Retail outlets displaying ‘Sale’ signs almost throughout the year on the one hand, and the growing number of modern retail outlets on the other across India, point to a mixed bag. While the number of modern retail outlets continues to grow, several retailers have had to revisit their strategies.
“Most retailers expanded aggressively and are now in the phase where they are downsizing and rightsizing. While rightsizing has been taking place over the last few years, it has picked up pace now,” said Arvind Singhal, chairman, Technopak Advisors. “Modern retail in India has not taken off the way it was anticipated. Both internal and external factors contribute to this. The government is to blame for lack of policy measures including goods and services taxes, and foreign direct investment.”
“The modern retail rollout plan was mostly executed over 2006-09. Post rollout, most players are consolidating their positions, focusing on how to make money,” said Mohit Bahl, partner, KPMG Transaction Services. “The footfalls are happening in pockets. The struggle is especially in the premium and super premium segments. In food and grocery retailing, there was an excessive rollout with no back-end in place; retailers are now rationalising the business.”
Supermarket and convenience store statistics from 2004-05 onwards indicate a shrinking in modern retail store numbers, once consolidation started. According to KPMG, the supermarket strength has shrunk from 4,599 stores in 2008-09 to 2,989 today. The major exodus came in 2008-09 and again in 2009-10 when the number of stores shrank by 38%, when Subhikhsa and others closed. The next year too remained flat, before a marginal rise in 2011-12.
Persisting inflation and an uncertain economic scenario has made the consumer cautious, dampening modern retail growth.
“There is a huge supply of retail space across India but there is a clear mismatch in terms of footfalls. So retailers are taking a conservative approach and show no hurry in signing new deals,” said Pankaj Renjhen, MD - retail services, Jones Lang LaSalle India.
“The new age retail saw a sudden boom and gradually slowed down. Recession came heavy on the retailers and soaring real estate prices increased the dent further, putting pressure to raise product prices. Also government policies are not very conducive for modern day trade,” said Ram Chander Agarwal, the man who built Vishal Retail and then sold it off post-liquidation last year for Rs. 70 crore. He now heads V2 Retail, a value format apparel chain.
The Indian consumer is displaying two behaviour patterns on retail: need-based shopping – best addressed by the neighbourhood kirana stores – and trading up for newer, more expensive, sophisticated products – addressed by modern retail. A Nielsen study found that over one-third of sales of products such as breakfast cereals, packaged rice, liquid soaps, floor cleaners, air fresheners and the like are coming from modern retail. Cosmetics, personal care and other FMCG products are upbeat on modern retail for growth.
Commenting on need-based shopping, Navi Mumbai resident, Prabhakar Valuri, 53, said, “Ours is a mix of need-based and stock-up shopping. Modern store chains cannot provide need-based solutions. The kirana store owner knows the pulse of his community, provides goods on credit and delivers quickly.”
Nielsen’s study showed that while nationally, modern retail grew 28% in 2011, it grew up to 40% in some tier II cities. The industry sees this trend strengthening in tier II and III markets. Modern retail will grow in India, but it will not necessarily be a smooth ride.
“With more international players and investments in the back-end and supply chain operations, the sector will see significant transformation in the future,” said Agarwal.