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Strategic
Issues
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Importance
of POSITIONING
for Indian Retailing
Arvind Singhal
Chairman, KSA Technopak India Pvt. Limited |
| In
recent months, doubts have been cast on the future
of organized retailing in India and financial viability
of some of the formats that have been introduced so
far (Department Stores, Specialty Stores, Discounters
etc.) The debate has been prompted by the reported
lackadaisical financial performance of some of the
very well known Retail businesses. |
Is
there a future for organized retailing in India, and
if so, in what form?
Firstly, some facts must be kept in perspective. Indian
private consumption in the year 2000-01 is estimated
at about Rs 1,250,000 Crores. Simplistically put,
this is therefore the size of total retail business
in India. The present retail business is largely accounted
for by over 12 Million retail outlets of all shapes
and formats, and supported by street vendors, hawkers,
food service outlets as well as periodic street Bazaars
and Haats. Organized retailing accounts for a mere
Rs 14,000 Crore or so (about 1.25%).
Secondly, traditional form of retailing is inefficient
for almost all the entities:
* retailers themselves
(the average retailer earns less that
Rs. 10,000 per month for all his effort, as data shows);
* consumers (who typically
end up paying substantially more while getting practically
little or no service)
* small/medium manufacturers
India has amongst the lowest per capita retail space
availability in the world. As per a recent white paper
prepared by KSA Technopak, India needs to create at
least 110 Million square foot of additional retail
space per year for several years just to meet the
demand created on account of a sustained GDP growth
rate of about 6%. So far, the government of India
as well as State and local municipal bodies have failed
to fully understand the drag on the economy of an
inefficient retail (and retail space development)
sector. This space crunch is leading to a situation
wherein prime retail space commands exceptionally
high rates.
Thirdly, Indian manufacturing sector has been kept
on all kinds of leash including reservations under
small scale. Over the decades, the sector has become
highly fragmented and it will take years of effort
to rejuvenate the same to deliver high quality products
at competitive prices and under reliable delivery
conditions.
Fourthly, the urban as well as suburban infrastructure
development has not kept pace with growth of population.
As a result, there is more pressure on time due to
increase in traffic and commute. This has led to an
actual “reduction” of distance that consumers
travel from their “home” for non-work related
activity.
And finally, consumers’ expectations in terms
of product and services have undergone a sea change
in the last 10 years and still undergoing major changes.
Value was earlier having a single determinant: Price.
Today, for the middle class and upward customers,
Value is a complex equation having Quality, Comfort,
Image and Convenience on one side and Price, Time
taken, and Hassle to shop on the other.
Under these “operating” conditions, new
Retail start-ups must have a very well thought out
“Unique Selling Proposition” which on one
hand enables them to attract consumers away from the
traditional shopping options to come to their own
retail outlets (and once they are in, to seduce them
into purchasing) and on the other hand, offer additional
Value to the consumers while generating the required
additional operating profit margin to pay for the
higher cost of operation (as compared to the traditional
retail outlet that typically has practically no rental
or real estate costs thanks largely to archaic real
estate / rent control laws, and has practically negligible
operating expenses due to a bare bone infrastructure
and manpower).
Traditionally, the four major variables that retailers
can play with when trying to create a USP include:
Product
This refers to the category mix, and within each category
– the width and depth of merchandise on offer,
and its quality related selection. It can also refer
to the choice of merchandise – if it is on the
leading edge or trailing edge of innovation or fashion.
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