Enter Mega retailing 2000

TRIMILLENNIUM MANAGEMENT
Enter Mega retailing 2000

By Arvind Singhal

By 2010, there will be rapid consolidation in the Indian retail landscape. As the retail revolution in India gathers momentum, the changes will throw up win-win situations for all the participants in the process: retailers, suppliers, producers, and customers

India is, indeed, a worthy inheritor to the sobriquet ''nation of shopkeepers.'' With over 5 million retail outlets of all sizes and nomenclatures, we have the highest number of outlets per capita in the world. However, more than 96 per cent of these outlets are smaller than 500 sq. ft. in size, which means that we also have amongst the lowest retail space per capita in the world: 2 sq. ft. per person versus 16 sq. ft. per person in the us. Not surprisingly, the Indian retail industry is not only amongst the most fragmented in the world, it is also the most challenging from the supply chain management perspective.

What is more, more than 8 per cent of the Indian population is currently employed in the retailing sector. As India moves towards a more services-based economy, this is bound to rise. The us, for example, has as much as 20 per cent of its population already employed in retailing . So, retailing in India is poised to undergo a dramatic transformation. There are 3 mega trends that will impact the way customers will shop in future.

CROSS-BORDER MOVEMENTS. Retailing giants will emerge as truly global players. India may not yet be on the map for most international retailers, but it is likely to show up on their radar-screens in the next 3-5 years as the Indian economy become more open, particularly in the post-WTO scenario.

CONSOLIDATION. Across the world, retailing is going through a phase of consolidation. These mergers have created massive retail organisations, ranging in size from $35 billion in sales (Quelle-Karstadt of Germany) to $37 billion (Wal-Mart of the US).

MIGRATION OF FORMATS. Classical retail formats-like department stores, supermarkets, hypermarkets, and mail-order stores-will, gradually, be adopted by a range of retailers as they customise their offerings to different customer segments. The over-riding theme for old and new formats is convenience: in terms of one-stop shopping, location, and ease of shopping.

The drivers of these megatrends in retailing will be :

TECHNOLOGY. With the penetration of the Net in the developed world in a span of 5 years equalling a level that took TV 40 years, and cable, 15, the impact of e-Commerce cannot be ignored in India. Worldwide, it is estimated that there will be more than 100 million households connected to the Net by 2001.

CUSTOMERS. Customers the world over are faced with time-poverty. The KSA Consumer Outlook for the us, Europe, and India indicates that more customers would like to spend more time and money on recreation, sports, entertainment, and social events than on shopping itself. At the same time, customers will seek more value irrespective of the income-group they belong to, putting ever-increasing pressure on prices and sourcing from the retailer's point of view.

Typically, the Indian customer is dissatisfied with existing shops. On an average, a store loses every third customer because she does not find what she is looking for. Like her Western counterpart, the customer is getting to be more demanding in India as well, and is increasingly focusing on value and convenience. Overall, the Indian is looking for convenience, quality , variety, and a better shopping experience. Indian corporations, suppliers, and retailers will, therefore, have to do a serious rethink on their mindsets and practices.

Two factors will determine the success of retailing in this millennium. First, retailers have to get their strategies right. That means a correct identification of their target-segment, a compelling value-proposition, and a flexible expansion-strategy. Second, they have to invest in processes and infrastructure. As far as best practices go, Indian retailing has a long way to go. As of now, companies have to make a beginning by inventing a suitable approach. There is no specific international format or role-model that can be easily adapted and applied. We, therefore, need to go through our own learning-curve, and get the right proposition only after some hits and misses.

Indian firms aspiring to be successful retailers will have to look not only at traditional measures of performance-such as sales per sq. ft., gross/net margins, Return On Net Worth-but also futuristic ones such as share of customer's wallet or total spend, return per customer, and life-time value of a customer. In this millennium's globalised environment, the Indian retail organisation's best competitive advantage will be an intimate understanding of the behaviour of the customers, the ability to home in on the most appropriate value propositions quicker than some of the international players and a better understanding of the local supply chain issues.

There are, of course, several challenges Indian retailing has to face as it enters the millennium. Property and real estate issues, capital availability, legal framework, human resources, supply chain development and management, and logistics are amongst the more prominent ones.

Then, there is a colossal waste of agri-produce in India. We waste more fresh produce-vegetables and fruits-every year than the total consumption in the UK. Thus, contrary to popular belief, the neighbourhood kirana shops do not offer the maximum value and service. In fact, they are too small to exercise any kind of control on the supply chain, with the result that the customer ends up paying a high price while the farmer gets the least price for his efforts.

Supermarkets have the potential to usher in a revolution in the country, whereby both farmers and consumers can gain by minimising losses and wastages as well as by eliminating the ubiquitous middle-man. Such chains have already begun to appear. Around 30 to 40 food retail-chains, each with between 20 and 40 stores, will spring up over the next 5 years. While metropolitan cities will form the EPI centres of these chains, their reach will extend to the smaller towns as well.

At the moment, the Indian retail landscape is undergoing subterranean changes. By 2005, the results will become more visible with a distinct move towards organised retail formats. And, by 2010, there will be a rapid acceleration towards consolidation. Significantly, as the retail revolution gathers momentum, the changes will throw up win-win situations for all the participants in the process: retailers, suppliers, producers, and, of course, customers.

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