With the development, augmentation and modernisation of infrastructure taking place at most major Indian cities, the scope of retail has increased manifold.
Knight Frank India in association with the Retailers Association of India (RAI) recently launched the third edition of its flagship report on the retail sector – ‘Think India. Think Connected Retail’. The report tracks the evolution of India’s modern retail market in the top six cities in India viz. Mumbai, NCR, Bengaluru, Chennai, Hyderabad and Pune as companies explore the next frontier of Omnichannel retail in a bid to survive and conquer one of the largest consumption markets in the world.
WAVES OF MODERN RETAIL IN INDIA
First Wave (1990s) – The Advent of Shopping Centres: A sweeping look at the growth of India’s modern retail sector leads us to observe a number of structural changes in the sector in the last two decades. It all began with a handful of shopping centres, lined with specialty retailers, mushrooming in the retail markets of the country’s top cities during the mid-1990s. The‘shopping centre culture’ gradually pervaded the population, especially in the metros and mini-metros, thus heralding the beginning of the modern retail movement in India.
Modern retail typically entails all stores in malls as well as stores in shopping streets that provide a purchase invoice, have air conditioning or or have recognised foreign/national brands. However, the impact of the global financial crisis on the Indian economy in 2008 and 2009 checked this pace, and eventually led to only a select number of successful malls to operate in the metros, giving rise to scepticism over the brick-and-mortar model of retailing.
Second Wave – Emergence of e-taling and Ground Work For Omnichannel Retailing: The next big wave that changed the skyline of the retail sector in India and accelerated the presence of modern retail is e-tailing, or the sale of products and services through the Internet, telephone and television. This trend started in 2010 and has become prominent in the last four years. There are several catalysts playing concomitantly in favour of e-tail, the most signik cant being the strengthening ecosystem that makes buying online better every day. Information technology (IT) infrastructure has improved significantly over the last decade.
Additionally, on the operational side, the e-tailers have taken landmark measures to enhance customer experience. Payments through online banking, credit and debit cards, as well as cash on delivery were the initial methods used for transactions. Newer modes of payment have now been introduced to make online purchases easier for prospective consumers. With the recent demonetisation drive, third-party wallet, a mechanism wherein money is stored in a prepaid wallet, has emerged as a preferred seamless instrument of payment.
The other catalyst strengthening the e-tailing segment is the country’s favourable demography. While 1.25 billion people always meant a big consumption market, being one of the youngest nations in the world bodes well for the e-tailing phenomenon. About 65 per cent of the country’s population is below the age of 35 years; therefore, the acceptance of e-tailing is expected to be higher among the younger generation that is more techsavvy and open to experimentation.
Smartphone adoption is faster even in the large section of the population that is not computer literate, thus addressing the problem of computer illiteracy. Another advantage that e-tailers enjoy pertains to the cost of real estate.
Third Wave – Emerging Omnichannel Retail: Finally, we come to the latest retail wave where the e-tailing versus brick-and-mortar debate is not even relevant anymore; both have to be integrated seamlessly to create a satisfying shopping experience. This integration of experiencing the convenience of e-tail and brick-and-mortar is the third and the latest wave – known as Omnichannel retailing.
Today, a number of leading e-tailers have opened physical stores to showcase their products and service online customers. These stores will act as experience centres and will offer value-added services, such as trials, instant returns and product demos. On the other hand, a number of traditional brick-and-mortar players have gone online, either with their own websites or by tying up with already existing e-tailers, such as Amazon, Snapdeal, Jabong or Myntra.
The figure is set to increase further in the coming years, as more retailers understand the importance of offering multiple touch points to consumers. Several brands are bringing technology into their physical stores, with kiosks to highlight their products and provide customer support. Some of these stores also allow customers to check the availability of a product across all brand outlets and order home delivery.
Hence, an Omnichannel strategy that is connected with consumers through various channels, such as physical stores, websites, mobile apps, social media, kiosks and many more, is striving to enable the consumer to shift between various media seamlessly during a consumer shopping journey. We believe that Omnichannel retail is going to drive the growth of modern retail in India going forward.
Market Sizing – Modern Retail in India: Presently, the modern retail penetration in India is abysmally low compared to the developed and emerging economies. While the share of modern retail is 84 per cent, 71 per cent, and 53 per cent in the US, Singapore and Malyasia, respectively, it is only 19 per cent of the value of the total retail spending in the National Capital Region, Mumbai, Chennai, Bengaluru, Pune and Hyderabad cumulatively.
Overall, the degree of penetration in the country would be even lower, since the presence of modern retail in smaller cities and rural areas is not signik cant. In the forthcoming years, the share of modern retail in these top six cities is expected to be a quarter of the total retail spending by 2019.
Although the share of modern retail penetration in the country is not flattering, there is still a lot to cheer as consumer spending patterns and increasing disposable income levels continue to evolve at a fast pace. There is ample dynamism at present, with a number of international brands entering the market.
The existing brands are also working towards reinventing ways to keep up with the pace of growth in the sector. Nevertheless, there is a huge untapped potential for the growth of modern retail in the top six retail markets in India.
Currently, the total retail market size in the top six retail markets of the country amounts to Rs 4,539 billion and this is projected to reach Rs 7,168 billion by 2019. Out of the total retail spending in the top six retail markets of the country, modern retail amounts to Rs 871 billion and this is projected to reach Rs 1,718 billion by 2019.
The penetration of modern retail will also witness a substantial rise, from the current 19 per cent to 24 per cent in the next three years in the top six retail markets of the country, largely driven driven by the Omnichannel way of retailing.
MMR and Hyderabad have the lowest penetration of modern retail at 14 per cent and 10 per cent, respectively, despite having a sizeable consumer base.
FUTURE OF RETAIL IN INDIA
Omnichannel Retailing: The Way Forward
Omnichannel retailing essentially implies development of a seamless consumer experience through all the available channels to reach the consumer. The channel extends to brick-and-mortar store, smartphone, computer, tablet, direct mail, television, et al. While retailing finds its genesis in brick-and-mortar stores widely referred to as the ofl ine shopping channel, it is the other modes, i.e. the online channel, that is witnessing the revolution and altering the means to reach the consumer.
After the initial cat and dog fight, a realisation is setting in that each channel has its fair share of challenges and opportunities and adopting the right combination of the omnichannel retailing is the way forward. We delve further to understand why omni-channel retailing is an idea whose time has come.
THE CONNECTED CONSUMER
The Omnichannel phenomenon has found roots in the connected consumer. The consumer today has high aspirations. Short of time, travelling extensively and juggling between work and home, the consumer is connected through smartphone, tablet and computer. Empowered with a smartphone, considers facebook, instagram, WhatsApp and other social media as companions – seeks advice and expresses opinion. This profile of an increasingly aware and ambitious consumer has created a strong need to address the cause.
Technology has emerged as the binding element for the cause of Omnichannel retail. This has become possible on account of progress at multiple levels. At one level are the devices for the online shopping interface. The connected consumer has access to a plethora of devices like smartphone, tablet, computer, etc. It is not only the device cost that has come down, but the quality and availability has improved signik cantly with more number of global manufacturers vying to tap the Indian market.
Improving availability coupled with easy financing schemes has accelerated the smartphone adoption rate in the country. Consequently, we see seven out of eight users accessing Internet on mobile phones. At the next level is the improved Internet connectivity that has not just enabled online shopping but increased the experiential value of the same.
While online shopping made inroads in the country even a decade ago, it could not takeoff then on account of internet connectivity issues of poor bandwidth compared to the developed markets. However, this time around, government efforts on spectrum availability and private sector investment have cleared this roadblock. As a result, we are now the world’s third largest market in terms of the number of Internet subscribers.
The cost of Internet connectivity has been reducing even as Internet speed and availability are improving at an exceedingly improving pace. While initially only private places encouraged Wi-Fi connectivity, which was offered free of cost to patrons, now public places as well take pride to offer the same to citizens. As a result, high-speed at no cost or substantially low cost is available at hotels, education institutes, airports, railway stations, et al.
THE BRAND PERSPECTIVE
With two quintessential components of the Omnichannel phenomenon, i.e. the consumer adoption and the technology progress taking the right shape, the retailer enthusiasm for championing the cause would go a long way. Accordingly, it has been seen that the brand response to participate and promote their Omnichannel stand has been encouraging. The brands have weighed on the cost and benefits to determine the right combination of online and offline retail in their bid to reach the consumer. Since both of these modes have their unique characteristics, one would be ill-advised to proclaim that one of these channels is better than the other.
Online retailing through website or mobile application has helped retailers to expand their consumer catchment and grow faster, something that the brick-and-mortar store alone could not have been able to achieve. The convenience to the consumer in terms of 24×7 round-the-clock shopping at the comfort of the shopper’s fingertips is unparalleled.
Similarly, personalisation of product offerings based on the web profile of the individual customer is unthinkable in the ofl ine channel. In their bid to convince consumers about online shopping, retailers have offered features like unconditional returns and money back guarantee and cash on delivery option, which are either associated with the brick-and-mortar model or as a sweetener to tilt the deal in its favour.
Some e-tailers from apparel and accessories also offer reality simulations by superimposing the product pictures onto customer photos to provide a virtual product trial. These efforts have yielded results with some categories witnessing faster adoption of the online channel.
To sustain the online retail momentum, steps have been taken on important aspects of the business. For instance, in line with the shrinking delivery timelines from a few days to same day delivery and now 2–4 hour delivery in some cases, the required supply chain development has been undertaken. On the business side there are various online models. The most popular being the marketplace model, which is ruled by players like Flipkart, Amazon and Snapdeal.
The inventory belongs to the brand and pricing control remains with either the market place or the brand. The consumer connect happens at the market place and hence the online partner is at the forefront.
In another model, where the brand owns and operates its own online platform, the success completely hinges on the brand’s connect with the consumer. Many brands are present on both market place as well as their own online platform. The choice of the models for online retailing would depend on the brand’s attributes and focus.
THE WAY FORWARD
The retail sector, which traces its roots to the brick-andmortar stores or the ofl ine channel, is now witnessing expansion on account of the online market growth. While consumer adoption, technology progress and retailer push has been the key drivers, government initiatives would come as complementing steps to the growth of omni-channel retailing.
The most significant initiative was the demonetisation of high value currency notes announced last year. The demonetisation decision on one hand has impacted sales mainly in high value retail categories like jewellery and luxury goods. Considering the high contribution of cash transactions in the economy, the demonetisation decision of the government initially slumped the retail sales across the country with semi-urban centres suffering the most because of lack of currency notes for over-the-counter as well as as well as online transactions.
However, on the other hand, demonetisation has catapulted the digitalisation momentum in the Indian economy. After a spectacular growth of mobile wallets and card payments, the government has upped the ante through the United Payment Interface (UPI) that will address the inter-operability issues and improve the overall transaction experience.
The impetus for digital payments will accelerate the technology adoption rate in the country. The investment in technology infrastructure will enhance the quality of consumer experience as well as security of online transactions that shall in effect attract more consumers to online retail.
The government has also taken an accommodative stance on foreign investments investments in the e-commerce segment. While there are some conditions that need to be fulk lled for FDI compliance, the message on the board is clear that the government will champion the efforts of digitalisation.
The government has to facilitate growth by preparing clear policies for the retail sector and creating proper retail zones through a comprehensive planning process, thereby reducing infrastructure bottlenecks. Recent initiatives, such as the FDI retail policy and statelevel retail policies, where the government is taking up the role of a facilitator to create an environment conducive to the retail business, are steps in the right direction.
With strengthening of the online retail ecosystem coupled with government initiatives, we expect adoption of online retail to accelerate. However, as both online and ofl ine channels contribute to different dimensions of the consumer experience and their value proposition to brands depend on the brand’s attribute and focus, a right combination of omni-channel will be the way forward. As a result, we would see waves in both directions, i.e. movement from online only to omni-channel as well as ofl ine only to omnichannel. Innovation will be the key, as customer awareness leads to higher expectations, convenience being the requisite factor.
The retailer strategy will have to take into account the opportunity for partnerships and recognise the need to work as an ecosystem.
Collaborative working among the leading players will be the key to success. It could be in the form of partnerships, or mergers and acquisitions. Brick-and-mortar spaces will have to reinvent, with a focus on consumer experience.