Case Objectives
(1) To teach Customer = You + Collaborators
(2) How JD and compensation of collaborators should be worked out
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Organization at the corporate level : Most companies cannot seem to find take a breather from their day to day operations and focusing on creating a new business. If the new business is diversification by nature, it becomes all the more difficult. That is why M&M group decided to create a separate company of the group called Mahindra Retail Private Limited funded by Mahendra Partners which is a PE fund. The company was set up in 2007.
Organization at the operating level
- CLT : CEO, EVP (Ops), EVP (Franchise), EVP (Supply Chain). EVP (Ops) handles the stores. EVP (Franchising) finds and inducts franchisees. EVP (Supply Chain) handles the back end
- Under EVP Operations are 4 regional heads. Under each regional head there are branch managers. Under a branch managers there are store managers. Under the branch manager there is a floor manager who is in charge of all customer facing activities. All administrative, financial, back end and liaison is done by the store manager himself. Under the floor manager are customer relations executives.
For 5 years the company opened their own stores called "Mom and Me". The company says it caters to the customers from -9 months to 9 years. It sells Breast Pumps, Tops and
Kurtas for the mother, clothes for the child, Creams and Ointments for the mother and child, Multi-piece Sets, Strollers & Prams, Car Seats for children, Safety Locks & Accessories, Baby Cots and cradles, Feeding Bottles & Nipples, Diapers, Soaps, Shampoos & Body Wash, educational Toys. The company sees itself as creating value by being a one-stop shop where all the needs are available under one roof. It sells its own brand called "Mom and Me" and also other leading quality brands.
Baby Furniture & Furnishings
Bath Hygiene and Skin Care
Clothing
footwear
safety essentials
swaddlers, pillows, sheets
Blouse
Bodysuits and Rompers
Bottoms
Dress
Gift Sets
Innerwear
Jablas
Multi-piece Sets
Night Wear
Occasion Wear
Shirts
Tees
Winter Wear
Diaper & Diaper accessories
Feeding Accessories
Footwear
Safety Essentials
Skin and Oral Care
Strollers, Car Seats & Outdoor
Swaddlers, Pillows & Sheets
Toys
They have dresses, rompers, bodysuits, jumpers and blouses and bottoms.
They have about a 100 stores which sell about 170 crores worth merchandise. About 1.7 Crores per year per store. About Rs 15 Lakhs per month or Rs 50000 per day. Average sale size is Rs 1000. They sell to about 50 customers per day. Conversion of walk ins to customers is 3: 1
The biggest costs are rental, manpower and utilities and are around Rs 150, 80 and 60 per square foor per month. A typical Mom & Me store is 2000 sf and the monthly costs therefore are Rs 3 L Rent, Rs 1.6 L Manpower and Rs 1.2 L Power bills. A total of 5.8 L cost. Sale is 15 Lakhs on which they earn 44% gross margin is Rs 6.6 Lakhs. They are breaking even. Just.
In order to expand the concept they decided to use the franchising route . On their own they found they cannot expand quickly (what was the constraint ?) So they started franchising in 2012 but the model did not work because they duplicated the own model : all investments came from franchisee. Out of 12, 3 resigned and 2 more are on the way. Obviously something was wrong.
Out of the sale, 60% was apparel for Mom & Me (what would it be for Mothercare or First Cry) and 40% was the other categories. Customers purchase apparel in a transactional way (without expecting consultation or without thinking about capabilities) but for the other categories they wanted discussion and advice.
Were the margins the same for both apparel and other categories ? For own label and other brands?
Overall what % Gross Margin exists for own brands and for other's brands. It must be varying from category to category. On clothes you need to give more margin because the sellers need to keep a lot of inventory because customers like to think that a lot of variety is stocked.
Problems with franchising
- High fixed cost : you begin profit only after fixed costs are recovered
- Shortage of what sells and excess of what does not :
cannot forecast, cannot supply reliably - Equal margins on all : it is not possible to incentivize specific areas
Twice in a year discount 40% to 50% off
The industry practice is that the stock to the franchisees is supplied on a consignment basis
Was there a minimum guaranteed amount to franchisees?
3 Levels : Do people really want "solutions?". They want outcomes? Solutions? Products ? When customers have no past experience, when they have no confidence in their ability to diagnose and judge, when the stakes are high, and when the customers do not have much time, they tend to go for solutions. Conversely if people have past experience, if they have confidence in judging what is needed, when customers have time to learn and try they may go for products.
We need to compare old model, new model, mothercare model, first cry model and unorganized model. What is the source of growth : to get customers from whom : Unorganized, Mothercare, First Cry, Amazon ? Where is the positioning statement (who is the target customer, what are they doing now, how your offer is better than what they are doing).
- I interviewed two mothers today. They said (1) Mom and Me prices are as high as Mothercare but Mothercare runs 50% discount twice a year (2) Mom and Me salespeople on the floor are all men (3) Unorganized sector as well as Mothercare has more variety (4) Mom and Me as well as Mothercare are both seen as "infant care" stores.
- It seems all items in Mothercare are branded Mothercare. I think all apparel in Mom & Me is branded "Mom & Me" but other items are branded as done by the marketing company. What does First Cry do?
- They cannot think of Mom and Me as going up beyond age 3-4.They also dont feel there is a need for "one stop shop" beyond 2-3 years of age. Their purchases seemed to be "transactional" and not much "consultative".
- You may like to compare marketing mix across 4 verticals (1) First Cry (2) Mom & Me (Old) (3) Mom & Me (Proposed) (4) Unorganized apparel stores.
- I am thinking of converting this into a case for teaching why external channel / franchising is needed. Is it OK with you ? Will you help me? Will I need to use hypothetical names or real ones?
