Retailing, today, provides jobs to roughly 15 % of employable Indian adults, & is perhaps the largest contributor to India’s GDP. But the flip side of the coin is that today practically there are no institutes offering retailing as a vocational / professional education. Whereas the growth of the industry clearly indicates that in the next ten years nearly one million new jobs will be created in the organized retail sector alone. The first steps towards sophisticated retailing are being taken, but today the biggest task before organized retail organization is to locate and recruit knowledgeable, skilled and trained staff to handle their operations. So to stay ahead of the pack in today’s competitive and challenging retail world, one must be equipped and trained to get into this industry.
prospect for organized retailing in India
Is there a future for organized retailing in India, and if so, in what form?
Firstly, some facts must be kept in perspective. Indian private consumption in the year 2000-01 is estimated at about Rs 1,250,000 Crores. Simplistically put, this is therefore the size of total retail business in India. The present retail business is largely accounted for by over 12 Million retail outlets of all shapes and formats, and supported by street vendors, hawkers, food service outlets as well as periodic street Bazaars and Haats. Organized retailing accounts for a mere Rs 14,000 Crore or so (about 1.25%).
India has amongst the lowest per capita retail space availability in the world. As per a recent white paper prepared by KSA Technopak, India needs to create at least 110 Million square foot of additional retail space per year for several years just to meet the demand created on account of a sustained GDP growth rate of about 6%. So far, the government of India as well as State and local municipal bodies have failed to fully understand the drag on the economy of an inefficient retail (and retail space development) sector. This space crunch is leading to a situation wherein prime retail space commands exceptionally high rates. Thirdly, Indian manufacturing sector has been kept on all kinds of leash including reservations under small scale. Over the decades, the sector has become highly fragmented and it will take years of effort to rejuvenate the same to deliver high quality products at competitive prices and under reliable delivery conditions.
Fourthly, the urban as well as suburban infrastructure development has not kept pace with growth of population. As a result, there is more pressure on time due to increase in traffic and commute. This has led to an actual “reduction” of distance that consumers travel from their “home” for non-work related activity. And finally, consumers’ expectations in terms of product and services have undergone a sea change in the last 10 years and still undergoing major changes. Value was earlier having a single determinant: Price. Today, for the middle class and upward customers, Value is a complex equation having Quality, Comfort, Image and Convenience on one side and Price, Time taken, and Hassle to shop on the other. Under these “operating” conditions, new Retail start-ups must have a very well thought out “Unique Selling Proposition” which on one hand enables them to attract consumers away from the traditional shopping options to come to their own retail outlets (and once they are in, to seduce them into purchasing) and on the other hand, offer additional Value to the consumers while generating the required additional operating profit margin to pay for the higher cost of operation (as compared to the traditional retail outlet that typically has practically no rental or real estate costs thanks largely to archaic real estate / rent control laws, and has practically negligible operating expenses due to a bare bone infrastructure and manpower). Traditionally, the four major variables that retailers can play with when trying to create a USP include:
Product
This refers to the category mix, and within each category – the width and depth of merchandise on offer, and its quality related selection. It can also refer to the choice of merchandise – if it is on the leading edge or trailing edge of innovation or fashion.
Service
This refers not only to the commonly assumed parameter of “how many sales people are there to serve” or “if tea or a cola is served to customers” but to operational parameters such as “availability” of the promised merchandise at all times – in expected sizes, shapes, colors, assortment et al. Service can also refer to policies such as “returns” or “exchanges”, “warranties and guarantees”, availability of qualified personnel to assist customer queries or request for information.
Experience
This is a crucial intangible and can be a function of several factors e.g. overall store ambience; ease of shopping in terms of layout of merchandise, labeling, check-out convenience and speed, access to the store itself including parking, customer relationship effort from the store management etc.
Price
Finally, this is the fourth major variable for creating the USP. Low price itself can be the most important parameter in some instances, but more importantly, it can also imply the “appropriate price” as perceived by the consumer after subjectively assessing the impact of the other three variables mentioned above. As far as India is concerned, there have been relatively few start-ups with a clearly defined USP. Most have, so far, tried to offer all of product, service, experience and price without realizing that compromises have to be made on one or more if the business itself has to be financially and operationally viable. From a consumer’s perspective, she would obviously like the maximum choice with exceptional service and a wonderful experience – all at the lowest price!
As per KSA projections, the evolution of organized retail in India should follow the trend indicated above.
Consumer’s demand for new format shall be driving the growth for organized retailing. However, it must also be kept in mind that consumer expectations are also evolving and changing rapidly over time. Thus, for example, Department Stores per se were a novelty for the Indian consumer at the beginning of the 90’s. The ability to look at and shop for major national brands under one roof was a major USP and therefore Shopper’s Stop had an excellent run in its first 5-6 years of existence. However, as more and more retailers upgraded the space and size of their own outlets and more apparel companies opened exclusive outlets offering a larger width and depth of product, this USP seems to have lost its sheen. With the advent of Shopping Malls that offer multiple brand choices, department stores such as Shoppers Stop have to reinvent their USP or else they are likely to lose business to exclusive stores of the same brands operating in the same Malls (or others in the close vicinity).
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Another example can be in the Durables sector. The opportunity is ripe for start-ups of national or large regional chains offering a wide range of consumer durables (white and brown goods, entertainment electronics, office / home computing and accessories, and small gadgets and home appliances). The USP can be built-up on the line indicated as under.
Thus, to summarize, the emerging organized retail sector offers unparalleled opportunities to entrepreneurs and existing businesses seeking an entry in Retailing. The consumers are open to change, and several USP platforms can be occupied since at present, the “canvas” is more or less blank. However, the new entrants should carefully strike a balance between what the perceived need of the consumer is and what is financially prudent and operationally feasible from the business perspective. Having taken a decision for a particular format and its USP, the business managers must periodically review the external developments to assess if the original USP is still relevant and in case the external environment has changed, then reinvent the format and its USP so as to continue to have relevance in the Indian context.
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