Retail Dude

“Organized Retail to touch $ 45 billion mark by 2010”. Does this sound outlandish to you? Well, this was the headline in a daily publication called Midday dated 11/1/07. And, the figures are taken right out of the India Retail Report 2007, released by Retail Association of India. Looking at the present day scenario whoever projected these figures might want to look back and certainly make a few corrections here and there. As it stands today, the retail business amounts to only $ 18 billion. If we peak a bit more in the past in 2006 Retail was projected to grow a handsome 37% in 2007 and 42% in 2008. Any guesses as to how much did it actually grow? “We had assumed a GDP growth of 8% to 10% during 2007-12 in the report” adds Joseph who headed the ICRIER team researching on the impact of modern retail on small outlets as per the directions of the Union Commerce Ministry. He sums it up by saying “this is now impossible, at least for the current year 2008-09 and the coming year.”

So that gives us a good idea as to why a number of retailers felt like packing their bags while others just started pulling back their resources. “We had expanded rapidly; most of the growth was debt-led. The company had planned to raise equity during 2008 and was close to doing so in September when calamity hit the global markets” says R. Subramanian, MD Subhiksha (once India’s largest retail chain). The first evident rationale is the erroneous projections or rather over-projections, as most of these organizations went by things as they looked on the face of it, eventually having to face the music as none of these projections came true.

Second, imperative reason for the failure of retail chains has been splurge of investments in real estate. Though, the retailers cannot be exclusively blamed for this reason. Even till date there is no governing authority which controls circle rates for properties, and restricts them within a reasonable limit. “Those who had big expansion plans had [acquired] real estate earlier at much higher prices. They are now re-looking at their expansion plans and renegotiating the rates” observes Gibson Vedamani, Director, RAI. Why would they no, Mr. Vedamani?

Third, the delusion in the mind of organized retailers, that with the advent of organized retail the consumer focus was bound to shift. “Mom-and-pop stores could become part of the system, benefiting everybody.” Personally, I would not agree with the fact that the retail sales of the kirana stores shelves has actually gone down in the past few months. It’s just that the anticipated pace with which the companies expected to the consumer to shift from unorganized to the organized stores which did not quite realistic. This specifically applies to smaller towns and cities where value retailers like Vishal are sailing in troubled waters.

Fourth, the only value proposition which most of the retailers relied on for luring their consumers was discounts. Many a times this lead to drop in quality of the merchandise being sold. All but a few retailers tried to introduce promotions that went beyond price offs.

Fifth, would be a coalesced effect of the a number of factors such as insufficient investment in strengthening back-end operations, inability to retain talent, in turn leading to high attrition, lack of sufficient support in logistics and infrastructure, inefficient supply chains and lower quality produce.

If you are a retailer..don’t sigh. Just hang on for the next post as it’ll be the answer to all that has gone wrong in the past. And, surely enough I won’t be projecting any figures.

- Vivin

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I represent the impatient generation of today. Fast is the order of the day. Fast pleasure, fast vacations, fast food, fast affairs, fast cars, fast communication and ofcourse fast money. Having said that somehow I’m not a big fan of the new age fast cricket and particularly IPL. Well, it’s not about the tournament moving out of the country or the fact that only handful of players get to represent their states or even the reports that Indian Captain MS Dhoni and Harbhajan Singh bunked the Padma Award ceremony in order to make it to SA, the new host to this cricket carnival. It’s just the loads of money surrounding the tournament that puts me off. Millions and millions spent on errr….entertainment. Just cannot digest. In a country where people spend a lifetime and still do not manage to earn even a fraction of what some of amount of money being spent on the event. Let’s take a look at how it works and the kind of money involved. DLF as the prime sponsor for the event has invested a mind boggling INR 200 crores spread over a 5year period. The overall prize money is US $5 million, with the winners taking home $2 million. By contrast, the winners of the 2007 ICC World Cup in the Caribbean took home $1 million. The top players who have been bought by the franchisee are Kevin Peterson and Andrew Flintoff get $ 1.5 million apiece. Followed by our very own MS Dhoni at $ 1.35 Million. IPL II has been insured for USD 286 million, more than double the amount spent last season, owing to terror threats. The cost in premiums to the franchises is around USD 430,000 each. Besides, the whopping sum for overall insurance for the tournament, India and Chennai Super Kings captain Mahendra Singh Dhoni has attracted the highest individual insurance cover of USD 10.5 million. Sony/World Sport Group has a signed a 10 year contract with as the official broadcaster for the event at a whopping USD 1.026 Billion. Reliance industries has paid 111.9 million for the Mumbai Indians Franchise closely followed by the Royal Challengers Bangalore which paid USD 111.6 million a team owned by none other than, savior of our national pride, Mr. Vijay Mallaya, MD UB Group. So who gets all this money? All of these revenues are directed to a central pool, 40% of which will go to IPL itself, 54% to franchisees and 6% as prize money. The money will be distributed in these proportions until 2017, after which the share of IPL will be 50%, franchisees 45% and prize money 5%. Having said that, the biggest bidders also turned out to be the biggest losers. UB Group lost as much as 43 crores last year whereas the Mumbai Indians were the third worst hit losing 16 crores in the whole deal with Hyderabad Deccan Chargers taking the second place with a blow of 18 crores only. Looking at these figures the event does not make much business sense. Does it??

I’m disturbed. So much money being just thrown away on just a game, which tragically is not even our national sport. Hockey might be equally exciting as cricket if not more, but no matter how hard it tries, hockey would never enjoy the status that cricket has. Sadly, IPL should not even be our prime concern. The only positive of IPL, from the Indian perspective, was to inspirit the domestic talent by making it rub shoulders with some of the best international talent. With the tournament moving overseas, leaving out a lucky few, that advantage has also gone for a toss for many aspirants. IPL as of today simply stands as a money laundering business with the only purpose of making business conglomerates’, our very own cricket board’s and the ‘oh so rich’ celebrities’, pockets even deeper. Did someone mention a recession? Well, looks like it is going to end soon in SA.

- Vivin

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