Hope Floats

Mar 12, 2010
Vinod Behl

Notwithstanding a recent KPMG study that predicts slowdown in the retail sector to continue for another 12-18 months, there are encouraging signs of retail revival. The sector is now in correction mode, shedding some of its flab accumulated as a result of indiscriminate expansion.

Fund crunch has eased now and players have consolidated operations by renegotiating rentals, rationalizing front-end and back-end resources, optimizing employee costs and streamlining logistics for financially more viable and sustainable business.

With shrinking footfalls in big cities, the strategic move by the retailers to tap smaller towns, suburbs and rural areas as future growth centres has paid dividends by pushing up demand.

Value retailers have witnessed smart recovery. Big retailers are kicking off their growth plans which were put on the backburner, thanks to economic revival and sharp rental corrections. Growth rate that had dipped to 5 per cent has shot up to double digit (10-15 per cent).

The recent budget has also given a booster dose to the sector. Extension of investment-linked tax incentives in areas of cold chain and warehousing would facilitate the much-needed investment to set up rural infrastructure. And this in turn would help retail gain efficiency and profitability.

The retail sector that has been starved of demand has got a fillip with the budget focusing on creating consumption. A recent study by Boston Consulting Group (BCG) is equally encouraging on the demand front. It says that two-thirds of Indian consumers do not intend to cut their spending and are happy to maintain household expenditure levels.

In this backdrop, Indian retailers have positioned themselves for slow but steady growth through corrective measures in the downturn. Otherwise too, the recession has proved to be a blessing in disguise as, being hit by severe slump, many international brands are looking for a foothold in India through master franchise or revenue-sharing route in fast moving F &B, fashion, apparels and cosmetic segments.

In spite of the current restrictions, foreign retailers are eager to expand their presence in emerging markets like India. This is clearly evident from India’s 39th ranking as the preferred destination for top retailers, up from the 44th position last year. India also tops 2009 Global Retail Development Index as the most attractive retail destination among 30 emerging markets. Wal-Mart’s entry signals the foreign investors’ confidence in India and will act as a catalyst for other multi-national chains waiting to enter the rapidly expanding market.

And as the retail sector shows signs of revival, granting of industry status and enacting a retail policy will do well to boost the growth of the organised retail.