Tough Times for Indian Retail

The retail industry operates on extreme efficiencies. The net margins are thin and each cost element is typically tracked closely and working capital is tightly controlled. The Indian retail is going through its baptism by fire and discovering the impact of extra costs in the system. The regulatory issues, infrastructural bottlenecks, supply chain constraints, sourcing problems and lack of economies of scale are creating inefficiencies and hence additional costs. These costs have hobbled the industry and thus have led to the turmoil the industry is in.

The infrastructure in the country is generally deplorable. The supply of power is erratic and inadequate in most places forcing the retailers to invest in extra capital equipment for power and extra costs. The roads are in a decrepit condition leading to delays and wastages during transit. This also means that within the country , the best produce cannot be transported and so large retail is not able to offer the advantages that it can in price and quality.

The supply chain infrastructure is outdated and cannot , through a system of transportation and warehousing ,offer the necessary support for large scale movement.

The regulatory framework, unlike in most countries, works against the organized retail with a plethora of antiquated rules and greedy inspectors. The industry badly needs the incentives that a fledgling sector hopes for.

There are also the costs related to real estate which continues to be expensive and scanty partly also due to opaque regulations and profusion of black money.

So the industry has stumbled even before it could walk and now the challenges need to be tackled forthwith with regulatory support, restructuring of business models and some real out-of –box thinking.

Comments

Pinaki Ranjan said…
I totally agree with Mr Sahu that organized retail is actually stumbling after the initial gung ho. I feel the initial business model was too theoretical and when it came to integrating agri retail components, things went haywire. Decisions were based on incomplete information and interpretation without actual understanding of the dynamics in the field. One mistake was trying to obliterate the existence of middle-man in case of agri retail in the very initial stage of operation. These people may be educationally less knowledgeable but know the market dynamics like the back of their palm. Infact, they should have been used as a bridge between the farmers and the companies in the initial stages. One must have to accept that it’s a different ballgame to handle farmers and one needs maturity, empathy and a natural ability to establish a connect with the rural masses.

Understanding the SCM of agri commodities was the other aspect that needs introspection. Agri supply chain is complex and cannot be properly understood just based on case studies and models. One needs to be at the helm of the things, understanding how a farmer harvests his crop, how his produce is negotiated with local middle men, how they are picked up from the farm gate or sold to the nearest mandi and other subtle patterns. Business models also never tried to ‘taste the water first’ and proceeded with mega expansion plans, opening plush outlets and sometimes unnecessarily astronomical salaries to its employees, thereby pushing up the OPEX.

One more aspect of a profitable organized retail operation is that this business requires (very critically unlike any other business) its employees, particularly in the senior positions to function like an entrepreneur in himself/herself. An entrepreneur is multitasking, innovative and creative. For an organization in retail business, a brigade of 100 such multitasking, entrepreneurial employees is perhaps equivalent to 500 normal thinking employees, even though the later might have branded degrees.

I agree that our infrastructure, our logistics, the quality of trucks, corruption, opaque government procedures are still issues. However, things are improving, albeit slowly and schemes like Bharat Nirman are in place. In case they are executed properly, rural and semi-urban areas are going to be the places for expansion for organized retail which has already started. The real estate price is still low in tier II and tier III cities and the disposable income of rural masses are increasing. Lets hope that the monsoon this year doesn’t cause further damage and foodgrain production doesn’t suffer much. Needless to say, government should come forward with incentives, refined regulations, single window clearances and other drivers of retail industry’s growth in the near future.

Thanks
Pinaki

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