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Will Retail Survive The Downtrend?

Monday, August 26, 2013
By Mayura Shanbaug

There seems to be gloom and doom every where in the country, so one expects the retail industry to follow suit. To a certain extent they are right, but the voices of the captains of the industry unanimously say that the 1.2 billion Indian buyers will keep their businesses going. And this difficult time is just another learning curve for them to strategize differently and write the Indian retail story all over again…. 

According to Boston Consulting Group (BCG), the Indian retail market is worth $500 billion (around Rs. 30 trillion today). Modern retail accounts for $45 billion of this and is growing at a higher rate than the overall market. By 2015, BCG estimates that the market will be worth $775 billion, of which modern retail will constitute $80-85 billion.

And how the India of today is going to achieve the target especially when the going seems to be getting tougher by the day?

According to a study ‘Vision 2020’ by Technopak, a management consulting firm, and presented at the ‘International Retail Leaders Summit’, corporatised retail will grow from the current 8% share of Indian retail to 24% share by 2023 on the strengths of continued large share of private consumption in Indian economy, growth of alternate retail, continued spirited response from pure play retailers and continued growth of merchandize brands as exclusive brand retailers…”E-tailing will emerge as a key alternate retail channel which will drive the growth of corporatized retail,” says Ankur Bisen, Vice President, Technopak.

“Nearly $ 21 billion (56% of total corporatized retail) comes from the top 24 cities that contribute to 30% of the total retail basket,” he says. “Going forward, penetration of corporatized retail beyond these urban centres will drive growth,” he adds.

But what if the current situation prevails? “We are not that worried right now as FMCG is last hit during a slowdown,” says Manish Tiwary, Executive Director, Hindustan Unilever.

Describing that slowdown is an opportunity to start investing, Tiwary says, “In a tough economic situation we need to value loyal customers, work harder and smarter, evolve business model every quarter.” “Most importantly we need to learn to live with the crisis and be optimistic because when the cycle turns we will benefit,” he adds.

Tim Eynon, Business Head of Provogue, admits that the current situation is a new reality for the brand which prompted them to look harder at their business model. “Retailing is very expensive in India, we have to evaluate continuously,” he says. Provogue recently went online and also got in to the franchisee model of business. “The numbers at our online store is very encouraging, it is expected to drive volume for us… the margins are also higher online,” says Eynon. Provogue is also co branding with other brands to push their merchandise. It will also be associated with Indian motor racing group soon, which is expected to boost sales.  

For Avani Dawda, CEO, Starbucks India, it is a different story as Starbucks is a joint venture of two strong partners, the mighty Tatas and Starbucks, which has experience of operating in many countries. Dawda says there is no pessimism in the group as we are still gauging how the consumers react in a cycle. “We are confident that our business model is right and we are expanding at a comfortable pace,” she says.The “Rupee crisis will affect us, but it is too early to say how much,” she adds.         

Echoing similar sentiments, Devendra Chawla, President Food Bazar, Future Group, feels that the modern retail in India is in its infant stage with low penetration. “I am very optimistic as modern trade is a driver by which the benefits trickle down to other sectors or companies,” says Chawla. A “Retail store is like a theatre and multi sensorial experiences can beat the slowdown,” he feels.

Food Bazar has adopted a strategy to sell larger packs which have proved very profitable as the larger packs are sold more than the smaller ones according to the sales figures. “We do lots of occasion based marketing like Independence day sales, which has been very successful for the company,” he says.
However, Harish Bijoor, Brand-expert & CEO, Harish Bijoor Consults Inc. feels that this is ostensibly depressing time and that discount sales are like a disease for retail. “Discounts bites into your margins which is a scary thing,” he says. 36% of the sales value comes from discount sales. Bijoor feels the real retail story is that ‘Kirana stores’ of the country are not discounting. 

Even though there seems to be wishful thinking every where, but the stark reality that exists points otherwise. 

Many large Indian conglomerates, including the Aditya Birla Group and the Tata group, that have ventured into the business are finding profits hard to come by. India’s largest retail group, Future Group, is in the midst of a strategic and financial restructuring brought about by years of rampant and often indiscriminate expansion. At a consolidated level, the group had debt of Rs. 6,985 crore (including Rs. 1,554 crore of convertible debentures) on its books as on 31 December.

And aggressive start-ups such as Subhiksha Trading Services Ltd and Vishal Retail Ltd are either going out of business or being sold. Meanwhile, several foreign retailers, emboldened by the new policy, are knocking on the doors of the Indian market, although they have been unnerved by happenings at Bharti Walmart, a joint venture between Bharti Enterprises Ltd and Wal-Mart Stores Inc., which is being investigated by a government agency over allegations that it flouted rules regarding investments in retail that have since been eased with the firm’s chief executive officer Raj Jain resigning abruptly in June this year.

“Indian retail sector is very difficult and complex to enter not only for foreign investors but also for Indians as well,” says Govind Shrikhande, MD, Shoppers Stop. He points out that in India; 7%-25% of your profits go in paying the rent. Moreover, there is an additional tax on it. “India is the only country in the world which levies 14% service tax on the rent. The government needs to under stand that it is the rent is the cost incurred not the profit made,” he says. Retailers are fighting a case in the Supreme Court against this legislation. The  “India story will happen only when Legislations of this country will change,” says Shrikhande.

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