India The Road Ahead for Retail
Date: Tuesday , September 01, 2009
The challenges before Indian retailing in the past year have been unprecedented in both scale and scope, with a number of factors derailing the projected growth in the sector. After many years of double-digit increase in rvenues and general optimism for the future, the events of last year have really tested the mettle and skills of the retail industry.
In India, not only did we have to face the effects of the global recession, but also the deteriorating security scenario. True, the effect of the recession has not been as severe as it has been in certain parts of the world, like the US and Europe, where the closure of the banking institutions has affected all sectors. But, as the world economy integrates and becomes more interdependent, seismic eruptions in one part of the world, especially the developed one, end up causing tremors globally.
To a lesser extent, the 26/11 terrorist attacks in Mumbai also created a negative sentiment, especially due to its extensive coverage by the print and electronic media. The live world telecast of the images of a city under siege for almost 72 hours had its own impact.
The slowdown in the Indian economy has been real and can be gauged from various indicators like the fall in GDP growth, thankfully not precipitous, from 8-9 percent to 6.5 percent, slow disbursement of housing loans, and the drop in like-for-like sales of retail formats. But, with the people of India giving one party a decisive mandate in the national elections, the stable polity coupled with the freedom to push reforms is anticipated to hasten the process of recovery.
Internationally, the doom and gloom that pervaded the markets is surely lifting, and the same is happening here - one will just have to wait and see how fast the winds of positivism and recovery dispel this air of despondency. It is my estimate that the coming third quarter leading to the festive season should see positive growth, which would further accelerate across all industries in 2010.
The Retail Expectations from the Government
The industry has some integral and long-pending issues that need to be given top priority to resolve. The task before the present government then is not only to create a conducive economic climate with an assurance of security to life, property, and employment of the citizens, but also bring about some concrete changes specific to the retail industry. Towards that end, the following issues can be tackled in the upcoming budget:
Give industry status to retail: The contemporary retail sector in India has established itself in the past few years in the form of sprawling shopping malls, retail outlets, and multiplexes. It has offered the consumers a gamut of choices including shopping, food, and entertainment all under one roof, raising standards of living, and bringing in a positive change in the consumer buying behavior.
Despite the fact that the Indian retail sector has grown in leaps and bounds in the last few years, and has contributed immensely towards employment generation and GDP growth, the sector has not been conferred the status of an industry in the real sense of the term. Doing so will help in better establishment and growth of the sector.
Close the debate on FDI: The debate on Foreign Direct Investment (FDI) has been a long-standing one. In 2006, the government had given its consensus towards 51 percent FDI in single-brand retail but with the formation of a new and largely single party dominated government the industry is keeping its fingers crossed in anticipation of revised retail strategies. Domestic and global retailers as well as private equity (PE) investors are eagerly awaiting the new government’s take on FDI.
Increasing the cap on FDI will prove to be a shot in the arm for the industry, as it will open up markets and increase our global competitiveness. The industry also needs closure on the other long-standing issues of big retailers versus small retailers as well as organized retail versus unorganized retail.
Simplify taxation: In the backdrop of the global financial meltdown, the industry has been demanding relief on taxes such as VAT, excise, GST, and service tax through simplification or reduction. This will be good for the industry as well as the country’s economy, since every saving in taxes will aid in increasing the competitiveness of Indian players in the overseas markets and bringing down the prices of products in the Indian market.
Tackle infrastructure issues: The inter-state permits, Octroi, and various other taxes levied by the state and central governments result in unnecessary confusion and increased paperwork in the transportation of goods. Simplifying this process and having one unified system of permits and taxation will reduce the hassle and save on time and money, thereby giving a fillip to the industry by encouraging expansion and attracting more people.
The Government should also look at providing reasonable power rates in retail and industrial areas along with an uninterrupted supply. Permission for operating the stores for 365 days will help customers to shop as per their convenience.
Looking inward: Having said that, the retail industry also needs to take steps on its own to become more organized and to withstand the challenges that it is increasingly facing. Competition is an intrinsic and inevitable characteristic of trade and, like life itself, works by the unwritten rule of ‘survival of the fittest’. Competition always brings out the best in businesses and, in trying times like these, manufacturers and brands need to improve and reinvent constantly for their survival in the domestic as well as international markets.
As far as the domestic market is concerned, brands should, instead of focusing only on manufacturing, work on understanding the consumer’s needs and taste. They should re-work their marketing strategies to align themselves with the needs of the customers and must have a point of clear distinction.
Due to the dip in consumer demand all over the world, the industry is seeing a drop in export figures. This, coupled with intense competition from other Asian countries like China, Bangladesh, Thailand, and Vietnam is making things difficult for Indian exporters. In these testing times, only factors such as quality, design, and differential offerings can make the Indian exporter stand up and be counted.
However, despite the competition from China, the global markets look upon India as a vital destination for their sourcing needs. Hence, recognizing the home advantage, it is important for the organized retailers of the country to collaborate with the domestic manufacturers for retail sourcing. This will not only save precious forex, but will also reduce the turnaround time and leverage the Indian strengths of quality, delivery, and affordable fashion for consumers.
A Visionary Estimate of the Future
Looking at the market indicators, I foresee that the Indian consumer will increase his consumption across the categories, but it is the value mantra that will continue to drive his spend. Consumers will continue to demand more, and only those brands that can give him value for his money in all aspects – quality, variety, service, and after sales follow-up – will continue to grow well in the years to come. We will also see the emergence of at least three to four Indian players with a turnover of a billion dollars in the next four years time.
There will be a consolidation of players and many small players will wind up or will be taken over. Indian apparel companies will have to swallow the bitter pill and change their working style if they have to face the threat of new international brands and become billion dollar companies. The industry will also have to mature from its current mode of too many seminars, too many consultants, too many award ceremonies, and too many hyped-up personalities and get to the real business of serving consumers with passion.
The author of this article is Govind Shrikhande, Customer Care Associate & CEO,