(currently not so red hot) Indian Retail Scene
Periodic (Random) Thoughts on Indian Retail
Strategic Mistakes made by Retailers in India ( 6th November 2008 )
Most of the Organized Retailers in India are struggling in the current economic situation. This is expected to worsen during the next few months. Where did their strategies go wrong ? Based on our interactions, some of the strategic mistakes made by retailers in India are as follows :
Mistake # 1 - Trying To Grow To Fast
WALMART was a single store operation for many decades before they decided to open a new store elsewhere. In India, organized retailers were talking of opening multiple new outlets per month without learning the basics of the business.
Mistake # 2 - Underestimating the Strength of Traditional Retailers
Many traditional retailers were happily watching organized retailers make expensive mistakes in their operations. A foods retailer in Santacruz Mumbai predicted to me last year (when the market was booming) that an upcoming operation of India's largest organized retailer would soon flounder.
It seemed difficult at that time. But his prediction came true. This company is now scampering to cut costs everywhere. Traditional retailers are also catching up. In terms of organizing their supply chain better, using new technologies where it makes sense.
Mistake # 3 - Not Understanding the New Mindset
India's consumers have started asking for more while willing to pay for less. Mindsets, Mental Models of the previous era cannot work. Many of the organized retailers while investing in high cost glitzy retail operations unfortunately have not focussed enough on keeping pace with the needs and aspirations of India's new consumers. This also applies to employees of organized retailers.
Mistake # 4 - Not Utilizing Technology Enough
The Internet and Mobile Revolution in India along with Open Source Technologies can help an organized retailer created a world class technology backbone and platform. Many organized retailers have not yet been able to effectively leverage technology sufficiently enough in their operations.
Creating an Electronic Virtual Shopping Experience is far more challenging than a physical mortar brick operation but much more cost effective and less capital hungry for the sales buck it can deliver.
The problem here is the IT maturity of organizational decision making mindsets & mental models as well as the lack of integrated low cost retail solutions in the marketplace.
The ongoing business slowdown will hopefully accelerate the use of information technology in the Indian organized retail sector.
Walmart's Vertical Plans
It has been reported in one of the business newspapers here that Walmart is planning vertical building stores rather than large ground level warehouses to avoid the costs of expensive real estate in the Indian cities.
For example, yesterday in Nariman Point, Mumbai's prime business district, a real estate purchase deal at Rs 63,000/= (approximately USD $ 1400) per square foot has been reported.
1st December 2006 - WALMART to enter India...
As has been suggested by us in this space for the past 18 months, WALMART's entry should be welcomed in India for many reasons.
Last week's announcement by WALMART of entering India in a unique tie-up arrangement with Sunil Mittal's Bharti group is strategic for multiple reasons.
It was done at a time when Walmart's US operations past quarter performance has been one of the worst in recent times. Also, the Indian economy has shown over 9% growth during the last six months. So, the timing seems to be apt.
It however remains to be seen what are WALMART's actual execution operational gains in the Indian marketplace. It has been said that India is a country with it's head in the 21st century and it's tail in the 18th century.
Can one of the current century's largest global organization WALMART make it's Indian operations work here successfully and profitably ?
8th July 2006 - Update
As suggested below on 21st April 2006, Reliance Retail has indeed bid for Subhiksha through ICICI Ventures as reported in India's business papers on 7th July 2006.
Read more in a blog written by our Consulting Director - Did we predict Reliance's Retail Strategy ?
Walmart's Entry into India as a Retailer is only a matter of time even though it may appear to be delayed currently.
Prohibitive Physical Space, Easy E-Commerce Entry ?
With such sky rocketing real estate prices in Mumbai (perhaps as a pointer to other Indian cities in the future), the entire economics of a retail venture goes for a toss.
Since the higher (highest in the world ? - Warren Buffet would be further shocked ) real estate investments automatically push back the payback period of any venture, especially retail where margins are anyway not very high.
If one combines the high Indian real estate costs with the increasing price of oil (Currently USD $ 70+) products (petrol, diesel) expected in the near future, it is no wonder that most retailers in India should and are looking at Ecommerce ventures as a further supplement to their Mortar-Brick Outlets.
The Pantaloon Group alone is expecting a Sales Turnover of Indian Rupees INR 300 Crores (INR 3000 Million) or USD $ 67 Million Dollars from their E-biz operation.
India will be the only country where the time span between the etailing and organized retailing investments will be the shortest in the world.
Reliance to lead India's Venture Capital backed Retail player's war against Walmart?
Also, another interesting aspect of India's retail ventures is the amount of investments made by one large Venture Capital Player - ICICI Ventures in some of the major fast growing retail players here.
Some of their current investments are - Crossword, Indusleague, Mars Group of Restaurants (All Stir Fry, Birdys, Cake Khazana, China Joe, Dosa Diner, Just Around The Corner, Not Just Jazz By the Bay, Pizzeria, Polly Esther's, Roti, The Gordon House), Pantaloon Group, Pizza Corner, Shoppers Stop, Subhiksha and Trinethra .
Considering that traditionally, the ICICI management has been pretty close to India's Goliath - the Reliance group, are we looking at a future possibility of ICICI Ventures divesting it's stake in it's retail ventures in favour of Reliance ?
As the Indian retailer's united foil (led by Reliance) against the foreigners led by Walmart ?
Surely an interesting India Inc patriotic profitable possibility !
Watch this space for more.
Kaytek can help you in your retailing plans in India via our Retail IT Advisory, Strategy & Consulting Services. We are vendor agnostic & focussed with select retail industry contacts.