The Great Indian Retail Dream

A reality check would well be in order

You don’t need me to wax eloquent on the revolution that is the Indian retail sector at this moment. Shoppers’ Stop, Trent, Pantaloon, RPG, Future Group, Reliance Industries, ITC, Bharti and K Raheja Group; Tommy Hilfiger, Saks Fifth Avenue, and Wal-Mart — existing domestic players, emerging fresh entrants, established Indian conglomerates and international powerhouses — companies evincing an interest (and that’s understating it grossly!) in India’s ever-expanding retail rainbow are swelling by the day.

It’s the kind of stuff case studies are made of: the conventional marketplace taking a backseat with the dawn of the departmental store, specialty store and supermarket era, not to mention the advent of the discount hypermarket.

A recent AT Kearney Report placed India second in the Global Retail Development Index among 30 developing countries. The report further pegs the country’s aggregate retail market at $202.6 billion and projects it to develop at a compounded rate of 30% during the course of the coming five years. With the organised retail segment progressing at between 25-30% each year, the year 2010 is anticipated to treble their earnings, from the present $7.7 billion to $24 billion! Why then, you may wonder, do I perceive the need to write this piece in the first place? While it’s true that several of us couldn’t, with complete certainty, state that we’re sure the humongous quantum of investments that companies have declared their intent to pour into this sector will materialise, or, if barring a few, the wannabe lot will find it hard to endure the administrative pressures of glorious beginnings and elaborate expansions, I don’t believe this to be much of a predicament. As in any business, it’s eventually the competent who survive and the remainder is weeded out, so let’s keep this aspect at bay for now. Also, let’s leave out the FDI rigmarole for now.

Pondering on matters far more critical, what I wish to inquire firstly is how do you substantiate the availability of an adequate supply base for such colossal plans? Retail players would need to have in their inventory a vast variety of wares, for which the relatively frail framework of the supply end would require delivering exponential quantities at enhanced output standards and reduced charges. Think it’s going to happen in pace with the proposed extent of blazing growth in the sector? Or will the result be everyone’s nightmare, with all players flocking to the same supplier who will happily escalate his price and adversely impact the already-tight retail margins? Your guess is as good as mine.

Then there’s the issue of insufficient infrastructure that is bound to obviate a pan-India supplier channel, thereby increasing costs further, and the glaring asymmetry in the demand and availability of real estate, forget about appropriateness of location. With every big company announcing its retail plans with chains of hundreds of hypermarkets and supermarkets, it’s likely many will have to cool their heels for reasons they simply cannot help: the Indian Government and public sector units preside over maximum land in the country’s metropolitan landscape.

Skilled manpower, especially at the junior and middle levels, is the third vital area of unease. There’s just not enough existent to even contemplate commensuration with the grand plans under implementation. And that’s a fact you could well bear a testimony to, with a visit to the nearest retail store.

By no means am I in apprehension of the stupendous opportunities that India’s retail revolution has in its fold; the occasion is one every company worth its salt would do well to rise to. What’s more, the rural segment of retail presents a prospect of its own. According to an NCAER survey, the figure of lower middle income populace in rural India is double that of its urban equivalent, where organised retail is just begging to happen in befitting fashion. The need of the hour is, however, recognition and resolution of certain ground realities, be it urban, rural or satellite towns, to transform the Indian retail dream into an enduring reality...

Written On:

23/11/2006