Retail Derail

Na-2.jpg (6446 bytes)So Tangerine has decided to call it a day. The
pioneer of IT retailing in the country with the largest chain of computer showrooms has
withdrawn from retailing. As Om Hemrajani, the man behind the venture, feels, “this
is not the right time to be in retailing business.” Words, one could hardly expect to
hear from a person who created the most outstanding retail chain in the country, Tangerine
(Mart). Says a distributor, “We had heard that the company was going through a rough
patch, but never expected it to be so bad.”

And only some ago, while predicting a
bright future for his retailing plans in the country, Hemrajani had said, “My aim is
to set-up a convenience store, one that will be within 10 minutes drive from every
home.” His plans included taking up the number of Tangerine stores in the country to
70 by the year 2000, from the current eight.

Then what went wrong? “Falling margins
has made the business unviable,” is the clich‚ Hemrajani prefers to use. He
blames the MNCs (read Compaq) for their multi-partner strategy, which results in
overflooding in the market. Agrees a distributor, “Two years back, it was only
Tangerine, but now its one among the few tens of retailers which have mushroomed in the
metros.” However, market pundits feel that Tangerine’s failure can be also be
attributed, to some extent, to the company’s inability to adapt to the changing market
scenario and its over commitment to its principals.

The over commitment part is interesting and
is particularly related to Compaq. The MNC insists its distributors take more stocks at
lesser prices: The more the number of PCs stocked, the lesser the distributor pays. This
results in wider margins as the distributor commits and strives to sell more units. While
in the case of other distributors and systems integrators, they have margins to play
around with, Tangerine is faced with the high costs involved in retailing. And
particularly, as Tangerine Marts were unbeatable when it comes to gimmicks.

Thus, even as the PC was becoming a
commodity, the company failed to cut down its overheads. For instance, the company is
estimated to have spent around Rs 70 lakh in setting up each outlet, even those on lease.
This according to Dushyant Mehta, CMD, Mediaman, defies every industry standard. “In
my estimation the setup cost of a retail store taken on lease should not exceed Rs 5 lakh.
And if you are planning to have something in South Mumbai, the cost will increase three
times,” says Mehta who soon plans to open a retail outlet in Mumbai.

Concurrently, the company’s strategy to
sell only MNC products, which paid rich dividends in the beginning, backfired in the
changing market scenario. In the new emerging marketplace, the buyer included not just the
upper class, but also the price-conscious middle class which now formed a major chunk. As
the market was making this transition, Tangerine suddenly found itself short of options
with only high-priced MNC brands in its stable. Its attempts to introduce products at
lower price points during last fiscal failed to bring any results. Last year, Tangerine
tied up with Digiland’s (Datamini) and Zenith for retailing their PCs. “But by this
time, Tangerine had been tagged unaffordable by this emerging segment,” opines a
market observer.

“In the current market scenario,
retailers should have a wide range of products with one popular, low price-point product
guaranteeing large volumes in each category,” says Mehta. According to a company
source, Tangerine had realized this and was even planning to launch its own brand of Home
PCs. The company was to launch a soft promo in December 1997. But, by this time, Hemrajani
was probably disillusioned with the way things were going on. On the other hand, its
four-year old GIS business had started bearing fruits and was promising exponential
growth. Hemrajani defends his decision, “After all I am a business man. Its better
doing software business with healthy net margins of 25-30 percent then the 3-4 percent
margin in PC business.”

And so Hemrajani has shifted his base to
Bangalore. He soon plans to increase his software resources, and is projecting a turnover
of Rs 7 crore by the end of this fiscal. Also on the cards is a subsidiary in the US next
year, followed by another in UK. According to Hemrajani, this is a short-term deviation
from the business which he says is his life-time dream. “Retailing is still what I
will love to do.” However, at the same time his company is actively negotiating a
deal with its erstwhile partner, GES India for either leasing or selling of its showroom.
“But we are not selling the Tangerine brand name. In the next 1-2 years, I will come
back with a bang and a total innovative concept in retailing.”

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