Delay in opening of malls, closure of retail complexes and surging property rentals among others have made Tata group's retail company Trent to opt for franchisee route to open its Westside chain of department stores in tier II and III cities. Under the franchisee deal, Trent will own and provide stock to the franchisees who will run day to day business of the stores.
Trent has 30 company-owned Westside stores in metros such as Mumbai, Delhi, Kolkota and in cities such as Indore, Lucknow, Baroda among others. The stores, which sell womenswear, menswear, kidswear and cutlery items among others, range from 15,000 to 30,000 sq ft each in size.
As part of its plans to grow its presence in smaller cities such as Allahabad, Patna, Guwahati, Madurai, Aligarh, Jammu among others, the company has plans to open nearly 30 stores under franchisee route in the next couple of years. The franchisee-run stores will be half the size of the company-owned stores at 8,000 to 12,000 sq ft, a Westside release said.
Neeti Chopra, head of marketing, Trent, said the company will own stores in top 30 cities and open stores under the franchisee route in the rest of the cities. "Franchisee route helps us to overcome property challenge in these cities and scale up our operations quickly. We will also get first mover advantage in these cities which do not have much retail presence,'' Chopra said.
Trent and franchisee holders will share profits from the stores at an agreed percentage and the company is expecting Rs 6 crore to 10 crore sales per store from the franchisee stores.
According to retail sector analysts, apart from getting good real estate deals for the retail companies, the franchisee route helps them to overcome operational issues such as having managerial staff in smaller towns, identifying catchment areas, tackling local issues among others.
"With the franchisee model their capital expenditure will come down drastically and balance sheets look leaner. Secondly they can roll out faster. If you have strong brand name, it is easy to get good franchisees,'' said Purnendu Kumar of retail consultancy Technopak Advisors.
A host of apparel and lifestyle retailers such as Provogue, Bombay Dyeing, Max, the value retail chain of Lifestyle group, Welspun and Arvind Brands have opened stores in the franchisee route across the country.
As per the franchisee agreement of Westside, the franchisee has to invest nearly Rs 1.5 crore to Rs 2 crore and provide bank guarantee to Westside, Trent will own and provide the stock apart from helping franchisees with store fit outs, recruitment and training, IT support among others.
Kumar believes that the disadvantage of franchisee route is that retailers has to dependant on franchisees as issues over control of the stores can crop up. "If franchisees do not handle the stores well, then there is a erosion of brand equity also. However, big retailers such as Westside take care of such issues,'' he said.
Trent, which had a turnover of Rs 637 crore for Rs 2006-07, has three hypermarkets under the brand Star Bazaar and 10 book and music retail stores under Landmark brand in the country. Trent has also tied up with Benetton group to run luxury apparel chain Sisley in the country.