The organised retail sector in India has been witnessing various issues and challenges which are proving

to be a hurdle for its fast-paced growth. Even though the organised retail sector is in a very nascent stage in India, it provides ample opportunities for retailers, and mitigation of a few challenges will help the sector attain higher economies of scale and growth. Elucidated below are the challenges and risks that the sector faces:

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Global economic slowdown Competition from the unorganised sector Retail sector has no recognition as an industry High real-estate costs Lack of basic infrastructure Supply-chain inefficiencies Challenges with respect to human resources Margin Pressure

Global economic slowdown impacting consumer demand The current contraction in overall growth has not been so severe ever since the one witnessed during World War II. The sub prime-triggered crisis in the US during end of 2007 gradually spread across other parts of the world; as a the fallout of this crisis, credit availability dropped sharply in advanced economies and their GDP growth contracted incessantly during the last quarter of 2008. The financial crisis continued to trouble advanced and developing economies in spite of policymakers’ attempts to replenish liquidity in these markets. Many financial institutions collapsed and filed for bankruptcy, as the situation got from bad to worse. Many banks/institutions made massive write-downs following this turn of events. During 2007-10, the write-downs on global exposures are expected to be worth US$ 4 trillion while the write downs on the US-originated assets alone are likely to be worth US$ 2.7 trillion11. Such massive write-down will affect the financial system to a grave extent, as it is likely to further strain banks’ funding capabilities. Already these write-downs are turning into a major challenge for banks/financial institutions because of solvency issues, and deepening risk of failure of banks/ financial institutions. Failure of the US investment bank Lehman Brothers, for instance, has had an enormous impact on the overall global financial system, and has consequently shaken the confidence of banks, investors, households etc. According to IMF’s World Economic Outlook (Apr 2009), the global GDP contracted by 1.8% in the first quarter of 2009 as compared with the 4.5% growth recorded during the same period in the previous year. Likewise, the advanced economies witnessed contraction in GDP growth (by 1.7%) during the last quarter of 2008 while the US, Euro area and Japan witnessed a recessionary trend12. According to IMF estimates, the world GDP will continue to contract by 2.4% during the third quarter of 2009. Going ahead, policymakers face a daunting task as they need to put back things as early as possible; according to IMF’s World Economic Outlook (Apr 2009), the world economy is expected to recover gradually only in 2010 by 1.9% , by corroborating demand, with appropriate monetary and fiscal measures. The financial crisis and global economic slowdown resulted in job losses around the world, which weakened consumer demand. The unemployment rate remained high in the US during first quarter of 2009, Europe and emerging economies like Brazil; for instance, the annual unemployment rate in the US reached 5.8% in 2008 from 4.6% in 2007, which further went up to 9.4% in May 2009. In future, the rising unemployment rates in advanced economies as well as economies that are heavily exportoriented will further dampen consumer spending; as a result, the retail sectors growth will remain under threat. In the US, the retail trade sales growth (both retail and food services) contracted by 0.7% in 2008 from 3.3% growth in 2007. The downward trend in retail trade sales continued during the first six months of 2009 (Jan- June), as it went down by 9.3%13 as compared with the previous year. In EU27 countries, the total retail trade in volume terms continued to contract during the first five months of 2009; for instance, during May 2009, the retail trade in volume terms in EU27 contracted by 3.1% against the same period in the previous year.

5% annualised rate) during the fourth quarter of 200815.0% from 9. in an uncertain situation like this. down from 2. US households lost 20% (US$ 13 trillion)14 of their net worth as a percentage of disposable income from the second quarter of 2007 to the fourth quarter of 2008. widespread financial crisis severely hit credit availability and household disposable income.6% in Q1-2008.1%) during the last two quarters of 2008. For instance.9% during the same period. The personal consumption expenditure in the .8% growth in 2007. Further. while investments dipped to 9.5% during Q4-2008 from 8. uncertain future market conditions raised precautionary household savings that curtailed investments and consumer demand. the global stock markets lost between 40-60% in dollar terms that translated to a huge loss of global wealth in 2008. the financial crisis triggered massive layoffs globally.2% y-o-y growth in 2008. the household savings would go up as a precautionary measure with the global economy trying hard to rebuild in the coming months. respectively. The personal disposable income (at current prices) in the US registered negative growth (3. The consumer demand situation was aggravated further by reduced capital availability and consequent fall in investments. In the last couple of quarters. Further. On the other hand. The investment activities in 27 high income countries out of 30 countries fell by 4. the personal consumption expenditure growth turned negative during the second half of 2008 and first quarter of 2009.4% (at a 16. Moreover.Consumption declines in the advanced economies Private consumption expenditure is an important indicator of overall economic growth. The stock prices across the world started falling during the second quarter of 2007 and continued its losses throughout 2008. the decline in consumption has further affected the global economic downturn. For instance the household savings rate (not seasonally adjusted) in EU27 jumped to 12. As mentioned earlier in the section.9% and 2. which pushed up the unemployment rates. The personal consumption expenditure in the US registered merely 0.

the trend continued as PFCE further slowed down to 2.0% in the corresponding period in the previous year. while in 2009. the organised retailers are facing stiff competition from over 13 million kirana stores that offer personalised services such as direct credit to customers. During the current economic slowdown. The existing players have to invest substantial amounts of money and time in building a cold-chain network. During the second half (H2 FY09).6% in FY08 to 13. 1982 and 199116. Presently the Indian organised retail has an efficient supply chain but it appears efficient only when compared with the unorganised sector. For example. Some are even focussing on setting up shops in tier II and tier III cities. during the first half (H1) of FY09. During a downturn. For example. The unorganised retail sector constitutes over 94% of India’s total retail sector and thus. in kirana stores. the rigid Urban Land Ceiling Act and the Rent Control Act and time-consuming legal processes. India is not entirely insulated from this weakening demand.7% in FY09.28%. which causes delays in opening stores. Lack of recognition as an industry affects the retail sector in the following ways:   Due to the lack of established lending norms and consequent delay in financing activity. Generally. Presently the sector faces high stamp duties. however. Now companies are moving out from prominent malls of tier I cities and are re-negotiating the rental agreements with landlords to reduce costs. many customers may not like to spend more as is evident from the past few months’ trend that shoppers are increasingly switching from organised retail stores to kiranas. Retail sector yet to be recognised as an industry The retail sector is not recognised as an industry by the government even though it is the secondlargest employer after agriculture. which affects their growth and expansion plans The absence of a single nodal agency leads to chaos. Earlier on the lease or rents on properties were very high (among the highest in the world) at some prominent locations in major cities. it has been observed that customers shop impulsively and end up spending more than what they need at organised retail outlets. which directly affected organised retailers. If put numerically.9%) of that witnessed in the corresponding period of previous year. Competition from the unorganised sector Organised retailers face immense competition from the unorganised retailers or kirana stores (momand-pop stores) that generally cater to the customers within their neighbourhood. An interesting observation on the economic slowdown and its effects on consumption in India can be made from the volume of credit card transactions growth.1% as compared with the previous year. which declined from 34. PFCE (at constant prices) grew by 3. free home delivery services. it is estimated that the per capita consumption will contract by 1. these prices are expected to go up again in the near future. The severity of the current recession (slowdown) can also further be measured from previous recessions in 1975. Supply-chain inefficiencies Supply chain needs to be efficiently-managed because it has a direct impact on the company’s bottomlines.3%.US contributes over 70% of its GDP at constant prices. pro-tenancy acts. On an international level the Indian organised retailers fall short of international retailers like Wal-Mart and Carrefour in terms of efficiencies in supply . apart from the loyalty benefits. Lack of basic infrastructure Poor roads and lack of cold chain infrastructure hampers the development of food retail in India. the existing and new players have lesser access to credit. 1982 and 1991) grew by 0. they stick to their needs because of the limited variety. The profitability of retail companies were affected severely because real estate costs constituted a major part of their operating expenses. the average per capita consumption in the previous three recessions (1975.5% as compared with 9. as retailers have to oblige to multiple authorities to get clearances and for regular operations High real estate costs Even though the real estate prices have subsided recently due to the slowdown in economies and the financial crises. which was less than half (7. the traditional kirana stores adopted various measures to retain their customers. poses a serious hurdle for organised retailers.

the communication has to be more of relative nature. the main challenge here is to procure adequate amount of stock according to customer requirements. the retailer may still face a big challenge in terms of efficiently implementing the supplychain software across stores and integrating it with the central warehouse. It is imperative for any organised food and grocery retailer to establish a robust cold chain.chain. move stock from warehouse to stores. maintain adequate stock at a store to match consumer preferences etc. The core purpose is to inform the target customers about the offering of the mall. Changes in career path. which can be a timeconsuming process. replenish their stock on time. Challenges with respect to human resources The Indian organised retail players shell out more than 7% of sales towards personnel costs. requiring trained personnel. The third challenge related to the supply chain is procurement. The high HR costs are essentially the costs incurred on training employees as there is a severe scarcity for skilled labour in India. This implies that the message conveyed to the target customers must be effective enough in differentiating the mall's offering from that of its competitors without even naming them. Inventory management is the first challenge that retailers face at the local store level as well as at the warehouse level. as it has developed a cold storage chain across India. Logistics is another challenge related to the supply chain. administrative errors. However. so retailers like Pantaloons and Shoppers Stop have IT systems in place for inventory management. These losses include theft by employees. CCTV and antennas to overcome the problem of shrinkage. The mall developer can create awareness about the offering among the target customers in a number of ways. In the following paragraphs some key challenges that the retailers face during procuring goods from suppliers to delivering the same to end-customers are discussed. flexible and better working hours and conditions contribute to the high attrition. which is high when compared to other sectors also. they would continue to incur loss of considerable amount of money through wastages of perishable items while moving huge quantities from one place to another. Big organised retailers enjoy economies of scale based on their size and expansion plans. Excess inventory often leads to an increase in inventory costs. SCM-IT has helped retailers to plan their stock outs. Until and unless organised retailers like Reliance and Food Bazaar fully develop integrated-cold chains. however. shoplifting by customers or vendor fraud. At this stage. The message should also clearly convey to the target audience that the mall offers them exactly what they call the complete shopping-cum-entertainment point that meets all their expectations. persuade them to visit the mall and remind them about the mall. Shrinkage Retail shrinkage is the difference between the book value of stock and the actual stock or the unaccounted loss of retail goods. The retail industry faces attrition rates as high as 50%. . failing which the resultant rise in inventory can affect bottomlines. nearly 3-4% of the Indian chain’s turnover is lost on account of shrinkage.1: Right Positioning The effectiveness of the mall developer's communication of the offering to the target customers determines how well the mall gets positioned in their minds. and then to lower profits. The organised industry players have invested IT. According to industry estimates. 0 Strategies 4. employee benefits offered by competitors of similar industries. Amul is the best example of this scenario. The economical benefits of scale in procurement are achieved when procurement is made in thousands or millions of units.

The supply chain management is logistics aspect of a value delivery chain. 4. which are based on a season or an event. use of print media. the retail firm reduces stock outs. customer service and inventory management as interdependent functions in the value delivery chain. demand planning. Efficient logistics management not only prevents needless movement of . the margins in the retail sector can be improved by 3% . celebrity endorsement. the logistics market for organised retail is pegged at $50 million and is growing at 16%. inventory planning. press releases and viral marketing . Third Party Specialists like Shippers. are used to promote collections and have to change to keep touch with the trend. lean systems and staff should help retailers to get advantage over competitors. Importance of Supply Chain and Logistics Management One of the most important challenge in organized retail in India is faced by poor supply chain and logistics management. Theme or lifestyle displays using stylized mannequins and props. Wholesalers. If a logistics system works well. Retailer has to develop innovative solution for managing the supply chain problems. logistics is the total process of planning. hold down inventories and improve customer service – all at the same time. In India. It comprises all of the parties that participate in the retail logistics process: Manufacturers. It is expected to reach $120-$130 million by 2010.3: Strong Supply Chain Critical components of supply chain planning applications can help manufacturers meet retailers' service levels and maintain profit margins.2: Effective Visual Communication Retailer has to give more emphasis on display visual merchandising. buzz marketing (WoM). implementing and coordinating the physical movement of merchandise from manufacturer to retailer to customer in the most timely. effective and cost efficient manner possible. It oversees inventory management decisions as items travel through a retail supply chain. lighting. Logistics and Supply Chain enables an organized retailer to move or store products more effectively. The importance can be understood by the fact that the logistics management cost component in India is as high as 7% -10% against the global average of 4% . production planning. warehousing. The merchandise presentation ought to be very creative and displays are often on non-standard fixtures and forms to generate interest and add on attitude to the merchandise. and the Retailer. Innovative solutions like performance management.Even supply chain and logistics firms like Hong Kong based Heng Tai Consumables and ABS Procurement Co and ACM China (the greenhouse specialist) is also eying the opportunity for managing the supplies. 4. Organised retail on the other hand is growing at 400% and is expected to reach around $30 billion by 2010. Order Fulfillment House etc. Logistics regards order processing and fulfillment. Here. signages and specialized props. The visual communication strategy might be planned and also be brand positioned.5% of the total retail price. with demand for end-to-end logistics solutions far outstripping supply. frequent sales operation management. transportation.Once the message is being conveyed through these channels.Various communication tools available to the mall developer for this purpose may include advertising. Therefore.5% by just improving the supply chain and logistics management. the mall developer must add a personal touch to his message by carrying out a door-to-door campaign in order to reinforce the message.

The efficiency and effectiveness of supply chain and logistics management can also be understood by the fact that m odern retail stores maintain lower inventories than traditional retail. while in a modern retail store like Hypercity.the American retailer works almost entirely on cross-docking and is likely to demand higher service levels. Here. New product development. three weeks inventories are kept. it is pertinent to mention that CSR has been a forte of the public sector. it's nine days and it's under two weeks for Food Bazaar.goods. Still many corporates are not in favour of making CSR mandatory. CSR has acquired added significance. but also frees up storage space for more productive use. CSR is emerging as a vital aspect of doing business these days. 4. If we go through the following food supply chain in India. Indian economy is on a fast growth trajectory. industrial and economic development without proper human welfare and distributive justice cannot bring inclusive growth as it creates economic inequalities. Retail analysts say on-time order replenishments will become even more critical once the Wal-Mart/ Bharti combine begins operations . In India. It is therefore. . generally in the traditional kirana stores. It needs to maintain growth momentum to emerge as leading economic power. Retailer has to provide more assortments for private level brands to compete with supplier's brand. Now. necessary that benefits of development reach all societal groups. it is beneficial for both the manufacturer as well as the retailer. What is your take on this? Today. The government is planning to make it mandatory for corporates. vehicles transferring products back and forth. In this context. including potential levies for delays in shipment. the need for CSR supersedes everything.4: Changing the Perception Retailers benefit only if consumers perceive their store brands to have consistent and comparable quality and availability in relation to branded products. In a country where there is such a disparity and large part of population living in villages are below the poverty line. What can be the reasons behind their reservation? Different views are being expressed in favour and against the move. However. aggressive retail mix as well as everyday low pricing strategy can be the strategy to get edge over supplier's brand. we find that a lot can be improved by maintaining the supply chain and logistics.

health care. besides contributing to sports and games. . Besides. they have pursued CSR with increased commitment and involvement as responsible corporate citizens. Even after liberalisation of Indian economy. They have been rendering yeoman service in areas of their operations. particularly of the underprivileged ones. As a corporate citizen. they have been taking care of education. checks on abuses can be made by implementation of adequate regulatory measures. whether public or private to discharge their CSR as part of nation building. infrastructure. However. The Guidelines encourage PSEs to meet high standards of CSR and discharge their responsibilities in a planned manner. Therefore. Department of Public Enterprises (DPE) has issued "Comprehensive Guidelines on Corporate Social Responsibility". I will like to mention that the benefit derived will be much greater than otherwise. How does the public sector view CSR? The PSEs in pursuit of the triple bottom line of people. covering civil amenities such as drinking water. In fact PSEs were set up with the twin objective of economic development with social justice. entire industry fraternity has the responsibility towards citizens of the country. As regards those who say mandatory CSR will invite abuses. planet and profit have assigned a high priority to the adherence of ideals of CSR. I will like to say that it must be the prime concern for all corporates. natural disasters like droughts and floods of affected segments. the same should be extended as a mandatory provision for all private enterprises to earmark two per cent of their profit for CSR activities. CSR is an essential ingredient of corporate governance. they feel there must be level-playing field. sanitation and hygiene of the populace.Here. Further. Public enterprises have already adopted government guidelines on CSR making it mandatory to allocate about two per cent of the net profit for carrying out CSR programmes.

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