General Management
Mujtaba D Mir Batch 2011-13 SIBM-Bangalore A look at the Indian Retail’s past and Future
Laws like APMC-Agricultural Product Marketing Companies Act restrict direct sourcing from farmers.ULCRA-urban Land Ceiling and Registration caps the rent charged by a landlord at prime locations which reduces the landlord’s incentive to develop the area.Organized Retail in India is relatively small, around 5 % of the total retail, as compared to the unorganized retail which has a share of 95%.If FDI were allowed in retail, it would bring in expertise, experience investment in supply chain management, and huge bargaining power to retailers.
In 2005-6 many corporates entered the tantalizing retail sector. The size of retail sector was very large and the growth of industry was high. It was evident that demand was more than supply. The profitability was lip-smacking, especially in apparel and luxury products. The chance to create a company with high market capitalization was huge. Back then, investors thought that small investment would result in huge market capitalization. The industry was still in the early stages of growth. Retail also provided good diversification alternatives. McKinsey and AT Kearney came out with market reports suggesting that retail would be the next big thing in India. There were whispers about FDI in the retail segment which further added to the glamour of retail. However, things did not go as planned. The industry performance of retail had been quite poor. The new entrants did not fathom the magnitude of problems they faced. The retailers were unable to achieve break even sales. Rental Costs ate up to 80 % of revenues. The retail outlets started mushrooming in the markets causing saturation. A key factor that many of the retailers got wrong was the Merchandise Mix. In simple terms a correct merchandise mix is keeping the items which a customer wants. It is deceptively a simple concept, and is very difficult to apply. The needs and wants of customers change from place to place. The support from government didn’t work as planned, and FDI was muddled in the political storm. Retail sector does not have the ‘Industry’ status and there is no apex or regulatory body such NassCom. There is no apex because if it helps organized retail it would take away the power from unorganized retailers.Hence if an apex body is constituted it would help either organized retail or unorganized retail but not both.
Another nagging issue the retail industry has been recently facing is man power issues. Man power issues can be classified as follows: • Level 1: High attrition especially at lower levels. Due to high attrition there would be a disruption in the continuity of services provided. • Level 2: at the managerial level the costs of manpower are very high. Remuneration levels are high, and the retailers face a major expenditure in this area. • Level 3: Lack of experience in retail is quite apparent. The retail industry itself is quite new in India. Many people who came to work for retailers were from other fields and had very little experience in retailing.
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