After years of emphasis on investments and expansions, the retail industry has changed track to sustain their businesses in a scenario that is leading to a slowdown in the sector. Reeling under the pressures of high rentals and falling profitability, Indian retailers are taking a slew of measures to cut costs.
From reviewing stores and shutting non-performing ones to taking cost cutting drives internally, retailers are considering all options and are no longer hesitant to admit that cost-control has become very important.
“About seven to eight months back, we decided to bring about a consciousness of cost sensitivities through the drive ‘Garv se kaho hum kanjoos hai’. As retailers, many of us had been flying in the air, people costs had gone haywire and everybody stayed in five star hotels and travelled via business class,” said Kishore Biyani, CEO of Future Group.
He added that the cost for running each format would determine its success. He expressed optimism for smaller formats such as KB's Fair Price shops, where for every one rupee invested, the return is Rs 10. However, since the return is so less, there is a need to avoid wastages as well. And it is this kind of innovation that is likely to sustain the industry in the near future.
“Driving more consumption in each store and bringing up innovative, profitable formats are the two priorities for Indian retailers today,” said Ireena Vittal, partner, McKinsey & Company.
Even though the bigger retail chains have begun to penetrate into smaller cities, the task ahead is formidable. “Retailers are losing a lot of money in smaller cities. A correction with significant closures is needed. Additionally, mergers and acquisitions have to take place in the next one or two years,” said Jai Subramaniam, director, Shop 4 Solutions Pvt Ltd who runs a retail consultancy with wife Hemu Ramaiah, ex-CEO of Landmark.
Echoing the need for cost effectiveness, Srinath Sridharan, senior vice-president and head, strategic alliances, Wadhawan Holdings, which runs the Spinach chain of stores said: “The industry is going through a metamorphosis. Depending upon the format that companies run, they have to proper-cost it.” He added that the industry also needed to invest more in people, training and back-end operations. Biyani also pointed out that Indian youth would drive consumption in the years to come.