Channel Integration for Better Retail Margins
The average modern retailer in India seems to be coping with the evolution of a number of different retail channels now available to the consumer. Online retail has made shopping experiences more convenient and unambiguous but has also placed greater emphasis on the importance of informed buying decisions made possible by increased consumer awareness. Challenges pertaining to high investment costs and low retail margins can thus be overcome by integrating online and offline retail to provide the modern shopper with a personalized and educational interaction with retail businesses.
India has an expanding retail space and is an emerging market assisted by increasing spending capabilities of the middle class. Revenue born out of the retail industry in India exceeds USD 600 billion and matches the market demands of a market carrying over 1.25 billion consumers. However, retailing in India has its own challenges and limitations. Unorganized retail still accounts for over 80% of the market share and stand-alone kirana stores spread across the country are more than 90 lakh in number. The cost of retailing has also grown exponentially and sky rocketed mainly due to real estate and rental costs. Overhead expenditures including electricity bills due to air conditioners, refrigerators for frozen produce, manpower costs and handling costs also add to the investment involved. A modern trade retailer is approached by at least three to four new brands every day but due to space constraints, innovative products don’t receive adequate shelf space and end up falling short of meeting existing customer demands. Customers have also found easier ways to shop that includes browsing products online and quick home deliveries. There are a handful of such factors that lead to complications in running a retail business in the current market conditions. The overall impact has retailers complaining of falling footfalls and decreasing profit margins. Hence, the pressing question that arises is related to how retailers can cope with the evolving market and customer needs to successfully
overcome these challenges. The best way out is to strategically place business decisions in various baskets and integrate online and offline retail in an engaging and efficient manner.
A retailer looking to profit off an integrated online cum offline selling channel has to create a virtual online store which offers a seamless shopping experience and which has a divided and varied product listing. The 50:50 composition ratio works best while serving a provident yet conscious consumer. Half of the product range must include the top 100 SKUS which are fast moving and discounted using attractive offers. The other 50% of the product line must focus on healthy, natural and organic products. There has to be a clear categorywise classification of products that makes browsing for related items easier and imparts consumer education on the health benefits and appropriate usage of certain products. Product recommendations and testimonials must come from industry experts, nutritionists and leading consumer product analysts. Clear product differentiators must be put into place to assist the buyer in making an informed and responsible choice. For example, there are more than 17 different varieties of honey and each has a unique taste, aroma and healthful quality to offer. Similarly, there are multiple local grains that used to be popular with Indian households in the 20th century and that have recently made it into the retail landscape. Retailers must profit off online campaigns that market the benefits of such exclusive and salubrious products that are custom crafted for Indian consumers. Marketing campaigns and outreach initiatives must also include suitable recipes to go along with a unique ingredient or raw product.
To aid offline channels, retailers can partner up with brands and companies to increase footfalls and bill values, and expand product baskets. As part of such collaborations, retailers and brands can jointly invest in shifting from a high listing fee to better-performing displays, free tastings, product demonstrations and improved merchandising. Another method to mould better shopping experiences can include making them more convenient by installing escalators, electronic product displays, more billing counters during festival rush and skilled manpower on the retail floor. Category managers should focus on better understanding the origin and sourcing of products rather than chasing margins and top lines. The most effective way to manage a category is to think like the consumer. What can a product be used for? What cheaper alternatives are there outside the category? What ingredients can be paired with certain products to improve impulse decisions?
The biggest challenge for many new and even existing products which have immense potential and consumer demand is high selling and marketing costs that scale up to as high as 60-65% of the product cost. Retailers and companies must work together to bring down these costs to a workable 40% so as to pass on more benefits to the consumers and employees involved in the retail chain. Indian retail, which consists of both modern trade and e-commerce, needs to be more product-oriented and consumer-led instead of working on a discount-led approach. To realize a new and improved approach to retailing, progressive industry leaders should place a more structured emphasis on integrating online and offline retail in a way that one channel complements the other. That is the future and the solution to the numerous challenges that litter the retail landscape in India today.
Half of the product range must include the top 100 SKUS which are fast moving and discounted using attractive offers. The other 50% of the product line must focus on healthy, natural and organic products.