Are Indian department store chains taking a gamble by not following the “Rule of 7”?

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Rule_Of_7Ladies handbags are available from under Rs.400 to more than Rs.4,00,000 apiece.  But consumers who can afford handbags costing Rs.50,000 or more, do not go to shops that sell handbags at Rs.400. Most consumers will shop at places, which sell merchandise within their purchase price range. The unwritten “Rule of Seven” implies that most merchants (or brands) sell products within a price ratio of 1:7.

Maruti Suzuki sells cars (excluding SUVs) at ex-showroom prices of Rs.2.40 lacs to Rs.17.50 lacs, with a difference of 7.3 times between its most expensive and cheapest car.  Hyundai cars are priced between Rs.2.90 lacs and Rs.20.60 lacs, a ratio of 7.1.  Toyota cars are priced between Rs.4.1 lacs to Rs.29.40 lacs (7.2).

This means that Hyundai is not targeting buyers who are only seeking cars costing below Rs.3.00 lacs. These consumers are addressed by Maruti Suzuki and Tata Motors. Similarly, Toyota, Honda and Skoda target an even more upmarket consumer than Hyundai.

Toyota and Honda cars cost up to Rs.30 lacs ex-showroom. For customers with higher budgets, the three German icons Audi, BMW and Mercedes Benz step in.  BMW cars range from Rs.29 lacs to Rs.132 lacs (4.6), Audi from Rs.29 lacs to Rs.155 lacs (5.4) and Mercedes from Rs.30 lacs to Rs.173 lacs (5.8) – all following the rule of seven.

Higher luxury-seeking customers can choose from Porsche, Jaguar, Bentley, Jaguar and Rolls Royce, all of which also follow the rule of seven.

So why do all automobile manufacturers follow the rule of seven? Because, it is highly unlikely that the buyer of a Rs.30 lac car will be comfortable with the Maruti-Suzuki brand. Nor will a Rs.50 lac buyer be comfortable with the Honda or Toyota brands. In fact, in order to launch luxury cars, Honda created a new brand called Acura, back in 1986. Three years later, Toyota created Lexus.

How does the rule of seven apply to the retail sector? Look at one of India’s oldest brands (and largest retailer by number of stores), Bata. Women’s formal shoes are priced between Rs.489 and Rs.3599, a ratio of 7.4. Men’s shoes have a lightly wider ratio of 8.8. Metro sells women’s platform shoes ranging from Rs.495 to Rs.2999, a ratio of 6.1. Metro’s men’s formals range from Rs.1599 to Rs.6999, a ratio of only 4.4.

Hidesign has handbags ranging from Rs.2595 to Rs.8695, a ratio of just 3.4. In order to cater to value-seeking consumers, Hidesign created another brand Holii, with handbags in the range of Rs.995 to Rs.3900, a ratio of just 3.9.  For those who can afford luxury bags, there’s always Hermes, made famous by “bagwati” in the Bollywood hit Zindagi Na Milegi Dobara. Hermes bags are priced from $1225 to $8660, a ratio of 7.1.

The story is not different when it comes to home electronics Samsung sells 40” to 49” TVs in the range of Rs.38,000 to Rs.1,58,500, a ratio of 4.2. For those seeking luxury TVs, there’s always B&O, which also conforms to the rule of seven.

The world’s most successful department store – Harrods of London – sells men’s casual shirts from £60 to £299 (5.0), women’s sandals from £65 to £310 (4.8) and men’s jeans from £50 to £359 (7.2) – thus conforming to the rule of seven.

American department store chain Nordstrom sells men’s dress shirts from $50 to $295 (6.0), women’s jeans from $64 to $490 (7.7) and men’s jeans from $58 to $590 (10.2).  Consumers seeking lower prices can shop at Macy’s, where men’s dress shirts are $15 to $125 (8.3), women’s jeans $18 to $198 (11) and men’s jeans $20 to $198 (10.0). If not seven, American department stores seem to be following their own “rule of 10”.

What’s the case with department stores in India? Shoppers Stop sells bras from Rs.169 to Rs.1999, a ratio of 8.9. In handbags, the range is even wider from Rs.626 to Rs.6399, a ratio of 10.2. The ratio keeps going up – to 12.9 in the case of salwar-churidaar suits, 13.9 for sunglasses, 14.2 for sarees, 16.0 for men’s jeans and a whopping 16.8 for men’s underwear. The case is not too different for Lifestyle.

Indian department store chains are trying too hard to cater to a very wide economic segment of society – and they are failing with this strategy. Consumers who can afford underwear priced at Rs.1599 are not comfortable searching in shelves filled with underwear priced at Rs.95-100. It’s time their owners looked at created different retail brands to cater to different segments of society, like Macy’s and Bloomingdales in USA, both owned by Macy’s Inc., and Robinsons and Central in Thailand, both owned by Central Retail Corp. In doing this, they must remember the rule of seven.

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