock - this is the stash that The Loot eyes. Research shows that 45 per cent of branded goods in India are sold on discount. These can be at factory outlets or during periodic sales of branded stores. It is this sector - which is estimated to be Rs 11,880 crores - that The Loot has targeted.
The Loot purchases stock directly from companies, and since they do outright buying with immediate cash payments, companies are more than happy to do business with them and give them discounted rates in return for all these benefits. Unlike The Loot, most retailers purchase goods on credit and some on a consignment basis, which means that the store will only house your goods. Products that are not sold are sent back to the manufacturer.
Also, The Loot does bulk buying, which gets them a larger discount. "For example, if a brand has about 10,000 pieces of a particular style of jeans, but only in the colour black, retail stores would not buy all of them, because they need a variety of colours on their floor. We will pick up all these pieces outright at heavily discounted rates. The company gives it to us at that rate because it would be dead stock or else," explained Gupta.
But one thing The Loot is very particular about is factory rejects. "I personally look into the quality control of every range. No company rejects. Our USP is that unlike factory outlets or export surplus stores our goods are of the best quality at the best rates possible."
Another aspect that Gupta studied was the mindset of people. "People want to get brands at reasonable prices but they don't want to enter a small store with piled up clothes and no trial room. They need a shopping experience," he said. So every store of The Loot is spacious, air-conditioned like any other retail store. To enhance the shopping experience, every store also offers exchange and trial room facilities.
"The idea was unique and what made it stand apart was that though you were shopping at a discount store, the ambience was as good as a showroom. You had uniformed salesmen, trial rooms and fancy décor, so the consumer never felt he had walked into a cheap place," said Sushil Dungarwal, former CEO of The Loot.
But since the store buys goods in such large quantities, warehousing is another important aspect of the business. "We have built a state-of-the art warehouse facility in Bhiwandi that cost us Rs 10 crore. The warehouse can store about 10 lakh pieces and can house goods for at least 400 stores," said Gupta. Warehousing is one of the most important aspects of retailing. The warehouse is where goods are collected, sorted and marked. It is the hub of the business.
From the single-floor showroom in Marine Lines, The Loot has opened 30 shops in cities across India. A majority, about 15, are located in Mumbai. The Loot has now opened a 15,000-square-foot shop in Bangalore, making it one of the largest multi-brand retail stores in the country.
"We shut our franchise shops and started The Loot," said an ambitious Gupta, who took over domestic responsibilities while he was still studying in degree college. "We started with barely four brands, but today we sell 60 national and international brands." They have also launched in-house brands like Eccentric and Bus Stop. The Loot now plans to launch 'Road', a brand that exclusively sells travel gear.
But does this discount of 25 to 60 per cent bite into profits? "Initially, our gross profit would be only none per cent, but today after four years of expanding we make a gross profit of 40 per cent, which is on par with any other retail store," said Gupta proudly.
While the store sells clothes for men and women, Gupta believes that women should get the best deal. "I ensure that all women's garments and accessories have a minimum of 50 per cent off. We have also introduced a designer label Sepia, which is designed by Priyadarshni Rao," Gupta said. The concept behind The Loot might be unique, but marketing the idea was a challenge "People could not believe that there could be a permanent discount at a store, and then they were convinced it had to be a factory outlet. We had to work very hard to change these perceptions," said Gupta.
A lot of innovative marketing had to be done. One thing that worked was having an unconventional brand ambassador - Gulshan Grover or the Bad Man. Every time a Loot store opens, Grover in a gypsy along with several bikers parades around the city. He then crashes into a temporary wall constructed for the inauguration near the new store. There are no red ribbons cut. This innovative scheme has gained The Loot a lot of popularity.
But a brand ambassador is not good enough. The merchandise has to appeal to the target audience. Another challenge was finding locations for outlets. The places had to be close to colleges and other key locations. The stores had to be large and difficult to miss. Then, maintaining customer loyalty is a continuous challenge. "Customers are attracted to the reasonable rates, but sometimes we might not have all the colours and sizes of a particular product. They want everything at a discount," he said.
Jay Gupta wants to take The Loot across the country. After successfully starting 30 stores, 15 of them located in Mumbai, he wants to reach every major city in the country by 2010. "Now, when companies want to meet their sales targets, they are at our office," he said proudly. "Earlier, we would have to approach brands to tie up with us, but today even brands approach us for tie-ups."
His latest feat is a 15,000-square-feet shop in Bangalore. The store has become the largest multi-brand retail store in the country.
"We have 30 operational stores now and work is in progress for another 30 stores," said Gupta. "Our target is to have 100 stores by 2009 and 200 by 2010." But apart from setting up stores, Gupta is also working on creating in-house brands and accessories, such as perfumes, belts, shoes and bags. "Now that people know about The Loot and the quality of its products it is time to expand and create more in-house brands."
But with this ambitious five-year plan, which makes Gupta work for 12 hours a day, his biggest stress-buster is his two-year-old son. He wishes he could spend more time with him, but his family says that he is the best dad. "On Sundays, he dedicates the entire day to his son. We only go out to places where we can take our child. He will never make a plan to go clubbing because that his child's day," said his wife Ruchita Gupta.