Retail Dude

Yes! Many big retailers like Reliance Retail, Future Group etc. have substituted their expansion spree with contraction because of slowdown. The most recent addition in the list is that of RadhaKrishna Group’s Foodland Fresh and Wadhwan’s Spinach. Foodland Fresh has shut down many stores in last few months whereas Spinach has decided to currently hold their expansion plan.

There are several factors behind such a scenario in retail environment. Whereas increased MSP for cotton, higher raw material cost, higher real estate prices, bleeding Sensex, postponement of purchases are the root cause, another factor affecting retailers is falling rupee.  

As dollar grew from Rs. 39 in January to Rs. 47 in October, forward bookings by retailers are getting impacted. Resorting to higher prices in also not an option for retailers as due to inflation, disposable income has already decreased for common man, so they will switch to cheaper local alternative. Moreover majority discounters follow the practice of forward booking and they cannot sell increase the prices of their product due to their format.

But this will certainly increase market for local make products in India as they will be very cheaper comparatively.  

- Rajeev Damani

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Is it the kind of correction we need in the retail segment? In Kolkata, retail sector seems to be in problem. With inflated real estate prices which are not matching to returns in retail sector, and all round protest against organized retail in Bengal, developers are converting their commercial retail space into office space.

Park Street tower that was meant to be Calcutta’s first exclusive mall for women, turned it into an office address. The Gariahaat Mall, which flopped as a retail destination, is reinventing itself as an office. The latest high-profile conversion from retail to office space is DLF’s proposed Grand Mall in New Town, Rajarhat. These are some of the many cases of conversion in Kolkata.

“There is no denying the fatigue factor in retail at the moment. A lot of retailers may have ramped up their businesses too fast. On the other hand, the demand for premium office space has grown manifold,” said Ajay Khanna, the managing director of DLF Retail Developers Ltd.

- Rajeev Damani

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Few weeks earlier we heard that fruit and vegetables vendors have said no to Subhiksha on account of non-payment. Now it’s turn of FMCG companies. Majors like Emami, Dabur, ITC, Coca-Cola and Marico have delayed or blocked supplies to Subhiksha on account of mounting outstanding bills. Now the question is what Azim Premji saw in Subhiksha and invested? Subhiksha is possibly looking for an exit route too. Future Group and Reliance Retail have approached it for a buyout. With Azim Premji buying 10% for Rs. 230 Cr, its value can be estimated at Rs. 2300 Cr. But analysts feel that it has been overvalued. It seems that consolidation is picking up in industry. 

-          Rajeev Damani

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It’s true that every one learn from their mistakes only. Indian Retail biggies have initiated much awaited corrections as well as consolidation in their current business. Though these are first round of changes in their strategies but at least it has started.

1.       Indian organized retail players have realized that it’s really tough to compete with cost-efficient and customer-focused kirana stores (mom-n-pop). This is why convenience store formats like Reliance Fresh, More, Spencer’s & Subhiksha are shutting down stores which are not viable and at the same time are going slow with their expansion plans. This is taking place because of the low margins in this business and high real estate costs. Hypercity has also exited this space.

Industry Speak:

“What kind of conveniences can modern retailers now offer with an inevitable high-cost structure? It makes no sense to be in this space” says Andrew Levermore of HyperCity Retail. 

“Although we had a lead entry into the space, we knew that the neighbourhood formats will never be viable. Even if consumers have the money why will they spend extra in air-conditioned formats to make daily purchases. The local kiranas are already far too efficient in the space” said Future Group CEO Kishore Biyani.

“The current crop of neighbourhood formats are merely air-conditioned kiranas. It makes no sense to compete with the supremely customer-friendly kiranas, which offer credit and a great service system. The merchandising will have to be different to bring back the consumers,” says Gibson Vedhamani, president of the Retailer’s Association of India. 

2.       As the Retail bubble burst, every one jumped into it registering their presence everywhere possible. Retailers should learn from what is happening in Ahmadabad. Once it was favorite of all retailers but now stores are shutting there. City malls are experiencing vacant spaces and Big Bazaar recently closed two of its big outlet there.  These are result of wrong analysis of Gujrati Consumers who look for functional benefits from the retail experience. The result: closure of ambitious retail projects across the city. Brands like Nike, Tea Centre, Conizza, etc, have already closed shop (ET). According to Retail Analysts these are nothing but sign of consolidation. So, this shows that how Indian Retailers just jumped into the market without proper market research.

3.       Bharti Retail seems to have learnt from the mistakes of other and so they have taken strategy of going slow. Compared to Reliance’s one-store-a-day approach, Bharti’s pace has been almost one-store-a-month. It has opened seven stores in six months, as against around 700 stores of Reliance in two years. “We plan to have pan India presence, but are in no hurry to roll out stores everywhere. Our aim is to understand the dynamics of retail and evolve the right model. We are not here to prove anything in a year or two, but looking at 5-10-year period,” says Bharti Retail president and COO Vinod Sawhny to ET.

(Ref: http://economictimes.indiatimes.com )

-          Rajeev Damani

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