Organised Retailing: Opportunities and Challanges

Retail has no doubt opened up a plethora of opportunities to be explored along with challenges to tackle. Diversity in terms of culture and consumer behavior is something quite unique and that’s what makes the whole scenario even more exciting

Some experts believe that the most important tool to tackle and enjoy the coming wave of retail would be the understanding of consumer behavior, however few others believe that its all about putting the right things at the right place and that is what brings us to a level of deeper understanding of the underlying issues which have been ignored or rather being looked over…

As per the AT Kearney survey, India has been ranked as the most attractive retail market among 30 nations beating Russia and even China. The best part about this survey is that India got the best rank in the “saturation” index supporting the fact that the market potential is immense and a lot of room is there… Talking about the current retail scenario… India hasn’t done too bad…We have been ranked as the 8th best retail market in the world (Retail forward global retail outlook, December 2004). India’s fast growing is forecast to approach Italy’s slow growing market by 2008 as it loosens restrictions on foreign ownership of retail stores. The point highlight the long standing debate about FDI in retail for which the likes of Wal Mart are lobbying in the PMO for a while now… Micheal Duke, Vice Chairman – Wal Mart recently visited India and to a reply to a question asked in an interview about eagerness of Wal Mart to enter India, he said “Is 10 the highest” and then practically answering “10. Or Can I say 10+? We are very eager. We see a terrific country that offers so much opportunity.” (Source: BT, April9, 2006)

Another major area of opportunity is the employment. Retail is the biggest employment generator with employing 75 of the total workforce i.e. approximately 21,000,000. The number is expected to go up by 8,000,000 once the organized retail takes plunge.

Organized retail currently forms just 3% of the total pie… however the growth over the net 3 years would be 30% annually. The unorganized retail in India has a lot to do with the food and grocery shops and the penetration of food and grocery in organized pattern is mere 1% indicating an immense opportunity to explore and grow. Big Bazaar of Pantaloon Retail India limited started a series of “Food Bazaar” throughout the country and it now forms an integral part of their offering. Other players like RPG, Pyramid are also operating on the same lines by understanding the underlying benefits.

Another factor which is contributing to this positive wave is that in India, 53% of population is young (Source: HSBC). The definition of “young” here is a person who is of or less than the age of 25 years. It highlights the growing shopping trend as it’s the modern Indian youth whose average salary is increasing and hence the higher disposable income find its way to shopping.

As they say… there aren’t any free lunches….
The retail opportunity is no doubt big… but are we ready to accept it? Do we have the required resources to avail this goldmine?

Capital investment required is 5 bn US dollars however as per the current trend, the initial domestic investment is at close to 1 bn US dollars, the investors have to look at this perspective and find out the way to cover up the deficit of 4 bn US dollars.

Human capital is other grey area for this sector. The job opportunities in India has changed the employment preference of people especially youth who prefer working in IT/ITeS sector...The most important reason behind this behavior is the lack of awareness about the growth opportunities amongst people. With the growth, the number of persons required would be high and to tackle such fears…, companies like Pantaloon Retail India Limited has tied up with various institutes where there is a specialized program on retail management.

The technology that we use today in Indian domestic retail stores is not up to date as per the western counterparts. Recently the retailers association of India decided about making bar code compulsory for all the retailers to adopt. Whereas the stores like Wal Mart, Tesco etc. are using modern ERP systems with RFID technology to stream line and automate supply chain in order to increase efficiency.

Infrastructure needs to be improved especially if the foreign retailers are to be welcomed in India. Even at the domestic front, the retailers are facing problems with the soaring rates in property which is preventing them from leveraging the benefits of mass reach. Companies like Pantaloon Retail India Limited have established a property arm recently which will take care of the construction and mall management activities.

Overall the opportunity in retail looks big. The business looks promising, scalable and profitable. The challenges are daunting however with the right approach and right policies from government, the way can be made easier and the time to capitalize is… NOW!

Coming Up Next: FDI in Retail