The retail story in India has come of age. Having experienced tremendous growth over the last decade with a significant shift towards organised or modern retailing formats and development taking place not just in major cities and metros, but also in tier II and tier III cities. Driving this growth has been the keen interest of global brands and home grown successful retail ventures. Now with the online medium of retail witnessing buoyant uptake, there is a tremendous growth opportunity for retail companies, both domestic and international. Favourable demographics, increasing urbanisation, nuclear families, rising affluence amid consumers, growing preference for branded products and higher aspirations are some of the other factors which are driving retail consumption in India. Both organised and unorganised retail are bound not only to coexist but also achieve rapid and sustained growth in the coming years.
According to a report by Deloitte, organized retail, which constitutes 8 per cent of the total retail market, will grow much faster than traditional retail. It is expected to gain a higher share in the growing pie of the retail market in India. Various estimates put the share of organized retail as 20 per cent by 2020.
Organised retail can be broadly segmented in two ways – segmentation by verticals and by channels. Verticals are segmented on the basis of the type of merchandise offered; similar merchandise can be clubbed together to form a vertical, for instance food and grocery. Channels are the means through which retailers sell their merchandise; for example, store channels of retailing that comprise different formats like hypermarkets, supermarkets and department stores and non-store formats like online retailing, vending and kiosks. In todays world, we have seen multitude of formats and multiple channels become a reality as a brand tries to reach across consumer touchpoints offering tem instant access and immediate gratification.
One of the key segments that has grown hand in hand and leveraged this is the mobile handset industry. In 2008 the telecom market in India was worth Rs 272 billion and had a 1.8 per cent share in the total retail market while it had a 3.4 per cent share in the organised retail segment and was valued at Rs 27 billion. Since then it has grown tremendously and the Indian telecom sector is second largest telecom market in the world today. Mobile phones are likely to have a disproportionate share of the market accounting for 40 per cent of sales by 2015 according a recent Mc Kinsey report on the Indian retail sector. Indeed more homes will have mobile phones compared to televisions.
While consumer adoption and increased consumerism will continue to catapult growth for this segment, much of the success so far has come from improvement in infrastructure, better efficiency in supply chain, deeper distribution reach and automation and technology deployment at the back end. Supply chain management and getting sourcing systems right are critical for development and unhindered growth. These enable scalability, ability to provide better tailored ranges and attractive prices. Building an efficient supply ecosystem will be integral to building differentiation as well as help manage costs. It is important to have a steady vendor base and capabilities and capital to be able to grow and secure this base. An efficient supply chain can significantly boost margins.
Some key parameters for consideration include
- Differentiated sourcing strategies
- Optimising logistics management
- Strengthening inventory management
- Deploying and harnessing industry expertise , utilizing benefits of technology etc
India is yet to realise the full potential of the organised retail industry and that leaves a lot of headroom for required focus on infrastructure, logistics management and supply chain efficiency as well as a conducive framework to help leapfrog growth.
About the author: Sameer Bhatia is the Director, Distribution, BlackBerry, India