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Chains Need To Improve Value Offering
INDIA’S nascent retail boom appears to be faltering in the face of high costs and inadequate consumer response. The newer retail chains are going slow on expansion while some of the relatively established ones are closing down their unviable outlets. The shares of most retail companies are trailing over 50% below their 52-week highs. This early stumble, however, does in no way diminish the longterm potential of organised retail; rather it calls for an examination of assumptions underlying the existing model of retail expansion. The dominant paradigm was that anyone who built scale quickly in an environment of limited competition would enjoy a significant advantage. This was rooted in the belief that the Indian consumer would buy anything at whatever prices if sold in big-format modern stores. This segment has turned out to be minuscule; the majority of Indians ,it appears, is as value conscious and discernible as ever. High footfalls in malls are often, in the absence of entertainment options, just family outings that do not always translate into spending. Meanwhile, the fast growth and attendant surge in rentals and manpower costs have caused expenses to go well beyond initial estimates.
This calls for a mid-course correction, as the long-term fundamentals of organised retailing are still sound. Organised retail has a small share in the total retail business. With its scale economies and lower distribution costs it has enough room to grow. But this growth is evidently not easy picking as traditional retail has its own advantages — family labour, lower rental costs, ability to extend credit and proximity to the customer. The retailing industry, therefore, needs to constantly think costs and how it can enhance its value-offering to the consumer. Rapid expansion at high fixed costs is not going to work. It also needs to appreciate the political economy of retailing. Unless the multitude of intermediaries of traditional retail — whose incomes are being dented — are made stakeholders in the retail revolution, conflicts are bound to increase.
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