The Hindu Business Line : A big year for organised retail

Bangalore, Dec. 27 For retailers in the country, at the end of 2007, the writing on the wall was clear: that the business was not just about operating a chain of air-conditioned stores and filling them up with the right kind of stock-keeping units (SKUs).

It entailed several other issues and commitments, both business and social: location, manpower, supply-chain, procurement, taxes, FDI, Uttar Pradesh and West Bengal, the last two sending shivers down the spines of even biggies in the industry.

The year also saw the announcement of India plans of globally significant players such as Wal-Mart and Carrefour. “This has indeed been a big year for retail,” says Mr Gibson Vedamani, CEO, Retailers Association of India.

The Rs 3,50,000-crore retail market grew 7-8 per cent during the year, with the organised sector recording a 25 per cent growth. The country now has a 150-million strong shopper base that can expect to shop in 40 million sq ft of mall space.

No wonder then, lead players of the sector went whole hog into the business during the year. The Future Group continued its trailblazing expansion and crossed Rs 4,000 crore this year and launched eight new formats and six verticals.

New-borns

The year’s new-borns were Reliance, the Tatas and the A V Birla Group which made a foray into the business announcing their huge presence across the country, little realising that with grand plans come the challenges and the turmoil.

Political issues wreaked havoc on food retail expansion plans in the two troubled States, though companies are denying that they have slowed down their growth footprint. “We may not expand in these two States, but we’ll stick to our target of 2,000 stores by 2010,” Mr Bijou Kurien, President and Chief Executive, Lifestyle, Reliance Retail, told presspersons in Bangalore recently.

In addition to investing in stores, retail chains are also busy putting together procurement units across the country to ensure farmers get fair prices. Mr Santhosh Unni, Head, Operations and Marketing, Retail Division, Heritage Foods, says the business model that Fresh@ is operating is one that is collaborative with the farming community and therefore they have not had any issues in the markets that they are in. The challenge for the industry in the coming year will be real estate as demand far exceeds supply.

Mr Govind Shrikhande, Customer Care Associate and Chief Executive Officer, Shoppers’ Stop, says the year brought with it unanticipated cost pressures such as service tax on rentals and high power costs apart form the usual problems of delays in store opening and high manpower attrition.

Hiring problems

Industry players did manage to acquire real estate by paying extra premium, but had no clue how to hire people to run their businesses. “That’s because there is no retail talent in the industry,” says Mr Vedamani. The country would require two lakh middle and senior managers in the next couple of years. A Future Group spokesperson said that in spite of all action in retail, the group managed to retain its employees with an attrition rate of eight per cent.

During the year, some brands explored an online presence through a store that allowed them to cater to buyers from across the country. “One of the key reasons driving this trend is that while media penetration of a brand campaign is national, the product distribution may not be as comprehensive,” says Mr Rajan Mehra, Country Manager, eBay India.

The year also saw value retailing gain momentum. Mr Ajit Joshi, CEO and Managing Director, Infiniti Retail, Tata Group, sees a new trend amongst buyers: Buying good quality products at cheap rates and that was Infiniti’s focus this year. “We were able to do this as we ramped up our operations and with new technology being introduced every day, it made it easier for us to combine this and that to give consumers the best deal.” He foresees a lot of large players entering the market in the coming year. Discount retail chain Subhiksha too was on an aggressive expansion plan targeting a 1,000 stores across the country.

Organised retail in the country is currently worth Rs 21,000 crore and serpentine queues at cash tills are not a strange sight anymore. Looking ahead, FDI with a cap is likely to be allowed in lifestyle and sports segments, say industry observers, predicting that 2008 could well be a year for Indian retail to take a big leap.