Phoning frenzy

From his head office in Nagpur, Vijay Singh is planning a whirlwind tour of Western and Central India. The last year had been one of phenomenal growth for Mobile Magic, the one stop mobile retail format which he started three years ago, with two of his friends.

Today, with more than 70 stores in four states and counting, Singh’s schedule is a hectic combination of franchisee meetings, expansion planning and fielding potential investors’ phone calls.

“From private equity to strategic investors to business houses, enquiries are just coming in,” says Singh, who is quite clear that he’s not looking at divesting just yet. “Strategic investment, yes, but no relinquishing majority stake now. The growth story is just beginning,” he says.

His enthusiasm is shared by other players in this fast-growing segment. In Mumbai, the RPG group, which has tied up with Cellucom is in the race to roll out stores across India. Sunil Bhagat, CEO, RPG Cellucom, says that this is the most exciting phase of the telecom business — and he’s been a part of it since the early days of the telecom revolution in India. “It’s a healthy business case. We are looking at breaking even in three years,” says Bhagat.

Singh and Bhagat are not alone — Essar, BK Mody group, Future Group and Subhiksha also figure on this list and everyone here is looking for a share of the Rs 70,000 crore market — which includes handsets, accessories, technology and airtime.

Fuelling the expansion is the high octane growth in the mobile user base, expected to touch 200 million subscribers by the end of the year, with estimates of 500 million by 2010. And with customers looking at upgrading every second month, a one stop destination for mobile telephony is what these players are aiming at.

“It’s the benefit of scale which we bring to our customer,” says Rajiv Agarwal, CEO, Essar telecom retail, which launched The Mobile Store and is pumping Rs 1,200 crore towards its expansion. The strategy involves creating different formats, each based on different audience profiles.

“Lower the age, faster the upgrades. Buying a new handset is a greater priority because it’s a fashion statement,” says Bhagat of RPG Cellucom summing up the changing scenario. At the moment, the experience in terms of range, depth, services and ambience provided by each retail format may look same, however players believe the market is under-penetrated and there’s scope for many more.

One example is Future Group’s mobile retailing venture, ConvergeM, which has three verticals, M-Bazaar, Gen M and M-Port. Malini Chopra, head, ConvergeM says that mobile retailing is no different from other segments — one needs to address the consumption needs of different customer sets.

M-Bazaar, which is part of the flagship Big Bazaar format, is positioned as a value format. “The value is in terms of bundling, like gift vouchers or a can of Coca- Cola free with re-charges. The customers at M-Bazaar are new entrants, low end customers or referral customers,” she explains.

Gen M format focuses on the top 30 latest mobile phones and accessories, M-Port is pegged as the lifestyle format catering to the needs of customers beyond telecom. “Mobile music, iPods, MP3, the format will cover the mobile office as well as the mobile entertainment needs,” she adds.

Retail formats are looking beyond handsets, tariffs, accessories, downloads and technology; handset servicing is one such focus area, with even manufacturers pitching in to train staff, says Chopra. The Mobile Store is experimenting with mobile content and has set up around 100 touch screen kiosks within their stores.

While Agarwal believes there’s definite potential, it’s still at an experimental stage now. “So far content has been driven by mobile operators. But we need to see whether these services can drive footfalls into the store.” Singh of Mobile Magic has tied up with Hungama for content offering like Memory cards.

“Value adds like EMI calculator software for phones has been developed internally. Technology is one of the major planks to not only create differentiation in terms of brand building but also to scale up the business,” explains Singh.

It’s not only the end users who are bullish on the advent of organised mobile retailing in India. For brands like LG, Samsung and Motorola, it’s a much needed platform to stand against Nokia, which according to market estimates enjoys nearly 75% share in GSM phones.

With its well established distribution network and top of mind recall, Nokia has put up strong entry barriers, but the emergence of a new channel has given competition a way in. “Now, other players are getting a platform to showcase their entire range unlike the unorganised market which will only stock the fast moving models,” says Bhagat. It is this opportunity which players like LG and Motorola are looking to tap to the fullest.

“Whenever there is domination by one seller, a new configuration acts as a leveller for others to come on par with the market leader. As a player, we get an equal share of voice,” says Sandeep Tiwari, head – marketing, LGEIL.

Sutikshan Naithani, VP- sales and marketing, Samsung Mobile, agrees: “Because of the sheer size of the format, each brand can demonstrate its strengths. Consumers can then decide on the basis of features and price points.”

With retail chains growing in scale, manufacturers are giving them their due —companies like Motorola and Nokia are setting up dedicated teams to service these new formats. Sunil Dutt, director – sales, Nokia India, says that across India, the contribution of organised retail is still minor, given that the segment is still evolving.

However, in major metros like Delhi, the retail chains contribute around 10% to the total turnover. But that’s going to grow, says Dutt. And of course, the requirements of each format are different.

“Some of them will require servicing at central or state level, while some will want servicing down to each store. So dedicated resources are necessary to service these models,” he explains. Lloyd Mathias, head – marketing, Motorola, says given the scale, players expect a better level of servicing from companies.

With a national level team of six people reporting directly to sales, Mathias says aspects like staff training, centralised buying, customised merchandising and joint on ground marketing and promotional activities are all being handled by the team.

“These stores are evolving from pure purchase to an experience enabler. It’s in these formats that very specialised services like getting your name etched on your phone, applications, ring tones and game downloads is possible,” says Mathias.

With each player expanding their operations, marketers are playing the wait and watch game when it comes to pricing. As is the case with retail operations in other segments, the scale achieved by retailers will enable them to negotiate better trade margins. “The margins vary from 4% to 11%. As our volumes grow the margins become better.

Overheads get discounted from the special deals,” says Bhagat. Agarwal of Mobile Store says that the negotiation power comes from what the format has to offer to the brands. “I sell the products on features, rather than pricing.

So I help them get a higher average selling price. So it’s natural for me to expect a better margin as I have made the investment,” he states. Naithani says given the cost of operation of the retailers, they can demand a differentiated margin structure.

“One will have to look at them differently in terms of pricing and servicing,” he says. According to Dutt, negotiations on pricing are common irrespective of the channels, but what Nokia is hoping to achieve with the organised chains is to look at synergies. “The relationship is less to do with pricing, discounts and margins, but more of looking at opportunities to leverage the platform for mutual benefits,” says Dutt.

Given that this virgin territory is up for grabs; all these challenges are being addressed with enthusiasm. A quick calculation indicates that this year alone, existing players will be pumping in close to Rs 3,000 crore in retail expansion.

For the retailer, the main focus will be drawing footfalls to their respective brand, while for companies it’s all about learning to co-exist with a new retail animal. Consumers though are definitely not complaining, for them, the more the merrier.