Are Factory Outlet Stores the next big opportunity?

A Factory Outlet Store is defined as a retail store in which a manufacturer or brand owners sell their irregular, surplus or old-fashion stocks directly to the consumers. The term can also refer to any retailer selling returned and discontinued products, often at heavily reduced prices. These outlet stores, which could be physical or online, are called Factory Outlets because traditionally they were attached to a factory or a warehouse. For the convenience of bargain hunting customers, often these outlet stores, are grouped together in outlet malls.

It is believed that almost 15% of all merchandise is disposed off through such outlet stores. This means that there should be one factory oulet store for every seven retail stores. This then is a big opportunity for those who wish to specialise in this format because branded players do not have adequate infrastructure for stock disposal.

Only about a month ago, Provogue, the Rs. 182 crore, fashion apparel brand, announced its planned foray in this format of stores across the country. The first of such Provogue outlets, occupying 50,000 sq. ft. of retail space, is slated to open soon in Ahmedabad. The chain plans to offer 20% to 60% discount on mid-priced brands apart from clearance of excess and seconds materials.

Kishore Biyani owned, Rs. 2199 crore, Pantaloon Retail, has also entered in this segment with the opening of its first store in Bangalore two months ago and plans to launch its second outlet in Hyderabad soon. Pantaloon has planned to launch a total of 55 Brand Factory outlets, in the next four years, by 2010. These outlets will cater to the needs of the class of customers between the value and lifestyle segments, which aspires to own branded goods but is looking for bargains, albeit with a little compromise.

Brand Factory stores will initially be opened in 35 cities having population of more than one million.

Address key issues to sustain growth: CII, AT Kearney

Organised retail is growing at a fast pace and the rate of compounded annual growth is expected to reach 35% by 2010. However, there are many issues that require urgent attention of the industry and the government to ensure that the growth momentum is not faltered.This has been highlighted in a report entitled ‘Retail in India: Getting organised to drive growth’ by the Confederation of Indian Industries (CII) and AT Kearney.

The key take aways of the report include:

• The government should give retail industry status and should also set up a regulatory body to legislate on industry norms and other aspects.
• The industry should organise itself and work together on aspects such as development of cold chain and cadre of mid-management staff.
• Retailers, and not the government, should take the initiatives on gaining consumer insight and developing the markets.
• The government should relook at some of the inconsistencies in the octroi and entry tax structures which vary from state to state.
• Lack of proper town planning has resulted in bad retail infrastructure.
• High real estate prices act as stumbling blocks.The real estate in certain cases costs as high as 10-20 per cent of net sales, which can not be sustained.
• While, some retailers have taken initiatives to meet the manpower requirement by having tie-ups with training institutes, it is not enough to meet the demand generated by the sector. More active role of the industry is required.