Challenges and Opportunities of Retail Industry in India

2019 is poised to be a transformational year for retail. Technology continues to change the rules of engagement; consumers are more demanding than ever, and getting them to notice your brand amid all the noise in the market is an even greater challenge.

Challenges

  1. The first challenge facing the organized retail sector is the competition from unorganized sector.
  2. Supply Chain Management: The retail scenario is characterized by logistical challenges, constant changes in consumer preferences and evolution of new retail formats. All this increases the challenges faced by the industry.
  3. Frauds in Retail: Frauds, including vendor frauds, thefts, shoplifting and inaccuracy in supervision and administration are the challenges that are difficult to handle.
  4. Challenges with Infrastructure and Logistics: The lack of proper infrastructure and distribution channels in the country results in inefficient processes. This is a major hindrance for retailers as a non-efficient distribution channel is very difficult to handle and can result in huge losses. Infrastructure does not have a strong base in India. Urbanization and globalization are compelling companies to develop infrastructure facilities, transportation, including railway systems, has to be more efficient. Highways have to meet global standards. Airport capacities and power supply have to be enhanced. Warehouse facilities and timely distribution are other areas of challenge.
  5. Developed supply chain and integrated IT management is absent in retail sector.
  6. Trained manpower shortage is a challenge of the organized retail sector in India. The Indian retailers have difficulty in finding trained person and also have to pay more in order to retain them. This again brings down the Indian retailers profit levels.
  7.  Intrinsic complexity of retailing-rapid price changes, threat of product obsolescence and low margins.
  8. Even though the Government is attempting to implement a uniform value-added tax across states, the system is currently plagued with differential tax rates for various states leading to increased costs and complexities in establishing an effective distribution network. Cost of business operation is very high in India.
  9. India's huge size and socio economic and cultural diversity means there is no established model or consumption pattern throughout the country. Manufacturers and retailers will have to devise strategies for different sectors and segments which by itself would be challenging.

Opportunities 

AT Kearney’s study on global retailing trends found that India is the least competitive as well as least saturated of all major global markets. This implies that there are significantly low entry barriers for players trying to setup base in India, in terms of the competitive landscape. The report further stated that global retailers such as Walmart, Carrefour, Tesco and Casino would take advantage of the more favourable FDI rules that are likely in India and enter the country through partnerships with local retailers. Other retailers such as Marks & Spencer and the Benetton Group, who usually operate through a franchisee model, would most likely switch to a hybrid ownership structure.

A good talent pool, unlimited opportunities, huge markets and availability of quality raw materials at cheaper costs is expected to make India to overtake the world's best retail economies by 2042, according to industry players. 

The Potential of the Indian Retail Sector 

The high growth projected in domestic retail demand will be fuelled by:

The migration of population to higher income segments with increasing per capita incomes

  1. An increase in urbanization
  2. Changing consumer attitudes especially the increasing use of credit cards
  3. The growth of the population in the 20 to 49 years age band

There is retail opportunity in most product categories and for all types of formats

  1. Food and Grocery: The largest category; largely unorganized today
  2. Home Improvement and Consumer Durables: Over 20 per cent p.a. CAGR estimated in the next 10 years
  3. Apparel and Eating Out: 13 per cent p.a. CAGR projected over 10 years

Opportunities for investment in supply chain infrastructure: Cold chain and logistics India also has significant potential to emerge as a sourcing base for a wide variety of goods for international retail companies. Many international retailers including Wal-Mart, GAP, JC Penney etc. are already procuring from India.

With the Private Final Consumption Expenditure expected to grow by about 12.5% y-o-y till 2020 (has grown at about 10-12% historically), GDP expected to go up to ~9%, CARE expects the retail industry to reach about USD 1,150 billion by 2020. With factors such as higher demand from consumers with higher incomes, job creations, improved standard of living, higher discretionary spends and higher participation of producers/retailers in the organised retail market, discounted and promotional pricing, increased number of products and more private labels with retailers among others, the industry is expected to register growth going forward. - The traditional retailers are expected to continue dominating the largest market share in the Indian Retail industry.

Dr Suman Kumar Dawn

Pricipal (Acting)