Why Is Electronics Retail Franchising A Good Investment
Many retail outlets are catering to the need of customers for digital gadgets and home electronics. Croma, a TATA subsidiary is one such store and is the first large format retail chain. It has about 170 operational stores across the nation.
Why Croma?
Croma was started in the year 2006. It was started with the vision to be a world-class and socially responsible retail company that consistently enhances its stakeholder’s value. Through continuous learning and innovation, it aims at being the organisation that offers unmatched customer experience. It is the first store to move to a multi-channel model in 2012. It launched croma.com as an independent channel.
When Croma was first introduced, it came into existence to solve hurdles faced by the customers. These challenges were:
- Complex technology was not easily understood by the customers
- There was no product demo, therefore, understanding the product itself was difficult.
- There were lots of brands, products, and features making it difficult for the customer to choose the right product.
- The best deals might get the customer a product which is not catering to their need.
- There was no ticketed price.
- Small shops had limited inventory to choose from.
Croma had advantages that dealt with these problems:
Staff knowledge - The staff at Croma is equipped with superior product knowledge and trained such that they give the customer the right product catering to their needs.
Store Ambience - They introduced touch and feel in their format. Customers could try the product before purchase. The store has a well-researched layout that supports the purchase process.
Wide range of products - It is the destination to discover new products and find the adequate range to make an informed purchase.
Why Croma can be a good franchising option?
It has a good experience of 14 years in electronics retailing and is the first large-format store. Croma gives complete training to its staff. They are trained in customer service standards with learning from service leaders across industries. Also, all the marketing is taken care of by the brand.
It has a strong own label portfolio across categories. Over 300 SKU’s across different product categories like kitchen appliances, home appliances, audio and video, computer accessories, and mobiles. The consumer has accepted Croma for even higher ASP products like Air conditioners and televisions.
It has a customer base of 8.1 million with an average footfall of 600 customers per day. Croma is a credible organization with stability in its system.
Franchising with Croma
The Company follows a FOCO model (Franchise-Owned Company-Operated). With large formats and difficult management, the company takes full responsibility making it an investment model.
There are three franchising models Croma is looking for:
1. Conversion Franchising - Converting an existing landlord into a franchise
2. New Store Franchising - Here the investor and the landlord are the same. It is direct integration with the franchisor.
3. New Properties - The landlord is finalised here, but the company is looking for investors.
In conversion as well as new property franchising the agreement is signed between three parties that are Croma, the landlord, and the investor.
Investment
The investor only invests without any obligation of operations; it takes a minimum of 4 years to find whether the property is right or wrong. It is a long-term investment and it takes about 4 to 5 years to payback.
An investor needs to invest the following:
- CAPEX of about Rs 2.5 crore
- Rs 0.35 crore as PMC fee and 5-year maintenance
- Rs 1.75 crore for inventory
- Rs 0.4 crore every 5 years for refurbishment
- A security deposit. No bank guarantee will be accepted.
It makes a total of about 4 to 5 crore and GST.
Return on Investment
Share of the revenue resulting in sales
- 5.5% revenue share from net sales
- Payback is expected in about 4 to 5 years
- 18% to 20% ROCE is estimated by the third year.
Where the total revenue is less than 30 crore, the revenue share is 5.5%. Total revenue of up to 40 gives a revenue share of 3%. Revenue greater than 40 crore gives a revenue share of 1%.
In the case of leased property, the rentals will be 2.5% to 3% in tier II and tier III cities. It is sometimes lower with time. In Tier I cities, it will be 3.5 % to 4 % on sales.
Role of Croma
Croma takes care of all the operations of the store. It starts from guidance in selecting the location, store fit-out, training staff to maintaining inventory. The entire store operating cost is taken care of by the organization.
There will be a weekly sales mail that goes from the system to the investor.
Selection Criteria
Croma is looking for certain features in selecting franchisees.
It is open to new markets but with restrictions on warehouses. The location should be within the coverage of 250km from the warehouse. The new market population should be 3 to 3.5 lakh. Where there is a population of 10 lakhs, 2 stores could be opened. The basic features of the location will be accessibility, visibility, good location, and parking facility. The ideal location must be a 15 to 20-minute drive for the customer. In bigger cities, it can be a 30 minutes drive.
Croma is open to all cities except Kashmir, some parts of Bihar, Northeast, and Himachal.
The property should have a carpet area of 8000 to 10000 on the ground or first floor. The property must be constructed as per government norms and has to be a legal property.
The agreement period is 21 years, but on the requirement, it can vary from 18 years to 21 years. It is not a conventional business and hence the profits will be more in the long term.
Role of a Franchisee
With an investment model, there is a very limited role of the franchisee:
1. Before the opening of the store, the property licences and other forms have to be submitted. Also, the store must be laid out properly for more visibility.
2. After the opening of the store, the franchisee must give a local connect and provide support locally.
Edited By: Vaishnavi Gupta
