Organised retail making a mark

The organised retail segment in India is expected to witness better times ahead. It can be attributed to strong economic growth expected in future; likely change in consumer needs, growth expected in young population, working women population.
Mr Kaushal Sampat

As per the US Census Bureau, the young population in India is likely to constitute 53per cent of the total population by 2020 and 46.5 per cent of the population by 2050 — much higher than countries like the US, the UK, Germany, China etc. India’s demographic scenario is likely to change favourably, and therefore, will most certainly drive retail sales growth, especially in the organised retail segment. Even though organised retailers have a far lesser reach in India than in other developed countries, the first-mover advantage of some retail players will contribute to the sector’s growth.  

Indian retailers head towards rural markets
More than 72 crore consumers (70 per cent of the total population) are spread across 6.30 lakh villages in India. Typically, the Indian rural retail stores are in the form of haats and melas. Even though the urban market (metropolitan and tier II, III cities) offers great opportunities for modern retailers, the rural market is expected to saturate sometime in the near future. Hence, most big retail companies are thinking of venturing into the untapped rural market; ITC, for instance, has taken a rural initiative through Choupal Sagar; DCM has introduced Hariyali Kisan Bazaars, and Pantaloons has entered a JV with Godrej and has set up Aadhars. Some Indian companies are mulling over launching rural retail brands to face the current economic slowdown, because it has not affected rural areas. These players are expecting to cash-in on the benefits accrued by the farmers from the agricultural loan waiver and various development schemes - the National Rural Employment Act and the Bharat Nirman Programme, for improving rural infrastructure. The development schemes are likely to increase the rural population’s income substantially, and hence increase consumption levels. 
 
Economic slowdown and road ahead 
Even though economy across the globe is slowly emerging from recession, tough times lie ahead for the retail industry as consumer spending still hasn’t seen a consistent increase. In fact, consumer spending could contract further as banks have been overcautious in lending. Thus, retailers are witnessing an uphill task in terms of wooing consumers, despite offering big discounts. Additionally, organised retailers have been facing a difficult time in attracting customers from traditional kirana stores, especially in the food and grocery segment.  

To survive in the current situation, the organised retail segment must adopt some positive steps. Players need to offer more convenience in terms of superior logistics, pricing and location. Moreover, inadequacies in the existing retail infrastructure and logistics are denting the sector’s growth. An efficient retail supply chain is very critical for retailers, especially for those who deal in agricultural commodities. Retailers can improve their earnings by pruning their supply chain with appropriate expertise; however, players will need to increase their investments in retail ancillaries and retail logistics to ensure sustained benefits.  

As a survival strategy, many retailers are negotiating for better credit terms with their suppliers, boosting their supply chain, and are cutting down their inventories; a few of them are even merging their stores to counter the slowdown in retail sales.  
Further, some retailers are adopting measures to raise the share of private labels in their total revenue, because private labels generally offer 5-7 per cent higher margins, and are therefore considered a safe and profitable bet. Globally, private labels constitute around 17 per cent of total sales, and in India, private labels constitute 10-12per cent of the organised sector’s revenue.  

As the organised retail space in India continues to grow, it is likely to see a number of such initiatives in the near future. Companies are likely to combine expansion with innovative measures as they look to ensure profitability in difficult times.
 

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