Globally, in every market, retail companies form part of the top 10 richest, most valuable companies. Retailers (e.g. Walmart) are part of the Fortune 500 list. Retail, whether brick and mortar, or e-tail is also a ‘long tail game’ – the business has a long gestation period and needs deep pockets of capital. However, once scale is created, the financials “tip-over”, the business becomes cash-positive and provides immense profitability.  Beyond this stage, it is  considered as a ‘cash-cow’- as global investors such as Warren Buffet and George Soros will testify.

In India, Reliance Retail is probably the closest to this tipping point. Other players including the e-tailers are in the ‘capital hungry’ mode.  The CFO conclave 2014 looked at what retail CFO’s can do during this journey to maintain the health of the company, in the quest to eventually creating wealth.

The event was attended by 150 people, including RAI members and academic partners.

The highlight of the event was the speech by Devdutt Pattanaik – the mythologist who used Jain mythology to profile the three types of roles that CFO’s could play: that of a “Vasudev” – who is action driven, that of a “Chakravarti” (who is rule driven) and that of a “Tirthankar” – who is thought driven. The Organization requires the CFO to play different roles in different contexts and at different parts of the life-cycle.

STOrai presents quotable quotes and glimpses from the event

Working capital management is a crucial function of a CFO and success of new ideas depend on it. India is an evolving market. People, technology and environment are dynamic and hence, there should be flexibility to manage the change” –  said CP Toshniwal during his Key Note Address. “The regulatory environment poses many hurdles and needs to be relooked – GST is to be brought in, MRP regulation needs to be made relevant, essential commodities act needs a revamp. Too fast growth can be detrimental if the system, process and people do not scale up in line with the rate of growth”, he added.
C P Toshniwal, Executive Director, Future Lifestyle Fashion Ltd.

The ‘predatory’ pricing of e-tailers is a concern, especially because capital continues to be abundantly available” said Ambreesh Baliga, Managing Partner, Global Wealth Management, Edelweiss Financial Services; moderating the panel on ‘Funding in Retail’.

– Ambreesh Baliga, Managing Partner, Edelweiss Financial Services

The panel on Risk Mitigation and Corporate Governance discussed the differences and similarities between Risk management and Corporate Governance

“Risk management can be imposed by management diktat, but Corporate Governance has to evolve from the culture of the company”, said Amar Chintopanth, the panel moderator and Director, CC Chokshi Advisors

For any retail CFO, expense management is about the Big 3 – Rentals, Manpower cost and Electricity” – said Atul Daga,

Chief Financial Officer, Aditya Birla Retail Ltd; as part of the panel discussion on ‘Managing Expenses in Retail’. – Atul Daga, CFO, Aditya Birla Retail

Delegate feedback showed that RAI’s use of business and inspirational speakers was much appreciated by the audience.

For more information see the ‘download zone’ link on www.rai.net.in/cfo

India’s retail market, in 2013, was estimated at US$520 billion and is expected to grow at a CAGR of 13% to reach around US$950 billion by 2018.  Organized retail penetration, currently estimated at 7.5%, is expected to clock a 19-20% p.a. growth to reach 10% by 2018.

Key priorities for the Retail CFO may be summarized as: Penetration, Policy & Profitability.

Penetration: Penetration in tier-II and III cities, improvement in business models and operations, coupled with movement from unorganized to organized trade are expected to play an integral role in driving growth. Tier-II and tier-III cities such as Jaipur, Nagpur, Ludhiana, Vadodara, Aurangabad, Kochi etc., are emerging as the new “hot spots” of consumption. Organized retailers are increasingly setting up stores in these smaller cities.

However, this growth in organized retail has been achieved at a significant cost. Organized retail started more than a decade ago, but, most players have struggled to achieve the desired level of profitability and returns. Despite investments of time and capital during this gestation period, returns are an area of significant concern.

Policy: The liberalization of FDI policy is expected to propel foray of global retailers, which will further fuel the growth of organized retail in India. While Single Brand Retail has seen some global investment interest, investor in Multi-Brand Retail remains muted.  In addition, the industry believes that the pace of GST rollout will be determined only after the general elections.

Profitability: At store level, the retailers are focusing on improving store profitability through productivity enhancement and better inventory management. At corporate level, the retailers are keeping major costs such as supply chain and manpower in line with the revenue to ensure profitable growth of the business.

In a nutshell, a retail CFO’s mantra for 2014 seems to be balancing growth and profitability.

Below are some of the key highlights from the same:

Working capital management is a crucial function of a CFO and success of new ideas depend on it.

• Think about Business first – whether business is “doable, moveable or executable”.
• In retail, many ideas fail because of working capital management issues.
• New ideas have to be balanced with the risk attached.
• Only money does not make great business.
• India is an evolving market. People, technology and environment are dynamic and hence, there should be flexibility to manage the change.
• Too fast growth can be detrimental if the system, process and people do not scale up in line with the rate of growth.

Three policy changes which will take retail to the next level – implementing GST, abolishing the MRP concept and the Essential Commodities Act.

• GST is to be brought in. It will change the whole landscape in Supply Chain Management in India.
• India Retail has lot of challenges. MRP regulation need to be made relevant.
• Essential Commodity Act is to be relooked at.
• Business ideas may or may not work. But you need to be clear on your capacity & quantum of loss you can bear.

We have terabytes of data but we need to take meaningful & actionable information from this data.

• If merchandise is not replaced then retail shop becomes a warehouse.
• The law of averages does not work in retail.
• Managers have a lot of information with them. Only relevant information should be given to the team so as to not confuse them.
• Pick key metrics and keep communicating them consistently.
• While building your sales, you need to also build corresponding systems & processes.

Dr. Devdutt Pattanaik is a renowned mythologist, author, leadership coach & motivational speaker. In addition to this he is a  qualified doctor & the Chief Belief Officer of Future Group.

Here are some of the thought provoking ideas he had talked about:

Whenever you have a rule, there will be a rule breaker & someone will find a way to bend the rules.

• Sanatan law states: Wherever there is a rule there will be a rule breaker. In business we all like the idea of Rules- with their promise of predictability.
• On one hand we revere Lord Ram who follows rules & we also worship Lord Krishna who bends them.
• Both are right. Both are divine.
• Indian mythology never gives prescriptions. It gives frameworks.

Frameworks provided by Indian mythology can be applied in our day to day life, especially in the cases of conflicts.

• 3 categorizes of leaders according to Jain mythological framework: “Vasudev, Chakravarti, Tirthankar”.
  • Vasudev – Rule breakers who do so to (re)establish justice or a new balance. Entrepreneurs fall under this category.
  • Chakravarti:  A Ruler who controls & establishes systems. He is the ‘King’; makes laws and creates stability. E.g. Auditors, regulators, most CEO’s.
  • Tirthankar – Someone who can find a balance between the Chakravartis & Vasudevs… He understands that both are important for sustained, systemic growth and change.  E.g. Chief Mentor (Narayan Murthy, KV Kamath)
• An example of a Vasudev : Krishna.
• An example of Chakravarti : Rama.
• A Tirthankar is he who finds the ‘fjord’ – the bridge between the two .
• ‘Fjord’ means a bridge which already exists, awaiting discovery. (origin: Norwegian).

 In Jain mythology – becoming a Tirthankar is man’s highest calling.

• Vasudev, Chakravarti & Tirthankar. Most leaders don’t know this framework, but intuitively understand the need for both .
• The predictability of ‘Stability’ and ‘disruptiveness of growth’ are important – and the Leader has to often play the role of the “Tirthankar” – judiciously calibrating the amount of each needed in a given situation.

The discussion on Managing Expenses in Retail has experts from retail industry discussing on the dynamics of managing expenses & improving efficiency.

Panelists in the discussion were:

Moderator: Amit Kumar, Partner, Progress Partners; Neeraj Raheja, Head Finance, Westside; Dinesh Maheshwari, CFO, Future Retail; Himanshu Gupta, CFO, Religare Wellness; Jayesh Patel, CFO, Globus Stores; Vikas Choudhary, CFO, AIMIA; Atul Daga, CFO, Aditya Birla Retail

Opening Remarks

Amit  D Kumar, Partner, Progress Partners

Expense management is not just cost reduction, but about creating efficiency.

Moderator: Amit Kumar, Partner, Progress Partners

•  The biggest component of expenses is RENTALS.
• Expense management in retail has to be about not just reducing the cost but also about increasing the efficiency of the money spent.
• CFO’s have to leverage technology
• Three key focus areas for retailers:
  • Optimizing the cost of Insurance
  • Efficiency in use of power
  • Engaging & retaining employees to optimize manpower costs.

What can be done to reduce cost?

Atul Daga, Chief Financial Officer, Aditya Birla Retail Ltd.

Incentivizing sales by staff can help increase sales & also reduce manpower cost.

Atul Daga, CFO, Aditya Birla Retail

•  Rentals:  Landlords need to showcase value to retailers: – show the CFO how they would be a partner in attracting footfalls.

• Manpower Consider using part-time workers for peak seasons and hours; create apprenticeship programs.
• Use Technology for : Inventory tracking, mapping buying habits, and loyalty programs which are difficult and expensive when done manually.
• Note: Share of revenue from Loyalty members is higher than from non-loyalty members. This single factor justifies technology investments.

Optimizing Costs ?

Dinesh Maheshwari, CFO, Future Retail

Contractual structures – exit clauses, minimum guarantees – these are critical cost ‘lock-ins’

Dinesh Maheshwari, CFO, Future Retail

• Rentals: Evaluate the exit and escalation clause in the rental agreement
  • Negotiate rent –Minimum guarantee structures –based on footfall, location, availability of cinema, food court -are more flexible.

• Technology:
  • Hardware costs are down by 80%, total technology cost is by 40 to 50% compared to previous years.
  • Use this to create greater impact and efficiency of technology spend.

• Electricity:
  • Use cooling tower water for utilizing in cooling.
  • Buy power from the exchanges rather from the Board.
  • Resort to solar power and use power monitors.

• Get expert help in structuring your insurance coverage.
• Customer satisfaction should be the priority.

How can the CFO leverage technology?

Himanshu Gupta, CFO, Religare Wellness

Store level profitability should be used to judge if the rentals are justified.

Himanshu Gupta, CFO, Religare Wellness

•  Use Technology for Training and empowerment of employees
  • HRMS (HR Management systems) help create SOP’s which measure efficiency and quality of service and reduce role stress among employees.

• Use electronic bidding to undertake due diligence on insurance –optimize coverage not just costs. Insurance covers must be reviewed annually, not when a claim rises.

• Use chargeable fixtures: to optimize costs.

• The approach has to be: use technology to make real time data available to each process owner.

How to manage Expenses?

Jayesh Patel, Chief Financial Officer, Globus Stores

Flexibility in providing customer experiences can improve customer engagement.

Jayesh Patel, CFO, Globus Stores

•  Ratio of sales and rental is to be calculated for efficient management and comparison.

• Apart from salary cost other personnel ratios are important.
• Use of technology to control inventory is imperative, the choice is what systems best fit the organizational requirement.
• Check the exclusion and inclusion in insurance policy.
• Green building design/ Led lighting.
• Optimize the high tension and low tension power mix in sourcing of electricity. Uniform power rates is required to ensure smooth functioning and reduce costs.
• Idea is to map the consumption pattern of electricity and accordingly adjust.

Management structures to create customer delight and employee engagement

Vikas Choudhary, CFO,  AIMIA  

Using loyalty programmes can help you reduce your marketing expense & also increase sales.

Vikas Choudhary, CFO, AIMIA

•  Factors to reduce costs and gain customer loyalty:
  • Revenue sharing with the developer
  • Maintain a level of Customer experience
  • Re-negotiate the MG and CAMP charges

• Information is key to decision making. Leverage technology to understand the customer needs and get higher share of wallet from the same rental should be the key.

• Sainsbury’s used technology to drop promotional cost to 32% from 71%. Retail is all about costs. Reduce costs and maintain the same level of service and revenue output.

• Resort to non-monetary benefits such as recognition as against monetary benefit to reward employees. This can be used tactically to reduce the manpower costs.

What are the preconditions for retailers to gain profitability?

Neeraj Raheja, Head Finance and Business Support , Westside

Negotiate rental with mall developer & set preconditions to make developer accountable.

Neeraj Raheja, Head Finance, Westside

•  Calculate and manage using a sales to rental ratio. Also convert and track footfalls to sales – to improve the sale to rental ratio.

• Control attrition because the cost of training etc. is gone once the employee leaves.
• Focus on what the customer wants – e.g. English language skills are expensive and in tier 2 cities, customers are more comfortable with regional languages.
• Use data analytics so as to understand customer behavior and loyalty – push stores towards in-store up-selling, cross-selling.
• Thereby, increase  the revenue without impacting rentals.

From L-R: Amit Kumar, Partner, Progress Partners; Neeraj Raheja, Head Finance, Westside; Dinesh Maheshwari, CFO, Future Retail; Himanshu Gupta, CFO, Religare Wellness; Jayesh Patel, CFO, Globus Stores; Vikas Choudhary, CFO, AIMIA; Atul Daga, CFO, Aditya Birla Retail