ChallengestoRetailDevelopmentinIndia

byVSRamaRaoonNovember12,2009 OrganizedretailinIndiaislittleoveradecadeold.Itislargelyanurbanphenomenonandthepaceof growthisstillslow.Someofthereasonsforthisslowgrowthare: 1)RetailnotbeingrecognizedasanindustryinIndia:Lackofrecognitionasanindustryhampersthe availabilityoffinancetotheexistingandnewplayers.Thiseffectsgrowthandexpansionsplans. 2)Thehighcostsofrealestate:RealestatepricesinsomecitiesinIndiaareamongthehighestinthe world.Theleaseorrentofthepropertyisoneofthemajorareasofexpenditure;highleaserentalseat intotheprofitabilityofaproject. 3)Inadditiontothehighcostofrealestate,thesectoralsofacesveryhighstampdutiesontransferof propertyitvariesfromstatetostate(12.5%inGujaratand8%inDelhi).Thepresenceofstrongpro tenancylawsmakesitdifficulttoevicttenants.Theproblemiscompoundedbyproblemsofcleartitles toownership,whileatthesametime,landuseconversionistimeconsumingandcomplex,asisthe legalprocessesforsettingofpropertydisputes. 4)Lackofadequateinfrastructure:Poorroadsandthelackofacoldchaininfrastructurehampersthe developmentoffoodandfreshgroceryretailinIndia.Theexistingsupermarketsandfoodretailershave toinvestasubstantialamountofmoneyandtimeinbuildingafoodchainnetwork. 5)Multipleandcomplextaxationsystem:Thesalestaxratesvaryfromstatetostate.Whileorganized playershavetofaceamultiplepointcontrolandtaxsystem,thereisconsiderablesalestaxevasionby smallstores.Inmanylocations,retailershavetofaceamultipointoctroi.Withtheintroductionof ValueAddedTax(VAT)in2005,certainanomaliesintheexistingsalestaxsystemcausingdisruptions inthesupplychainarelikelytogetcorrectedoveraperiodoftime. RetailSnapshotBelowfocusesonanadditionalsurchargeonretailproposedbythegovernmentof Kerala ThegovernmentofthestateofKeralasaiditwouldslapa10percentsurchargeontheprofitsofretail giantstodiscouragethemfromopeningmoreoutlets. ThestatesgovernmentknownfortakingonmultinationalssuchasMicrosoftCorp,andCocaCola Co,announcedthetaxinitsannualbudget.Wehaveshownaredlightbyimposingasurchargetaxon thenetprofitsofbigretailcompanies. ThemovewasthelatestsalvobytheKeralagovernmentagainstplansbydomesticconglomerateto operatechainstoresinthepalmfringedcoastalregion,oneofthecountrysmaintouristdestinations. ThedecisionsunderlinedtheobstaclesfacingbigretailersinmodernizingIndiassmallshopkeeper landscapeof15millionfamilyrunoutletswhichfearbeingforcedoutofbusinessbylowerpriced, plasticwrappedproduce. Theannouncementcameafterademonstrationagainstbigretaillastmonthbytensofthousandsof

tradersinThrissur,300kmnorthofthestatecapitalThiruvananthapuram. Indiaslargestprivatesectorcompany,RelianceLtd.(RIL)hasalreadyopenedstoresinKeralaand elsewherebuthasbeenforcedtoscalebackitsplansformoreretailopeningsbecauseoftheprotests. TheUttarPradeshgovernmentlastyearorderedtheclosureofstoresrunbyRILandanotherchain afterattacksbyprotesters.LackofgovernmentspermitsalsoforcedRILtoputstoreopeningsonhold inWestBengal. Atthisstage,weanalyzetheIndianretailindustrybyusingthefiveforcesframeworkcreatedby MichaelPorter.MichaelPortersFiveForceanalysisisatoolforthestructuralanalysisofindustries. Understandingeachofthefiveforcesandhowtheyinteractwithoneanotherprovidesaclearpictureof thedegreeofcompetitionbeingfacedwithinanindustry,andtherefore,itsrelativeattractiveness. <! google_ad_client="capub8639156531433549"; /*CiteManAdlink*/ google_ad_slot="7102116790"; google_ad_width=468; google_ad_height=15; //><! google_ad_client="capub8639156531433549"; /*CiteManAfterArticle*/ google_ad_slot="1421186277"; google_ad_width=336; google_ad_height=280; //> Theretailindustryisfocusedonthesaleofgoodsormerchandisefromaspecificlocationfordirect consumptionbythepurchaser.NorthAmericaisthehomeofmostoftheworldslargestretailers,since theU.S.dominatestheglobalretailingindustry.Notonlyistheretailindustryresponsiblefortwo thirdsoftheU.S.sGDP,U.S.retailcompanieshavealsoestablishedapresenceoneverycontinent.The largestretailgiantsgloballyareWalMart(USA),MetroAG(Germany),Carrefour(France)andTesco (UK). Theindustryemploysastaggeringnumberofpeople,andgivenitsrapidproliferation,thisnumberis alwaysontherise.Thebackboneofthesectoraretheoperationsandsupplychainmanagementjobs buttherearevariousotheroptionsaswell,fromsalesexecutivesandstoremanagerstomerchandise plannersandbuyers. Performance Intodaysdynamicandshakybusinessworld,theretailindustryisconstantlyupgradingitself.Withan endlessarrayofcustomerchoices,fiercecompetitors,pervasiveuseoftheinternet,andacomplex global economy, retailers need to focus on finding ways to sustain and grow their businesses. Traditionalgrowthmodelsthatfocusedonrollingoutmorestoresandaddingmoreproductlines,no

longerenjoythereturnoninvestmenttheyoncedid.Successfulretailersarethosewhoareabletoadapt andchangetotheenvironmentanddevelopnewwaysofservingcustomers,respectingthedynamicsof currenttrendsandadaptingaccordingly. TheretailindustryinIndiaishailedasasunrisesector,andisestimatedtodoubleinvaluefromUS$ 330billionin2007to$640billionby2015.Infact,IndiahastoppedATKearney'sannualGlobalRetail Development Index (GRDI) for the third year in a row as the most attractive market for retail investment. Thebadnewsis,despitethefactthatIndiahasoneofthelargestnumberofretailoutletsintheWorld, organizedretailaccountsforonly4%ofthetotalmarket.Thismakesitespeciallydifficulttoapply sophisticated merchandising and sales tools, enhance consumer interaction and also, make very accurateanalysis.Thatsaid,analystsbelievethesectorislikelytoshowsignificantgrowthofover9% p.a over the next 10 years and also see rapid development in organized retail formats, with the proportionlikelytoreachamorerespectable25%by2018. GrowthPotential Thekeygrowthareasincludetheurban,luxurysegmentononeendofthespectrumandservingthe ruralsectorontheother.Inaddition,governmentpolicyencouragingFDIinthesegmenthasresulted inaplethoraofinternationalretailerskeenonenteringthemarket;AmericanretailgiantWalMarthas tiedupwithBhartiEnterprisesandglobalcoffeegiantStarbucks'hastiedupwithPVRLimited.In addition,Carrefour,Bootsandothersarealsoexpectedtocomein. Withsomuchaction,itisnaturalthatthereisahugescopeforemploymentopportunities,andexperts estimatethatthesectorwillgenerateemploymentfor~2.5millionpeoplein2010.Thetopretail companiesinIndiaincludetheRahejaGroup,RelianceRetail,TataTrent,FutureGroup,RPGRetail, andEbonyRetailHoldings. FutureProspects Therearemanyopportunitiesforthoseseekingtoenterthissector,andentrylevelpositionssuchas salesexecutivesdontevenrequireadegree.Naturally,thehigherorderjobsforgraduateswithrelevant degrees and workexperience,involvemoreresponsibility,challengesandremuneration.MBAsare increasinglybeingrecruited,whichmarksachangeofHRpolicy,fromthetraditionalpreferencetohire thosefromtheFMCGandhospitalitysectors.Infact,seniorexecutivesinretailsuchasoperations headsareextremelywelllookedafter,andHRconsultantsbelievetheyarepaidinexcessofRs.60 lakhs. Thegoodnewsforgraduatesisthatsincethesectorissoyoungandvibrant,careergrowthhappens very rapidly, and these positions are very achievable in a compressed time period. Successful candidatesacrossalllevelsarethosewhoaredynamic,abletomultitaskandareequippedwithgreat communicationskills.

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