Gerard McGurk, head of retail and commercial operations of ILM at Index Living Mall and Mahesh M, CEO, Creaticity speak about Thailand’s numero uno furniture brand’s strengths, its India entry and strategy…
Last week, Creaticity—the Yerwada, Pune-based home category speciality mall—brought yet another international brand to India—Index Living Mall (ILM).
The first store under the exclusive franchise agreement with the Thailand-based furniture and furnishings major is based at the mall premises and commands the entire left wing on the ground floor of the main mall building.
The 32,000 sq. ft. store will open to the public at the end of this month and will stock 6,000 stock-keeping units (SKUs).
Founded by Pisit Patamasatyasonthi in 2002 as a small business manufacturing just two types of chairs, ILM has grown into Thailand’s largest furniture brand, operating over 32 big box retail stores across the country and selling about 12,000 SKUs. The brand is also present in six other countries (Vietnam, Cambodia, Laos, Myanmar, The Maldives and Nepal) with 14 stores trading with a further 2 stores opening before the end of this year. The company manufactures its own products and has 10 sub-brands, each catering to a different customer profile and price range.
The collaboration is the culmination of almost a decade-long courtship by Creaticity CEO Mahesh M and is based on several shared synergies between the two organisations, the CEO shared during the store’s soft launch.
In an exclusive interaction with IndiaRetailing the CEO, along with Gerard McGurk, head of retail and commercial operations of ILM speaks at Index Living Mall about the collaboration, India strategy and more…
ILM claims to be number one in Thailand. It is in terms of size, revenue or number of stores?
Gerard McGurk: All of it. We are number one in terms of sales in Thailand, while IKEA is number two and SB Furniture Group is number three. There is about a 20% gap between the two… So, our sales are about 20% higher than IKEA. Our margin structures are over 40-45% total and IKEA’s margin structures are about 12% to 15% because they buy the product whereas we have got the integrated model. We are the most profitable home furniture decor retailer in Thailand and we are the largest in terms of coverage—number of stores.
How have your stores evolved?
Gerard McGurk: The first-generation stores were around about 15,000 to 20,000 square metres (about 2 lakh sq. ft.)…We opened a lot of them fast, at a time when retail in Thailand was unorganised. We took the leadership position quite early in the market. But as the market evolved, e-commerce came in and consumer habits changed, we started looking at the retail model of the future and we arrived at the optimum size. We now have stores from 3,000 sq. ft. to those between 6,000 to 8,000 square metres.
Over the last few years, we have been turning the big boxes into retail rental concepts called The Walk. We cut up the 20,000 square metre stores into sections and brought in coffee shops, gyms, food courts, and education centres, keeping Index Living Mall as the anchor. So, the big boxes have evolved into community malls. We are now not just a retailer but also landlords.
We also have about 40 dealership stores across Thailand for our sub-brands in tier 3 cities. We provide them with products and branding. This is a mom-and-pop business model. Since we own manufacturing and also a logistics company, we can trade up, trade down and trade across. That’s the vibrancy of the model that fits the vibrancy of the Indian consumer.
Which formats are you going to bring to India and in what size?
Gerard McGurk: In Vietnam, our stores average between 500 and 1,200 sq. m., in Cambodia they are between 700 and 1,000 sq. m., so it is not about the size, it is about the product range and the relevance of the product range based on where we trade. The franchise agreement allows Creaticity to open any Index Living Mall brand stores and distribute any brands in the country.
Mahesh M: By Indian standards, 30,000 sq. ft. is big, the stores here could go all the way up to 43,000 square metres, but we would ideally look at 10,000 sq. ft. to 15,000 sq. ft. depending on which of the 10 brands we bring there. We could take only Index Furniture, for instance.
What is your India roadmap?
Mahesh M: The thought process is: Listen, observe, learn then respond. So, we want to give it at least 12 to 18 months to understand what sells more and being multicultural, Pune is a good test bed for that.
Gerard McGurk: The strategy is to go city by city and saturate a city. So, five years, five cities is the plan and Bengaluru is one of those cities.
The ambition is there and the urgency is there. But the urgency doesn’t overtake the ambition.
Pune is our first goal. Pune could take about three to four stores is what we believe.
How much are you investing in India?
Mahesh M: The investment from Index’s side comes in largely in terms of product, support on the product, store design, merchandising, visual merchandising, tech like the automatic replenishment system, the whole works. Various teams from Index from sales to operations have been here for almost a month. Index’s best district manager will anchor this store for the next two to three months. That’s the level of involvement from their end. The investment in terms of the infra, and putting up the store, are all done by Creaticity.
It’s roughly about a million dollars into a 32,000 sq. ft. store, ground up.
Gerard McGurk: The first store is always probably the most expensive store and then we learn and we’ll optimise as we go along.
But the model, even here is a bare shell model. Everything here is modular. Everything here is interchangeable. There’s, no walkways here, there’s one floor, one ceiling. All the panels are removable, so the store will evolve. Opening a furniture store is expensive. Designers spend a lot of money on design that will last three to five years. This store should last a long, long time because all we need to do is paint the walls.
Will you open standalone stores in India like in Thailand or in malls?
Gerard McGurk: What we have learned over the last 30 years is that furniture stores inside typical shopping centres do not work. We opened 20 stores in leading shopping centres and we closed them all. The cost structures do not work out. The traffic is different.
But how comfortable are you being placed alongside your direct competitors at Creaticity?
Gerard McGurk: Each brand in this mall is here for a specific role. My job is not to compete with Ashley or any other brand. And the market is big enough. It is a case of what is the role of each brand. We have enough portfolio of brands to cater to different customers and we need to give ourselves at least six to nine months time to test things here. When we get it right, we go.
So where does Index fit in at Creaticity?
Mahesh M: We at Creaticity are in the prestige to premium segment—we’re neither in the economy or low-budget segment nor in the luxury or ultra-luxury zone. If you look at our portfolio today, the entire house of brands that we’re creating, we work on two models—we bring in brands as their exclusive franchise and we rent out spaces as landlords
So the Pepper Fry, Urban Ladder, Wooden Streets, Wakefit, are all largely in the prestige segment, and Ashley, Neelkamal Homes, Durian etc come in at the Prestige plus one. Then you’ve got premium with Natuzzi and Konfor.
Now Index comes in at Prestige and goes all the way up to Premium. That’s why they are a mall concept.
That’s why Index is the jewel in our crown.
What is the brand mix you have started with for the first store? How did you decide on the mix?
Gerard McGurk: We looked at our learnings from Southeast Asia, then the Indian team came over and we asked them lots of questions based on which Thai team suggested products and finally the Indian team decided.
We gave them access to our proprietary system which contains 14,000 SKUs with all the information of every product. So they crunched data from there first, shortlisted an assortment, came over to Thailand, visited six or seven stores, saw the physical products and chose.
Mahesh M: Right now, we have about 20%- 25% of Index, about 30% Winner, 15% of Index home, and the rest of others in varying percentages. The price ranges from Rs 14,000 for a bed to Rs 65,000. So we are neither overpriced nor underpriced. Our strength is the finish quality, which is truly international.
Will you be giving consumers access to your entire range of 12,000 SKUs using tech?
Mahesh M: The stores will have iPads. And our e-commerce website in India will launch in January. The backend is being built as we speak.
Gerard McGurk: A year ago, we were trading over 20,000 SKUs—IKEA normally trades around 6,000. We slashed that to 12,000 and are looking at bringing it down further to 9,000 SKUS. All these are on our system called Ion, which the franchise partner has access to. They’ll see products six months before they are launched and decide if they want those products in their stores.
The system is designed to give them access to the current and the future. In Thailand, all teams have iPads to show the entire product range.
Mahesh M: It will be available here too after the supply chain is in place so if customers choose something that’s not available here, we can get it in four weeks or so from Thailand.
Can customers customize?
Gerard McGurk: Yes. A customer might like a leather sofa but might want it in denim blue. We will customize it.
How much of your assortment is customised to India? And how many of your products are customizable?
Gerard McGurk: About 60% of the range is customizable—sofas, mattresses, bed frames and about 30% of the range is customized to India. We’ve got a brand called Unique, which is 100% customised. With us you can even come with your own design or we can help you design a product for you because we manufacturers with a huge raw material library to choose from. But you need local manufacturing to do that, which will happen in due course.
However, we have not lowered the quality of product for India. All our particle boards are E0, which is the best particle board you get in the world.
You are bringing many brands. What kind of market muscle are you putting behind Index?
Mahesh M: There’s going to be a complete launch campaign. We’re working on building brand awareness. We are going to be focusing largely on a lot of influencer-based marketing. We are not just talking about lifestyle influencers but people who are users. So a lot of it is going to be testimony-based marketing. We are going to look at knowledge-based marketing talking about the product and its quality.
For instance, what’s the difference between sofas priced at Rs 25,000 and those priced at Rs 50,000.
What is your ultimate ambition for India?
Gerard McGurk: We want to be part of people’s lives at home. We want to be a leader where we trade. Five cities, five years. We take a leadership position in every market and that’s what we want to do here but we are in no hurry.
Mahesh M: A double-digit market share is a good start because there is no clear leader even today…no one with 10% market share. If we are able to saturate the cities that we operate in, get double-digit market share, and repeat it for every city… then we start becoming city leaders, regional leaders and national leaders.
