India Retail and the road ahead

Untitled

The Retail sector has been at the helm of India’s growth story and the one which has evolved in a phenomenal manner from traditional kirana stores, rural fairs and owner-manned small and medium sized shops to larger format convenience shops and plush malls and outlets growing from pillar to pillar. The Government of India also stepped up to support many rural retail and indigenous franchise stores with the help of the Khadi & Village Industries Commission. The economy began to open up in 1991 resulting in a change in retailing.

India has always been marked by its diversity in terms of geography, culture, language, religion and consumer preferences, which necessitate localization of products and services even within its geographical jurisdiction. Within consumer preferences also, there are other factors like status-oriented preferences and indulgence-oriented preferences. Consumers in the former category buy because they need to maintain a certain position in their social groups. Indulgence-oriented buying preferences, on the other hand are those where one wants to enjoy life better with products that meet their requirements. The above-mentioned factors have made Indian Retail Industry one of the fast paced and dynamic industries accounting for over 22% of the GDP of the country and around 8% of employment, according to a recent report by India Brand Equity Foundation (IBEF). The Indian retail market is estimated to be US$ 500 billion and one of the top five retail markets in the world by economic value. The revenue from the Organised retail was INR0.9 trillion ($15.5 Billion) in 2009, INR2.4 trillion ($41.4 Billion) in 2012 and is expected to continue growing at an impressive rate to a projected INR5.5 trillion ($94.8 Billion) by 2019.

Of all the transformations and evolutions that the Indian Retail Sector has gone through in the recent past, the emergence of ecommerce has been the most outstanding. This digital transformation of retail is now changing the way Indians shop and how retailers operate. The surprising thing however, is that the recent controversies around retail are nothing if not provocative. The opposition of the liberalization of FDI by Confederation of Indian Traders (CAIT) earlier this month argues that it will damage the business ecosystem of small traders; ecommerce violates the rules of the FDI.  Incase of violation the govt and judiciary will take necessary action. The individuals or groups should refrain themselves in acting like govt or judiciary. This might be the matter of clarity of policy and its communication than violation. The opposition and arguments has panicked retailers and traders across the country who are now confused. But they miss the real point here. There’s no doubt that digital technology is transforming the face of retail industry. Digital devices are changing how customers discover, evaluate, purchase, receive, use, and return products. But the ecommerce companies are also sourcing their products from local suppliers and traders which are as close as your local grocer and vegetable vendor in some cases. And it’s not just the ease of access and availability of products, ecommerce has also facilitated many logistics and payment service providers to flourish under its umbrella. Paytm plans to set up 30,000–50,000 retail outlets where its customers can load cash on their digital wallets. The company is also looking to enroll retailers – mostly kirana stores – as merchants for accepting digital payments. This will go a long way to organise how retailers and traders organise and manage their finances. Again, there are ecommerce companies who have now set up retail outlets to take their businesses a step ahead. Ecommerce Companies are opening multi city distribution hubs for e.g. Surat, Mumbai, Delhi NCR and Bengaluru to accelerate deliveries. These also in a way contribute to the retail industry and account for its growth. The marketplace is a facilitator. Many times, there are discounts offered by sellers and a small trader sitting in a remote lane in Varanasi is able to sell his products across the country at a cheaper price with the help of ecommerce by keeping overheads low than he would be able to, by associating with technology. Ecommerce gives sellers the advantage of preferential pricing from logistics companies. We already are seeing employment being generated and retail getting more organised. I am certain there is more to come in future. About half of these sales go to these local stores. What these traders fail to see is that physical stores don’t necessarily need as much foot traffic as they have had in the past to succeed. Even if 20% of their sales are shipments from online orders to nearby customers, they are still valuable. Besides, more than 72% of India’s population resides in rural areas. Majority of the retail sales comes from rural parts. Shouldn’t there be efforts to bring about a positive change in the rural sectors to make them more organised? Villages have been underestimated for not only retail sales but even many of the microfinance companies either don’t have npa or it is very less than major banks. Business today is stuck in their own myopic thoughts, or their self-created golden mouse trap. The use of technology has enabled businesses to reach customers and vendors. One of the examples worth mentioning here is e-choupal. There should me more efforts like that. Companies like HUL understand rural retail with project shakti. With some approximately 48,000 Shakti Ammas and 30,000 Shaktimaans, HUL reaches over four million households in 165,000 villages.

And it’s not just Traders that ecommerce is helping flourish. Customers are benefitted equally if not more. With e-commerce, the consumers have a wider range of choices for the needed products from the variety of sellers. It gives greater control to consumer by providing easy-to-use ordering and payment & delivery systems that allow customers to choose and order products according to their personal and unique specifications. The time saved by not having to visit physical stores is a huge factor too. Many Ecommerce sites have policies like “30 day free Returns” which enable consumers to return the product if they are not satisfied with it.

Ecommerce still has to reach a point where they are able to deliver their products to these places. Hence, physical stores still has an edge over them when it comes to reaching the interiors. Modern retail in India could be worth US$ 175-200 billion by 2016. The Food Retail Industry in India dominates the shopping basket. The Mobile phone Retail Industry in India is already a US$ 16.7 billion business, growing at over 20 per cent per year. The Govt. of India has also been very open and vocal about encouraging the retail space in India. The government of states like Delhi and National Capital Region (NCR) are very upbeat about permitting the use of land for commercial development thus increasing the availability of land for retail space; thus making NCR render to 50% of the malls in India. India is now being seen as a potential goldmine for retail investors from over the world and latest research has rated India as the top destination for retailers for an attractive emerging retail market. Recently The Government of India has accepted the changes proposed by Rajya Sabha select committee to the bill introducing Goods and Services Tax (GST). Implementation of GST is expected to enable easier movement of goods across the country, thereby improving retail operations for pan-India retailers.  Hence, looking at the data and reports, it is not justifiable to say that the Indian Retail sector is taking a backlash because of ecommerce. Department of Posts has introduced “Retail Post” to offer its vast network of Post Offices to third party in order to bring convenience to the general public by making third party products and services available in their vicinity through select Post Offices. Retail Post one of the key brands of India Post, offering utility services to the common man by providing third party’s products and services, thus providing convenience and affordability at the door steps of the common man. Retail Post leverages the vast network of more than 150,000 Post Offices across the country. The use of Post Office in India has not been as it should have been, but with time things will improve.

Although, the Govt. of India has been quite instrumental in developing the retail sector in India over the last few years but there are certain clarifications and policy level changes required.

Change is the only thing constant and that holds true in traditional business also. Traditional non-vegetarian restaurants have also started serving vegetarian food because they have to move with the time and the demands of the people. And besides, India is a diverse country where food, culture and language changes after 80 km. No single company can suffice for the demand of over 1.2 billion population. On a more optimistic note, the fusion of digital and physical innovations have come to be known as “digical”—one that creates opportunities that most businesses have barely begun to tap. A digical experience is what the consumers want and have come to expect. A digital strategy, when well executed, can outperform competitors and turbo-charge profitable growth. Retailers may be on the front line of these changes, but no company can afford to ignore them. What we need to understand is both offline and online retail companies have to work together to ensure better prospects for the overall retail industry, while generating innovative benefits for their customers.

Nevertheless, the long-term outlook for the industry is positive, because of rising incomes, favourable demographics, entry of foreign players, and increasing urbanisation and support of the Govt. of India.

ABOUT THE AUTHOR

Leave a Reply

Your email address will not be published. Required fields are marked *

About Thinking Aloud

“Thinking Aloud” reflects the emerging trends and varied outlook of the rapidly evolving internet and communication sector. An IAMAI publication, this is a part of the market education initiative of the association.


Read More

Internet & Mobile Association of India,

28, 1st Floor, Okhla Industrial Estate, Phase – III, New Delhi-110020 (India)
Call: +91 011-46561690
Email: contact-us@thinkingaloud.in

News

Newsletter