Tete-e-tete With Joshua Chernoff

He probably windowshops more than any woman in the world. For good reason. As head of AT Kearney’s US retail practice, Joshua Chernoff makes a living checking out—and advising---retailers. Recently in India, Chernoff spent a week eyeballing major stores. But, as he told BT in an exclusive interview, it may take a long time before the retail experiment gains a critical mass. And the big reason, he believes, is the curb on foreign direct investment in the sector.

By Seema Shukla

After one week in India, Joshua E Chernoff is returning to the US with a working knowledge of where and how a female Indian shopper can buy a salwar kameez, the variety of jams and pickle she can pick up in a food supermarket in Chennai, the mall she can browse though in Mumbai, and the local grocers she uses in Delhi. Being head of AT Kearney’s US retail practice Chernoff is a regular window shopper. Having worked with different forms of retail in developed and developing countries he was recently in India to size up the country’s retail scene. Not that he stuck to window shopping---he’s returning to with a ‘kurta pyjama’ for himself.

Q. You have been here for a week now, what impression do you have of retail in India? 

A. The interesting thing that you comes across when you look at developing markets is the conscious effort to try and reduce cycle times of development. Some of the people are doing this with an aim of ‘skipping adolescence’ and doing it in a very conscious methodical way. There seems to be a keen desire to find a good parallel to India. There are some lessons to be learnt from the West but closer parallels can be drawn in the East with countries like China, Malaysia and Vietnam. The thing that is interesting about retail is that it is really an interface between a lot of visible things like consumer behaviour on the street and the influence of government policy, logistics, and location. My impression in India is that the combination of the distribution of income and the status of government policy on FDI, which is how money would get invested in the core infrastructure that makes retail work, are still in a state of flux. I think there is a general feeling that we are on the edge of something happening and you can see what I would call early experiments of organised retailing bubbling up to the surface. On the one hand there is the initial emergence of a few international brands on the other there is the initial emergence of a few people that are trying to arrange a chain of stores, mostly individual stores. You can clearly see the early sparks of a starting engine. But it will not happen on a larger scale until the behind the scenes elements become apparent.

Such as? 

FDI limitations are an issue. I would imagine a number of global retailers are looking at India with interest in terms of huge population size and rapidly changing economic conditions. Secondly, better infrastructure in India: roads, optical fibre. What is interesting here is the high literacy and high global awareness of people combined with a fairly disorganised market economy that has a high degree of regulation. Overall, I sense the economy is on the edge of something as far as retail is concerned but what that something is not predictable because the factors that have a dramatic influence on what retail will be like are yet to emerge.

 In India we have seen the emergence of many different types of retail models. Which is the most likely to succeed in a developing economy like India? 

Depends how you define models. The first segmentation I like to do is to look at purchases that are close to the bottom of the need hierarchy. Food, of course is the first one; then basic clothing; then you get to more luxury textile items, automobiles, and consumer electronics. Interestingly, here it seems consumer electronics come earlier then they do in the West.

Does that mean going for margins or for volumes?

I think that volume is probably more important right now because margins will always be difficult to get in this market and the only way to make up for that is to build a model that allows for high frequency of purchase and consumer loyalty. The problem with textiles is, number one, people do not purchase them very often and the thing that people do in other markets to create advantages in textile are essentially not available here. In the West the scale of global sourcing is what they use. Guess where they are sourcing from---either here or very close to here so that advantage is not here in this market. The larger organised players do not get such an edge as they do in the West because the sourcing advantage is accessible to smaller players in the market. Also, the Indian consumer’s demand for diversity in finished products seems to be huge. I have still not seen two ladies in a similar saree in all the time I have been here and I have met a number of people. So volume I feel will be particularly important because the way people will become comfortable with organised retail is through a lot of contact and the food retail sector is one that provides most opportunity. There is a minority of Indians who have traveled a lot and who understand what good retail is, but there are a large untapped lot of people who have not quite figured out what they want out of organised retail.

Another thing that I have noticed is that the evolution of formats here seems to be monthly---not every five years as it was in the West. The big revolutions did not take place overnight they happened one decade at a time. The growth of catalogue retail to