abhishreshthaa
Abhijeet S
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).
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).