Utsav Seth, managing director and CEO, Pavers England, on how his shoe retail company is working on building profitability in a difficult market
Age: 42 years
Designation: CEO and MD, Pavers England
The Perspective: Retailers chase scale in the hope that profitability will come once adequate scale has been achieved. This is a false hope.
We entered India in 2008 and, like all foreign brands, we wanted to have a large presence here. Our market surveys showed us that the franchisee model doesn’t work and we initially tied up with departmental stores like Lifestyle, Shoppers Stop and Reliance Footprint as well as multi-brand outlets. In addition to this, we opened our own stores as well.
Building a brand is a painstaking process and it was twice as hard for us in India where our brand was unknown. It is also a slow process. And while we chased customers between 2008 and 2012, we could see that the business wasn’t growing the way we wanted it to. It certainly wasn’t profitable and while most brands in India today are willing to sacrifice profitability for growth, we were not comfortable with this. There were also problems with our positioning, but I will come to that later.
First let me explain why working with some departmental stores didn’t work. They give a small two-metre space in their shoe retailing area and expect you to compete. If a rival brand drops prices, you need to do the same. During the end-of-season sale, they expect you to give heavy discounts and the brand takes the cut. The retailer margin stays the same. How is this a win-win relationship? As a result, we decided to get out of departmental stores. Reliance Footprint is the only store we continue to serve. (Disclaimer: Reliance Footprint is part of Reliance Industries, which owns Network 18, the publishers of Forbes India.)
During this period, while sales were growing rapidly, we were constantly trying to chase the mass market. We launched a women’s range with prices starting at Rs 799. While this led to volumes, profits proved elusive. These years also saw, what I call, the ‘sale culture’ coming into malls. By that I mean a situation where brands are on sale every three-four months. While this may be good for the customer, it kills our profitability. And once a customer realises a brand is on sale regularly, he will wait for the next round and not buy full-priced products.
So four years after entering India, we had a loss-making brand with a positioning that we didn’t want. (Pavers England invested Rs 115 crore in India.) We decided to completely reorient our strategy and this required turning the ship around. We decided we could not be all things for all people and that we weren’t a mass-market brand. It needed a product change and a culture change within the organisation. We also decided not to chase the ecommerce bandwagon. We sell only on Amazon.in. They buy the products from us outright and run only very selected discounts.
We decided that we were retailers and our sole focus had to be on the customer experience. Our customer is looking for well-trained, knowledgeable staff who will sell him a product that he genuinely needs. And, most importantly, he is willing to pay a premium price. We call this the “prestige premium” segment and it required us to change the products we stocked. Our women’s footwear is now four times as expensive and prices start at Rs 2,499. The average men’s shoe retails at Rs 5,500. Stuart Paver, our joint venture partner, is responsible for selecting every product that goes into our stores. At 55, he still works till 2 am with buyers in Guangzhou (China) selecting designs.
We rewrote the policy that defines the pillars of our organisation: Customer, employee and shareholder—in that order. Once that is clear, the path ahead becomes easier. We said that we wanted customers who would transcend generations. If you become a customer once, you are a customer for life. So now, every Pavers England shoe comes with a lifetime free service guarantee. Any customer can walk into our store and get the repaired shoe back within 21 days.
Building a Winning Culture
But the product is only one side of the equation. Getting the service right is even more critical and we realised the need to re-train all our staff. All the employees have to attend a mandatory 21-day programme at the Pavers Training Academy. In a customer-facing organisation, teaching staff how to deal with customers is key; we teach them a lot of softer skills—how to talk politely, how to make sure a customer does not walk out dissatisfied and so on. We had to build a winning culture within the company. Nowhere, and certainly not in India, does a culture change happen overnight and so these workshops will be an ongoing process. We introduced mystery shoppers who visit our stores and submit reports. The reports are visible to everyone in the organisation and if a store has two adverse reports, the concerned person is asked to leave.
The last change we introduced was in our corporate office. I looked at successful retailers the world over and saw that there was no head office culture. Everyone was either in the warehouse (that had the office) or at the store. We shifted our office from Mumbai’s Bandra-Kurla Complex to Bhiwandi, an hour North of Mumbai, where we had our warehouse. Now everyone sits there or at the stores. There was obviously some resistance and I held town hall meetings to address our employees’ concerns. I was asked, “Which company has its offices in Bhiwandi?” To which I replied, “Which retailer in this country is profitable?”
Every employee was interviewed again to see if they could align their thinking with the new goals of the company. A person might be a great salesman but he might not be a great marketing person. There were some who couldn’t and were gradually weeded out. Shifting to Bhiwandi was an issue for some employees and so the company took houses on long leases near the office. We also helped them with relocation assistance. In all this, we lost just one employee.
Having done this, where do we stand? Our goal is to be Ebidta-positive by the end of this financial year and to have 10 percent profit after tax (PAT) by March 2017. (Stuart Paver says he is 99 percent sure Pavers England will turn an Ebidta profit this year.) If that happens, we would be the first single-brand retailer to be profitable in this country.
Every employee has been told of this goal. Our store employees know that they have to show 15 percent same stores sales growth every year with a 20 percent margin. (After back office and logistics costs, it will result in a 10 percent PAT margin.)
Some people ask me if I had to shrink the size of my ambition to be profitable. I don’t agree. I would like to see where some of these players are when the private equity money runs out. People think that, in India, the revenue and profit curve will converge at some point when they have scale. That is incorrect. If you are not profitable now, there is no guarantee you will get there after achieving scale. And, in the bargain, you would have burnt a large pile of cash.
(As told to Samar Srivastava)