Factory outlets generating twin profits

Factory outlets generating twin profits  (unit 4)

A huge warehouse selling surplus, second and out-dated stocks is what you see in a factory outlet. Factory outlets sell excess or previous stocks at reduced prices. Retailers today are utilising the concept of factory outlets via franchise route.

Elaborating on the concept of factory outlets NP Singh, Director, Samsonite says, “Factory outlets keep only the liquidated products. These products are not in regular line and through the concept of factory outlets; we flush them out off the system to create space for the latest products.”

Franchising has further added to the concept of factory outlet.. Through franchise route, franchisor not just makes profit for himself but also provide an opportunity to the aspiring entrepreneurs to join hands and gain a fair share of the pie.     

EBOs/ MBOs versus factory outlets

Opening of a franchised factory outlet is not that easy as opening an Exclusive Brand Outlet or a Multi Brand Outlet. This is because of the following reasons:

·Products lines: EBOs and MBOs represent the regular and fresh stocks of the brand, whereas the product line which is sold in factory outlets is either damaged or out-of-date. For instance, the business in footwear industry is all about sizes and colours. As it is not necessary that all the fresh arrival be sold in one season, therefore the company has to get rid of the unsold stuff. Similarly, the apparel industry of India is witnessing rapid changes in the styles and seasonal colours that one has to dispose off, if left unsold.  

·Location: An utmost important factor in getting started with a franchised factory outlet is its location. This is because a factory outlet cannot be launched anywhere. Normally, these factory outlets are situated in out-of-the-way locations, along the highways, and areas with low penetration of branded outlets. As Singh says, “The factory outlets should be located primarily in an area where some factory outlets are already operating and where the customers are looking for value for money.” He further added that starting a factory outlet in an area like ‘Connaught Place’ would be a disaster as it is the place of brand positioning and brand marketing. If customers are willing to spend money on branded products than there is no point offering them liquidation products.

Who can take up the franchise of a factory outlet?

The eligibility criteria for selecting a franchisee for a factory outlet are quite similar to that of a normal outlet. The investment is almost same as required in opening an EBO. For instance, Samsonite requires an investment of Rs 15 lakh for taking up the franchise of a factory outlet. As per Singh, “We look for people from any background, as the location is an important thing, and necessary for the success of the factory outlets.” 

Steps to success 

Besides the location, there are other factors that contribute towards the successful operations of a franchised factory outlet. These include competition, stocks update and pilferage. 

·Competition in the area: Understanding of the local competition and the presence of other brands in the same area can help in learning new tactics to raise the sales. In franchising, the franchisor makes full use of the franchisee’s knowledge of the local market in order to generate maximum profits.

·Regular stock takes: Though factory outlets sell the old outdated merchandise still the regular change in stock takes place, it is essential for every kind of retail business as it ensures the regular footfalls at the factory outlets.

·Avoid pilferage: In order to make profit out of the factory outlet concept, it is necessary for a franchised owner to avoid pilferage that can eat up the profit. As Kapil Prakash, franchisee, Reebok (factory outlet) says, “If the pilferage is high then you may end up in losing money rather than earning profit. So, as a franchisee you need to keep a check on it to ensure the smooth running of the franchise.”

In nutshell, the idea of franchising the factory outlets is the best way to flush out the unwanted stock, while at the same time upgrade the profit margin.

The old merchandise in retail stores gives way to new merchandise at the end of every season. Offloading the out-dated goods from retail stores, making an inroad for new merchandise, retailers are increasingly opting for factory outlets. Franchising these factory outlets is however, serving the two way purpose of these retailers: one the old merchandise is sold off at discounted prices, second high benefits generated through franchising these outlets.

 Emergence of factory outlets

Selling off the damaged or outdated products has always been a nerve-wrecking task for a retailer. However, the retailers can liquefy their obsolete products on discounts to those consumers who want to get branded stuff at reasonable rates. And to get benefited from it, some smart entrepreneurs have started franchising their factory outlets. This article gives an insight of how franchising a factory outlet can be a profitable idea.  

Elaborating on the concept of factory outlets NP Singh, Director, Samsonite says, “Factory outlets keep only the liquidated products. These products are not in regular line and through the concept of factory outlets; we flush them out off the system to create space for the latest products.”

Franchising has further added to the concept of factory outlet.. Through franchise route, franchisor not just makes profit for himself but also provide an opportunity to the aspiring entrepreneurs to join hands and gain a fair share of the pie.     

 EBOs/ MBOs versus factory outlets

Opening of a franchised factory outlet is not that easy as opening an Exclusive Brand Outlet or a Multi Brand Outlet. This is because of the following reasons:

·     Products lines: EBOs and MBOs represent the regular and fresh stocks of the brand, whereas the product line which is sold in factory outlets is either damaged or out-of-date. For instance, the business in footwear industry is all about sizes and colours. As it is not necessary that all the fresh arrival be sold in one season, therefore the company has to get rid of the unsold stuff. Similarly, the apparel industry of India is witnessing rapid changes in the styles and seasonal colours that one has to dispose off, if left unsold.  

·     Location: An utmost important factor in getting started with a franchised factory outlet is its location. This is because a factory outlet cannot be launched anywhere. Normally, these factory outlets are situated in out-of-the-way locations, along the highways, and areas with low penetration of branded outlets. As Singh says, “The factory outlets should be located primarily in an area where some factory outlets are already operating and where the customers are looking for value for money.” He further added that starting a factory outlet in an area like ‘Connaught Place’ would be a disaster as it is the place of brand positioning and brand marketing. If customers are willing to spend money on branded products than there is no point offering them liquidation products.

Who can take up the franchise of a factory outlet?

The eligibility criteria for selecting a franchisee for a factory outlet are quite similar to that of a normal outlet. The investment is almost same as required in opening an EBO. For instance, Samsonite requires an investment of Rs 15 lakh for taking up the franchise of a factory outlet. As per Singh, “We look for people from any background, as the location is an important thing, and necessary for the success of the factory outlets.” 

 Steps to success 

Besides the location, there are other factors that contribute towards the successful operations of a franchised factory outlet. These include competition, stocks update and pilferage. 

·     Competition in the area: Understanding of the local competition and the presence of other brands in the same area can help in learning new tactics to raise the sales. In franchising, the franchisor makes full use of the franchisee’s knowledge of the local market in order to generate maximum profits.

·     Regular stock takes: Though factory outlets sell the old outdated merchandise still the regular change in stock takes place, it is essential for every kind of retail business as it ensures the regular footfalls at the factory outlets.

·     Avoid pilferage: In order to make profit out of the factory outlet concept, it is necessary for a franchised owner to avoid pilferage that can eat up the profit. As Kapil Prakash, franchisee, Reebok (factory outlet) says, “If the pilferage is high then you may end up in losing money rather than earning profit. So, as a franchisee you need to keep a check on it to ensure the smooth running of the franchise.”

In nutshell, the idea of franchising the factory outlets is the best way to flush out the unwanted stock, while at the same time upgrade the profit margin.

Reverse logistics: An overview

Reverse logistics stands for all operations related to the reuse of products and materials. It is "the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. More precisely, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Remanufacturing and refurbishing activities also may be included in the definition of reverse logistics."The reverse logistics process includes the management and the sale of surplus as well as returned equipment and machines from the hardware leasing business.

Normally, logistics deal with events that bring the product towards the customer. In the case of reverse, the resource goes at least one step back in the supply chain. For instance, goods move from the customer to the distributor or to the manufacturer. Under normal circumstances when, say, in case a new laptop turns out to be defective, the consumer would return it to the retailer, who returns it to the distributor, who in turn gives it back to the manufacturer. This causes consumer dissatisfaction, cash lockdown for the retailer, and a rise in the distributor’s inventory. This is where a reverse logistics company steps in to reduce the time and cost involved in the backward chain.

Only a handful of specialists, such as New Delhi-based RT Outsourcing, Kolkata-based Aforeserve.com Ltd, and Yantra Solutions Pvt. Ltd, the India business of Massachusetts-based Yantra Corp., are active in the business. Wipro Technologies, India’s third largest software services provider, has its own reverse logistics division.According to Chaturvedi, in India, aftermarket returns that form part of the reverse logistics industry are estimated at $10-15 billion.Aftermarket is the secondary market that supplies accessories, spare parts, second-hand equipment, and other goods and services used in the repair and maintenance of returned products.In contrast, the logistics industry contributes around 13% of India’s $1 trillion gross domestic product (GDP).

Business Implications

In today's marketplace, many retailers treat merchandise returns as individual, disjointed transactions. "The challenge for retailers and vendors is to process returns at a proficiency level that allows quick, efficient and cost-effective collection and return of merchandise. Customer requirements facilitate demand for a high standard of service that includes accuracy and timeliness. It’s the logistic company's responsibility to shorten the link from return origination to the time of resell. By following returns management best practices, retailers can achieve a returns process that addresses both the operational and customer retention issues associated with merchandise returns. Further, because of the connection between reverse logistics and customer retention, it has become a key component within Service Lifecycle Management (SLM), a business strategy aimed at retaining customers by bundling even more coordination of a company's services data together to achieve greater efficiency in its operations. Reverse logistics is more than just returns management, it is "activities related to returns avoidance, gatekeeping, disposal and all other after-market supply chain issues".Returns management – increasingly being recognized as affecting competitive positioning – provides an important link between marketing and logistics. The broad nature of its cross-functional impact suggests that firms would benefit by improving internal integration efforts. In particular, a firm's ability to react to and plan for the influence of external factors on the returns management process is improved by such internal integration. Third-party logistics providers see that up to 7% of an enterprise's gross sales are captured by return costs. Almost all reverse logistics contracts are customized to fit the size and type of company contracting. The 3PL's themselves realize 12% to 15% profits on this business.

Return of unsold goods

In certain industries, goods are distributed to downstream members in the supply chain with the understanding that the goods may be returned for credit if they are not sold. Newspapers and magazines serve as examples. This acts as an incentive for downstream members to carry more stock, because the risk of obsolescence is borne by the upstream supply chain members. However, there is also a distinct risk attached to this logistics concept. The downstream member in the supply chain might exploit the situation by ordering more stock than is required and returning large volumes. In this way, the downstream partner is able to offer high level of service without carrying the risks associated with large inventories. The supplier effectively finances the inventory for the downstream member. It is therefore important to analyze customers’ account for hidden cost.

E-waste and its disposal

E-waste refers to discarded electronic and electrical products. Reverse outsourcing could also receive impetus from government efforts to reduce e-waste that’s piling up as companies and consumers replace products ranging from mobile phones to computers that are becoming obsolete more rapidly.

The Union ministry of environment and forests is on the verge of finalizing one of the most stringent e-waste disposal regimes in the world that will make manufacturers of products personally liable if they don’t have environmentally safe procedures for the disposal of e-waste in place, The Economic Times reported last month. “So for entrepreneurs who are focused on this, it’s going to be a huge opportunity,” he said.Future Group, which runs a number of retail chains across product categories including Big Bazaar, started reverse logistics in-house two years ago.

It was also the first retailer in India to start such a unit and is considering offering its expertise to other retailers. The group currently offers product return facilities in its fashion and furniture businesses.

Average spending on reverse logistics is about 10-15% for garment firms and about 20% for furniture companies, according to Anshuman Singh, managing director and chief executive officer of Future Logistic Solutions Ltd.

“It is a very tedious and specialized job and not every retailer can do it,” Singh said. “As we already have our warehouses and other facilities, we plan to offer reverse logistics to other retailers as well.”

Conclusion-

Reverse logistic is sunrise industry within logistic industry.Marketers of electronic goods and garment industry are recognizing the importance of reverse logistic in their overall supply chain management.Thanks to rise of reverse logistic which has touched common man.Now consumer have got option of disposing their used electronic goods and items profitably.

Changing Face Of Supply Chain Mgmt

Consumer is king. But what does he want? And how much? FMCG cos are coming up with formulas to crack the demand-supply code to make their new products a hit with customers. At the heart of this lies a revamp of the supply chain network to make it more demand-driven

   Forecasting, they say, is an inherently erroneous business. When a fast-moving consumer goods (FMCG) player plans a new product launch based on its estimation of the demand and consumer preference, the company assumes that the product would click with the consumers after it travels the length of the supply chain. It then does some number crunching and manufactures the quantity which it feels would easily meet the demand of the market.
   However, if marketing experts are to be believed, there has been a dip in the success rate of new product launches. One reason for this could be the fact that the sheer number of product launches has gone up. It could also be due to flawed supply chain management. Whatever be the reason, for a company whose product has not performed in line with its expectation, there’s another problem at hand — having to deal with inventory across the supply chain. As one lot of the manufactured product is packed off to godowns, the other lot gathers dust somewhere at the retail end. That’s not all. There could also be a demand-supply mismatch if demand exceeds supply and the consumer is left craving for more.
   FMCG companies understand this predicament well. Some have tried to tweak their go-to-market approach to base it on consumer demand. The solution, according to experts, lies in turning the supply chain on its head, to make it more demand-driven, rather than supply-led. Experts say understanding where demand would peak and in which parts of the country would result in better success rate of product launches.
   “The supply chain,” agrees Nitin Paranjpe, CEO & MD, Hindustan Unilever (HUL), “needs to respond to the market.” Paranjpe says that consumer needs keep changing and so does their expectation. “This would be a constant struggle, but the supply chainin future would be far more responsive to signals. It would start becoming leaner and would keep less inventory. It would, therefore, be able to respond to the many dynamic changes which we will see in the market place,” says Paranjpe.
   In order to make its supply chain more responsive to the changes in the market place, HUL has dramatically reduced its total working capital. In some of its detergent factories, Hindustan Unilever is running ‘twin track’ on single production lines. This enables the company to not only double its production for better customer service but also to improve its operating efficiencies. In addition, most of its production lines have developed the capability of quick changeovers to meet market demand.
   Another large FMCG company, Godrej Consumer Products (GCPL), on the other hand, has switched to an efficient replenishment mode. The objective, according to R K Sinha, COO (marketing & operations), GCPL, is to replenish the stocks as they move. “The system, in which GCPL operates by design, is much more responsive. As demand for any product picks up, it is automatically met. There is no manual procedure involved,” says Sinha.
   There has been a rise in demand for household insecticide products in the last few months due to a high incidence of malaria and dengue. GCPL managed to meet the sudden surge in demand, which resulted in a strong double-digit growth in the category. Had it not been in the replenishment mode, the company would have missed out on this opportunity to hike its sales.
   “By switching to the replenishment mode, we changed the working style to become more agile — both in dealing with rise or fall in demand for a particular product. Any change in consumer demand can be captured by being agile,” says Sinha.
   Similarly, the demand for Godrej’s liquid detergent Ezee is higher in the northern region during winters. Over the last few seasons, GCPL has been able to meet the demand by ensuring steady supply of Ezee to pockets where demand was high. “All it takes is a feedback loop to understand how products are moving in the system in different parts of the country,” says Sinha.
   The result is visible in Ezee’s growth. While the market for liquid detergents grew by 12% last year, Ezee grew by over 30%. As for new product launches, Sinha says GCPL follows the go-to-market approach for a maximum of one month.
   “We do not keep forecasting. We quickly move to the dynamic system where we are able to estimate demand and meet the requirement.”
   Globally, Procter & Gamble (P&G) measures consumer satisfaction in what it terms as ‘moments of truth’. The first moment of truth arrives when the consumer finds the product she is looking for on the shelf; and the second, when she is satisfied with the product. P&G feels that supply chain management continues to grow and evolve as the pressure to adapt to a constantly changing environment increases. “Change in customer channels, consumer tastes, government policy decisions and new product launches, all impact the manner in which the supply chain operates and delivers,” says Gurunath Nayak, supply chain head, P&G India.
   For P&G, says Nayak, the essence of such management, or the centre of focus, has always been the customer. And that has not changed.

‘Demand-led model will cut losses’

   “We continue to design and manage our supply chains to be demand-driven based on customer insights. That we truly believe, will in long term help improve more lives, in more parts of India, more completely,” says Nayak.
   A few months back, when P&G had put up hoardings about the ‘mystery shampoo’ — a new Pantene shampoo which it was about to launch in India — it said 80% women said it was better than any other shampoo. By saying so, P&G was telling consumers that it had sought feedback from a certain group of consumers who had given their stamp of approval.
   Such instances, feel marketers, will increase as companies understand the importance of determining what consumer wants. Once a company is sure about the response, it will not go wrong on quantity it needs to supply. A demand-led model would also cut down losses in case of failure. Another pointer to this trend is the emergence of consumer cocreation. This is different from feedback mechanism based on quantitative market research as the consumer is directly involved at the product development stage.