General Management
Future Outlook of retail in the next three to five years: The high rental costs are likely to come down. The real estate owners have realized that unless they work in lieu with the retailers, a mutually beneficial stage cannot be reached. • Local Saturation: The level of saturation in markets will come down. The number of non-profitable stores will come down and the retailers will breathe easy in local markets. • Wrong Merchandise Mix: Retailers will learn from their mistakes and work on correct assortment of goods. The merchandise mix will gradually improve and we would see that local factors would be taken under consideration while deciding which goods to stock. • Competition from Kirana Stores: This source of competition will persist. The Kirana have been a part of the consumer’s life for decades and sudden erosion in their power is not likely. Kirana owners’ uncanny ability to form ties and provide credit to customers has secured their position in the market. • Expansion: Blisteringly fast expansion by retailers will slow down. Retailers have realized that they cannot keep opening new stores unchecked without making sure they have the operational capabilities to do so. • Regulations: As far as regulations are concerned, only time will tell how the situation will turn out to be. If FDI is allowed then we could see a major shift of power in favor of retailers. The Indian retail market is estimated at US$ 470 Billion in 2011, accounting for approximately 35% of GDP and is expected to grow to US$ 675 Billion by 2016 at a CAGR of 7.5%. The organized retail market is estimated at US$ 26 Billion and accounts for approximately 6% of the overall retail market for 2011. The organized retail market is projected to grow to US$ 84 Billion by 2016, at a CAGR of 26%. With an estimated market of US$ 325 Billion, the Food & Grocery segment is the single largest retail category and accounts for approximately 70% of the total retail market in 2011. The organized retail segment for Food & Grocery is estimated at US$ 9 Billion and accounts for 35% of all organized retail. Forecast: As per many surveys, there will be no new entrants in the market. The only entry possibly would be with the support of FDI. The retail sector is pegged to grow at a stable growth rate of 10-15%. These figures are not as speculative as they were in 2005-06. The glamour associated with the retail sector will also fade in time. This might be good for the sector as the companies would focus on operations rather than mere visibility of their stores. The overall losses seen in the previous years are expected to reduce substantially. There is also a possibility that we might see consolidation in the market in order to reduce the high levels of competition. The internal issues which are in control of the retailers would most likely be sorted out. However, the macro level issues such as FDI regulations and fear of public backlash would still pose serious problems. A critical step that would change the fortunes of the retailers is the inclusion of Private Labels in their merchandise mix. Not only do private labels provide higher margins they also inculcate store loyalty and help in brand building of a store. International Retailers like Wal-Mart of USA and Tesco of UK have 40 percent and 55 percent own label brands representation in their stores respectively. Due to the current economic slowdown, the retail sector saw a decline in the apparel industry and a rise in consumption of FMCG or necessary products, and sectors that will lead the change are apparels and electronics. The retailers might also look to make inroads in Tier 2 cities where the rentals are manageable and the purchasing power is on the rise. The retail in the near future will move away from conventional business models and will try to inculcate innovative ideas and IT systems to reduce cost and boost sales. Retailers who survive the next 5-6 years will have a chance to become dominant players and who those players would be, only time will tell.
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