Search:



The Web

Rediff








Home > Business > Special


Why Arcus failed in Mumbai

Shweta Jain | January 26, 2005

Even until December, if you drove into the parking lot of the High Street in the Phoenix Mills complex (central Mumbai's trendiest retail destination), it was difficult to miss the 120-foot hoarding of Arcus on a side wall.

But for some weeks now, that side wall has been blank. Arcus downed its shutters in Mumbai in December 2004, after a year-long struggle. Why? The answers could hold some key lessons for retail marketers.

Promoted by the Delhi-based Rs 450-crore (Rs 4.5 billion) Turner Morrison Group, Arcus housed everything -- from modular kitchens and bathrooms, hardware and decorative lights to furniture, home accessories and lifestyle products.

It opened its first showroom in Gurgaon, Haryana, in 2000, aiming to be a one-stop shop for people doing up their homes.

The Gurgaon outlet more than lived up to expectations, prompting the company to venture into Mumbai in 2003. But that didn't exactly work out to plan.

Against anticipated footfalls of at least 20,000 every month, Arcus Mumbai at its peak garnered barely 8,000. And instead of the expected 40 per cent conversion rate, only one in five visitors to the store actually bought anything.

Even the cost of occupation (rent, operation costs, marketing costs and so on) was much higher than the industry benchmark of 10 per cent of turnover.

Admits Vikas Gupta, chief executive and president, Arcus, "We had serious issues both at the revenue as well as the cost end. Even if our revenues were to multiply manifold, we could not have covered this band of 10 per cent, given the cost structure." As it was, revenues were just one-fourth the target.

All of this had a lot to do with the biggest hurdle for retailers: location. To be fair in this case, the problems were hard to predict.

But they do highlight the extra thought retailers have to give to the issue. On the face of it, for instance, a location in upscale Phoenix Mills was unexceptionable.

So what was Arcus's problem? There were two. One, was the approach -- at the back of the complex. The Phoenix complex is divided into two zones -- Quorum and Sky Zone.

While the former houses all the high-end brands and caters to socio economic categories A and A+, the latter caters to SEC B+ and above.

But Arcus was not located in Quorum, which has a separate entrance. Instead, Arcus's 30,000 square feet were located at the far end of a lane, making approach to the store difficult.

The second problem was Arcus's position next to value-for-money retail outlet Big Bazaar. Says Gupta, "Not only were the footfalls low, but the psychographic and demographic profile of the customers was also suboptimal."

That directly affected Arcus's brand image and equity. "The issue was not that Big Bazaar was located next to Arcus," clarifies Gupta. "But we were assured that Phoenix would attract the Lifestyle customer. That didn't happen."

These are not necessarily factors that Arcus could have predicted, but it does indicate the fact that in retail, the choice of location requires far more attention than most people give it.

Gurgaon, in contrast, was more strategically located. There has been significant construction activity there in the past several years and the consumer profile, too, is such as would appreciate a store modelled on international chains like Home Depot and Ikea.

Certainly, the problem didn't lie with Phoenix -- conversion rates at Big Bazaar and Lifestyle were 55 and 48 per cent, respectively. But perhaps the trouble was with Arcus's rate list and product portfolio. Prices at the store were at least 20 per cent higher than market rates.

And market observers believe that Arcus's wide product offering confused customers. The store appeared to offer everything -- from electronic gadgets (lights, switches and TVs) to home furnishing products such as beds, wardrobes and bath accessories.

But within months, Arcus had become more like a gifts store -- Arcus was selling more doorknobs and flower vases than its core offerings of bathroom, furniture and kitchen products.

Still, Arcus did make a valiant attempt to tweak its product line to cater to Mumbaikars' demands. For instance, there aren't too many takers in Delhi for a product like a sofa-bed. But in Mumbai, which is always so pressed for space, a product like that can be invaluable.

Then, while Gurgaon and Delhi customers look for a premium pricing and are more brand conscious, Mumbai audiences seek moderate pricing.

Arcus's complete disregard for brand building also led to it being floored in Mumbai. The store conducted virtually no marketing or promotional activities.

Defends Gupta, "Phoenix High Street was supposed to be a well-known and popular place." Tellingly, that's not how Arcus operated in Gurgaon.

When that store opened in 2000, Arcus unleashed a virtual blitzkrieg of advertising and promotion -- from print to huge outdoor hoardings and banners, which not only advertised the store but even gave directions to reach it (Gurgaon's malls had not reached their current popularity highs at the time).

Arcus made another fatal mistake in Mumbai -- it ignored the potential of on-site promotions. Other stores in the Phoenix complex, for instance, ensure that the excitement level remains high.

Arcus was conspicuous by its inactivity. Says a market observer, "While there was never any promotional activity from Arcus, others like Big Bazaar and Lifestyle in that area would have an activity every month. And shoppers typically pay more attention to what they see in front of them."

When the Mumbai store's accumulated losses began telling on the company, Arcus decided to call it a day. "Continuance may have brought the entire company under financial stress," says Gupta. Arcus now plans to concentrate on the Gurgaon store until it reaches what Gupta calls a "scalable model".

The company has also deferred its plans to expand to Chennai, Hyderabad and Bangalore. Gupta sums up his learning from Arcus's Mumbai experience: "It's best to get your turnover from a number of stores in one area and fine tune the model for true scalability before expanding geographically."


Powered by

More Specials

Share your comments




Article Tools
Email this article
Top emailed links
Print this article
Write us a letter
Discuss this article









Copyright © 2005 rediff.com India Limited. All Rights Reserved.