Weekly Startup Profiles > The Loot India Pvt Ltd

Retail chain offering 365 days discounts on aspirational brands.

The Idea

If you thought that bargaining is just a way to save some money, you have a lot to learn from Jay Gupta. No, he may not tell you how to clinch the best price, but he can, with his own story, show you how to build a profitable business around this well-known Indian instinct to bargain.

Jay Gupta is the man behind The Loot - an enterprise that promises to be every bargainer's dream come true. The Loot offers a loot indeed, with the country's top brands up on sale for up to 60 per cent discount all through the year.

It all began with Gupta flipping through a business magazine to kill time five years ago. An article in the Business World issue stated that retail is one sector that will always grow bigger. As a veteran retail professional, who had in the past opened franchisee stores for brands like Adidas, Nike and Weekender, he understood that this was true, and considered entering the retail space himself.

The Opportunity

To gauge sales patterns, Jay conducted a survey across seven leading brands including Adidas, Provogue and Levis. He realized that the sales during eight months of regular retail were the same as the four - month discount season.

The sample survey only seconded his earlier observation on customer behaviour - Indians were driven by value-for-money mindset where they wanted more for less.

Meanwhile, exposure to media and advertising fuelled their desire to own big brands. Growing economy and rising purchasing power strengthened this demand. The new Indian youth wanted big brands of good quality at affordable prices.

Jay saw an excellent business plan in sourcing products in large quantities from brand owners and offering them at discounted prices to customers.

Jay focused on procurement and supply chain management, which helped in getting better pricing from the manufacturer, the benefits of which were passed on to the customer. He did a lot of opportunity buying, purchasing excess production of companies.

"Companies, on an average, have 25 per cent of its production as surplus. Since brands cannot reduce the Maximum Retail Price, nor can they hoard the goods, they pass on the surplus to outlets like The Loot at cheaper rates," Jay explains.

Competition comes from factory outlets, exhibitions, and seasonal sales of branded stores. Apart from that, competition comes from unorganized retailers. "All big brands have surpluses to sell, but are apprehensive to sell it to outlets like The Loot as they target the same customer group. The unorganized retailers are small players and sell in tier 2 and 3 cities where the buyers are not the branded companies' primary customers," Jay says.

Dealing with conflicts arising from competition from unorganized retail has not been easy. Jay feels that unorganized retailers get better deals from vendors than them. "We are yet to establish an identity which will be at par with them even though we consume larger volumes," he says.

However, to beat the competition, The Loot built traffic by introducing Rs 99 and Rs 149 merchandise and increasing value of bill with schemes like Buy 1 Get 1 free.

It also introduced its own private labels - 'Eccentrics' and 'Bus Stop' - as a strategy to fight the lack of availability of the running sizes.

"We are building our identity around the fact that we sell only surplus, and not seconds and defectives," Jay adds. "It helped to have Bollywood's bad man Gulshan Grover as their brand ambassador, who with his negative image is influencing customers" desire for great steals and establishing brand recall.

The Money

Jay started The Loot with an investment of Rs 5 crore, out of which Rs 4 crore was raised through bank loans. The Year-on-Year growth over the last three years has totaled 85%.

Average discounts to customers have also gone up from 33% to 40%. Day-to-day operations cost has been controlled by checking on advertising costs. The Loot is looking at a turnover of Rs 60 crore for 2007-08.

The franchisee arrangement has also worked to Jay's benefit. Of the 30 stores, eight are franchisee stores. "Franchisees are more entrepreneurial in nature than company-owned store managers," Jay explains.

The Team

While founding Loot, Jay was clear that he wanted a retail outlet rather than a franchisee store. "Franchisees have set guidelines laid down by the parent company. As a retail chain, I got to set my own standards," says Jay, who's been involved in the retail space since 1996. R P Chabria, who had over 40 years of experience in banking and had even worked with the Government of India on the annual budget, took over as CEO and brought in immense value to the organization.

The Company - today and tomorrow

The Loot's first store was started in Mumbai in 2003 as an experiment. Four years later, the company boasts of having 30 stores so far all over India, offering over 60 popular international brands. The Loot recently established India's first surplus products' warehouse in Bhiwandi, Mumbai.

The company has already successfully ventured into three business concepts: stand alone stores, store in stores and virtual stores. They are planning to have 100 stores by 2008-09, and go public in 2009. Recently, The Loot was nominated at the recent India Retail Forum 2007 for being the "Most Admired Retailer of the Year."

What keeps you awake at night?

"The responsibility of continuing to deliver. Meeting commitments in a growing business is a huge challenge," he concludes.

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