During a visit to China some time back, a vice-president – marketing, from India was talking to a local supplier for shop fixtures. The supplier enquired about the exact quantity needed.
“Fifty containers,” answered the V.P, a bit tentative for he wasn’t sure whether such a ‘huge’ order could be serviced by the supplier. He was, however, clearly under-prepared for the supplier’s answer. The supplier answered Fifty containers is too less and they are servicing requirements up to 200 containers and can take up this order of 50 in about six months. Returning from that meeting disappointed, but as luck would have it, the VP soon found another Chinese supplier who could meet his 50-containers requirement of fixtures, tilings, racks, cash tills and trolleys every quarter.
It is estimated that the quarterly supplies from China will continue all the way up to 2010-2011, in keeping with the Indian retailer’s aggressive roll out. At Subhiksha , another food and grocery format, China is the preferred destination for the chain’s fixture requirement. And Future Group, in fact, has an office in Guangzhou called Hole Well Ltd, which looks after sourcing from China: the group has imported furniture and fixtures for its lifestyle formats like Home Town and eZone, as well as for the value formats like KB Fair price shops.
In India, one is used to seeing the ‘Made in China’ tag on so many things that get retailed; now add retailing hardware to that list. In fact, Chinese retailing hardware (furniture and fixtures) is giving large Indian retailers a leg-up as they set up shop all over the country. CEO of Hypercity is very impressed by the cost effectiveness and efficiency in delivery.
The fixtures are prefabricated in their factories and assembled on site by their team in a matter of days. The large scale manufacturing capability of Chinese suppliers ensures both quick turn-around and good value pricing. Subhiksha, the chain is increasing its procurement from China for pre-fabricated fixtures.
It’s the ability of Chinese manufacturers to service the roll out of nearly 30 stores a month that clinched the deal. Only a country like China, with its manufacturing capability, can service the sheer scale of Indian retail operations. It’s available off-the-shelf. None of the Indian suppliers have the capability as of now. 90% of the capex requirement — right from vitrified tiles, trolleys, false ceilings, lighting and cash tills are procured from China.
The landed cost is cheaper from China than India and it is up to 30% more cost effective procuring from China when compared to any Indian supplier who can match in the bulk manufacturing.
Given the huge bulk orders, retailers are able to negotiate a competitive annual price with Chinese suppliers. Given the volatility in steel prices, the negotiation ensures that clauses are fitted in for any possible steel price hike, which insures the retailers from any rise in input costs which may inflate the selling price. Sometimes, the Future group works with the suppliers to look at ways of reducing fit-out costs. If it’s a lighting design, costs are kept in mind and discussed with suppliers to create customized cost-effective products. Fit-outs within a store comprise civil and interiors, furniture and fixtures, electricals and air-conditioning, visual merchandising and IT requirements.
Industry estimates put the fit-out costs to be around Rs 1,500 per sq feet, and furniture & fixtures account for nearly 20% of the fit-out expenditure. An estimated 100 million square feet of quality retail space is expected to be developed by 2007-08, and about 300 million square feet of additional retail space by 2010, ranging from malls to hypermarkets to neighborhood stores. Keeping projected retail space development for 2008 in mind, back-of-the-envelope calculations suggest the total fit-out expenditure to be around Rs 15,000 crore, which means furniture & fixtures alone would account for an impressive Rs 3,000 crore worth of business. Given such high capex incurred by Indian retailers, China with its humongous manufacturing hub, stands to gain.
However, the long-standing issue of poor quality of products procured from China continues to haunt Indian retailers. Now fixtures from China match international standards.
There are some good suppliers but one has to be on guard. One has to go there from time to time to check whether what we have ordered is what is been supplied. Although China may have the manufacturing muscle, the industry there lacks in design capabilities. With European suppliers, one is assured of design as well as quality of supplies. With the Chinese, one has to give the design for them to mass produce.
One way or the other, the Chinese dragon is increasing its presence in Indian retailing. And while issues such as low quality and lack of design competencies are likely to crop up from time to time, Chinese suppliers’ capability to deliver in scale is clearly working to their advantage.