The Hindu Business Line : An adventurous journey ahead

The maximum action will be witnessed in the top 50-60 urban markets where there will be rapid margin erosions for those competing mainstream formats such as hypermarkets and supermarkets.

In pursuit of growth

Bindu D. Menon

Nothing is permanent except change. And if the retail industry in India has to overcome its teething troubles, it has to adapt and adopt to global benchmarks, believe experts. At a recently concluded retail summit organised by Technopak and attendedby 500-odd delegates, industry giants and opinion makers brainstormed on how to tackle the industry’s growing up pains.

The cross-pollination culture is becoming the flavour of the season and experts bet that if retailers don’t cater to the consumers’ whims and fancies, in all possibility they will be wiped out and Darwinian law will prevail. Brandline presents a snapshot of the shape of things to come.

“The Indian retail sector is all set to narrate a resounding story in the next couple of years. In our opinion this story will be marked by radical changes, shattering of paradigms, large investments and a few failures as well,” says Asitava Sen, Vice-President (Retail and Consumer Goods), Technopak.

The sector will also offer many interesting trends as the high degree of dispersion in the sub-continent will also act as case study for the future.

Research reports indicate that as much as $35 billion will be invested in the Indian retail sector alone in the next five years. The Indian retail market is slated to grow from $336 billion in 2006 to $590 billion in 2011. Assuming that the share of modern retail grows from the current level of four per cent to the estimated 16 per cent in the next five years, the absolute market size of traditional retail will also grow from $324 billion in 2006 to $493 billion in 2011.

Consulting firm Planet Retail, which has Reliance and Vishal Retail as its clientele, observes that Western retail focuses extensively on supply chain management, and that the Indian sector needs to put in a lot of effort into this aspect.

Paul Martin, Global Sales Manager, Planet Retail, notes that it is convenient local neighbourhood formats that will survive over a long time period.

The maximum action will be witnessed in the top 50-60 urban markets where there will be rapid margin erosions for those competing mainstream formats such as hypermarkets and supermarkets.

Noting that over-development can also be a problem, he said, “There might be a lot more empty shops and low rentals in years to come. Hypermarts and supermarkets will be destinations stores, while it is the convenient formats that what will walk away with the cake. It will be the biggest growth area. While concepts like retail parks are successful in Europe, we see these concepts being replicated in India too over a time period,” he added.

As consumers are known to have distinct preferences for prices and conveniences, they may opt for different distribution channels. Investments are likely to pour into cash-and-carry formats in the coming years and there is going to be immense thrust on retailers to scale up the inventory management and accounting systems.

So where is the revenue model in products or services? According to Mr Didier Villanueva, Managing Director, L’Oreal India, services will be a distinguishing factor. “There is no excise duty on services and the tax on services is also way below products, therefore, for most retailers it is going to be a competitive advantage to be service-oriented.”

Charles Snyder, Reliance Retail’s Vice-President (Operations, Hypermarkets), says that adapting to local concepts such as home delivery will help the sector take wing. The supply chain is really slow and Indian retail chains turn their inventory much slower and stock-out levels are much higher. This apart, the shrinkage margins are in tandem with international benchmarks.

Manpower is another area which requires immediate attention. The Indian retail sector will witness a shortfall of almost a million people in the retail industry by 2012, he notes.

Swedish home furnishing retail chain IKEA says India will be ready for big retailers by 2015-16. “There is immense investment but what needs to be monitored is the return on investments,” said Staf Lenders, IKEA India Property and Establishment Manager. According to him, India is not even ‘an emerging market’ ready for big retailers with players making more mistakes than anything else. India lacks the basic conditions such as infrastructure, supply chain, tax and duty structures required for retailers to succeed, and soaring land prices and human resources are some of the other major issues, he added.

Forecasting accuracy is itself is a major road block as there is no historical data available in India. Trend-forecasting, especially in apparel, footwear and cosmetics will help companies save at least $13,000 annually,” says Mark Lepine, Commercial Director Asia Pacific, WGSN.