Final Retail Report 2nd Draft

5/19/2012

MUHAMMAD AHMED ANJUM | SHOAIB HASSAN | MOHSINALI SADIQ

RETAIL MANAGEMENT TERM REPORT“HIGH END MODERN TRADE – FASHION

INDUSTRY”

Table of Contents

INTRODUCTION..............................................................3

High End Modern Retail Outlook – The bright side..........................3

Current High End Modern Retailers.........................................4

Business Sample...........................................................5

Khaadi....................................................................5

Operations..............................................................5

Locations...............................................................6

Type of Format..........................................................6

Employee Type and Density...............................................6

Merchandise Type and Density............................................6

Product Offering........................................................8

Retail Space............................................................8

Amir Adnan...............................................................10

Operations.............................................................10

Store Location.........................................................11

Employee Type and Density..............................................11

Merchandise Type and Density...........................................11

Retail Space...........................................................12

Historic Perspective.....................................................14

Problems.................................................................16

Qualified HR...........................................................16

The Need for an Industry Association Run By A Fulltime Board...........16

Me-too.................................................................17

PR Problems............................................................17

Conclusion...............................................................18

INTRODUCTIONThis project builds on the previous assignments on fashion retail by the student group. Previously, the team had studied

the business models of StoneAge and Ego. Using the same method, the team studied the businesses of Amir Adnan and Khaadi.

Rationale for this approach was that it allowed the student group to have a sizable sample size. Also, the four businessesstudied are representatives of massive change in the industry over the past two decades.

HIGH END MODERN RETAIL OUTLOOK – THE BRIGHT SIDEHigh End Modern Retailing in Pakistan remains highly fragmented and is dominated by small number of national brands, which compete within their own geographic areas in terms of price, personal relationships and product ranges. Butnow, we are seeing a growing number of large retail brands opening multiple new stores every month, especially in the major cities where there is a higher concentration of middle and upper-income consumers. Despite the challenges, Pakistan has a great market potential still waiting to be discovered.

Changes have occurred over the last decade in the for High EndModern Retail sector in Pakistan such as new global brands entering the market, large scale shopping malls opening up andseveral local retailers getting more organized and growing significantly more than the rest of the pack. These trends arelinked to the broader socio–economic changes, including growthin the urban middle class and disposable incomes of certain segments in the market.

The bigger players have been able to achieve significant salesgrowth by creating superior products and brand differentiations and implementing superior processes and technology infrastructures. In the past, consumers did not have many choices in terms of products or shopping experiences. Nowadays retailers, both local and global, are setting benchmarks of superior product quality and customer service. In order to compete the smaller players would have toimprove their offering and service. Due to the growing

fragmentation in the consumer market there is still a lot of opportunity. It’s a matter of finding the right customer segments for your brand and targeting them accordingly. Overall the majority of the retailers welcomed the growing competition from both local and international brands as they see this as a positive for the industry than as a threat to their individual brands. Interestingly, a couple of retailers even admitted to seeing a surge in sales despite the success of competing brands.

CURRENT HIGH END MODERN RETAILERSBelow is the list of some renowned high end modern retailers present in Karachi

- Khaadi- EGO- Stone Age- Amir Adnan- Timber Land- Debenhams

BUSINESS SAMPLEThe following sections cover Khaadi and Amir Adnan only. StoneAge and Ego have been covered in the previous assignment and thus are not a part of this report. However, a table of cross-business analysis is at the end of this section.

KHAADI

Khaadi came into existence with the idea of reviving the craftof hand-woven fabric in 1998. In its six years of presence in the market, Khaadi has made its own niche with its large palette of colors, finesse of the hand-woven fabric itself andan overwhelming range of products. From a small number of weavers, Khaadi has now expanded manifold, with numerous able hands crafting a wide array of products.

OperationsKhaadi has its own dyeing unit, where all the griege thread isdyed to keep the quality of the thread upto the mark. Khaadi has an in-house stitching unit as well, which facilitates the designers to create new designs in the products. Khaadi has a fully equipped design studio, with a team of highly trained designers, who make sure they bring out the best in their work, in order to make their products stand out. Khaadi has five shops in three major cities of Pakistan, making it the

only brand which offers hand-woven fabric and other products nationwide.

As Khaadi produces every product on their own factory, the only thing they require is the basic raw material to make all these products especially thread sequins. Khaadi's warehouse is next to its factory in the SITE area. After production, goods are further checked and if there is any default or any problem it is corrected on the spot before further problems occur after the order is made. After the QC, merchandise is tagged. Their price tags include the product name, product code, its price, sales tax and final price after addition of sales tax. Unstitched suits are sent to the outlet without anyplacement of order, as soon as some new design or color is produced. For the rest of the products, warehouse managers useFIFO (first in first out) technique so that the merchandise isn't outdated.

LocationsKhaadi is present in the following cities:

- Karachi - Zamzama, Park Towers and KDA- Lahore- Islamabad

Type of FormatKhaadi can be described as a specialty store since it focuses on one type of merchandise i.e. khaddar. Their competitive advantage is their new range of products, which are handwoven and act as a base line for creating a product differentiation.

Employee Type and DensityThe employees at Khaadi are skilled. Each level has at least one employee on duty and when the customer flow is high at onelevel, more staff moves to that particular floor to serve the customers.

Merchandise Type and DensityAs it is an exclusive store providing unique products, therefore, the density of the products is very low. Limited merchandise is available in all categories as described in themerchandise hierarchy. This exclusivity is one of the reasons for higher margins as well.

Product OfferingFollowing is the product offering of the brand:

- Clothing – made from silk, cotton and cotton-mix. In winter they sell a thicker form of khaddar. For men, the variety is not that vast.

- Table and bed linen- Accessories

- Hand woven and embroidered handbags- Scented candles- Diaries and folders- Hand woven rugs

Retail SpaceThe retail space comprises of partial wood floorings and shelves. The walls on every floor are of different colors. Each shelf displays a unique item and overhead lighting completes the overall look. Several items are also seen through an open-window display. The ambiance has a traditionaltouch yet it is sleek.

Coordinated displays can be found specifically in the table and bed linen area where a set of merchandise for tables and beds is available in different sizes and colour schemes. Ladies Garments which are made up of three-piece suits and areavailable in dark and bright colours are displayed on rods. Inthe middle of the ground floor there are free stands, which display merchandise on stooping rods

The basic store layout is on a free-flow format but the layoutplan of every level at the Zamzama outlet is different; the table and bed linen section has a spine layout, whereas the men garment's section has a herringbone format. The women's wear section has a free-flow format. The hot spots in Khaadi are the ladies garments as its main customers are women. The warm spots are the table and bed linen areas where accessoriesand other impulse purchase items are kept. The cold spot is the men garments area where men are not being catered to like other retail outlets such as men's designer wear which deal exclusively with the gender.

AMIR ADNANWhile experimenting with diffusion to fit the demands of a contemporary market, the name of Amir Adnan has always been associated with quality and elegance, their forte deeply rooted in traditionalism. Amir Adnan, the name behind the label, supervises the entire team of designers to maintain standards. After making his mark in the Pakistani market, he has now taken his company into the international market with carefully designed exports. Amir Adnan is the first company tostep out with up-market, high quality couture, produced in small and exclusive volumes. Today, almost two decades later, Amir Adnan's design philosophy has evolved clearly, making itself permanently on the map. His is the largest enterprise of designer clothing in Pakistan.

Amir Adnan is able to provide value proposition to their customers by the help of their state-of-the-art embroidery andmaterial. As quoted by Mr. Amir Adnan himself, "I take exquisite elements of our culture and synchronize them on modern silhouettes-while ensuring that the price points back at the product!" So, giving the customers value for their money is a top priority for Amir Adnan. Furthermore, they believe that by creating a strong brand name in the minds of the customers, they are able to create a distinct image of their brand in their minds.

OperationsAmir Adnan is a small manufacturing concerns producing approximately 200 different items of branded men’s wear a day.The daily production varies from casual daily wear, formal office attire to heavily embellish formal or grooms wear. AmirAdnan follows an open-to-buy plan, which helps them to projectand control future buying so that sales meet anticipated demand. Even so, the demand of products is greater than the supply. OTB helps them to have an ideal amount of raw

materials. A back-up plan is also available if there is any delay in the delivery of the required materials.

Their planning differs according to the season. The highest sales are during the month of December as it is wedding seasonand with changing trends, April, May and June are now busy months too. So Amir Adnan comes up with the most unique designs of sherwanis as well as a wide variety of turbans. They have monthly forward sales planning which helps them to respond to changing trends.

Store LocationAmir Adnan's outlet is at the ground floor of Park Towers. Itslocation in a shopping mall ensures existing mall traffic. Themall has large parking area and a clean environment. The outlet of Amir Adnan at Park Towers is rental. The customer flow on weekdays is 5 to 10 customers whereas on weekendsit's 10 to 15 customers. The ratio between potential customers and browsers is 40% to 60%.

Employee Type and DensityAmir Adnan has four employees working at their outlet. Out of these four employees, one is the manager. They provide on-job training to the salesperson under the guidance of the outlet manager. The dressing of the employees is formal. Salesmen arenot allowed to wear casual clothes at the outlet. The educational criterion in hiring of salesperson is at least intermediate.

Merchandise Type and DensityThe category of the merchandise is basically clothing for men.Amir Adnan's merchandise is narrow in product line but with a good depth. They specialize in couture products. The merchandise range varies from ties to sherwanis. They also have a variety of shalwar kameez for kids ranging of ages 1 to14. A complete range of men's clothing is available in all sizes. All their merchandise is on display in all available sizes.

Retail SpaceThe entire outlet is carved wooden work giving an exclusive look to the space. The outlet has mannequins for displaying merchandise. The shop has air fresheners to maintain a pleasant and fresh odor. The combination of fixtures, colors, display presentations, graphics, lighting and the entire themecreates an everlasting image of the store.

Amir Adnan's displays include exterior and interior displays of the outlet. Amir Adnan has an exclusive window display withclosed backdrop. The displays are organized to follow a seasonal theme. The freestanding displays at Amir Adnan display the latest arrivals at the store. They change displaysafter every two days. There are three mannequins in the outlet. Cascade and waterfall displays at Amir Adnan are present in the entire store. Almost all the merchandise is displayed in this fashion.

Amir AdnanStaple GoodsCouture wearAccessories like Turbans and khussasConvenience GoodsKameezainKurta Shalwar SuitsImpulse Purchase MerchandiseTiesShirtsKurtiyan

Overview of Businesses in the Sample

Business –Category Amir Adnan Khaadi Ego StoneAge

Target Market

Men, boys, children; From ages 1and upward;SEC A+, A

Men, Women,Age 18-50, SEC A+, A, A-

Urban Women; Age 22-32; SEC A+, A, A-

Young men and women; teens, 20s and 30s, SEC A+ to B(Factory Outlets)

Merchandize

Clothing for men - Sherwanis. Also have avariety of Shalwar Kameez for kids ranging of ages 1 to 14. Range ofMen's clothing available in all sizes. AlsoAccessorieslike footwear and headwear. Ties shirtsand kurtis

Men's wear,bed linen, table linen, Handwoven and embroideredhandbags,Table and bed linen, Scented candles, Diaries andfolders, Hand woven rugs, bed linen, ladies garments,

Kurtis, Pants and Lowers, Wraps, Tights, Denim Churidaar,Shirts (Slim and Aisle fitting)

T-shirts, Shirts, Jackets, Sweaters, Jeans, Pants, Shorts, Skirts, Shoes, bags, shades, belts

Material VariesSilk, Cotton, PolyCotton

Varies Varies

MerchandizeDensity

Designs available in all sizes but

Very Low - Exclusive

350 pieces per design;22 designs per month

200 designsin all categories;15-20

low quantity – can be madeto order

designs percategory;

CompetitiveAdvantage

Couture Wear, ValueAddition, Special Embroidery

Range of handwoven products

Casual Trendy, Positioned for the Modern Pakistani Woman

Casual Trendy, Western, Hip, High Variety, One stop shop for apparel

Price High Markups Reasonable Reasonable Varies

Retail Space

Cascade andwaterfall displays, effective window display, ambient music, space carved out of wood,

wooden antique door at theentrance,

Clean, thrift and rustic. Vibrant look with the use of colors and the lighting, simplistic setting with the latest designs either displayed in the window or hung on hangers or folded in shelves.

Compact space, separate sections for men andwomen, veryrugged and rough ambience with shelves, mannequins and hangersand displays

HISTORIC PERSPECTIVEAmir Adnan is credited with the revitalization of eastern wearfor formal and informal setting. During the early 90’s when the norm dictated the groom wears a three-piece suit, Amir Adnan brought back Sherwani as Couture with emphasis on embroidery, design and fitting. This marked a massive change in the industry’s approach to fashion in general. It also introduced the concept of proper branding in couture.

Next came Khaadi in the late 90’s. Before the brand emerged, Shalwar Kameez had been declining in popularity with their uselimited to Fridays and Eids.The brand reiterated the concept of shalwar kameez as smart and flamboyant evening wear. The distinguishing characteristics its product were the vibrant colors, simple design and handwoven fabrics which have a softer feel. The success story of Khaadi further consolidated the importance of brand and later inspired the likes of JunaidJamshed and Humayun Saeed to pursue and commercialize shalwar kameez as informal and formal wear.

The next brand to have a significant impact on fashion retail is Ego. The brand took the concept of fragmentation to a new level by targeting women of a particular mindset. With emphasis on trendy, hip clothing which was a fusion of east and west, Ego identified the most profitable niche.

Next in line was StoneAge. In 2006, the brand backed by Crescent Bahuman brought back commercialism by targeting the youth with trendy casual wear. Youth accounts for more than 50% of the Pakistani population. StoneAge became the one-stop-solution of casual wear for people in their teens, 20’s and 30’s.

Tim eline

1990 –Am ir Adnan

1998 –Khaadi

2005 –Ego by AadilM oosajee

2006 -StoneAge

Revitalization of a traditional garm ent into a viable fashion

Revived hand-woven trend with dazzling spread of colors, textures and styles in the purest cottons and Silks and im m ediately claim ed a Niche clientele

Localized Casual ApparelBrand with such a m assiveIm pact

Hip and trendy clothingFor W om en. Com binationOf eastern and western

PROBLEMS

Qualified HR They were a lot of issues that various leaders raised such as lack of retail expertise, tax evasion, limited infrastructure and systems etc. But one issue, that was claimed to be the biggest hurdle for retail growth, was the lack of qualified human resources especially in back offices. In the interviews a lot of retailers mentioned improving inventory management and increasing customer wallet as one of their biggest challenges. Though they admitted lack of world class processesand IT systems was one of the reasons for this but the core problem was the shortage of properly trained employees, who could actually use these processes and systems to drive growthfor them. Interestingly the retail leaders believed that establishing a retail institution or introducing retail related courses wouldn’t entirely resolve this issue. They wanted more people, especially from the younger generation, tochoose retailing as a career. A lot of the retailers claimed to be offering base salaries, benefits and career growth with opportunities at par with the rest of the industries yet graduates considered other industries such as banking, engineering, FMCG’s etc to be better career options

The Need for an Industry Association Run By A Fulltime BoardThere always has been awareness in the for High End Modern Retail community about formally forming a retail association, which would work in the collective interest of the industry and focus on solving their common problems. A couple of retailers mentioned the forming of a few segregated groups, which at times emerged in the past to resolve one time issues,such as increased sales taxes. But these groups tend to dismantle with time due to everyone’s busy schedules. Everyoneadmitted this being as a result of lost focus due to everyday “fires” in their own businesses.

A solution is perhaps to follow the example of other industries such as IT where the head of an industry association is a full time paid employee. Solving issues mentioned above requires full time dedication and perseverance. Not only such an association would have to bringretailers together but other organizations in the ecosystems such as suppliers, universities, consultants etc as well. Everyone in the value chain would have to contribute to ensurethe continued growth of the industry. There were many discussions around this topic and hopefully we would see something concrete around this in the upcoming months.

Me-tooInvestors seem to be attracted to the businesses that have already rolled out successfully and have very little room for new entrants. An example of this phenomenon is the Lawn business where each season, several old horses of the industrytry to tap the local market with their brands. Rather than taking the path of entrepreneurship and offering something new, people with the finances like to bet on proven businesses. Besides following in the footsteps of these businesses, the wealthy investors tend to resort to the same marketing plans involving exhibitions and OOH advertising. This “me-too” business philosophy ends up diluting the business potential of a model.

PR ProblemsFashion industry of late hasbecome a target of socialgroups which question themethods of product promotion onreligious and social grounds.This is a recent initiativetargeted specifically at lawnmanufacturers but has an impacton the entire local fashionretail industry.

CONCLUSION Despite political uncertainty and economic turmoil, experts believe that the outlook for High End Modern retail in Pakistan remains positive. At the same time there are a lot ofunique, industry specific challenges such as lack of quality human resource and limited infrastructure which are slowing down the growth of the industry as a whole.

There is a huge opportunity in the market for both the existing players and the new entrants. The key is it to identify the right focus area for your business, in terms of consumer segments, and go about it in an organized fashion.

Moreover, there is a high level of awareness and consensus on all of the key industry challenges amongst the leadership of various retailers, which is a positive start. The next step now is to formalize a sustainable game plan to solve these challenges through a common platform so that the impressive growth of the retail industry could be sustained or even accelerated.