Despite retailing being a familiar term in India now, many retailers have not yet been able to grasp the most important elements of the business
 The concept of retailing in India has evolved with time. Even 2 years ago, many businessmen used to set up retail stores and fill it with merchandise expecting enormous sales. But it was the economic slowdown that revealed the loopholes of such retail businesses. It exposed that merely opening stores and stocking them up with products do not suffice and compelled retailers to introspect deeply about the details of retail business.The objective of many retail companies, created in the lines of the dot com companies of 90s, was setting up retail stores and sell products to make quick profit. They seldom had time to nurture every store. As a result, some of the key ingredients to record long-term profits were missing in their business. However, with the passage of time, the outlook of some retailers has changed, but many are still to grasp the essential requirements for conducting retail business in India.
Key requirements in retail business
Getting a good location is vital. Mere addition of space does not guarantee sales and profits. The chase for retail spaces saw many retailers buying properties, which instead of facilitating, hindered business growth.
The price at which retail locations are available is another matter of concern. Not many spaces available are conducive to conduct retail business in the country. This leads to the emergence of many landlords (especially in malls) charging exorbitant rentals, which make retailers work hard only to pay the high rents. The issue eased a bit during the economic slowdown, although the problem still persists in some measure. Indian retailers pay as much as 10% of their sales as rentals.
Labour cost in India is normally expected to be low. But the sheer demand for talent in retail business has skyrocketed the remuneration levels for top management and mid-management levels in the retail sector. However, pay scales for customer facing front-end personnel are still very low. Poaching between retailers has also left employees seeking for salary jumps every 6 months. While it is essential to pay for talent, the need to match payment with value received (employee value addition) is also vital. It is equally important to develop an environment, which is cohesive to customer service. The efforts to create an objective focused and service-oriented work environment are yet not achieved by many modern retailers. Also, the Human Resource environment required to create good service has not yet been achieved by many in the sector.
Indian customers do not like travelling distances for shopping, with many availing home delivery services. Modern retail stressing on comfort shopping and big overheads has made it difficult for small store formats to succeed. While the large store formats offer everything under one roof and seem to attract more customers, the small store formats are yet to prove its viability for modern retail.
Retail profits only happen if there is clear understanding and monitoring of use of three most important resources in the business—space, people and merchandise. Some retailers are yet to devise norms of gross margins from these resources.
Therefore, the immediate agenda of retail businesses should be to create a clear customer-centric strategy for their business and set up an action plan to implement the same. In a country that demands good customer service, free home delivery and credit thanks to traditional retail efficiencies, modern retailers need to focus on differentiation strategies that give customers a strong enough reason to get attracted to the retail offerings.
Kumar Rajagopalan, CEO, Retailers’ Association of India |
