The changing face of Indian retail

One of the biggest take away for Indian Retail is that the penetration of organised players in the sector has increased from less than 1per cent in 2000 to an estimated share of about 5 to 6per cent for 2009.

FDI effect

In my opinion, the retail revolution started towards the end of first half of the decade. Liberalisation of Foreign Direct Investment (FDI) regulations, expansion and entry of business houses and investments by Private Equity firms were some of the key supply side drivers of this revolution. On the demand side, rising consumerism, growth of small town markets and fast changing lifestyles endorsed the potential of the sector.

Learning from failures

However, towards the second half of the decade, the economic slowdown started taking its toll and the sector got into a correcting phase. Many retailers had to stall their aggressive expansion plans and follow a more inward looking approach of optimising cost structures, streamlining operations and transformations of their supply chains. During this phase, the sector also experienced the exit of several companies. The retail sector matured from learning of this phase. Some of the key learning includes:

  • Profitability in retail comes from same stores growth and new stores (operational for less than one year) typically add revenues, with costs being a prime consideration
  • Retailing is meant for strong-hearted people, as it takes many years just to develop understanding of the sector and prove one’s ability
  • Retail expansion is required to achieve a sustainable scale, however, it requires regular and committed capital infusions
  • Market and customers are fast changing, therefore retailers may be required to alter their strategies from time to time
  • Investment in supporting back-end infrastructure and business systems holds the key to growth in this sector
  • Investment in retail real estate is a long-term play and returns are dependent on the performance of the sector. Realtors now are partnering with retailers and offering reasonable terms.

Second Innings

Nevertheless, compared to our global counterparts, several Indian retailers have managed to beat the slump and emerge as clear winners. Development of private labels, increasing focus on working capital, with better merchandising and people management are some of the key reasons that have helped retailers to bounce back.

The second innings has just started and there is still a long way to go. Several winners will emerge in the coming decade albeit; these retailers capitalise on the learning from the past decade. The fast changing retail dynamics is expected to throw up many more surprises, which will result in retailers altering their business strategies from time to time.

In conclusion, to capitalise on the opportunities in the retail sector, players are required to have patience and perseverance as retail is a capital and people intensive sector.

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