With a rapidly growing middle class and Indian consumer being the youngest in the world, the scene couldn't have been any brighter than this for the retail sector which is in a buoyant mood. Total private consumer spending has touched about Rs 18,90,619 crore with the organized retail sector getting Rs 15,96,802 crore of this spend. The forecast is the consumer spending will cross Rs 1,00,000 crore in another three years.
Another factor which has fuelled the rapid growth of the retail sector is the growing income as seen in a study by the National Council of Applied Economic Research (NCAER) which stated that the very rich with annual income of over Rs 215,000 have increased to 6.2 million households while the consuming class with annual income in the range of Rs 45,000 to Rs 215,000 has grown from a million to 90.9 million households.
All these developments have led to the rapid growth of the retail sector in the country which has 15 million retailers, most of them owning small mom and pop outlets though large corporates like Reliance, ITC, Tata, Pantaloon, Jubilant Group and Raheja too are investing huge capital in this sector.
Coupled with this, several leading Indian groups are going for tie-ups with world's leading retailers like Wal-Mart, Carrefour and Metro who too are equally keen on coming to this country.
As Harve Clec'h, Managing Director, Carrefour India and Gerard Freiszmuth, General Manager, Carrefour India Project, said of the scope for retail in India "there is a lot of opportunity in this sector for us since demand of the potential consumers are not being met under the existing facilities."
The visit of world's top retailers to this country and American retailer Wal-Mart's tie-up with leading Indian company, Bharti, are indicators of the shape that the retail sector would be taking in the coming years.
Clearly, Indian retail scene is undergoing a rapid change. It will see an investment of over Rs 20,000 crore by 2010 in quality retail space across the country. But, what is interesting is that most of the growth in the retail space is estimated to come from more than 1,000 tier-II towns and major rural hubs.
With the annual growth of the organized retail sector expected to be around 36 per cent, one of the major challenges is investment to enable it to maintain the current growth momentum over the next five years. A positive indication in this direction came with top corporates who are into retail business announcing grandiose plans for investment.
Currently the Indian retail market is estimated at US$300 billion, and almost half of this is at present in rural India. With nearly 55 per cent of the total retail market being in rural India, this is a tremendous growth sector. Keeping this in view, companies like DCM, Godrej and ITC have begun focusing in the rural areas. DCM Hariyali Kisan Bazaars, Godrej Aadhars and ITC Choupal Sagar have branched off into the rural areas as also Tata Kisan Sansars and Naya Yug Bazaars.
The Hariyali Kisaan Bazaar is a pioneering micro level effort, which is creating a far-reaching positive impact in bringing a qualitative change and revolutionizing the farming sector in the country. Currently the chain is successfully running its business through 33 stores in five rural locations in North India. A typical centre caters to agricultural land of about 50,000 to 70,000 acres and impacts on nearly 15,000 farmers across India.
Though government has put on hold Foreign Direct Investment (FDI) in the retail sector, observers feel that the retailers would devise their own methods to bring in the necessary funds. According to available figures on the growth of organized retail, the three years from 2004 to 2006 saw immense growth from Rs 28,000 crore in 2004 to Rs 35,600 crore in 2005 and Rs 47,500 crore in 2006.
There was still further good news for the retail sector as according to data brought out by Reserve Bank of India (RBI Bulletin, January 2008), sales of private limited companies in the wholesale and retail trade registered a growth of 11.8 per cent during 2005-06.
This of course is no where near growth rates of companies like Pantaloons and Trent at 72.3 per cent and 47.7 per cent respectively during this same period. The sales of Pantaloons during 2006-07 jumped by around 90 per cent, while that of another leading retailer Shoppers' Stop rose by 40 per cent.
"The top line of these companies will see huge highs and the sales volumes will constantly increase as all of them are on an expansion mode," said Gibson G. Vedamani, Chief Executive Officer, Retailers Association of India.
With growth also comes its problems and though organized retail maybe growing rapidly, it is also now faced with the problem of fraud and shop lifting. It is estimated that loss from shrinkage accounts for nearly three to four per cent of an Indian chain's turnover, nearly double of what is faced by their counterparts in the West and this means a loss of about Rs 9,000 crore.
So, it is little wonder that those in the business are keen on investing on shrinkage control mechanisms, such as installing RFIDS, sensors, IT solutions and training employees.
Internal shrinkages are also on the rise. "Since employees know the business process, they tend to become more adventurous. This leads to frauds such as cashier fraud, stealing products or cutting manual bills which are not recorded. Shrinkage has an exponential effect on the bottom-line since the inventory costs are already accounted for in the books," said IBM India business solutions executive (Retail) Sridhar Harihara Subramanian.
Faced by these problems, retail chains have now begun investing on employee training, to increase their emotional attachment and ownership with the store. "We share with them inventory figures about a particular category and the loss from any shrinkage. The idea is to develop internal peer pressure among the employees," Ebony Retail Holdings CEO Lalit Kumar said with the company's annual budget on shrinkage control now being Rs 50 lakh.
Another major problem being faced by the retailer is the practice of Shop-dropping - where a local trader poses as customers and drop pamphlets or other promotional matter in the retailer's merchandise. This may not lead to loss of inventory but the chain looses out to valuable advertising revenue.
Sri Krishna, Syndicate Features
Print This Page
Terms
and Conditions