All FMCG companies are surrounded around retail market. What is the organized retail sector in India? MBA Aspirants are expected to know or have some idea on retail industry in India. This general awareness will help you in WAT/Essay/GD and PI also.
Read: Metamorphosis in organized retail sector in India
Retailing in India is a market worth 500 billion US dollars. 95 percent of this is unorganized, composed of small mom and pop stores (kirana shops). The remaining five percent (25 billion dollars) is organized, comprising of chains owned by corporate behemoths.
The very small base of five percent coupled with the expanding economy represents huge opportunity for organized retailers as well as real estate companies. It is this potential market that is attracting even the foreign retailers like Wal-Mart and Carrefour to enter India.
However big the 25 billion worth of current market looks to be, but capturing even a small slice of this would require huge efforts and right strategy. In a market of cut-throat competition and price-sensitive customers, positioning the firm to differentiate from others is going to be challenging.
Retail chains are already feeling the heat in the marketplace. Domestic retailers have scaled down their expansion plans. Foreign retailers are finding it tough to convert higher footfalls into sales. The reasons for the exuberance of the past turning into skepticism of today are numerous.
First of all, government’s flip-flop policy on organized retail sector has dampened the confidence of investors as well as retailers. Second reason is the slowing down of economy coupled with high inflation across sectors, resulting in lower disposable incomes.
Third reason is the peculiarity and uniqueness of Indian economy and its consumers. Because of this, foreign retailers have not been able to make a mark in India. India’s diversity of culture, language, customs, cuisines and costumes is difficult for foreign retailers to comprehend, resulting in inability to implement customized and tailored strategies as per the variegated taste and preferences.
In the last ten years malls have mushroomed across India. In such a high growth phase, every kind of retailer, from specialty to supermarket, normal to anchor, lower to premium was allowed by the mall owners to open shop.
As there was no proper thoughtful positioning strategy, many malls have failed miserably. Some are merely surviving. The ones that are very successful have carefully tried to position and differentiate their mall among the clutter.
But now things are changing. Mall managers have realized that the image of the mall also depends upon the kind of retailers that operate inside the mall. There are certain tough questions that mall managers are pondering upon.
Does the positioning of the retailer in customers mind align with the mall’s strategy? Is the image of the retailer in line with the mall? The retailer who wants to open the shop or already have the shop, has the same target segments as the mall? In short, the focus is on having the best fit between the retailers and the mall.
Retailers who do not fall under this arena of best-fit are not being accepted by the mall. In fact, there are cases where malls have asked non-performing retailers to leave the mall. At the same time, malls are tying up and inviting retailers that fit into their overall strategic architecture. Examples are luxury brands like Salvatore Ferragamo and GAP being invited to open at DLF malls that eye luxury segment of the market.
Clearly, the tables have turned. It is no more the retailers who are bargaining hard with malls for lower rentals. Rather, the power of malls is growing and now they have an upper hand while negotiating with retailers. Retailers have to perform, if they want a place in good malls and the road ahead is going to be a tougher one.