Wednesday, August 08, 2012

Coming out of the woods? Maybe!

while both retail and real estate sectors took a beating during the slowdown, both are expected to perform much better in 2010, says Savreen Gadhoke

The year gone by was one of soul searching for the Indian retail and real estate sectors. The burgeoning organised retail sector, which was poised to grow at a stupendous rate of 30% per annum by the Retailers Association of India (until 2008), instead, demonstrated a snoozy gait, growing by lower-than-expected 8-10% (as per industry estimates) in 2009. The reasons: sky-rocketing land rentals, alarming dip in consumer spendings, irrational expansions on the back of huge debts and therefore extremely low levels of sales, which further lead to long inventory turnover cycles et al. So how did the financial diaries read? Over the last two years (2008-2010), big retailers floundered with their retail ventures. While shutters were pulled down on all of R. Subramaniam’s Subhiksha chain retail, the other brands who had sworn to take the world of retail by storm, like Mukesh Ambani’s Reliance Retail, Kishore Biyani’s Future Retail, RPG Group’s Spencer’s Retail, Birla Group’s More chain of food and grocery retail stores, also saw many anxious moments while battling the economic slowdown. Expectedly, most of them were forced to shut down their non-performing or poorly-performing outlets. But while there are condolences floating around from well-wishers, the truth is that this ‘correction’ was a ‘necessary evil’ for this sunrise sector as even Rajesh Tanwar, Director, Integrated Retail Solutions, accepts to B&E, “The Indian retail sector has been fortunate to have witnessed a slowdown at such an early stage. This will pave way for more efficient retail practices in the country.” Having put forth good tidings in a line, the question remains – will the organised retail sector bounce back in 2010?

This new year is expected to unfold many consolidations. While there will be an increased focus on achieving break-even and profitability at the store level, attention will also be paid to identifying key catchment areas for setting up new stores. Spencer’s Retail, for instance, has already identified 13 catchment areas (after shutting down over 100 stores over last year) in Tier II and Tier III cities to capture the potential offered by such geographies.

One key issue (apart from many others) that the Indian retailers will need to address in 2010 however is their supply chain network, which at present is miles away from being termed ‘world-class’. Centralising warehouses, reducing pilferage, stock rationalisation, enhancing IT infrastructure, improving storage facilities and merging of operations will enable retailers to improve upon their bottomlines. To take a name, Vishal Retail, with the purpose of achieving better grades in terms of quality control management, has initiated work to centralise its 22 warehouses spread across India to just four in North India; mind you, the year 2010 has already begun, and we’re seeing signs of change already!

Along with the need for FDI, better trade deals with FMCG players and concentration on hypermarkets (for the value conscious Indian consumers) are extremely critical for the organised retail sector to bounce back. “2010 will be the year of the survivors to make a serious bid at recovery. Many players will consolidate their operations and rationalise their business models to dovetail with the newly emerged consumer dynamics,” says Anuj Puri, Chairman & Country Head, Jones Lang LaSalle Meghraj (JLLM). Value retail will be the winning ticket, and those players who will make calculated moves in Tier II & III locations will stand to gain the most.

High end retail will also show a stronger hand in 2010, as big brands will receive warm welcome from consumers, with the infusion of buyer confidence in the face of growing macroeconomic stability. The revenue sharing/minimum guarantee model will gain wider acceptance and become the norm rather than the exception. At present, organised retail consists only 5-8% of the total retail industry and is still in its infancy. 2010 will demand some hard work from the retailers, but the outcomes appear fruitful.

As far as the real estate sector is concerned, green shoots of recovery had started to appear soon after the end of the first quarter of 2009. The concept of affordable housing found a strong footing in the market with the developers concentrating on the housing segment to revive the sector.


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