Thursday, January 29, 2009

Argos Exits India

Argos - the leading British retailer - has now decided to exit India. Argos had a limited presence in India, six shops in Mumbai suburbs. In fact, many people did not even know that Argos had a presence in India, and their decision to exit will go largely unnoticed. However, there is some significance of this announcement for the British businesses looking to go into India.

The conventional wisdom is that Argos is following the path of other British retailers, who are closing down underperforming operations abroad to focus on home operations in this troubled times. Tesco has decided to go slow on its United States expansion and Marks & Spencer is having trouble in China. DSG is pulling the plug on its slow moving Italian operation and trying to concentrate back at home. Argos' decision to exit India, which will mean 'single digit' million pound loss for the chain's owner, Home Retail group, will largely be seen in the light of these experiences.

However, with a close look, it may have more reasons than just domestic downturn. Argos' India operations were plagued with small issues from day one, and they suffered from delays in shipment and stock-outs from day one. They were operating under a franchise arrangements with Shopper's Stop/ Hypercity retail groups in India for about an year now, and their reach even in the Mumbai city was extremely limited. For example, out of the six odd stores Argos had in Mumbai, their flagship had a very limited stock on display and a very thin catalogue [compared to the 1500 page tome we carry home once in six months] and no noticeable web front. The shop, while located in a modern building, was in Thane, far from downtown Mumbai, and it was supplemented by catalogue-only points in nearby areas.

In all, while I am a fan of Argos in the UK, their presence in India disappointed me. They simply did not understand the market and did not have a differentiating strategy in place. I do think this is very common among British businesses to have a very confused strategy about India and a very unclear expectation: I am sure Argos got it wrong from day one.

I know I am indulging in a guessing game here, but let's try to think what has gone wrong. First, I think the choice of Thane, possibly driven by the exorbitant property prices in downtown Mumbai, is a mistake - it is too far out of the spotlight; it is almost a different city. I was told about the brilliant strategy of hiring semi-skilled people and giving them low wages and a incentive - a sure departure from what Argos stands for here, hassle-free shopping, and a recipe for disaster. Besides, as I walked into the Argos store and tried to spot the difference from the homegrown retail chains, I could spot none - other than the fact there were hardly any buyers around. Their prices were at a slight premium - someone must have thought that Indian buyers will pay a premium on electric kettle because it was bought from Argos - another clear mistake.

I can go on and on, but such mistakes are not peculiar to Argos. I do think British companies approach India without first scoping it out, and end up doing too little too late. They also emphasize too much on brand - too much of an inside-out perspective - which surely does not work in India. And, besides, they forget that value creates the brand, and it is not the other way round.

India is an interesting market, by all means, with its huge number of consumers and rising purchasing power. But it is a complex market at the same time - any company having a strategy for INDIA is making a mistake of not factoring various regional and local factors out. It is common among brand-owners to think inside-out, but each new market is a new game altogether and the brand needs to be reestablished. I think it is essential, when approaching India, to scope out the challenges of reestablishing the brand in a big and complex market.

Think of this. Why would I go to Argos and pay a premium for an electric kettle? For a better shopping experience? My foot! The only way Argos could have a sustainable business in India if they offered an unmatched range of merchadise under one roof [which it does in UK and I buy electronics and toys and appliances from Argos] at an unbeatable price. That needed scale and commitment, which it never had.

This also tells another story about piloting new markets. The conventional wisdom prompts us to create small pilots to test the waters before committing to a market. But, more often than not, such business pilots fail. This is possibly because we often confuse the need for scoping with piloting. Especially in markets like India and China, piloting fails to get the necessary traction of volume and fails to deliver value and choice. Such is the fate of Argos: So, of many others.

I was recently asking someone well conversed in international business development whether he has ever met an Indian businessman who talked about less than 200 outlets to him; he admitted he hasn't met any. Now, while this may be because of different factors - exuberance, optimism, or simply talking beyond one's capacity - there is another logic which the European business reasoning fails to grasp: that the market demands such a large scale intervention. From my experience, this is essentially true. A six store 'premium' generalist retailer offering undifferentiated product employing semi-skilled people at low wages was always going to be a sitting duck in a market where Big Bazaar, which came from nowhere and powered themselves on dreaming bag, rules.

This is why I think Argos' experience should be instructive to British, or European, businessmen. I think there are three key lessons here:

(A) India is not a cakewalk. There are highly competitive home grown service companies which can beat the European companies hands down: not just because they are local, but because they are nimble, have less baggage and constantly innovating instead of trying to fit an outworn suit in a new body.

(B) Pilot ventures can only work if this is scoped out right first. This isn't done in most cases. Lots of such international expansions are ego-driven, wanting to be in one the fastest growing markets because the entrepreneur happened to read one of the many recent business books. Such projects, which are based on the mistaken assumption (A) as described above, commit too little. Often, like in the case of Argos, the pilot looks like what the scoping exercise should have been - an exploration into the mechanics of the market.

(C) Whatever the brand, it needs to reestablish itself in every market. Argos should have focused on its basic value propositions - choice, cost, customer service - instead of the board on the door. It is tempting to take a market for granted because one has a brand: but that is committing suicide by taking the brand for granted.

Argos leaving obviously leaves a space in the market in India. I did want to see a shop like Argos [though it was disappointing to find it is different story in India] and I do think a good catalogue retailer will do well in the country. So, we are set to see an Indian company taking that position, soon. And, as the ways of the world these days, it will not be surprising to see that same Indian company buying out Argos in two to five years' time.

1 comment:

Retail Mantra said...

Apart from the scale of operations, I believe it had more to do with acceptance.

Organized retail and mall shopping is something happening in India for the first time and everybody from kids to grannies wanna be there.

It'll take some more time before people would like to order online or on catalogues.

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