When your local department store closes down

Recently, the local department store closed down in my home town. This retail chain was the first to envisage the growth of larger, all-in-one convenience stores as early as 1990, and pioneered the growth of organized retail in our state. Last month, after nearly 55 years in operation, it closed down almost 59 of its stores all over the city.

Growing up with the first Varkeys Department store around the corner, I have always been amazed at their ability to create one of the finest and most loyal customer bases in Kerala. Used, as we were, to go to the local kirana stores to buy rice and dal from huge gunny bags, and walk through slushy pavements to get fruits and vegetables from the local market, Varkeys changed the very elements of shopping  – hygienically packed goods and produce, clear pricing, good customer service, and the ability to walk through a single store and buy everything from erasers and candy to imitation gold jewellery and vacuum cleaners!

And then came the “evil” brands from outside the state – Subiksha, More, Spencers, Nilgiris, and Reliance. When Reliance offered to buy up Varkeys (and were politely refused) I heaved a huge sigh of relief. What do global retail chains know about my shopping habits and tastes?
5 years of rapid globalization of our retail scene in Kerala later, I am forced to change my mind. While some Nilgiris stores and Subiksha stores have closed down, I could not believe this could happen to Varkeys too. But by now I was used to deep discounts, attractive give-aways, and free delivery (not to mention the air conditioned stores with its wide aisles and products from all over the world – salsa and chips anyone?) and am ashamed to admit that I valued these conveniences more than loyalty to my childhood brand.
So why did Varkeys close down? Whatever the true reason may be (some say it was over-expansion, while others talk about real-estate scams), as a customer I know of only one reason – they ignored the dangers globalization (read: competition) brings. Unfortunately in today’s Indian retail market, where the organized retail sector is growing by CAGR of 5% and contributes to almost 39% to the GDP, a 420 billion USD market is sure to attract cut-throat competition, and an all-out price war. Amidst this scenario, no retailer can afford to be ignorant of the dangers of global competition, or take their customer base for granted. No one.

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  1. I heard a slightly different story- that Reliance gave Varkeys feelers that they would buy up the chain if Varkeys expanded a la Starbucks (with one almost every 200 meters or so!) and then they backed out. Varkeys had to shut down because of the over-expansion. I feel kind of nostalgic too- I was in 4th grade when the first Varkeys opened on MG Road and I thought it was uber cool! A large airy store, 2 floors, and a little bakery counter: wide eyed wonderment!

  2. Varkeys simply became penny wise, pound foolish. They were the first to start charging for carry bags, when Reliance, Mithra and others still offered it free. Later the others also saw this as a way to squeeze more money and joined the cartel, but Varkeys took the brunt of the negative image. During those initial days, fights over having to pay extra for the carry bag was a daily and regular feature at the cash till.

  3. Varkey’s could not withstand competition though there were still lot of loyal customers.
    Moreover, there were some internal issues within mangement which led to the closure.

  4. Varkey’s closed down because:

    1. It used working capital for capital investment
    2. The promoters thought they are supermen and are invincible
    3. It believed that it could simply take on the Ambanis & Birlas just like that
    4. The native intelligence of promoters dried up or became obsolete
    5. Went in for a highly complex ERP solution (by paying thru the nose) which simply could not not be used by its illiterate employees.