Pragya Singh,Senior Consultant, Technopak Advisors Pvt. Ltd.
However, since organised retail penetration is higher in the big cities, most of the organised retailers did see an impact on their sales. In fact, the slowdown has been a reality check for retailers to take stock of their operations and strategy, especially after most companies scaled up number of outlets at a fast pace, in unviable locations, at exorbitant rentals, charting out ambitious expansion plans and relying on debt in the last few years. Slowdown or no slowdown, the reality would have struck sooner or later. So, it can also be argued that this was in a way not completely undesirable.
The retailers have therefore focussed on putting their house in order through repositioning, renegotiation, restructuring, reconfiguration, and replanning towards robust & efficient business models to develop a stronger proposition and profitability. While some of these strategies would benefit in the long term, others like price-cuts, making organisations too lean etc. can be a double-edged sword and may hit back in the long term.
Some strategies adopted include more empowerment to sales staff by a leading sportswear retailer and increased incentives for added sales by a major electronics retailer. Another leading hypermarket/ department store retailer is resorting to relocation or shut down of stores, which are economically not viable or where rentals are more than market rates, while several leading retailers are trying to lure consumers through extended sale seasons /value merchandise/ freebies and innovative marketing schemes targeted at ‘consumer savings.’ A leading international apparel retailer is looking at repositioning its store by adding space and making the items more affordable.
Other strategies adopted by retailers include:
l Consolidating the operations of various formats to reduce overheads and achieve economies of scale;
l Restructuring of supply chain by reducing inventory and logistics costs to reduce working capital requirements;
l Renegotiation of rentals which have already seen a significant drop across cities;
l Rationalising the HR overheads;
l Resizing of outlets to make them more profitable;
l Focusing on core formats for long term growth;
l Increasing margins by pushing their private labels;
l Negotiating better credit terms and price from vendors;
l Being more selective in expansion unlike before
Organised retail in India is only 15 years old and going through a very steep learning curve. In the first phase, retailers were busy setting up the front-end business and now it has entered a new phase where they are taking a hard look at their business fundamentals, operations and strategies. With the economy now getting back on track, perhaps the best phase in Indian retail sector will come in the next five years, when the sector would see major expansions by the national and international players and at the same time consolidation and operational efficiencies would start reaping benefits.
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Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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