AvantGarde

Retail in India was always a challenge from marketers’ point of view, but the consumers are always spoilt for choice. Consumerism in India is witnessing an unprecedented growth driven by a young and working population, urbanization, rising income levels, favorable demographics as well as growing brand orientation. The Indian retail market which is estimated to be worth US$520 billion(2013) and is expected to grow at a CAGR of 13%, reflects this very well. Growing at this rate it will reach around US$950 billion by 2018. Organized retail penetration, currently estimated at 7.5%, is expected to clock a 19-20% p.a. growth to reach 10% by 2018.

With limited space in ‘Avant Garde’, I’ll try to throw some light on this industry through sub-topics like Industry formats prevalent in India, what goes into your purchasing at store, most common strategies that retailers adopt to maximize sales, future growth prospects, and concerns of top management. The article is based on my interactions with big Retailers like Madura Fashion & Lifestyle, More Super & Hypermarkets, Pantaloons Fashion & Retail Ltd. etc., supported with my research on this industry.

Retail Formats

Let’s take a step back & understand how this industry works and exciting dynamics that are prevalent. In India, the retail landscape constitute following formats –

• Departmental stores -> Westside, Shoppers Stop etc.
• Hypermarkets -> Big Bazaar, Aditya Birla Retail etc.
• Supermarkets/Convenience stores ->Aditya Birla Retail, Spencer’s etc.
• Specialty stores -> Titan, Croma etc
• Cash & Carry stores ->Metro, Reliance etc.

Ever Made A Purchase At Retail Store?

There are many teams that are constantly sweating it out to make your purchase a wonderful experience such as the following ones -

• Analytics - There is an Analytics team that takes real time data from Point-of-sale (cash counters), several feedbacks & even customers’ movement track from security cameras; and translate the data into meaningful information.
• Merchandiser/Category - These teams use this analytics to decide the merchandise to be displayed over the shelf.
• Buyer - A buyer negotiates & finalizes the vendor to fulfill the supply of products.
• Space Planners - These work out the allocation of shelf space in the stores to different merchandises.
• Replenishment - These teams plan out the replenishment structure of merchandise, i.e. re-order levels, minimum order etc.
• Supply Chain - This team ensures the transfer of merchandise from warehouse, DC or vendors to respective stores at the right time & with the right quantity.
• Operations - This team make sure that merchandise is available on shelf & get sold to the customers.

Strategies Retailers Use For Sales Maximization -

Offering discounts

• Most retailers have advanced off-season sales for 15 -30 days with discounts ranging from 20-70 % on certain products
• Higher discounts and other value added services for members

Lowering prices

• Certain retailers adopt ‘First Price Right’ approach. Retailers do not offer discounts under this strategy – they directly compete on the selling price by offering a best price without any markdowns

Offering value-added services

• Companies offer innovative value added services such as customer loyalty programmes, happy hours on shopping deals
• Offers for senior citizens, contests for students, and lottery gains are now very common

Leveraging partnerships

• In order to keep customers shopping for a longer time and increase conversions, retailers are now pitching to partner with manufacturers, service providers, financial companies, etc. to create a buzz around certain product categories

Industry Outlook

Organized retail market in India is burgeoning and is expected to grow at CAGR of 19-20% over the next 5 years. This will be driven by a demand, supply and also several regulatory factors which are deemed to be the future growth engines. Following are the factors that drive the growth in the Indian Retail industry: -

Regulatory factors – Liberalization of FDI policies in retail coupled with the expected roll-out of the Goods and Service Tax

Demand-side factors – Rising disposable income, increasing urbanization, highly aware and affluent young population, growing number of working women and changing consumer preferences

Supply-side factors – Rapid real estate and infrastructural development, easy availability of credit, innovative physical and online channels, increased service orientation

Top Concerns for Retailers

Organized retailers in India have experienced rapid growth over the last decade. This growth comes along with a significant cost that has been incurred to achieve it. The returns from the business are a concern, especially with respect to the investment of time & capital during its gestation period. Following are the top concerns that Retailers are anxious about: -

• Inventory management
• High operating costs
• Working capital management
• Complex regulatory framework
• Talent retention
• Slowing revenue growth & low retail productivity
• Inflation
• Inefficiencies in the supply chain
• Achievable profitable growth

Inventory management is a top concern for Retail CFOs. This is largely driven by the vagaries in the Indian supply chain such as long lead times and ordering cycles, low fill rates and lack of process orientation. These result in low turns, high inventory holding and high investment in stock.

Retail & You

With this background, it is quite evident that Retail in India is a challenging industry to work for, and hence there is lot to learn from its operations. This is the best industry that help you to understand the consumer dynamism more closely and accurately. At an early stage of career, the industry let you handle good responsibilities in managing people, finance& operations. Not just the internal stakeholders, it makes you well equipped to face external stakeholders as well, like vendors, regulatory authorities etc. The thick experience that you’ll gain in this industry can open avenues in FMCG and upcoming e-Commerce industries as well.

On the other side, as the industry grapple with thin profitability margins & complex regulatory guidelines, it becomes difficult to stay motivated with all the hard work that goes with less pay structure.

Nevertheless it is the industry that will keep you super-charged for the rest of your life.

So, ready to join?

References

1. Retail report from ‘India Brand Equity Foundation (IBEF)’, March 2014 (www.ibef.org)

2. ‘Pulse of Indian Retail Market – A survey of CFOs in the Indian retail sector’, March 2014 – by EY and RAI

3. ‘Global Power of Retailing 2014 – Retail beyond begins’, 2014 – by Deloitte

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About the Author

Vipul Mathur is an alumnus of the M.B.A. programme at I.I.T. Kanpur(Batch 2005-2007). Currently he is a Senior Manager – Supply Chain Projects (Corporate office) with Aditya Birla Group, Mumbai. Vipul has a rich experience in industries such as Retail, Textiles, Manufacturing & Telecom with functional specialization in Supply Chain Management, Business Process Improvements, Strategic Projects Evaluation & Commercial Excellence. Vipul is also an avid photographer with a keen interest in Digital Photography.