Sunday, September 23, 2007

Retail detail

Your access to the future of retail’ was the promise to the delegates of the three-day India Retail Forum held at Mumbai recently. Participants, ranging from retailers to FMCG companies, logisticis players and anyone even remotely dabbling in retail, grappled with issues plaguing the industry in the areas of logistics, trained manpower and escalating real estate costs, among other issues.

V. Vaidyanathan, Executive Director, ICICI Bank and Chairman, India Retail Forum, kickstarted the forum on an optimistic note, though. Said he, “The size of the retail industry in India is estimated to be Rs 12 lakh crore and is expected to triple in the near future. Retail will create 3.5 million job opportunities and therefore, it is imperative to support the retail momentum.”

For Kishore Biyani, CEO, Future Group, the retail evolution is still in its nascent stage and is a learning process. “We are experimenting with different formats and learning new things every single day. Nobody has perfected the art of retailing, so to say,” he said.

With this statement, Biyani summed up the experience of every retailer in the country. The forum fuelled interesting discussions on the nature of the challenges faced by the retail sector and how best to formulate a win-win situation for all attached to it. For once, competition took a backseat as retailers endeavoured to find solutions to problems the industry faces as a whole.

From retailers to real estate to FMCG players, everybody debated the future of retail in India backed by their personal business experiences.

Focussing on the future of consumer spending, Vinod Sawhney, President & COO, Bharti Retail Group, said, “Private consumption will reach 62 per cent of the economy in the coming years. As the prices will become lower, volumes will increase, leading to improvement in the quality of products sold.” He stressed that the sector will grow on the strength of the rising purchasing power of the consumer, which will mainly come from the service sector. As retail activity intensifies, it will spur a boom in malls, which will create a unique shopping experience for the Indian consumer, he added.

Abraham Rami Goren, Executive Vice-Chairman of the East Europe-based Elbit Imaging Group, recently in the news for announcing its plans to foray in India with its mall - Plaza Centres, said, “Retail in India is on an upward incline, but there are three aspects which need to be taken care of. Firstly, the interest rate policy should be normalised, issues in real estate like title registration improved, and a physical infrastructure put in place.”

Every emerging industry faces infrastructure issues and retail is no exception. Supplementing Goren’s views on infrastructure inadequacy in India, Arun Nanda, Executive Director, Mahindra & Mahindra, said, “Forty per cent of our produce dies in transit. We need to invest in warehousing needs and build a proper supply chain to ensure that the back-end is in place for the growing requirements.”

Citing this as an opportunity for ancillary industries to grow alongside, Bharti’s Sawhney said, “Growing retail will ensure benefits to ancillary industries. It has already created a huge demand for real estate, as it is.”

Real estate and logistics were identified as the main challenges faced by the Indian retailer today. If these were not taken care of, they could single-handedly lead to the decline of the sector, felt many.

In the space of back-end logistics, where procuring from the farmers directly is concerned, Reliance is perhaps the only retailer who has been able to build a proper logistical support for the purpose. RPG and some of the other retailers have begun to procure fruits and vegetables from the farmers in States where the Agricultural Produce Marketing Committee Act has been amended, but it will take some time for a full-fledged back-end system to come into place.

“The business has to reach a particular scale, after which retailers can set up their back-end operations. Where is the scale today for most of the retailers to do that?” said Ireena Vittal, Principal, McKinsey & Co. The marketing head of a leading logistics company said on conditions of anonymity, “The retailers are riding high on the boom and aggressively building their front-end without the back-end support. If they continue to do that without a reality check, in two years’ time they will feel the heat.”

The reason why most retailers have been unable to put a back-end in place is also due to the geographical complexity of the country, but third-party logistics with regional players seems to be the best way out for retailers looking to enter retail in a big way, he said.

Commenting on the unrealistic real estate rates existing in some cities today, Sumantra Banerjee, President and CEO, RPG Enterprises, said, “The land prices of Delhi and Mumbai today are comparable to or even greater than in Manhattan. This boom in malls across the country, wherever you get space, is going to lead to super-congestion. Growth will happen, but without profit or margins. This hankering for property by the retailers is going to hike up rentals, thereby transferring the opportunities to rural and semi-rural towns.”

The real estate boom was likely to be taken over by “vulture capitalists” and not “venture capitalists,” said B. S. Nagesh, Managing Director, Shoppers’ Stop. “At the current market rates, no retailer can have a share of the pie,” he said.

While Shoppers’ Stop said it does not immediately plan to expand its malls in 500 cities of the country but would like to take one step at a time, many retailers are eyeing the tier-3, -4 and even -5 towns to expand their retail outlets.

Prominent among rural retailers are Godrej Agrovet, ITC Chaupal Sagar, Indian Oil and Hariyali Kisaan Bazaar. They have penetrated markets at taluk levels and though they operate on low margins, like urban retailers, they are instrumental in expanding the scope of retail in India, reaching out to the villagers.

Rural retailing faces similar problems as urban retailing, but the nature of its problems differ. C. K. Vaidya, Managing Director, Godrej Agrovet, said, “In real estate, here the issues are of multiple ownership where four out of five owners of the same plot of land are untraceable. Moreover, there is an acute lack of trained manpower for these stores. Again, we sell our wares only at MRP, not lower in order to recover our margins.”

The opportunity in rural retail tempts even the Department of Posts & Telegraphs to venture into it. “We have 1,800 plots of half- to two acres area across the country, which we might use for retail purposes through Public Private Partnership initiatives,” said S Samanta, Chief General Manager, Department of Posts.

The forum proved beyond doubt that retail as an industry was growing in the country but needed to be dealt with cautiously. The charged atmosphere of the three-day forum culminated in the Images Retail Awards, where Kishore Biyani was given the Retail Face of the Year 2007 award.

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