Organized Retail in India

Opportunities & Challenges

Current Scenario
Today retailing is largest contributing sector to country's GDP i.e. 10% as compared to 8% in China, 6% in Brazil. Modern retailing is capable of generating employment opportunities for 2.5 million people by 2010 in various retail operations and over 10 million additional workforces in retail support activities. Organised retail which presently account for only 46% of the total market is likely to increase its share to over 30% by 2013. The total size of industry stands at $475 Billion and is expected to touch $650 Billion by 2015-16.

Organized retailing is growing at 8% 2nd largest contributor to GDP after agriculture at 20%. Pattern of consumption changing along with shopping trends. Consumer spending increasing at 11% annually. Almost 25 million sq. ft. retail space available. Paradigm shift in shopping experience for consumers pulling in more people.

Strengths

Weaknesses
Shortage of quality retail spaces at affordable rates. Government regulations on development of real estate(Urban Land Ceiling Act) Need to provide Value for Moneysqueezing margins Lack of industry status. Retail revolution restricted to 250 million people due to monolithic urban-rural divide. Lack of huge investments for expansion

Increasing urban population-more participants in retail revolution. Increase in consuming middle class population. Social factors, like dual household income has enhanced spending power. Spends moving towards lifestyle products and esteem enhancing products. Average grocery spends at 42% of monthly spends-presents a huge opportunity. Increase in use of credit cards.

Opportunities

SWOT Analysis

Threats
Rising rental costs affecting project viability Poor monsoons and low GDP Growth could affect consumer spending Archaic labour laws are a hindrance to providing 24/7 shopping experience. Personalized service offered by Kirana stores Unavailability of qualified personnel to support exponential growth in retail. Differentiate taxation laws hindering expansion

Challenges Fragmented Supply Chain

Multiple Legislative Laws Cumbersome Labour Laws Escalating real estate prices Complexity in tax structure

Implications High wastage and high product cost

Hinder fast expansion and increase overall cost. Limits organized retail business of 24*7 Higher operational costs Rate, classification and procedure is different across the country Beginning of specialized training centre and specialized course on retail

Shortage of Manpower

Cultural Disparity
Industry status

Understanding customer choice and preferences is different

Far away from benefits of Industry status

Major Infrastructural problems in Organized Retail Industry in India

21%

14%

30%

7% 7% 21%

Parking Public Transport Squatting Sewerage Power Supply Low Govt. investment

Major Players
Subhiksha (Non-operational)

Business Model
High Volume and Low Margin Model

Pricing Strategy
Low Price and Low Margin

Product Mix
Fresh Fruit and Vegetables, grocery, pharmacy and mobile phone Branded and Private label apparel, Personal care products, leather products, Books, Music, Toys, Consumer durables, Home Furnishing, Food and Grocery Fresh fruit and vegetables, staples, FMCG and Dairy products House Hold merchandise, groceries, Footware, toys, home furnishing, mobile phones, watches, toileteris items.

Challenges Faced
Faced in balancing in mad expansion plan and in deciding demand prone product mix. MRP Laws, Rising Real estate Price, Unavailability of Land.

Pantaloon

One stops shopping model (Over 2, 50,000 SKUs.)

Maximising on Gross margin

Reliance Fresh

Farms to forks model is adopted to operate business.

Disintegrates intermediary and reduce cost of fresh produce. Price suit to every targeted customer

Political Interface and people movements against the retail giant at various places Managing the expansion plans with supervising demands of consumers and keeping economic of scale high.

Vishal Megamart

Small format models which later on converted into hypermarket model. Focusing on lower middle income group

Globus

Departmental Store

Amazing Price suited to every YOUTH.

Apparel for men, women, kids and accessories

Managing the expansion plans with supervising demands of consumers and keeping economic of scale high. It will take time to position the brand in the mind of customer

Coupon Mall

One stop model targeting Tier II and III cities.

Big Brand, big discount

Apparel, Jewellery, luggage, home furnishing

Recommendations
There is a need for setting up of Retailers Co-operatives which function as distribution centres and warehouses. It will help the retailers to buy the products they want directly from original manufacturers in bulk quantity. Mergers of weak retailers and buy out weak retailers by a stronger one are other important steps. This will give new retailers the desired leverages to be world class. Networking of Independent firms believing the use of technology for business excellence and pressurizing suppliers and others channel members to use compatible technology.

Suggestions
Accord Industry Status to Retail : Industry status should be given to improve retail development, to facilitate organised financing and to establish insurance norms. Incentives for Investments : Tax holidays norms for cold storage chains, infrastructure and investments in supply chain should be enacted. Comprehensive Legislation : Comprehensive legislation should be drafted and enacted with futuristic approach. Eliminating Archaic Laws : Laws, Essential Commodities Act, APMC Acts, Licensing restriction, differential taxes, stamp duties, should be simplified and put in proper place so that it would not hinder growth of retail sector. This will help in creating "Commodities Futures Markets". Allow Foreign Direct Investment (FDI) in phased manner : Allow foreign direct investment in the company according to financial planning. Rationalise the tax structure : The current multipoint taxation should be rationalised. Government should introduce a uniform taxation system across the country to relax the law that hinder inter state flows of goods. Amend the existing cumbersome labour laws: The existing labour laws needs to be amended on an urgent basis in order to support the growth the growth of organised retailing and to develop India as a sourcing hub. Announce a national policy for retail: The Government should announce a National Retail Policy that allows the coexistence of both organised and unorganised retail and address issues such as sourcing, contract farming, movement of goods across India and also defines clear cut guidelines for the functioning of retail sector in India. Establishment of National Commission on Retail: The national commission on retail must be established. Streamline the process of clearance Encourage PPP model for infrastructural development Reduce impediments to inter state movement of goods Enforce uniform quality standards Setup a regulatory body for the governing the operations of retail sector.

References
Sanjay Manocha and Anoop Pandey, Organized Retailing in India : Challenges and Opportunities, VSRD International Journal of Business Management Research, Vol. 2 (3), 2012, 65-80.