Talk - Survival and Growth of Indian Retailers despite FDI

Strategies for Survival and Growth despite the entry of large foreign retailers

“Conventional retailers, especially those that are mid-sized, will be squeezed from all sides; from larger players with better economies of scale, from smaller players with more focused selection or a greater emphasis on convenience; from electronic retailers that have few physical assets but are rich in information, and from entertainment and education oriented players that offer a more vibrant consumer experience.”

Jagdish Sheth with Rajendra.S.Sisodia - “Changing Face of Retailing” Financial Times – series on Managing Marketing – Oct 19, 1998.

To survive and grow Indian retailers will need to be smart small players who will offer greater convenience, entertainment and interesting products.

The size of the retail market is forecasted to grow from rupees 23 lakh crores in 2011-12 to 47 lakh crores in 2016-17 according to an ASSOCHEM survey. We are a nation of shopkeepers with 11 shops for every 1000 people, 97% of the number of stores in the unorganized sector. Retailing has been growing at a hectic pace thanks to continuing urbanization, growing middle class, and macro-economic growth

We must first examine if it is possible to have a strategy for growth when large international retailers are capable of bringing in large investments in the form of foreign direct investments. In my view, even if FDI is allowed in multibrand retail, not all Indian retailers will shut their shops.

Going back to the very basics of strategy development, we need to look at the environment, the industry and the various firms in it, apart from the opportunity available in the market. When we examine the retail industry from the point of view of developing strategy, it is clear that for Indian firms cost leadership will be difficult, however, if they can differentiate and /or choose to focus, there are many opportunities. Differentiation strategy and Focus strategy are suitable in a situation where Indian retailers have to compete with very large firms who have already established global purchase and supply chains.

In India retailers can differentiate themselves in terms of the product range, service level or specific services, location and many such factors. With so many sub-cultures with very specific product needs and buying patterns, focus on niche segments is a very viable strategy in India.

Kenneth E. Stone, Professor of Economics, Iowa State University; Georgeanne Artz, Extension Program Specialist, Iowa State University, and Albert Myles, Extension Professor, Mississippi State University, in their 10 year study of the impact of Wal-Mart on smaller cities developed two primary conclusions.

“The entry of a new super center in a community can have dramatic implications for existing merchants. Two general rules-of-thumb summarize the economic impacts of a new super center on local merchants: Rule-of-thumb 1: Local merchants that sell merchandise different from the super center or other big box stores tend to fare well and may gain sales as the additional traffic generated by the big stores spills over into their stores. Rule-of-thumb 2 is not so pleasant: Local merchants that sell the same merchandise as the big stores will probably face a reduction in sales because of the difficulty in competing with major chains.” What this study indicates is that to succeed the merchandise strategy of Indian retailers needs to be different from the large chains.

 A couple of simple local examples may be useful. In Bangalore I find a unique format called ‘grandige angadi’ do you think large international retailers can compete with this format? There are stores like ‘subbamma stores’ in Gandhi bazar which cater to a niche target market and the turnover of this shop is only growing over the last 60 years.

Strategies for survival and growth will need to start by understanding the environment and competition very well. Retailing is changing and so is the customer, there is a great need to keep track of what is happening in the environment. For example traditional malls in the US are getting De-Malled and have to have other tenants like dentists, medical centres and clubs.  In India Smt Nirmala Sitaraman the commerce minister has issued many statements clarifying that the Government stand is not in favour of FDI in multi- brand retail for now. She has also indicated the need to regulate ownership of online retailers. Indian retailers will get some more time before we have WalMart and Carrefour all over the country. There is atleast 3-5 years to choose a strategy and work on it.

Indian retailers can get help from academics in understanding merchandise strategies, pricing, location and other components of the retail strategy of large international retailers. Based on customer requirements and competition Indian retailers will need to examine merchandising, marketing, customer service, operational efficiency, and human resources strategies. Indian retailer who accept the new reality and reinvent themselves will survive and the inefficient ones have to go. The way is through better customer service, personalized service, unique product assortment by identifying niches in the market, and most importantly improve efficiency in purchasing and managing inventory professionally.

 Finally, I do not wish to list specific survival and growth strategies for retailers as many paper presenters must have already done that. There are many opportunities in assortment planning, image development, ( one example is the Swadeshi products store in Jayanagar which does not stock MNC brands), value added services like cleaning and cutting vegetables or home delivery after 10pm, store operations including small things like cleanliness, and innovative pricing strategies. Human resources finance and management are other opportunity areas for improvement in traditional Indian retail stores. There are many tools available to traditional retailers for example jiffstores.com and kiranasales.com are Bangalore based initiatives worth looking to use the online platform without investing in it.

Many Indian retailers want to swim with the tide. They have built very visible front end retail and are hoping to be taken over by foreign companies. Building visibility and market capitalisation to make it easy to be taken over by FDI is also a strategy some larger Indian retail entrepreneurs are choosing.

Survival and growth is very much possible, however only those who have a strategy will survive.

Thank You for the opportunity.