Ruchi Sally

VM&RD - - CONTENTS -

The land­scape of re­tail in In­dia has come a long way from ‘tra­di­tional re­tail­ing’ to ‘mod­ern re­tail­ing’ and now ‘on­line re­tail­ing’. Two fac­tors that re­main con­stant in In­dia’s re­tail story are Change and Cus­tomi­sa­tion. Some of the fac­tual rea­sons for re­tail be­ing a grow­ing sec­tor are: 96% of un­or­gan­ised re­tail have high growth po­ten­tial; on­line re­tail­ing is gain­ing wide­spread pop­u­lar­ity; open­ing up of the sec­tor to FDI. In 2013, In­dia’s re­tail mar­ket was es­ti­mated at US$520 bil­lion and is ex­pected to grow at a CAGR of 13% to reach around US$950 bil­lion by 2018. While th­ese num­bers look quite im­pres­sive, In­dia’s or­gan­ised re­tail ac­counts for a mere 7-8% of to­tal re­tail.

Al­though the re­tail in­dus­try in In­dia is still largely un­or­gan­ised, the growth op­por­tu­ni­ties are aplenty. Re­tail is seen as one of the most promis­ing sec­tors for In­dia’s Inc. Big busi­ness houses like Aditya Birla, Re­liance and Tata are mak­ing huge in­vest­ments in this sec­tor. While on one hand, Aditya Birla Group has bought a stake in Pan­taloons, and is pump­ing in some Rs 500 crore in re­tail while col­lab­o­rat­ing all the re­tail busi­nesses to the reap the ben­e­fit of syn­ergy, the Tata group in joint ven­ture with Tesco has built Am­rit­sar’s first re­tail project Tril­lium Mall. Mean­while, Re­liance has ag­gres­sively tied up with in­ter­na­tional brands and is es­tab­lish­ing Re­liance Re­tail Ex­press stores across the coun­try. Other than th­ese big names, in­ter­na­tional re­tail­ers like Zara have turned in im­pres­sive per­for­mances in the first two years of op­er­a­tions. Re­tail gi­ants like Pan­taloons, Shop­per’s Stop and Big Bazaar are adopt­ing var­i­ous prof­itable strate­gies with limited ex­pan­sion across the coun­try, and in­ter­na­tional re­tail chains like Tesco are es­tab­lish­ing their foot­prints in the In­dian re­tail sec­tor.

On­line Re­tail­ing: Gear­ing Up For More

In In­dia’s re­tail growth era, one of the con­cepts that have fur­ther gained pop­u­lar­ity is on­line re­tail­ing. The new era of on­line re­tail­ing is grow­ing at a stag­ger­ing 30-35% per an­num with a num­ber of en­trants in the mar­ket. Based on re­search, we see an in­creas­ing pres­ence of on­line re­tail­ers in Tier-II and Tier-III cities like Su­rat, Ahmed­abad, Bar­oda, Chandi­garh, Coim­bat­ore, Pune, Kolkata, Hyderabad, Cochin, Nag­pur, In­dore, Am­rit­sar, Lud­hi­ana, etc. The e-re­tail­ing mar­ket in In­dia is es­ti­mated at Rs 5,513 crores in FY13 with a CAGR of 30.5% (FY08-FY13). It con­sti­tutes 0.2% of the to­tal re­tail mar­ket and 2.3% of or­gan­ised re­tail in In­dia and is highly frag­mented with a few large play­ers at the top, en­gaged in a race for high val­u­a­tion, ag­gres­sive growth and fierce com­pe­ti­tion. The in­dus­try has also wit­nessed con­sol­i­da­tion with the largest ac­qui­si­tion of Myn­tra by Flip­kart and high val­u­a­tion of Flip­kart (ap­prox. US$7 bil­lion). The trend is likely to con­tinue in the future given the pres­ence of the gi­ant e-re­tail­ing en­tity Ama­zon in In­dia, likely open­ing up of B2C seg­ment to FDI and start-ups rais­ing cap­i­tal from pri­vate eq­uity in­vestors. Though most e-re­tail­ing firms have been es­tab­lished af­ter rais­ing PE funds and thereby gain­ing high val­u­a­tions, three most im­por­tant fac­tors that our ESPL ex­perts be­lieve would de­fine the suc­cess of the on­line re­tail­ers in the future are: (i) sus­tain­able growth in terms of prof­itabil­ity; (ii) in­no­va­tion in ser­vices and prod­ucts; and (iii) si­mul­ta­ne­ous cap­tur­ing of mar­ket share not by giv­ing deep dis­counts but by fol­low­ing user-friendly ex­pe­ri­ence man­age­ment prac­tices. With on­line re­tail gain­ing pop­u­lar­ity, prices of com­mer­cial ware­houses prices have gone up. Also, in the Food & Beverages seg­ment agri­cul­ture-based com­pa­nies are set­ting up gro­cery re­tail chains, which will cre­ate price com­pet­i­tive­ness in this seg­ment and the re­tail mar­ket as a whole. An­other area, which would con­trib­ute to­wards the growth of re­tail in In­dia, is FDI in re­tail. The new gov­ern­ment may have some reser­va­tions on al­low­ing FDI in multi-brand re­tail but over­all seems to be work­ing to­wards re­lax­ing some as­pects of the FDI pol­icy, which could en­able more in­ter­na­tional re­tail­ers to in­vest in the coun­try. Re­cently, the Con­fed­er­a­tion of All In­dia Traders (CAIT) signed a Mem­o­ran­dum of Un­der­stand­ing with eBay to train do­mes­tic re­tail­ers to use the on­line mar­ket space as an ad­di­tional tool for ex­pand­ing their busi­ness. The agree­ment will en­able In­dian traders to ex­port via eBay to 201 coun­tries and sell at 4,306 In­dian lo­ca­tions. Cur­rently, FDI poli­cies in In­dia re­strict e-com­merce com­pa­nies from of­fer­ing ser­vices di­rectly to re­tail con­sumers and 100 per cent FDI is al­lowed only in B2B e-com­merce.

Key Chal­lenges

An in­te­grated sup­ply chain, ro­bust lo­gis­tics and ad­vanced tech­nol­ogy, which should ideally be the back­bone of re­tail, re­main key chal­lenges for the re­tail in­dus­try in In­dia. Most of the re­tail gi­ants in­clud­ing on­line re­tail­ers face chal­lenges in th­ese ar­eas, more so when it comes to lo­gis­tics, which re­duce the ef­fec­tive­ness of their in­ter­nal and ex­ter­nal busi­ness pro­cesses. An­other area that needs to be looked into is in­creas­ing aware­ness of the in­dus­try of the chang­ing mar­ket con­di­tions in or­der to take bet­ter and in­formed busi­ness de­ci­sions. Re­search find­ings are re­garded as im­por­tant tools by in­ter­na­tional re­tail­ers in their de­ci­sion mak­ing process; high qual­ity re­search is a pre­req­ui­site in the In­dian re­tail space.

Con­clu­sion

The In­dia re­tail in­dus­try is poised for high growth, pow­ered by e-re­tail­ing, new busi­ness ven­tures in Food & Beverages seg­ment, in­crease in ex­ports by re­tail play­ers, more favourable gov­ern­ment poli­cies, new tech­nolo­gies, and ro­bust re­search. In the com­ing times, this in­dus­try will play a key part in the coun­try’s GDP growth and em­ploy­ment cre­ation, even as its var­i­ous con­stituents en­ter the or­gan­ised fold The views ex­pressed in this ar­ti­cle are highly per­sonal, based on the re­search con­ducted by ESPL

Ruchi Sally Direc­tor, Elargir Solutions (P) Ltd

Re­tail Gi­ants: Tak­ing Stri­dent Steps

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