All lost some, some lost all. Everybody evolved (Hopefully). Change in the air now, with new strategies being adopted by retailers to enable them to better manage the dynamics of this business. But can this misery-inspired ingenuity help organised indian retail produce the numbers that have eluded it so far
According to FICCI, there are approximately 200 malls in Delhi and NCR region and out of that, only 20 are profitable. So what makes the other 90% of the malls struggle to make profits? Retailers Association of India (RAI) claims the four major problems are poor site selection, vertical expansion, commercialization issues and lack of professional advice. Vertical expansion relates to vacant malls with multiple floors and a certain recipe for disaster is to have a shopping centre in a poor site (very few stores and not many footfalls) with a large number of floors. When Bharti-Wal-Mart decided to open its first cash-and-carry joint venture store last year in Amritsar, it avoided opening in a time-honoured malls with multiple floors.
The impact of poor commercialization can be understood from the fact that apparel retailing, which forms the second largest (food being the first) in terms of value in the retail industry, has been growing at 14% till August 2010; whereas it was estimated to grow at 19% if there was no slowdown (a Confederation of Indian Textile Industry study). Poor commercialization in terms of over-spending on ad-budgets is blamed as the reason for such poor growth. Comparatively, food retailers played it safe and brands like Bhart-Wal-Mart managed commercialization issues very well. Rajneesh Bhasin, present MD of Borges India Private Ltd., who was spearheading the setting up of the Bharti-Walmart store, elaborates to B&E, “The store was opened when slowdown was at its helm and we knew that we have to commercialize it. For instance, to keep costs down, 80% of goods were sourced locally.”
To combat poor conversion ratio of investment to revenues, it’s necessary to hedge the increasing working capital requirement and this can be done by managing not only rental costs, but also by sourcing goods from local vendors and saving cost of logistics. It’s no wonder that retailers are today even opening stores on a revenue sharing basis with property owners, which lowers down rental expenses. However, going a step ahead, Pantaloon from Kishore Biyani’s stable has adopted a deft-strategy in post slowdown era. The group has saved costs by not filling the gap created by attrition on the front end. On the other hand, for all the private label brands, the group has created a common sourcing level for Big Bazaar, Food Bazaar and Pantaloon. “We are also leveraging a common platform for advertising all our ventures and this has been able to save our costs by 20% during the last quarter,” adds Vineet Jain, GM – Sales & Merchandising (North Zone), Future Value Retail. Future Group is now focusing more on private labels for their higher margins and increasing appeal for customers.
In all probabilities, private labels or in-house brands with their economical pricing attract consumers more and all food & grocery retailers, who were earlier cashing in on established brands, are apparently going gung ho on creating private labels post-recession. But if private labels can emerge as a remedy to the horrible growth during slowdown then why didn’t it save retailers in Europe who have been thriving on private labels? According to Planet Retail (London-based research consulting firm), the share of private labels is the highest in Europe, where private label penetration has reached 53% in Switzerland, but retailers in these countries were also affected by recession. “Retailers in European countries failed during the slowdown because of their failure to manage local logistics and increasing cost of sourcing,” comments Gibson G Vedamani, Founder & MD, Retailers Association of India. One reason why, post the economic meltdown, just moving on to ‘private labels’ is not the end of the strategy win game. Retailers across the world are also focussing on cost optimization in sourcing such private labels.
So does that mean that in the next five years, we won’t see a luxury retail growth or even normal retail expansion in metros (where the markets, apparently, are saturated)? Jeremy Hackett – the creator of British premium brand Hackett, which recently ventured in India, gives us a shocker, “I think India has a market for luxury but it’s in a very nascent stage so it’s not safe to bet big here initially.” But that is also akin to seeing the glass half empty instead of half full. That is, if the organized retail penetration, which is currently at 5%, will only reach only around 10.4% in India (as per the critical KPMG forecasts), one has to realise that seen in the Indian context, 10.4% is quite significant. If by the same critical forecast, sales grew by a mere 8% in 2009 till July 2010 (compared to 34% in 2007), one has to again realise that compared to global averages of negative retail growth, 8% is godly. In other words, while luxury retail clearly is out of context in the coming years, normal retail expansion in metros might be there, but the growth will be two-folds in tier II and tier III cities and even rural areas. Those are the regions that will contribute significantly to make India the most attractive emerging market for retail investment – with the AT Kearney eighth annual Global Retail Development Index being a benchmark India would one day hope to top. The key words, if you missed them, are ‘one day’... and that is surely not today!
think the way out. “He is too trapped by the baggage of the accumulated wisdom of that industry, so the longer the tenure of the industry incumbent, the more a company will benefit from getting rid of him,” says Hambrick.
