Market Focus
Mono-brand or Multi-brand?
 Which is more profitable? The shop that sells only one IT brand or the outlet that sells many?
With both the mono-brand model and multi-brand model co-existing in the IT retail industry, there’s a debate among retailers as to which model is more profitable. While most IT retailers prefer to have a mix of multi-brand and mono-brand stores, some prefer to have only multi-brand stores while others favor only mono-brand stores.
Says Ashwin Kukreja, Director of the Mumbai-based Galaxy IT Concepts, “It’s hard to say which retail concept is more profitable. Both retail concepts have their own advantages and disadvantages. At one point of time a partner may benefit from multi-brand outlets, at another he will benefit from an exclusive store. If a retailer wants to receive good profits and growth from his stores, a mix of multi-brand and exclusive stores is the right option.” Kukreja has four stores, out of which three are exclusive and one multi-brand, but the multi-brand outlet contributes 60 percent of his overall revenues.
Multi-brand advantages
Until a few years ago, the IT retail industry in India was mostly dominated by the mono-brand model. But with the entry of large format retail (LFR) stores—like Croma, Reliance Digital and E-Zone—many IT retailers began adopting the multi-brand retail model as a way of competing with the LFRs and as a way of adding more value to their business.
“Multi-brand means more footfalls because the public gets a wider choice,” explains S Karthikeyan, Director, Bloom Electronics. “When a customer visits a multi-brand store it satisfies his hunger for choice on both the time and space parameters. The customer gets to choose from a host of brands and products in a single visit to a single outlet, thus allowing him to make a real-time product comparison, save on time, and [perhaps even save on] the cost of purchase.” Karthikeyan has a 3,000 sq ft two-storied multi-brand retail outlet in Coimbatore; retail contributes Rs 15 crore to his overall revenues.
Karthikeyan adds, “In the case of multi-brand stores, retailers can easily lower their losses because they can distribute their costs among multiple brands. But in exclusive stores, if a vendor suffers a fall in marketshare or suffers losses, the retailer is unable to reduce his own losses and so he suffers along with the vendor.”
Retailers often prefer the multi-brand option because they have more freedom to make decisions. “With exclusivity, retailers often lose out on the freedom to make decisions because they have to abide by the guidelines that the vendor has set for them. For instance, vendors usually have a fixed set of promotions and events that a retailer can conduct through the year. If this is the case, and if a retailer wants to conduct a particular event beyond the decided set of events, he will have to get the vendor’s permission to conduct the same,” points out P K Sinha, Director of the Patna-based IT Zone. Sinha has two stores—a 500 sq ft exclusive HP store, and a 2,500 sq ft multi-brand store called eMall. The multi-brand store contributed 60 percent to his revenues while the HP store contributed the rest.
Multi-brand disadvantages
The multi-brand retail model comes with its own set of disadvantages. “Offering multiple choices often leaves the buyer confused. In a multi-brand setup it’s also difficult for a retailer to recommend a brand to the customer because that would amount to underselling the other brands,” states Kukreja.
Another disadvantage of multi-brand retail is that not only do retailers face tough competition if other retailers start their own stores in the neighborhood, but they also receive fewer benefits from vendors.
“While exclusive retailers often get territory protection from the vendors, in the multi-brand model we frequently have to face tough competition from other retailers because they might just start another multi-brand store in the same area and give better schemes and discounts than us. As a result, in order to retain our customers, we have to be on our toes and keep on holding events and promotions in our stores,” notes P Mahalingam, Director of the Coimbatore-based Indsys Infotech. The retailer currently has two stores in the city. One is a 400 sq ft exclusive Toshiba store, the other a 600 sq ft multi-brand outlet which contributes half the overall revenues.
Earlier, there were times when vendors would not allow an exclusive partner to start his own multi-brand outlet. If a retail partner wanted to venture into multi-brand retail he would have to start the store with a different name. But with LFRs coming into the picture, vendors have become more lenient and allow their partners to start their own chains of multi-brand retail outlets. However, the matter doesn’t end there, as Kukreja points out: “Although vendors have become more lenient with retail partners now, they are still vengeful. They tend to focus more on their exclusive partners and also tend to give better benefits, support and deals to them than a multi-brand retail partner.”
Mono-brand advantages
The exclusive or mono-brand retail concept is a vendor-centric model. Here, a retailer has deep commitments in terms of investments, sales targets and marketing. The benefits that a retailer can derive from exclusive retail are territory protection, better margins, manpower subsidy, demo subsidy, backend rebates, brand marketing rights, lead generation support and marketing support from the vendor.
The exclusivity status also places a retailer higher on the vendor’s priority list. The vendor provides lead generation support, involves him in special marketing campaigns, and even helps chalk out business roadmaps aligned to the vendor’s own long-term vision.
According to Sinha, “One of the biggest benefits that an exclusive franchisee retailer can get from a vendor is the payout scheme. Vendors often buy back the stocks that the retailer wasn’t able to sell at the end of the day, but this is often not possible in multi-brand stores.”
“The vendor tends to give you more importance than it gives to a multi-brand partner. Exclusive retailers get more discounts and incentives, in addition to branding and marketing support. For example, if a multi-brand partner gets a 5 percent discount on the vendor’s products, an exclusive retailer may get around 10 percent. Other than generating leads and giving MDFs, vendors may give an additional 1 percent incentive on the overall sales done by the retailer during a month,” says Naresh Garg, MD of the Chandigarh-based Accord Computech. Garg has two exclusive 1,000 sq ft HP World outlets in Chandigarh and Ludhiana which together contribute Rs 8.5 crore to his revenues.
There’s more. In an exclusive store, uniformity in terms of store design, store interiors, store size, products, prices, promotions and events are strictly maintained. This method prevents competition among the vendor’s exclusive retailers, and gives all the retailers a fair chance to earn profits. Vendors also work more closely with exclusive retailers to conduct events and promotional schemes, and provide, along with the retailers, region- or city-specific advertisements.
Opines Devraj Parasvakumar Jain, Director of the Bangalore-based Devraj Infotech, “Mono-brand outlets are the always the best option for partners because they provide long-term benefits, and save cost, time and energy. Being the partner of just one vendor, a retailer has to work with only one supplier. By contrast, in multi-brand retail, a retailer has to work with numerous suppliers and will therefore spend more time and energy running after the suppliers than concentrating on achieving the sales target.” With a turnover of Rs 10 crore, Jain has one exclusive HP World outlet in Bengaluru.
Mono-brand disadvantages
Exclusive retail stores certainly have their plus-points, but, like their multi-brand counterparts, they have their share of negatives. “Unlike multi-brand outlets, exclusive retailers get very little footfall and lose out on every other customer,” says Kukreja. “Over 80 percent of consumers today prefer to go to a store where they can see and test all the different brands and then make a decision. If a retailer has a multi-brand outlet he can keep the customer in the store by showing him different varieties of products. But if a retailer has an exclusive outlet and the customer wants to see and test the competitor’s products he can’t retain the customer. Two other disadvantages are the risk of losses if the vendor’s marketshare falls, and the lack of freedom to make your own decisions.” |