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Rajan Malhotra, chief executive officer, Ezone and president, Future Group, says any turnaround story has its genesis in strategies which do not keep pace with changing times and do not focus on customers.
When he took over Kishore Biyani's electronics and durables chain, Ezone, two and half years ago, same-store-sales growth was negative and competitors such as Croma and Reliance Digital (by Reliance Retail) were steadily growing.
Today, Ezone is seeing same-store-sales growth (from increase in sales in existing stores) of over 30 per cent and has turned profitable this year.
Biyani says, "We tried everything, from closing stores to making it a franchisee-led model. We even thought of closing it down. But today, it is the biggest turnaround story for us."
Malhotra says they started with rationalising stores. Earlier, the average size was around 10,000 sq-ft and usage was as low as that of the group's hypermarket, Big Bazaar.
Citing the example of Big Bazaar, Malhotra says, if one of its stores was spread over 1,000 sq-ft, in practice, just 500-600 sq-ft of space would get utilised for products because the rest would go into large aisles and walk-outs.
"But with Ezone being a low-margin business, we could not afford to waste space. We brought down the size to 5,000-5,500 sq-ft without reducing the assortment," says Malhotra. Electronics and durables have gross margins of 10-12 per cent.
Ezone has standalone stores and operates within stores of its fashion chain, Central, home improvement chain, Home Town and Big Bazaar.
After exiting the National Capital Region and Hyderabad due to low sales, it is now focusing on five cities: Mumbai, Kolkata, Bangalore, Pune and Chennai.
"Earlier, we had 64 stores and were doing Rs 750-crore of business. Today, we have 42 stores and still clocking the same turnover," Malhotra says. As a result, people costs are down by 25 per cent and occupancy costs by 50 per cent.
Tata's electronics chain Croma has followed a similar strategy in cities such as Mumbai and Bangalore right from the start, consultants say.
A senior executive of a Mumbai-based electronics chain says shutting loss-making stores is not the ultimate turnaround strategy.
"If one closes 50 loss-making stores and claims the others are doing well, then it is not a true picture. One should drive overall volumes and turn around all stores," the executive says.
But Rajan says the chain is focusing on being the most profitable and efficient retailer, and not on being the number one or two retailer.
Ezone has optimised the merchandise by stocking more of appliances in Home Town, and cellphones and small products in its fashion store Central.
Yasho V Verma, chief executive, Mirc Electronics, makers of the Onida brand of products, agrees that the chain has seen a turnaround: "I have seen a difference from last year. They have increased their sales activities - from distributing pamphlets, ads in local newspapers, improving display of products to recruiting more store staff."
Ezone had earlier focused on large durables for its private label, integral to a modern retailer's profitability. But of late, it has discontinued with refrigerators and washing machines as they are not garnering enough volumes. It is continuing with televisions and air-conditioners.
It has now turned to high-volume (even if they are low-margin) personal grooming products like electrical razors, and mobile phone accessories under its private label.
Ezone is even looking to launch its mobile stores within Big Bazaar, Central and Brand Factory, measuring around 300 to 650 sq-ft," says Malhotra.
Malhotra says small products are seeing a 600 to 700 per cent growth. Though private labels are a Rs100-crore business, bulk of it comes from sales in Big Bazaar. Ezone stores account for only 2 per cent.
Bigger players such as Croma and Reliance have strong private labels. Croma derives sales of around Rs 200 crore from its private labels annually.
Reliance had launched its private label Reconnect in 2009, which contributes 5 per cent to its revenues. The products are 20-30 per cent cheaper than brands.
After-sales service is also being spruced up. It has launched a helpline, Ezone Care, to help consumers, even if they are not of Ezone, to connect with the concerned brand, free of cost.
Reliance has been a step ahead with its ResQ, a multi-product, multi-brand and multi-location service network. But consultants say these have low margins and don't always make the consumers stick around.
Ezone is eyeing Rs 1,100 crore in 2013-14, a 30 per cent growth over the previous year.
Reliance Digital has made a profit of Rs 64 lakh on a turnover of Rs 2,166.38 crore. Croma has done Rs 2,500 crore and is looking for 30 per cent growth and net profits this year. So, Ezone might find it an uphill task to become the most profitable retailer as its rivals are not about to give up and they have a headstart in volumes.
The consumer durable-IT market is pegged at Rs 125 lakh-crore, where brands account for just 10 per cent. The low penetration signals a large opportunity as the total market is expected to double by 2016.
