Khadim from Kolkata is a classic example of how a humble beginning can lead to the gigantic steps of offering shares to public.
How to become profitable in retail business?

The Indian Retail Industry is poised to grow exponentially in next 10 years. The demographics of our country are screaming loudly about the potential that we hold for both the Retailers and the consumers. Despite the emergence of organized retail space in various formats like super markets, hyper markets, specialized stores, brand specific stores, experiential stores etc., the industry is yet to scratch the surface of the huge potential that our 125 crore population brings.

How does a retailer can participate in the growth?

 Irrespective of the size of the business, the growth will benefit one and all. With the availability of capital, larger format of stores with regional/national presence will dominate the markets.  The small mom and pop store or the local store in the neighborhood will more become the store for immediate needs on a daily basis whereas not so frequently used items of bulk purchase will move to larger formats. The local Kirana shops will become the delivery partners for many ecommerce platforms going forward. The consumers especially in urban India are looking for experiential purchase. The ambience, the comfort, the infrastructure and the overall experience of the consumer will play a big role in consumer preference. By investing in the above requirements, the retailers can attract larger footfall and sales. The other way to grow is to decide the segment of the market that you want to serve and focus on the same. A classic example is DMART super market that is focused on catering to middle class and mass affluent and have relentlessly worked towards the same. They have realized that if they offer variety and quality at a particular price point, their target segment will come. This segment is the aspiring population that is currently happy experiencing the transition from a Kirana shop to a super market.

Government of India (GOI) support: The GOI has been very silently opening the space for FDI and other forms of large inflow of capital in the industry. The GOI has recognized that the world is very excited with the tremendous potential that we offer as a country and hence are opening up and making it easy for the large players to set shop in India. In last few years, many names like IKEA, Sketchers, Starbucks, Marks & Spencer, Amazon, and Apple etc. have been increasing their stakes and footprint in India. We are today one of the most preferred destination for the global brands and investors.

With the passing of crucial bills like GST and regulations like RERA (for real estate) and also making the FDI norms flexible, our government is sending the right signals to one and all who wants to ride the good times of the industry.

Future areas to invest: The key segments of the industry that will see big investments will be Logistics, Infrastructure, Storage, E-commerce etc. Without the development of these sectors, the industry’s growth will be slow and will lead to lot of leakage and wastages. Today 65% of the industry consists of food & grocery items that means good infrastructure and logistics are far more important than ever before.

Fuel the growth: The huge growth potential will only be beneficial to those who are ready for it. It will not benefit all the participants, as the rule of “Survival of the Fittest” will come into play.  Raising the required growth capital can only fuel the growth. To combat the onslaught by large foreign players with deep pockets, one needs to raise capital at regular intervals or get consolidated with another me too players thereby increasing ones wherewithal. We will see the emergence of franchise model in a big way as an important means to expand and also provide growth opportunities to aspiring entrepreneurs.

Should you be raising funds: This is an important question that every entrepreneur will have to answer in their journey. As an owner of the business, you will always be sandwiched between merits and demerits of raising the funds. The biggest hurdle will be your inner voice that will keep warning you that raising funds will ensure loosing one’s independence to the investors. On the positive side, the extra funds will help you expand the current geography and go national as well. There will be a point in time, where funds will become the biggest requirement for your business to grow and survive. The other reasons to raise the fund could be unlocking the value or providing exit to another institutional investor. 

If Yes, When is the right time: The right time is when you need the funds and have exhausted all your internal resources. I know couple of companies where in I have invested in, the promoters continued to resist raising 3rd party funds till they reached a certain size in the business. The idea is to maximize value proposition to the potential investors. You stretch without external funds because you are sure of your story. The right time could be when you are seeing an opportunity to acquire or expand in geography and you don’t have funds or when you want to unlock some value for yourself. 

Various ways to raise funds: In the modern world, there are multiple ways to raise funds and there are multiple categories of investors willing to invest in you. The most popular external way of raising funds is Private equity, Angel investor, Start up funds and Public issues. Though equities are expensive way to raise funds but that is unavoidable as your company may be at a stage that it can’t service debt on time. The regulators have facilitated small players to list and unlock value by making the entire process of raising funds for small and medium enterprises simpler and speedier. The investors are both institutional like Mutual Funds, PE Funds, Start up funds etc. and also the high net worth individuals who are looking to invest in growth capital.

Conclusion: Khadim from Kolkata is a classic example of how a humble beginning can lead to the gigantic steps of offering shares to public. The promoters continued to work on their strength rather then trying for unrelated diversification and they are reaping the benefits. As a retailer, keep the long-term goals intact and fuel it with your focus, commitment, passion and the desire to serve your customers with the right value proposition. Both the consumers and the investors will recognize you and will happily pay premium to you.  

The article has been penned down by Lokesh Nathany, Life & Financial Coach, Co-Founder, Coach & Mentor, DiSRUPPt Thinking LLP

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