Directions for next ten questions: Read the following passages and answer the questions that follow.
Passage – 3 At 10 every morning, Tabassum, a Lakme beauty advisor, walks into Unique Matching Centre, a medium-sized women’s needs outlet in Dadar (West), Mumbai. By the time she walks out every evening, she has talked to over 50 customers and sold Lakme Lever colour cosmetics worth Rs. 850-1,000. That’s a good 30-40% higher
than what Unique sold before her appointment. According to Lakme Lever (a division of Hindustan Lever), last festive season Tabassum and 389 such beauty advisors grew Lakme sales at these outlets by 42% — more than its growth expectations of 16% and way above the 10-25% averaged by the 60,000 other outlets that retail Lakme’s colour cosmetics sans advisors.
Cosmetics major Lakme’s theory that adding a service dimension to the brand would increase sales is beginning to pay off. And it is taking a quantum leap forward by entering the Rs. 500 crore beauty salons business. It has 32 full fledged salons around the country; four of these have been around since the seventies and the rest have come up in the last one year. It now plans to roll out another 200 over the next three years. That will make it one of the world’s largest beauty salon chains. In fact,
HLL’s foray into the services business, the laundrette pilot and home delivery (Sangam Direct), was also promoted by the Lakme experience.
So why did this
FMCG company enter services? Lakme’s position as market leader was threatened when international majors like Revlon and Maybelline entered the fray in the mid-90s. Lakme realised it had to do something fast to retain its 60 per cent market share. It launched Elle 18 (a lower-priced brand targeted at teenagers). And figured that point-of-sale push would help. Thus, the beauty advisor idea emerged.
Tabassum’s presence behind the counter and the interaction she brings into the consumer’s purchase experience turned out to be a key sale clincher in the Rs. 500 crore colour cosmetics category that is largely driven by impulse purchases. The advisors gave Lakme a direct information channel for consumer preferences and offtake, among other things. This helped the company cut inventory by about 40 per cent, while maintaining its S.K.U. (stock keeping unit) strength of 185. No specific numbers are available, but going by the industry’s average inventory holding of about 16-20 weeks along the supply chain, Lakme saves around Rs. 15-20 crores. Sure, its stockout rose from three to five per cent, but counters Anil Chopra, business head at Lakme Lever, the
savings from the inventory cuts more than offset this loss. Advisors also cost Lakme little; they are employed by the distributors; Lakme only indirectly subsidises the cost. The risk of failure, too, is low: an advisor can be replaced easily. And the model is scaleable.
No wonder Lakme Lever is rolling out the beauty advisor concept. The idea is to have them man outlets with monthly sales of Rs. 25,000 plus. Of the 600 nationwise outlets that fit the bill, advisors remain to be placed in 210. This could take another year.
“Consumers like and even expect a certain amount of hand-holding in choosing cosmetics,” says Inder Madhan, GM, Lifespring, a health and beauty chain. Others like Modi Revlon have employed this strategy to even better effect, “We have seen our sales go up by 50 per cent whenever we place a beauty advisor in an outlet. Revlon is the best selling brand in all the stores that we have a beauty advisor in,” claims Umesh Kumar Modi,
CEO, Modi Revlon. Nevertheless, none have adopted a scale as large as that of Lakme’s. Modi plans to increase the number of advisors by 50 per cent this year, to a total of only 500 in two years. It also does not plan to set up any beauty salons here, unlike in the international markets where Revlon has outlets, albeit on a small scale.
So what does Lakme see in salons that others don’t? Chopra expects the Indian market to grow at 20 per cent annually to touch Rs. 1,000 crore in four years. “There are 4,936 salons in Delhi alone, about 11 per cent of which are in the A+ (super premium) category, and 20 per cent are in the B+ and B categories,” says Rohit Sood, vice president (marketing), Brushman India, the marketing partner of Dutch hair cosmetics giant Keune, which is setting up 80 haircare salons in the next three years. If each salon in Delhi makes an average of Rs. 500 a day (premium brands like Keune expect Rs 2,000 per chair per day) the Delhi salon market could be
worth Rs. 75 crore a year. Demand, too, is growing, given the 25 million-odd middle- and upper-class working women in India who are becoming increasingly conscious of their looks. Profit margins are also good: Lakme can net 25-30 per cent (almost double the margins made selling cosmetics) through the franchisee model.
According to the Global Salon Panels India 2001 report, published by Diagonal Reports, an Ireland-based market intelligence research firm, 80 per cent of the 1,000 salons that were polled used Wella (an international
brand), 60 per cent used L’Oreal and 40 per cent used brands like Avon, Ayur and Shahnaz Hussain, among others. Lakme and
HLL were not among the most preferred. Sales has to be pushed at the salons, but Lakme figured it could do better. It decided to set up its own business. ”We wanted to create an alternative channel,” says Chopra.
Each salon will have a standardised format: 2,000 square feet space costing about Rs. 20 lakh (excluding real estate). Some of the salons will be company owned; most of the new ones will be franchised. The model has been perfected in smaller cities including Pune, Indore, Vadodara, Ludhiana and Jalandhar. Lakme will provide the technical expertise; investments in real estate and operations will be made by the franchisee.
Cosmetics firms have succeeded in the salons business abroad. UK-based Toni and Guy, which makes
haircare products and runs 150 hair salons, is the best example. For Lakme to succeed, it has to first iron out a few glitches.
First is reach. Few people visit salons that are not in their neighbourhood. Can Lakme get that kind of reach in all the major cities? Unlikely, in the short-term. “Some sort of an alliance or co-branding with the salons that already exist may, perhaps, have been a better strategy,” argues Keune’s Sood. Second is positioning. “The general perception is that company-owned salons are expensive. Though Lakme beauty salons are reasonably priced, it has not been communicated well enough,” says the business head of an upmarket salon chain.
Once sorted out, salons can also fuel the growth of
HLL’s hair-care brands.”Currently, about 10 per cent of our salons’ total billings are product sales. This could go up to 20 per cent,” says Chopra.
Most significant though will be the impact on Lakme’s bottomline. By going for franchises, Lakme avoids large capital investments and recurring expenditure. Yet, it will get 20 per cent of the salons’ billings as franchise fees. If the business grows big enough to contribute 25-30 per cent of sales 2004 onwards (from the current five per cent levels) as Chopra hopes, it could even contribute one-third to one-half of Lakme’s profits. And that’s why Lakme is donning the war paint.
Which of the following statements is supported by the passage?