‘Our MG Model Supports Franchisees’
The growth of the celebrated Italian brand Cantabil with 400 stores across the country, is largely propelled by its discount and franchising strategy. During slowdown, Cantabil launched its franchised-focused Lafanso brand, that has remarkabley established itself in one year of its inception, Cantabil that is treading high growth path, offers immense opportunities for the prospective franchises. Vinod Behl spoke to Deepak Bansal, Director, Cantabil Retail about the company’s franchise-focused growth strategy. Excerpts..
Tell us about your franchise business and franchise model?
For Cantabil brand, 50 percent of our stores are franchised while in case of Lafanso, 90 percent of our outlets are franchised. For Cantabil stores, the space requirement varies from 5,000-10,000 sq.ft. The total investment required for Cantabil stores is 15-20 lakhs. The company takes a refundable security deposit of Rs. 10 lakhs against stocks from the franchisee. The furniture/fi xture cost is borne by the franchisee. The company gives a Minimum Guarantee (MG) to the franchisee in the form of store rent, staff salary, electricity, telephone and miscellaneous charges in addition to 5 percent of the total sales revenue. For Lafanso franchise, an investment of Rs. 10-15 lakh is required and the store space needed is 500 sq.ft. The company takes a refundable security deposit of Rs. 7 lakhs against stocks and the furniture/fi xture cost is borne by the franchisee. The MG clause for Lafanso works on the lines of Cantabil. Besides MG model the company has another model where a fl at 25 percent commission is paid on total sales in the case of small stores in small towns.
What’s the selection criteria for a franchisee?
We go for educated, motivated persons with experience in retailing (preferably apparel retail). The prospective franchisee and his family should also be committed to give time
and attention to the franchise business.
Do you encourage franchisees to own multiple stores?
Yes, of course if we fi nd that some franchisee is doing well in a city and we plan to open
another store in that city, we give preference to that franchisee. In cities like Ludhiana and Baroda, our franchisees are already owning two stores each.
What kind of company support you provide to franchisees?
Our Minimum Guarantee model is the biggest support provided by us. However, we also provide advertising support to our franchisees. We spend 3-3.5 percent of our annual turnover on advertising.
What’s your strategy about selecting store location? Do you prefer malls
over high streets?
No, we go for both malls and high streets. But the condition is that the apparel brands already present at that particular location should be doing well.
Do you face any challenge with your franchise model?
Yes we do face diffi culty in getting good franchisees. In fact our MG model which is meant to attract franchisees sometimes work in a negative manner. Some franchisees who take up Cantabil franchise as a side business are just satisfi ed with MG (2.5 percent return) and do not work hard for their personal growth and company’s growth. Otherwise good franchisees can easily earn 4 percent return.
How do you deal with these non-performers?
We have a standard formula that the franchisees should have a minimum sales turnover of 3 times of the MG. In case of those who give bad performance, we renegotiate the MG and in extreme cases even close
down the loss making stores.
How did you cope with slowdown?
It’s basically luxury/premium retail segment which was hit due to slowdown. Since, we are in the discount segment, we’re not really affected. Moreover, to beat the slowdown, we focused on franchising. In fact our franchised-focused brand Lafanso was launched during slowdown only.
What are your expansion plans and what kind of franchise opportunities are there?
As far as Cantabil brand is concerned, currently we have 233 stores out of which about 50 percent are franchised stores. By March 2010, we are targeting 260 stores across the country with a mix of company owned and franchised stores. By that time, we’ll increase our family stores from 13 to 20. Lafanso is our high discount brand basically targeted at price conscious consumers in tier 3 cities. In just one year of its launch, we have been able to set up 175 stores focusing on northern states of Punjab, Haryana, Himachal Pradesh, Rajasthan and J& K. Most of these stores are franchised stores. We are planning to have 200 stores by March 2010. Our strategy is to fi rst expand through franchising in north and then move to south. In South India, we will be looking for franchisees in cities like Hyderabad, Bangalore, Vijaywada, Vizag, Vishakhapatnam, Mangalore, Mysore etc.
How do you look at the growth of your brands?
There has been 100 percent growth in sales. Last year the company turnover was Rs. 150 crores and in 2009-10, we hope to touch Rs. 250 crores mark. Storewise growth is equally impressive. Last year, we added 100 stores of Cantabil and this year we hope to add another 80-90 sotres. And in the case of Lafanso, in just one year of its launch, we have opened 175 stores and the brand makes 40 percent contribution to the company’s turnover.
What about the competition?
The competition is growing by the day. But those who want good quality product at affordable price, go for our brand. Also, since we have an in-house design studio and constantly monitor new designs and trends, we’ve an edge over our
competitors. We also score over them in terms of advertising. We do not do plain vanilla advertising and instead go for broad message based advertising which appeals to the consumers.
What are the challenges and opportunities for franchise business?
Getting a good devoted franchisee and a right location at a right price is a challenge in a franchise business. However, there’s an opportunity too as retail/ franchise markets are still growing. One can particularly tap those smaller markets where rentals are low but retail potential is high. Like we recently opened our store in Greater Noida where rental is
minimal but sales are good.
How do you see the prospects of apparel retail business in the coming times especially when the impact of slowdown is getting minimized and rentals have undergone correction?
Notwithstanding slowdown, apparel segment is growing at a good pace. Good fashion brands have real growth prospects. Though rental correction is signifi cant in malls, yet retail space rates on high streets have not seen much drop in prices. I would say that those brands which plan their expansion in rational and systematic manner and do not join the rat race, should do have profi table business.