Retail Sector in India Post Recession

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Retail sector in India post

recession

1)

India: After the recession gloom it is time for a good run for the branded retail

sector By Nirmal Bang

In India µretail¶ is not a new word. But there is still something

very new about the sector today in terms of the shift from

roadside pavement retail to small shops, from departmentalstores to the huge state-of-the-art malls.

Today two businessmen might be producing similar goods and have same-sized balance sheets, but if one does

a lot of advertising and publicity and the other doesn¶t, it is the former who emerges with a µbrand¶.

Yes, we are certainly living in the age of branding. Whether you buy Lux soap from a kirana shop or a

supermarket ± you are ultimately buying the brand. Branding has today transformed into multi-faceted stores in

shopping malls, exclusive standalone stores as well as high-end boutiques, which burn a hole in your pocket.

The Indian retail market saw a slump following the global recession and is now recovering, emerging as one of

the top attractive investment destinations. Currently, the share of retail to the country¶s GDP is about 12%, which

is estimated to rise to 22% by 2010. Within this market, apparels form the second largest segment in terms of

value, growing annually at the rate of 10%. With the opening up of the economy and globalization, India¶s retail

industry has witnessed a huge change over the years and with FDI now allowing up to 51% in single brand retail,the demographics of this industry have substantially improved and are further expected to shine.

Of all market categories retail offers in itself the broadest canvas for any brand to show its true colors, to portray

itself in front of the consumer and finally put the brand in the consumer¶s hands. Changing consumer patterns,

rising income levels and the emerging middle class, which will constitute more than half of the total population is

set to drive growth in this sector.

The slowdown did bring with it some bad news for the retail industry. The Retailers Association of India revised

its estimates for organized retail penetration to 10.4% in 2012 from 16%. While some said the bubble had burst,

others said these brakes were necessary as otherwise this sector would have created trouble for India¶s economy

in the future.

Recently, India slipped to the sixth position from second in export of clothing (US$ 10.17 billion in 2008-09). Thecurrent fiscal saw garment export growth rates declining to 7% from 9%, a year before.

The declining trend has been visible since Jun ¶08 and has carried on till February this year with demand picking

up with signs of a global economic recovery in the latter half of the year.

Post Sept ¶08, clothing exports from India have declined each month (except Jan ¶09). The provisional figures for

the September-March period are US$ 5.52 billion versus US$ 5.90 billion in the corresponding period last year,

that is a decline of approximately 4.75%.

Date: 27 October 2009 Contributed by Nirmal Bang



The trend in Apr ¶09 has continued to show a decline of 9.71%. Yet, the future looks bright for the sector, simply

because once the recessionary clouds move away people will jump into the consumerist wagon.

India¶s per capita GDP has grown exponentially over the years and is expected to grow further. This along with

the transition of the middle class will lead to a reduction in poverty and further the burgeoning middle class. In

2005, the middle class segment was relatively smaller in size, comprising just 5% of the total population but this

is expected to increase to 41% by 2025.

The total apparel consumption by these classes is said to increase more than 10 times from $3.6 billion in 2006

to $37 billion by 2025. This data simplifies the vision for India¶s retail sector.

Further, the consumption rate is growing stronger day by day and the combination of rapidly rising household

incomes and a growing population will lead to a significant increase in consumption.

The aggregate consumption of India is expected to grow to Rs 34 trillion by 2015 and Rs 70 trillion by 2025, a

four-fold increase from the current levels of Rs 17 trillion. The Indian market is expected to be the fifth largest

market in the world by 2025, surpassing the market of Germany.

The Apparel Export Promotion Council (AEPC) also forecasts strong growth in the Indian apparel industry.

Among their set targets and forecasts are to attain exports worth US$ 34 billion by 2015, growing at an average

of around 18% for the period 2009-2015, to have at least 5.3% share in the global apparel market by 2015, to

have 60% share in India¶s textile exports and retain 90% of the domestic market, which is growing at 10%.

Although low growth of 6% annually is likely to continue for the next two years, the AEPC vision is based on

sustained growth of top five apparel suppliers. Based on the past export trends of India, feasibility study and the

assumption that the world apparel market would grow moderately at 8%, AEPC fixed the target for apparel

exports by 2015 at US$34 billion.

The retailers are also working to overcome key hurdles. Increasing market share, improving brand image,

insulating the export market by diversifying, tackling production-related issues and reducing cost disadvantage,

keeping a check on debt-funded expansion, penetrating the rural markets and Tier-I and Tier-II cities, offering

products for the lower income bracket and much more, is on the retailers¶ minds to make the most of the next

projected boom in the market cycle.

The future certainly looks bright. As the consumer base in India grows exponentially from 300 million to an

estimated 500 million in the next five years, the retail sector is slated to grow along with it. India¶s overall retail

sector is estimated to rise to US$ 833 billion by 2013 and US$ 1.3 trillion by 2018.

Of this, organized retail, which constitutes just 5% of the total market, is estimated to grow at a CAGR of US$ 107

billion by the year 2013 from US $20 billion in 2007, signifying a huge potential.

With the second largest population in the world growing at an average of around 1% per annum coupled with

rising income levels, the retail sector will ride on the consumption wave that continues to be one of the most

significant components of the Indian GDP.

Malls are expected to be one of the major growth drivers of apparel retailing and in terms of opening new retail

outlets, apparel retailers and brands attained a higher than expected growth rate. The market potential is clearly

evident from the number of stores being added to the list of existing ones every year.

The number of operational malls are expected to grow two-fold with a major slice of development taking place in

Tier-II and Tier-III cities, which are relatively newer avenues for the industry.

Apparel industry is considered an environment-friendly industry due to its low emission levels. The industry can

leverage carbon credits saved in this industry and trade them in the world market. In fact, it can be a new source

of revenue for our industry.



Given the fact that because of the rise in the global equity markets, the prices of some of the apparel stocks such

as Zodiac, Provogue and Koutons have already gone up by an average of 150% in the last six months.

The Indian Brand Equity Foundation (IBEF) too upholds most of these projections. The country¶s retail market is

the fifth largest retail destination globally to be ranked as the most attractive emerging market for investment in

the retail sector by AT Kearney¶s eighth annual Global Retail Development Index (GRDI) in the year 2009.

The share of retail trade in the country¶s gross domestic product (GDP) was between 8% and 10% in 2007. It is

currently around 12% and is likely to reach 22% by 2010.

A McKinsey report called µThe rise of Indian Consumer Market¶, estimates that the Indian consumer market is

likely to grow four times by 2025.

Commercial real estate services company, CB Richard Ellis¶ findings state that the retail market in India is

currently valued at US$ 511 billion.

Further, CB Richard Ellis states that India has moved up to the 39th rank in the list of the most preferred retail

destination in the world in 2009, up from 44 last year.

Banks, capital goods, engineering, fast moving consumer goods (FMCG), software services, oil marketing,

power, two-wheelers and telecom companies are leading the sales and profit growth of India Inc in the fourth

quarter of 2008-09. India continues to be among the most attractive countries for global retailers.

At US$ 511 billion in 2008, its retail market is larger than ever and draws both global and local retailers. Foreign

direct investment (FDI) inflows as on Jul ¶09, in singlebrand retail trading, stood at approximately US$ 46.60

million, according to the Department of Industrial Policy and Promotion (DIPP).

India¶s overall retail sector is expected to rise to US$ 833 billion by 2013 and to US$ 1.3 trillion by 2018, at a

compounded annual growth rate (CAGR) of 10%. As a democratic country with high growth rates, consumer

spending has risen sharply as the youth population (more than 33% of the country is below the age of 15) has

seen a significant increase in its disposable income.

Consumer spending has risen at an impressive rate of 75% in the past four years alone. Also, organized retail,

which is pegged at approximately US$ 8.14 billion, is expected to grow at a CAGR of 40% to touch US$ 107billion by 2013.

The organized retail sector, which currently accounts for around 5% of the Indian retail market, is all set to

witness maximum number of large format malls and branded retail stores in south India, followed by north, west

and the east in the next two years.

According to the report µMall Realities India 2010¶ by leading property consultants, Jones Lang LaSalle Meghraj

and Cushman & Wakefield India in association with Shopping Centres Association of India, over 100 malls of

over 30 million sq ft of new shopping centre space is projected to open in India between 2009 and the end of

2010.

Further, this sector is expected to invest around US$ 503.2 million in retail technology service solutions in the

current financial year. This figure could go further up to US$ 1.26 billion in the next four to five years, at a CAGR

of 40%.

India has emerged the third most attractive market destination for apparel retailers, according to a study by global

management consulting firm AT Kearney. Apparel, along with food and grocery, will lead organized retailing in

India.

India has one of the largest numbers of retail outlets in the world. The sector is witnessing tremendous growth

with retail developments taking place not only in major cities and metros but even in Tier-II and Tier-III cities in

the country.



Major plans by leading retailers, both from India and abroad, have been revealed and are much talked about.

Among these, the leading names are Marks & Spencer, Carrefour SA, Gitanjali Group Mahindra Retail,

Pantaloon Retail India (PRIL), Bharti Retail, Aditya Birla Retail, Reliance Retail and Shoppers Stop. The

government has permitted 100% FDI in the cash-and-carry wholesale formats. Franchisee arrangements have

also been allowed in retail trade.

According to industry experts, the next phase of growth is expected to come from rural markets, with rural India

accounting for almost half of the domestic retail market, valued at over US$ 300 billion.

Rural India is set to witness an economic boom, with per capita income having grown by 50% over the last 10

years, mainly on account of rising commodity prices and improved productivity.

According to retail and consumer products division, E&Y India, basic infrastructure, generation of employment

guarantee schemes, better information services and access to funding are also bringing prosperity to rural

households. The rural market, which requires constant innovation, will need to go beyond routine ideas.

All in all, there¶s no stopping India¶s retail sector. As the middle class steadily grows, the rich continue to tune in

to the finer things in life and poverty is reduced greatly each year, contributing to the retail industry in their own

little ways.

Those with established brands are taking their companies to newer levels with each financial year and there are

a number of brands that are being launched almost every other day ± adding to the massive industry thus,

helping it to grow by leaps and bounds.

2)

This section attempts to capture key trends and provides insights into the Indian organised retail sectorthrough two sub sections. In each section, D&B India presents the insights derived from a detailedanalysis of data gathered through primary and secondary sources. The first section presentsoperational insight and the second section presents the impact of economic slowdown on the Indianretail sector and the way forward. The insights are derived from the 123 eligible companies for whichmore than 80% of the information sought was available.

Section I

Economic boom lures more retail players into the sector

Organised retail took shape in India through various phases. The sector reached its glorious periodpost-economic reforms, when economic prosperity encouraged many Indian players to enter the sector.

Out of the companies that responded to this survey, 23% were established before 1990. Players likeTribhovandas Bhimji Zaveri, Nilgiris, and Bombay Swadeshi Stores, to name a few, have been



successfully operating in the sector for decades. Over the past five decades many of today¶s retailmajors like Vijay Sales, Khadim¶s, Fabindia, Rhythm House and Apollo Pharmacy made headway for thesector and mostly operated only in the metros; however, the scenario changed dramatically post-liberalisation.

As mentioned, many players ventured into the retail sector post-liberalisation; 34% of the respondentsestablished their retail business in India during 1990-2000 and opened stores in various parts of thecountry. Some retail companies that established their foothold in the sector during this period are

Shopper¶s Stop, Pantaloons, Spencer, and Vivek¶s. The Indian organised retail sector witnessed a seachange with the entry of new players. Few foreign players like McDonalds and Dominos¶ also forayedinto the Indian market in collaboration with domestic companies and their presence unfolded a newchapter in the highly unorganised sector. The noteworthy development during this period, however,was the emergence of new retail formats like departmental stores, hypermarkets and supermarketsthat gained nationwide popularity. Post-2000, organised retail sector emerged as one of the fastest-growing sectors in India. Over 43% of the surveyed companies started their retail operations after2000; some of these companies are renowned names today ± Liberty Retail Revolutions, WelspunRetail Ltd, Hypercity Retail (India) Ltd and METRO Cash and Carry India Pvt Ltd. The sector witnessed acomplete makeover with the advent of cash and carry format stores popularised by foreign players inrecent times.

More than 55% of the respondent companies were private limited companies followed by public limitedcompanies (24.5%) and proprietorship & partnerships/JV companies account for the remaining.

Among the private and public limited companies the apparel and textile segment is the most preferredsegment. For the private companies, the second most-preferred segment after textile is food, groceryand beverages segment (26%). For the public companies, home décor and furnishing segment is thesecond most-preferred segment after textile.



The organised retail segment is mainly dominated by the apparel and textile segment (25.7% of therespondent companies operate in this segment), followed by the food, grocery and beverages segment(16.1% share). The food, grocery and beverages segment dominates the entire retail market (bothorganised and unorganised), but its penetration in the organised retail side is relatively low, which isclearly revealed in the survey.

The emergence of other segments like home décor and furnishing, footwear, jewellery, consumerdurables and electronics and health, beauty and pharmaceuticals to name a few, has been the highlight

of this decade.

Franchise model gains popularity

The organised retail players predominantly operate under a direct business model; however, over thelast couple of years, players have started operating on both franchisee and direct models, and fewcompanies have started operating exclusively under the franchise model. Besides, the leading foreign

retail brands operate through the franchisee model in India as 100% FDI is not allowed in the segment.These companies have formed master franchises with Indian companies to leverage their foreignbrands in India. For instance, a number of global brands such as McDonalds, Pizza Hut, D¶damas areoperating in India under the franchise or joint venture model with their Indian business partners. Underthe franchise model, companies (franchisor) can be present in the market by incurring lower capitalexpenditure and gaining higher flexibility. Therefore, this concept is rapidly catching up in India, as thecountry offers ample growth opportunities in the organised retail segment.

According to the survey results, 72.7% of the respondents are operating under a direct model, 19.3%are operating under both direct as well as franchisee models and 8% companies are operatingexclusively under a franchisee model.

Big companies also join the fray

The retail sector¶s growth has been supported by the strengthening economic fundamentals, favourabledemographics, change in lifestyle etc. The sector has undeniably benefitted from the gradualliberalisation (51% Foreign Direct Investment (FDI) is allowed on single brand through ForeignInvestment Promotion Board (FIPB) route, and 100% FDI is allowed on cash and carry format throughthe automatic route) even though 94-95% of the Indian retail sector is unorganised. The rapidlyevolving shopping centres, multi-storeyed lifestyle malls, giant complexes that offer shopping, food and

entertainment concepts in tier I, II and III cities are overwhelming and they are attracting companiesto invest in the rapidly growing Indian organised retail space. Retail companies are focussing onincreasing their footprint in the flourishing new retail formats such as departmental stores,supermarkets, hypermarkets, convenience stores, specialty stores; as a result, investments in theIndian organised retail sector have risen incredibly. India¶s leading business houses like RelianceIndustries Ltd, Aditya Birla Group, Tata Group etc have also set their footprint in the sector over thepast few years. Some companies have expanded their presence in the booming market through theinorganic route by acquiring existing retail players; for instance, the Aditya Birla Group took overTrinethra supermarkets and Indiabulls acquired Piramyd Retail Ltd.



The top 10 players in terms of floor space accounted for 77.2% of the total floor space of therespondent companies and operated in multi-segments and different formats spread across major citiesin the country. Evidently, majority of the top 10 companies concentrated on the food, grocery andbeverages segment, and the apparel and textile segment. Nonetheless, the consumer durable andelectronic goods segment is fast-evolving as another important segment for retail companies. Majorretail players like Reliance Retail (Reliance Digital), Pantaloon Retail Ltd (eZone and ElectronicBazaars), Videocon (Next Retail Ltd), Tata Sons (Croma), Sumaria Appliances and Vijay Sales areretailing in this space.

In the endeavour to maximise returns on average floor space and store, retail companies are adoptingvarious promotional/discount activities to retain customers, especially in the current economicslowdown. Alliances with foreign brands are also gaining momentum with rapid lifestyle changes,particularly in metros and this set-up benefits both parties as they get to leverage on each other¶sreach and brand.

West-based companies constitute lion¶s share of the total floor space

According to the survey, companies from the western region had the highest share (67.1%) in the total

floor space in India, followed by companies from the north (19.1%), south (7.8%) and east region(6.0%), respectively. Likewise, in terms of average floor space per store, the western region had thehighest space at 5,345 sq ft as compared with the national average of 3,491 sq ft, while the southernregion was second at 2,789 sq ft, followed by the northern region at 1,894 sq ft and the eastern regionat 1,872 sq ft. Majority of the companies in the western region are based in the commercial capital of India, Mumbai.

As per the survey, the total store count of the respondent companies as on Dec 2008 was 19,989. Interms of region-wise contribution to total retail outlets, the western region had the largest share at



43.1%, followed by the southern region with 24.1% share, and the northern and eastern regions at20.7% and 12.1%, respectively (see chart below). Majority of these stores is specialty, conveniencestores, supermarkets/hypermarkets that are spread across the country; companies are increasinglyfocusing on various retail formats to enhance their presence in all major locations in a city/ town tocater to all sections, societies and communities of people.

Mumbai emerges as the preferred location for retailing

In the study, among 24 popular locations for organised retail in India, Mumbai was found to be themost p3.referred location as 7% of the respondent companies reported to have retail stores/ outlets inMumbai, and 6.5% respondents had stores/outlets in Bengaluru. Nonetheless, the northern region isalso popular among these companies as 35.6% of the companies denoted their preference to have theirretail stores in the northern region. This region has been riding high on the success of the IT and ITeS-BPO companies operating in the region, especially the NCR that has witnessed a spurt in thedevelopment of shopping malls, which appears as the primary reason for the region¶s increasingpreference among retailers.



y According to the study, two cities from the south feature among the top five locations ±Bengaluru and Hyderabad

y On an overall basis, 29% of the respondent companies have presence in the western region andthree cities from this region (Mumbai, Pune, and Ahmedabad) are among the top 10 preferredlocations for organised retail in India, according to this study

y The top five cities as a combination ± Mumbai, Bengaluru, Kolkata, Delhi and Hyderabad ± werepreferred by 31.8% of the respondent companies

R etail ± an important employment generator

Since the retail revolution, the retail segment has churned out employment opportunities in India. Theorganised retail segment particularly has bettered job prospects for the younger generation. Accordingto the survey results 84% of the employees were employed on a fulltime basis and the remaining oncontract basis.

The retail sector employs a high number of under-graduates who work as sales executives in thestores. The survey revealed that 56% of the employees employed by the respondent companies areunder-graduates. This was followed by graduates and post-graduates with 36% and 8% respectively.Graduates and post-graduates can not only handle daily work but are also an important tool inretaining and attracting consumers, because they could better understand consumer needs and betterinteract with them. Recently, many leading retailers have also tied up with various educationalinstitutions to provide specialised courses in retail management.



Target market of the organised retailer

In 2008, India¶s working population (in the 15-49 years age group) constituted around 53% of thepopulation as compared with 48.6% in the UK, 49% in the US, and 53% in Russia. In addition, this

population is more dynamic than the previous generations because their consumption is driven bywants rather than needs. Thus, the organised retailing, which thrives on lifestyle products, is expectedto receive a boost because of the young population by 2020.

The survey revealed that a majority of the respondent companies (48.1%) cater to age group of 25-40,followed by 41% of the companies catering to the age group of 18-25.



The survey also revealed that a majority of retail companies, 33.6%, cater to the customers falling inRs 100,000 to Rs 500,000 income bracket, followed by 26.2% companies catering Rs 500,000 to Rs1,000, 000 income brackets.

High volume-low margin business model more popular

The survey revealed that 38% of the respondent companies operate in the high volume±low margin

business model and cater to the value segment. The supermarkets and discount stores that providedaily usage products to consumers at a discounted price come under this category. As per the survey,33% companies operate in the high volume±high margin business model and cater to the lifestylesegment.

Private labels gain importance

Private labels generally offer 5-7% higher margins to retailers and are therefore considered a very safeand profitable bet. These labels offer higher margins because they exclude the middlemen and otherrelated charges. Besides, these labels also offer many added benefits to retailers, which are along thelines of building consumer loyalty, improving market position and offering more variety to consumers.

According to the survey results, 56% of the respondent companies retail private labels in their stores.Among this 56%, the apparel segment had the maximum representation in private labels and had a40% share in the private label¶s pie, followed by the food and grocery segment that had a 12% share.



A quick glance at the share of private labels in the total sales of the respondent companies revealedthat for a majority of companies, 34%, private labels constituted 10-25% of the total sales followed by25-50% and more than 75% share for 22% companies each.

In the long run, private labels will be a very important product in a retailer¶s basket; in fact the Indianretail companies will be looking at increasing the share of private labels from the current rate to 20-40%.

Inventory management plays a key role

Inventory management is the most crucial aspect for any retailer, regardless of whether the retailer isfrom the organised or unorganised segment. A retailer needs to be accustomed to not only the markettrend but also consumer behaviour, which will help him stock the right inventory mix in his warehouse.

The inventory turnaround time, which varies from segment to segment and product to product, alsoplays a very important role in effective and efficient inventory management.

According to the survey results, a majority of the respondent companies (40%) maintained an averageinventory level of 30 to 60 days. Most of these companies were found to be operating in the lifestyle

retailing category that follows a high margin-low volume business model. On the other hand,companies operating in the value-retailing category, which included the food, grocery and beveragessector, maintained an average inventory level of less than 15 days. Evidently, higher inventory levels(of more than 60 days) were observed among the highpriced, luxury goods retailers.

R etailers use outsourcing to improves efficiencies

Transportation is the most outsourced activity for the retail companies that responded to this survey,as 48% companies were found to depend on third party logistic management companies; the other



most outsourced activities were warehousing/storage activity (12%), distribution (12%) and inventorymanagement (11%) in that order. Transportation, warehousing and inventory management, are vitalactivities in terms of costs, which is why companies are re-arranging their focus on reducing inventorylevels and adopting just-in-time approach. Besides lowering inventory carrying costs outsourcing alsoenables retailers to capitalise on the specialised services provided by outsourcing partners, whichinadvertently lowers costs substantially.

Internal accruals most preferred funding option

The respondent companies are poised to meet their funding requirements through internal accruals.These companies ranked internal accruals as the most-preferred financing option for their workingcapital requirements as well as for future expansion plans. Loans from banks/FIs and funding frompromoters were the two most preferred external sources of funding for the retail companies, accordingto the survey results.

Expansion, working capital requirements top fund utilisation priorities

The retail companies are confident about the future of organised retail in India and are thereforeplanning to utilise a majority of their funds for further expansion. Among the respondent companies,66.7% want to utilise funds for business expansion. The other two options for using their funds are forfulfilling working capital requirements followed by marketing and advertising.



R etailers attribute their success to a thriving economy

As a part of the survey, the selected companies were asked to rank the factors that they think haveaided the retail sector¶s strong performance. These factors were given in the survey and were to beranked on a scale where 1 was most important and 9 was least important. The analysis revealed that amajority of the retailers ranked the flourishing Indian economy as one of the key growth drivers.According to Technopak, the organised retail industry is set to reach US$ 94.4 billion by FY12 and Indiahas all the potential needed to support this growth. The Indian economy has been the one of thefastest-growing economy in the world and has shown resilience when the major economies of the worldwere facing difficult times, by staging a decent growth. As per revised estimates of CSO, India¶s GDP atfactor cost has recorded a growth rate of 6.7% in FY09 and is expected to grow at around 6% in FY10.All these factors augur well for the Indian retail industry. Growing disposable incomes and youngpopulation were rated second and third growth drivers, respectively, in the survey.

Section II

Economic slowdown pinches retail sector

The economic slowdown has been affecting the global retail sector significantly, both from the demand

side and supply side. The global demand has been falling consistently over the past one year followingthe crisis in the US mortgage market. The resultant job losses and the fall in income have aggravatedthe impact on consumer demand. Besides, job uncertainty (in anticipation of job losses) has led to dropin consumer spending. The global economy, especially the developed economies, has been witnessingcontraction in GDP growth over the last couple of quarters; the global GDP growth rate is expected tocontract by 2.9% in 20091. On the supply side, however, many retailers are slowing down theirexpansion plans and many real estate developers are falling behind schedules in their shopping mallprojects, considering the credit crunch. The economic slowdown has deeply affected the Indian



organised retail sector in terms of deceleration in retail sales growth, footfalls, store expansions,employment rates and most importantly, profitability.

According to this D&B survey, around 88% of the respondents opined that economic slowdown hasaffected the sector badly, while the remaining 12% respondents opined that the slowdown has not

affected their business. Majority of the retailers who opined to be not affected by the slowdown operatein the food and restaurant segment, which has been spared from the slowdown. Majority of therespondents who felt that they were affected by the slowdown operated in the apparel and textilesegment.

The survey revealed that apart from the slowdown in the economy, understanding consumer behaviourand customer retention are the other major issues and challenges that the Indian retailers face. Giventhe current situation, retailers are concerned about decreasing consumer spending, as consumers aredeferring their purchases, and the sector is witnessing a paradigm shift from, what is being called, µconspicuous consumption to conscious consumption¶. Moreover, any dip in customer footfall and weakconversion ratio has an impact on retailers¶ inventory turnover, which increases their working capitalrequirements.

Inventory management is crucial to rebound in present times

According to the survey, majority of the respondent companies prioritise inventory management as animportant instrument to combat the current slowdown. Proper inventory management helps retailers tohave a better understanding about their stocks in the store; therefore, retailers can utilise the floorspace optimally. Unnecessary inventory involves costs to retailers in terms of interest, space,manpower, handling damages etc.



Another strategy to combat the challenges is collaborating with suppliers and manufacturers, sinceretailers are finding it difficult to manage their expenses, especially that of raw materials. The retailerscan persuade suppliers or manufacturers; increase their bargaining power over longer credit periods, or

further integrate their supply chain to lower working capital requirements.

Revenue/profit sharing with real estate players is emerging as an important strategy in view of thecurrent slowdown, because real estate expenses constitute anything between 10-12% of retailers¶ sales. The stupendous rise in real estate prices over the last couple of years has become a majorchallenge for retailers who are exploring the option of re-negotiating rentals or of forging alliances withbuilders for revenue/profit sharing to distribute their risks.

Furthermore, retailers are also adopting strategies to retain customers through discounts, lower prices,value-added services and increased choice of products by entering JVs with foreign brands.

Expansion plans continue undeterred

As mentioned earlier, the retailers in India are optimist about growth of the industry in spite of globalslowdown. A majority of the respondent companies (49.1%) feel that the industry will achieve an

annual growth rate of 15-25% in the next two years while 36.1% companies feel that the industry willgrow annually by 5-15% during the same period. India has achieved moderate growth during the timewhen most of the countries across the globe are falling prey to slowdown and recession and this is oneof the key reasons why an average Indian retailer is confident about the growth of the industry.

1 World Bank- Global Development Finance Report 2009



Retail Sector in India Post Recession

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